Strategic management
of E-Business
Chapter 7
Transforming external relationships
with customers
Paula Goulding
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Focus of chapter
 Importance for organisation to focus on needs,
wants, preferences and values of customer
 Use of IT and Internet to cause major
transformation in ways organisations interact
with customers
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Previous chapter…
 Looked at re-engineering supply chain
– Supply chain can be viewed as extending through
organisation and beyond to organisation’s customers
 When focus is placed on customer / consumer, and
perspective of looking back towards raw material
suppliers, this is referred to as the demand chain
– Customer demand is seen as driving supply chain activity
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An about face…
‘There is only one boss. The customer.
And he can fire everybody in the
company, from the chairman on down,
simply by spending his money
somewhere else.’
(Sam Walton, WalMart)
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An about face…
‘Present a single face
to the customer’
Customer focus
win and retain loyal
and profitable customers
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Advantages of customer focus
 Accurate view of internal operations
 Service to customers
– Information
 Across product lines
 Across geographic locations
 Across subsidiaries, business units
 Across multiple channels
Major challenge for most organisations
– cross-functional, complex
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Notions about customers
 Every 5 yrs, av. US organisation lose 50%
of customers
– Cutting these by 5%
double profits
(Morphy 2001)
 5% in customer retention
av.
lifetime value of customer of between 3595%
(Reichheld 1996)
Retaining more customers can have significant impact
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on organisational
performance.
Why are loyal customers more
profitable?
Potential
customer
Customer
Loyal
customer
Former
customer
Costs
Benefits
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Why are loyal customers more
profitable?
 Acquisition costs incurred once only
 Benefits accrue from
–
–
–
–
Loyal customers referring other new customers
Loyal customers tend to purchase more over time
Loyal customers are less price sensitive
Loyal customers incur fewer administrative costs over time
 Note also: damage from dissatisfied customers can
escalate
(Cash 1999)
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Customer dissatisfaction escalates
Dissatisfied
customers
Share bad
experiences
with others
Loss of
customer
loyalty
Dollars lost
compound
over time
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Concept of demand chain
Supply chain
perspective
Product / service flows
Supplier
Manufacturer
Distributor
Retailer
Consumer
Customer demand flows
Demand chain
perspective
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IT enabled demand chains
 Broad aims are to improve customer satisfaction and
hence loyalty
 Through IT and Internet based systems, aim to collate
all information regarding a single customer irrespective
of the manner of the interaction with the organisation
 Enable organisations to present a consistent face to the
customer
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Electronic catalogues
 Located on company website
 Intergrates ALL catalogues
 Allows customers to access product information
– Complete and up-to-date
 E-catalogues can be integrated with back office
ERP systems
– customer can also access inventory information,
product costs, delivery costs delivery schedules etc.
(see customer self-service)
 Much easier to keep up to date and consistent than
paper-based catalogues
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Customer self-service systems
 Aim to enable customers to access all information
needed to do business with organisation on-line
–
–
–
–
–
–
–
–
Information about products and services
Inventory levels and location of goods
Price, quality
Order forms
Ability to transact on-line
Check management and fulfilment of order
Help facility
Customer history
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Customer self-service systems
(cont.)
 Customers take control of process of ordering
– 24 hours/day access
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Benefits of customer
self-service
 For the customer
– View company’s inventory to ensure accurate sales promises
are being made
– Order goods
– Track order management and fulfilment process
– Track returns
– Access all account information via browser (may be through
use of wireless/mobile devices)
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IT enabled demand chains
 For the company
– call centre and customer service costs
– ease of distribution of marketing
materials across channels
– revenues via cross selling
complementary
products ( order size???)
– new customers, via new markets, ease of doing
business
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Channel management
 Refer figure 7.5
– Multiple channels by which organisation can
interact with customers
 May increase chances of sales
 But dramatically increases complexity
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Channel management (cont.)
 Channel management systems support diverse
activities by which service is provided to
customers
– Supports collaborative activity across complex
networks without disintermediation or channel
conflict
– Use for marketing activities, tracking activities of
partners, etc
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IT enabled demand chains
 Channel management
– Direct selling via Internet
 Disintermediation???
 Channel conflict???
– Network of dealer activity in sales (invisible to
customer)
– Execute marketing campaigns + measure
effectiveness of campaigns
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Business intelligence, data
warehousing
 Internal and external data is gathered, stored and
analysed to provide important information to
support decision making of executives
 Provide better forecasts of end consumer
demand, improved understanding of changing
consumer preferences and wants, and so on
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Customer relationship management
(CRM) defined
 Relationship marketing
 Customer management
 1-to-1 marketing
‘Is concerned with the creation, development and
enhancement of individualised customer
relationships with carefully targeted customers
and customer groups resulting in maximising
their total customer life-time value”
(Payne 2000)
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CRM defined
‘a combination of business process and
technology that seeks to understand a
company’s customers from the perspective
of who they are, what they do, and what
they like’
(Couldwell 1998)
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CRM defined
‘A strategy to learn more about customers’
needs and behaviours in order to develop
stronger relationships with them…there are
many technological components to CRM, but
thinking about CRM in primarily
technological terms is a mistake…CRM is a
process that will help bring together lots of
pieces of information about customers, sales,
marketing effectiveness, responsiveness and
market trends.’
(Deck 2001)
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Significance of CRM
 $23b in 2000
– Estimates of $76b in 2005
 Median annual investment ~ $1m, implementation
over 4 years
 Large companies spend ~ $15m – $30m /year, and
between $60m – $130m to full implementation
(Gartner Group 2001)
 But, ~ 30% CRM projects never get finished
– 55% to 75% fail to deliver anticipated benefits
– 60% of managers view CRM as failures
(Morphy 2001, Kiely 2001)
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Perspectives on CRM
 Movement from mass marketing and transactionbased marketing to more direct 1-to-1 marketing
based on customer relationships
– Establishing a learning relationship
 Use of modern IT and Internet-based
technologies to support marketing function
 Movement from production-centric to customercentric organisations
– Customer centric organisations ~ 60% more
profitable than others
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Perspectives on CRM
 CRM can thus mean
– Organisation paying a little more attention to customer service
and being enabled in this by some new software
or
– Complete organisational transformation to customer-centric
organisation that practices relationship marketing supported
by data warehousing, data mining and sales automation tools
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Perspectives on CRM
 Commoditisation of mass produced goods
– Difficult to differentiate
– Vulnerable to price competition
 Modern IT enables interaction(s) with customers more
cheaply and easily
– Data collection
learn more about
 Who customers are
 What customers want
 What customers are worth to an organisation
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Perspectives on CRM
 Loyal customers contribute disproportionately to
profitability
 Tailor goods and services to meet the needs of
most profitable segment(s)
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Tenets of CRM
 Customers are assets of a firm
 Customers exhibit differences in
–
–
–
–
needs
preferences
buying behaviour
price sensitivity
 Profitability of customers vary
– not all are equally desirable
 By on-going learning, organisations can tailor
product/service portfolio to maximise
profitability
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Key requirements
 Focus changes from product-centric to
customer-centric
 Close cooperation between marketing
and IT
 Organisation-wide collection of data at
touchpoints with customers
– Organisation-wide transformation implied
 Change in emphasis from customer
acquisition to customer retention
 Establishment of long term relationships
– Enabled by use of IT
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Role of IT in CRM
 Provide interaction opportunities
 Provide opportunities to customize
 Collection, storage, manipulation of data
– User-friendly, real-time analytical tools
Interactivity
•Websites
• call centres
Database
technologies
Mass customisation
technologies
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Role of IT in CRM
 Makes possible notion of market of 1
– Individualised products & services for every
customer
 Internet is a network
– Each connection creates potential relationship
– IT manages information and relationship
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Benefits and challenges in CRM
 Enhance services to customers
– timely updates of information
 delivery schedules, product updates, account
information
– product enhancements
– rapid resolution of problems
– personalised interaction
– customisation
 Cost reduction (?)
–
–
cycle time
cost of transaction
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Benefits and challenges in CRM
 Use existing relationships to revenue
– enhance profitability by identifying,
attracting and retaining customers
 Use information to better serve customers
 Build customer loyalty through added value
 Adopt a proactive, rather than reactive stance to
managing customers
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Benefits and challenges in CRM
 Acquire new customers
– offer a superior product/service and excellent service
 Enhance profitability of existing customers
– cross-selling and up-selling
– enhance value proposition for customers
 Aim to retain profitable customers
– be adaptable to changing requirements
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Critical success factors in CRM
 Have appropriate business and customer
strategy in place
 Ensure alignment between business
strategy, customer strategy and choice
of systems
– Develop persuasive business case
 Manage change in trading relationships
 Be clear on objectives of initiative
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Concerns with CRM
 How ethical is CRM?
– Suited to all organisations?
 Doctors, hospitals, dentists, lawyers?
 Who benefits from CRM?
– You or your customers?
 Only 8% of customers believe they benefit from
increased contact via CRM
– 50% don’t want a relationship, even if it saves them money
(Kiely 2001)
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Concerns with CRM
‘When folks in the industry talk about CRM,
they really mean extracting time, information
and money from customers. They then call it a
“relationship”, but really it’s building a system
that draws those things out of a customer
without giving anything back.’
(Yu 2001)
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Concerns with CRM
‘Arrogant marketers think customers want a
relationship with their products and services.
But it’s a one-sided relationship when a
relationship is created fundamentally to crosssell and up-sell products.
(Kiely 2001)
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