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I. Background Article(s)
Issue: Leveraging CRM
Source: “Relationship Marketing: A Competitive Advantage For B2C,”
Information Today, June 2001, pp. 16-19.
Web-based marketing is changing drastically due to changes in the concept of customer
relationship management
The ever-evolving Internet is driving explosive growth in e-commerce, customer service,
and other real-time, interactive, transaction-based business activities. According to AMR
Research (amrresearch.com), despite the implosion of the dot.coms, Internet retail sales
are projected to reach $100 billion by 2003, up from $29 billion over the past four
quarters. Web-based marketing, based on a new concept of customer relationship
management, is radically changing virtually all of our conventional business models and
forcing corporate America to rebuild them from scratch.
Both buyers and sellers are seeing just the tip of the e-commerce iceberg in the form of
globalization of markets, a transaction-based economy, marketing-driven business
process re-engineering, elimination of conventional middlemen, and mergers and
acquisitions in unprecedented volume. “Bricks-and-mortar” is swiftly being replaced by
“clicks-and-mortar” as the new, ubiquitous, customer-focused, cyberspace paradigm
inexorably takes hold.
The current, multi-channel, e-commerce-driven, customer service climate demands
instant gratification, at any time, from any place, in any way, through any medium—
interactive Web site, telephone, e-mail, fax, PC, or wireless device. In today’s
consumer-centric environment, the rule is that if it takes a customer more than five
seconds to get what they want, the company has lost that potential buyer. Failure to
deliver personalized, consistent, reliable accessibility to customized service is a distinct
competitive disadvantage.
Alternatively, taking advantage of this opportunity entails delivering a rapid but
personalized response to the customer wherever—and whenever—he or she chooses to
interact with the seller. Web-based, customer-focused marketing enables companies to
consistently sell the right product to the right person at the right time at the right price.
Despite all the hype about the Internet, however, the basic rules of business remain the
same. The recent failure of numerous dot-com-based businesses demonstrates that in any
business environment, companies must adhere to established business practices while
they are integrating e-business transactions into their business model. As companies
adopt a customer-focused, e-business platform as an essential component of their
business process infrastructure, it is imperative that they do not abandon all they have
learned to date about what it takes to deliver and maintain customer satisfaction. Just as
with the old, traditional business activities, the goal of e-commerce should be to optimize
each transaction, so that each one is timely and cost-effective for the customer while at
the same time being profitable to the seller.
2012 Pearson Education, Inc. publishing as Prentice Hall
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The Emergence of Relationship Marketing
Many companies spent the better part of 1999 making sure their enterprise systems were
Y2K compliant. Now, with both feet firmly planted in the next millennium, information
technology personnel are evaluating applications and implementations for the future.
More and more companies are discovering the value of relationship marketing (RM)
strategies. Convincing evidence can be found in The Cowles Database Marketing
Newsletter, which reports that customer relationship programs launched within the past
12 months have increased by 37percent.
In a way, the relationship marketing approach represents a modern way of going “back to
the future.” Before the era of mass marketing, customer service was personal and tailored
to the individual. Selling and product customizing was done on a one-to-one basis, and
the salesperson and customer usually knew each other personally. But, at the same time
that automation, computerization, and mass production grew, and as customer support
shifted from the storefront to the back office, customer service –became an all
increasingly impersonal process. It turns out that the very agent of depersonalization—the
computer—also has the power to collect enormous amounts of personal data, to analyze,
and synthesize them, and then mine the results to draw valid conclusions based on
discovered patterns of individual human behavior. As a result, over a relatively short
time, the capabilities of the computer and the Internet have combined to enable
present-day managers to dramatically reinvent and personalize the concept of customer
service, which for so long has been based on the mass marketing paradigm.
Ideally, contemporary relationship marketing can be defined as a business strategy that
proactively builds a bias or preference for an organization with respect to three audiences
—its individual employees, its channel partners, and its customers. It accomplishes that
task by adopting a high-tech solution that, through enhanced performance, increases
retention of those groups. Seen from that perspective, relationship marketing can be
described as a set of automated functions that guide customer transactions so that they
respond positively to the marketing message and goals of an online business campaign.
Along those lines, successful relationship marketing is dependent on not only the ability
service representative.
From a knowledge management standpoint, Internet-centric relationship marketing is a
way for a firm to set up its set of user transactions so that—based on historical,
contextual information and extrapolations—individual consumer interests and likely
buying propensities can be recognized, profiled, and then catered to in a highly
2012 Pearson Education, Inc. publishing as Prentice Hall
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Nowadays, sophisticated e-savvy consumers require a lot more than traditional marketing
strategies because the marketplace is not the huge but simple setting for which those
then expecting that activity to automatically trigger profitable, long-term relationships.
Rather, it means spoiling those customers by delivering them value beyond the immediate
transaction—and being able to target those customers to whom it is worth delivering that
added value. Relationship marketing software meets this requirement and yields
be selectively cultivated.
Relationship Marketing Equals Competitive Advantage
Today’s emerging Internet paradigm continually challenges a business’ ability to
differentiate itself from the competition. In this high-speed, computer-driven business
world, customers prefer to deal with those companies that are the most consistently
make the virtual store look just exactly the way an individual would like it to appear (for
example, the virtual store only carries their sizes and color preferences), as opposed to a
real brick-and-mortar store, which offers the same menu and appearance to everyone.
The customized, browser-based, GUI is created from not just a general set of
the specific customer’s profile.
Customization is a particularly powerful factor in relationship marketing when it plays on
the law of large numbers by broadcasting a personalized marketing message over the
Internet. The accessibility of a vast, electronic, networked, interactive audience is the
major factor that makes things so different now from pre-Internet times. High hit rates
Web-based relationship marketing.
Relationship marketing is more than another sales tool for increasing sales and market
share. It’s a powerful device for retaining key customers as well. For example, it is
quickly becoming standard practice for a retailer to track each customer’s transaction
history and behavior over their lifetime with that company, then apply a multiple-channel,
2012 Pearson Education, Inc. publishing as Prentice Hall
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behavior, and act on that prediction.
That allows a company to ratchet up the attention it pays to a client when he or she is
considering a change of vendors. The higher the quality of the client, the more
mission-critical the situation becomes. Likewise, the more intense and continuous the
dialogue between a retailer and a customer is, the more difficult it becomes for the
customer is ready to jump ship.
By using sophisticated and robust relationship marketing software, it is possible to
identify customers visiting a company Web site, track their purchases, identify their
interests, develop customer profiles, and display custom ads and custom product
recommendations based on predefined rules that specifically address various kinds of
learning scripting languages, or using command line programming. There are a number
of tools and techniques for developing a successful relationship marketing solution.
Web site content supported should include multiple catalogs, FAQs, product descriptions,
complex searches, as well as customized views of the products and services being sold.
Eurodollars.
A good RM software package will include powerful customer data management utilities
that allow users to create and continuously update explicit customer profiles for all
visitors to the site, and to process and refine implicit behavioral customer data sets. That
capability enables a marketing manager or administrator to customize the company’s
page.
Additionally, robust business intelligence capabilities will enable out-of-the-box, multiple
types of reports that organize Web site data and customer behavior into formats that
include the following categories: revenue, orders, products, customers, page views by
region, site overview, product, click paths, and customer search results. The existence of
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RM software should provide usage analysis on individual pages, time spent on each page
and impressions, and visitor analysis, which would include classifying visitor origins,
visitor interests, and visitor navigation behavior. Functions and reports will be primarily
focused on site operation analysis (broken-link analysis, performance analysis, browsers
categorize customer propensities, predict shopper behavior, define campaign parameters,
and target specific customer groups by leveraging out-of-the-box components such as
customer profiles, product attributes, and shopping carts. Those functions should be
implemented with the aid of an easy-to-use GUI that enables and controls a powerful
marketing director can define, personalize, and maintain campaigns and initiatives around
the company’s unique requirements with the aid of a set of demographic and
profile-oriented templates that together serve as a model for building specific programs.
They enable the business manager to control all of the different market segments that are
online store.
Through the use of RM software, a marketing manager can manipulate, customize, and
manage the entire life cycle of a relationship marketing campaign on an ongoing basis.
The first stage involves creating a model based on the analysis of previous campaign
data, which leads to the development and promotion of a variety of relationship
marketing elements.
etc.—for the marketing executive who is free to adjust the campaign model accordingly.
For example, he or she can change the content of predefined e-marketing spots and
populate them on an as-needed basis. Once the refined model is in place, more data can
be collected and the cycle can be started over, albeit on a more fine-tuned basis. The
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incremental adjustments or even by radically reorganizing it, depending on
up-to-the-minute feedback.
From Advantage to Necessity
As is so often the case in real life, relationships make the retail world go round.
improved consumer interactions and increased wallet share should warrant the investment
in a closed-loop relationship marketing architecture. Bottom-line benefits include
increased customer loyalty and retention, maximization of revenue per customer, and
Web site “stickiness.”
makes them feel special or known. Ultimately, a successful relationship marketing
implementation will create for each customer the illusion that each and every one of his
or her previous contacts and transactions has been remembered and carefully considered.
In doing so, it adds value to the experience and makes each future visit appear as a
Good Relationships Boost Profits
Every account manager knows that the cost of retaining an existing customer is a
relatively small fraction of the cost of acquiring a new one. In fact, according to Deloitte
& Touche (deloitte.com), it costs five times as much to acquire a new customer as it does
(dbmarketing.com), it is not unusual for the top 16 percent of a company’s customers to
account for 105 percent of its profits, while the bottom 28 percent erode its profits by 22
percent. That suggests that developing strong relationships with the elite segment of a
firm’s customer base will ensure healthy profits.
2012 Pearson Education, Inc. publishing as Prentice Hall
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II. Case
Services
HBS Case: 694-047, TN 696-073
Teaching Perspectives
As part of its overall strategy for “delighting” customers, Universal Card Services (UCS), a
wholly-owned financial services subsidiary of AT&T, created a sophisticated quality
tensions that arise from linking compensation to performance measurement. The case
illustrates the need for aligning an organization’s measurement and compensation systems with
its overall strategy and marketing strategy. It also encourages students to think about how the
costs and benefits of a quality management system should be evaluated.
marketing information systems.
Quality concepts have been incorporated into the organization’s design and management from
its inception. UCS’s quality system was based on seven core values: customer delight,
continuous improvement, sense of urgency, commitment, trust and integrity, mutual respect,
and teamwork. Customer service representatives were carefully selected, extensively trained to
extensive support for continuing education.
UCS’s measurement system covered two major areas: external customer satisfaction and
internal process performance. To assess how well it served its cardholders, it used two kinds of
external surveys. The Customer Satisfier Survey asked customers of both UCS and its
competitors to compare different companies’ performance along a specified set of dimensions
previous two to three days.
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The company also collected and analyzed performance data about a “bucket” of more than 100
internal and supplier processes that management felt had a critical influence on UCS’s overall
employees when those standards were achieved for 96 percent of the entire bucket of measures
on any given day. For managers to earn this quality bonus, it was also necessary that UCS
suppliers meet the standards for key supplier-controlled processes. These bonuses could
amount to more than $500 per quarter (about 12% of base salary) for associates and up to 20
percent of managers’ salaries.
Questions:
2. Assess the strengths and weaknesses of UCS’s quality systems.
performance?
4. Has UCS created a system that supports continuous improvement or one that
simply supports a sustainable level of service?
2012 Pearson Education, Inc. publishing as Prentice Hall
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