The Leisure Group
Case 2.2: RS Components: Case study overview
RS Components, an international distribution company, is an example of an organization that has shifted its focus to individualized CRM. Its elec- trical component catalogue weighed 4 kilos, was nearly 20 cm (8 inches)
thick and contained over 100 000 products. Upgraded quarterly and despatched to over 150 000 account customers, the cost of the printed catalogue was a good reason to embrace first a CD ROM version and then an Internet site. With a direct presence in 13 countries, the company’s ability to find and service customers was constrained economically by the costs associated with catalogue-based business. Today, the Internet gives it global reach, with close to zero engagement costs.
The drive to create a new channel to market, not just an ordering chan- nel, led RS Components to choose BroadVision as its technology solu- tion. Working with BroadVision and its other technology partners, RS developed an Internet trading channel capable of migrating, acquiring, developing and retaining online customers. The sophisticated web site took just five months to implement and contained a personalized e- purchasing solution for RS’s range of business customers.
A key differentiator for the Internet site is the customer personaliza- tion, which is driven by profile questions such as job type, industry type and product interests. On entering the site, each customer has his or her own dynamically generated welcome page showing tailored editorial, advertising and new product alerts relevant to that particular customer.
The Internet site has been designed to provide individualized relation- ship marketing including direct customer access to more than 10 000 doc- uments in the RS technical data library. With its customer service, personalized operation, downloadable technical information and tools for navigation (to make finding the required products easier), there is clearly an improved value proposition for customers. RS confirms that the site has exceeded its performance expectations.
The full case study is at the end of this chapter (see p. 97)
This form of CRM does not have to be personalized (i.e. have direct person-to-person contact with the customer) but it must be individu- alized. For CRM to be individualized the business needs to develop IT systems that ‘know’ the customer. Here the business develops a corporate memory of the customers it is dealing with. The customers may not be personally known to the business but whenever they contact it (and whomever they contact) they feel that the business knows all about them. Relationships between customer and sup- plier are continually strengthened through on-going interactions. In addition, customers are likely to build an emotional bond with the organization because they have invested time in the relationship and they may be unwilling to invest that time again with competitors.
Migration paths for CRM
Using the CRM strategy matrix we have explained that most organiza- tions will need to shift towards more sophisticated forms of CRM.
Some organizations have already successfully implemented ‘managed service and support’ or ‘customer-based’ marketing. A few, such as the most developed Internet booksellers, have already adopted advanced forms of individualized relationship marketing. However, many com- panies still need to develop from the position of product-based selling.
Organizations starting with product-based selling should initially be concerned with integrating their key existing customer-facing activities. They need to look forward in time to see what business benefits would be realizable through a more advanced form of CRM.
A range of possible transitions is shown in Figure 2.11.
The choice of migration paths from product-based selling will depend heavily upon the specific industry and business issues outlined earlier. Two paths are common. In some cases the transition will emphasize building increased customer intimacy through elements such as call centres and computer telephony integration – Path 1. In other cases, it will involve developing greater database
Figure 2.11 Transition paths for CRM
Low Moderate High
LowModerateHigh
Customer - based Marketing
Individualised CRM
Product - based Selling
Managed Service &
Support
PATH 2
PATH 1 PATH 3
PATH 4
PAT H 5
Degree of customer individualisation
Completeness of customer information
completeness and exploiting clearly targeted but relatively simple marketing approaches – Path 2. This latter path focuses on improv- ing quality, management and utilization of data.
In many industries there will ultimately be opportunities to shift towards one-to-one applications through individualized CRM. As yet, relatively few organizations have adopted this position. There are two reasons why some organizations might not want, or not be able, to do so:
● Some lack the necessary direct interaction with customers: for example, a manufacturer who sells through wholesalers and/or retailers, or through a dealer network may not have direct contact with final customers.
● Others are not culturally ready: even if they had comprehensive information about customers, they would not make real use of it.This may be because they are more focused on selling an existing product than understanding customers’ needs; or because they are organized around individual product lines with little sharing of information between product managers.
Those organizations wishing to adopt one-to-one marketing applica- tions may do so by migrating from customer-based marketing – Path 3, or from managed service and support – Path 4. RS Components is an example of the latter transition. A few organizations may under- take a more radical transformation directly from transaction-based selling to individualized relationship marketing – Path 5. This radi- cal shift will be easier for a start-up or smaller company without existing investment in legacy systems, or an organization that has strong leadership and is willing to undertake heavy investment to make a range of different and new initiatives work together concur- rently. Whichever path is taken, the organization will need to choose technology solutions that enable it to grow from one position on the CRM matrix to another without undue difficulty.
Summary
This chapter has examined the strategy development process in CRM. The process of CRM strategy development includes a detailed exploration of both the business strategy and the customer strategy of the enterprise. If the existing business strategy is comprehensive, thorough and forward-looking, the task is to then ensure that the
subsequent customer strategy is clearly aligned and integrated with it. If the existing business strategy is incomplete, unclear or fails to consider the future business environment, then the role of CRM is to ensure that top management’s attention is directed at addressing this.
Once an appropriate business strategy is determined and agreed, the customer strategy needs to be addressed. The customer strategy involves examining the existing and potential customer base and making choices about which customers it wishes to serve. This involves undertaking a detailed analysis of their characteristics and determining the most appropriate customer segments to serve. It also involves decisions about segment granularity and whether a macro-, micro- or one-to-one approach to segmentation is needed.
Additionally, decisions need to be made about the products and services to be offered to these segments.
CRM strategy development involves considering the present and potential future position that the enterprise has within its industry and determining how it needs to address its customer base.
Depending on the industry and competitive issues each organization needs to consider the CRM strategy that is appropriate to it now and in the future. We have described four broad strategic options: prod- uct-based selling, customer-based marketing, managed service and support and individualized CRM. The choice of strategy will depend on a number of factors including the completeness of customer information and the extent to which the company can and wishes to use this information to provide customized service. Of these options, individualized CRM is the most sophisticated – it requires collection and analysis of extensive information about customers, the ability and desire to give customers individualized service and it needs to be economically viable. However, the CRM strategy option adopted should not be a static one; most companies should consider a suitable migration path over time from one option to a more advanced one in terms of CRM sophistication.
Once an appropriate business strategy has been agreed, market segmentation is probably the most important element of the CRM strategy development process. A review of all the successful busi- ness strategy assignments undertaken by one of the world’s leading strategy consulting firms concluded that over 50 per cent of them were based on creative segmentation strategies. Segmentation is also vital to the value creation process, which we consider in the next chapter.
Checklist for CRM leaders
CRM leaders need to review the following issues about the Strategy Development Process.
Business strategy (including leadership and sponsorship)
1. Senior management in my organization has demonstrated strong lead- ership in introducing and supporting CRM initiatives
2. There is a strong and well-supported board level executive who is a committed sponsor of the organization’s CRM initiatives
3. Senior management works together in a united manner and resolves cross-functional conflicts
4. My organization has a vision, mission, purpose, or statement of direc- tion that clarifies its commitment to quality and customer focus and that is clearly understood by staff. My organization has a clear set of values that support the vision and these are shared by most of our staff 5. My organization develops and reviews strategic and annual business plans that incorporate an analysis of market trends, customer characteristics, industry evolution, the competitive landscape and technology impacts 6. My organization has a clear view on the value discipline on which it com-
petes: customer intimacy, operational excellence or product leadership 7. The future impacts of electronic commerce and shifts in role of chan-
nels and intermediaries are considered on a regular basis by senior management
8. The overall strategic plan serves as the basis for the annual business plans of the organization and its functional departments
9. Managers and supervisors understand their specific responsibilities in carrying out the actions in the strategic plan
10. My organization comprehensively reviews and improves its manage- ment systems at least annually to an international, industry-specific or internally developed standard.
Customer strategy
1. My organization has a clear view on which customers it wishes to serve and which ones it does not wish to serve
2. My organization considers not only its immediate customers but also its customer’s customer in making its marketing decisions
3. My organization has done a thorough and recent segmentation of its customer base
4. My organization has selected the appropriate level of segmentation of its customer base, i.e. macro- segments, micro-segments or one-to-one 5. We consider customer segments in terms of value preferences of ben-
efits sought, in addition to more general customer characteristics 6. My organization customizes its product or service offer to different
segments where appropriate
7. At least annually my organization seeks new customer opportunities beyond its existing offer to customers
8. Our business strategy and customer strategy are closely aligned 9. We have considered the appropriate degree of customer individualiza-
tion given our position in the market and the nature of our competition 10. My organization has plans for future customer individualization and
customer information requirements.
Each issue should be considered in terms of:
Rating for our organization (5applies fully; 0does not apply at all) Importance to our organization (5very important; 0no importance)