Don Peppers and Martha Rogers, Managing customer relationships: a strategic framework, John Wiley & Sons Ltd, 2011
The book ’Managing customer relationships’ is not only about the techniques of CRM; it’s all about understanding the essence of the customer strategy as a necessary and important element of managing every successful company in the 21th century. In fact the authors argued that the most valuable asset of a company nowadays is its customers and the relationships with each one of them. They emphasized that each company can create a competitive advantage if they learn more about its customers and turn that learning into actions faster than competition.
In fact, until recently companies have been structured and managed around the products and services they create and sell. Driven by assembly-line technology, mass media, and mass distribution, which appeared at the beginning of the twentieth century, the Industrial Age was dominated by businesses that sought to mass-produce products and to gain a competitive advantage by manufacturing a product that was perceived by most customers as better than its closest competitor.
As for today, organizations need to manage their customer relationships more effectively in the new era of interactivity, which is governed by a more individualized approach. The critical business objective can no longer be limited to acquiring the most customers and gaining the greater market share for a product or service. Instead, to be successful in the era of interactivity, when it is possible to deal individually with separate customers, the business objective must include establishing meaningful and profitable relationships at least with most valuable customers; and making the overall customer base more valuable. Technological advances during the last quarter of the twentieth century have mandated this shift in philosophy.
That Learning Relationship process as described in the book works like this: if you’re my customer and i get you to talk to me, and i remember what you tell me, then i get smarter and smarter about you. I know something about you my competitors don’t know. So I can do things for you my competitors can’t do, because they don’t know you as much as I do. Before long; you can get something from me you can’t get anywhere else, for any price. At the very least, you’d have to start all over somewhere else, but starting over is more costly than staying with me.
In other words, the company strives to get a customer, keep that customer for a life-time, and grow the value of the customer to the enterprise. Relationships are the crux of the customer strategy enterprise. Relationships between customers and companies provide the framework for everything else connected to the customer-value business model.
So what does it really mean for a company and a customer to have a relationship whit each other? Do customers have relationships with companies that do not know them? Is it possible for a customer to have a relationship with a brand? All those questions are raised in this book; and it is emphasized that the exchange between a customer and the company becomes mutually beneficial, as customers give information in return for personalized service that meets their individual needs. This interaction forms the basis of the learning relationship, an intimate collaborative dialogue between the company and the customer that grows smarter and smarter with each successive interaction.
Later in the book we learn that companies need to decide early on which customers they want to have relationships with, which they do not, and what type of relationships to nurture. In fact, companies strive to increase profitability without losing high margin customers, by increasing their customer retention rates or the percentage of customers who have met specified number of repurchases over a finite period of time. A retained customer, however, is not necessarily a loyal customer. The customer may give business to a competing company for many different reasons.
To sum up, a company determined to increase the value of its customer base will start with a commitment to increase customer value, and then move to implement the strategic levels of the Learning Relationship. The tasks needed to make this happen are: Identifying their customers individually, Ranking them by their value to the company, differentiating them by their needs, Interacting with each of them, and Customizing some aspect of the business for each.
The second part of the book illustrates the best model for managing customer relationships which is a four-step process called ‘IDIC’, an acronym for Identifying customers, differentiating them, Interacting with them, and Customizing for them.
Those steps represent the mechanics of any genuine relationship, which by definition will involve mutuality and customer-specific action. But while the ‘IDIC’ process represents the mechanics of a relationship, generating a customer’s trust is the objective of that process. Relationships simply cannot happen except in the context of customer trust.
The authors says that mutual awareness of another party is a prerequisite to establishing a relationship between two parties, whether we are talking about movie star and fan, or company and customer. People who are emotionally involved with a brand, not unlike the most avid fans of a rock music group, are usually engaged in one-way affection. There’s nothing wrong with this at all. One-way affection for a brand has sold a lot of merchandise. But this kind of affection will be only part of a relationship unless the brand gets part of the exchange relationship, then we can talk about trust between the two parties. In fact, the more effective and successful the relationship is, from a business-building standpoint, the more it will be characterized by a high level of trust, and to build trust, the company must act in the customer’s best interest, as well as its own.
Moreover, managing customer relationships implies treating different customers differently, and knowing what makes them so different from another, being able to interact individually with any customer on the other end of a relationship, and somehow changing its behavior to meet the specific needs of that customer, as the company discovers those needs.
In short, in order for an enterprise to engage in the practice of treating different customers differently, it must integrate the customer into the company and adapt its products and services to the customer’s own, individual needs. But as a company begins to understand the customer, interact with him, learn from him, and provide feedback based on that learning, the customer’s view of what he is buying from the company will probably also begin to change.
As for the ‘IDIC’ process illustrated above, the authors specified each one of the four steps.
1. Identify customers: Relationships are only possible with individuals, not with markets, segments, or populations. Therefore, the first task in setting up a relationship is to identify, individually, the party at the other end of the relationship. Many companies don’t really know the identities of many of their customers, so for them this first step is absolutely crucial. But for all companies, what the identify task also entails is organizing the enterprise’s various information resources so that the company can take a customer-specific view of its business. A Company must be able to recognize a customer when he comes back, in person, by phone, online, or wherever. Moreover, companies need to know each customer in as much detail as possible—including the habits, preferences, and other characteristics that make each customer unique.
2. Differentiate customers: Knowing how customers are different allows a company to focus its resources on those customers, who will bring in the most value for the enterprise, and to devise and implement customer-specific strategies designed to satisfy individually different customer needs. Customers represent different levels of value to the enterprise and they have different needs from the enterprise. The customer differentiation task will involve an enterprise in categorizing its customers by both their value to the firm and by what needs they have.
3. Interact with customers: Companies must improve the effectiveness of their interactions with customers. Each successive interaction with a customer should take place in the context of all previous interactions with that customer. For instance a bank may ask one question in each month’s electronic statement, and next month’s question may depend on last month’s answer. A conversation with a customer should pick up where the last one left off. Effective customer interactions provide better insight into a customer’s needs.
4. Customize treatment: The Company should adapt some aspect of its behavior toward a customer, based on that individual’s needs and value. To engage a customer in an ongoing Learning Relationship, an enterprise needs to adapt its behavior to satisfy the customer’s expressed needs. This might entail mass-customizing a product or tailoring some aspect of its service.
‘Managing Customer Relationship’ is a very rich and interesting book. Through the chapters we learned how companies shifted their interest from the simple buying/purchasing actions to a more customer oriented relation. In fact; the first task to accomplish in building relationships with a customer is to recognize each one at every point of contact, across all products purchased or locations contacted, through every communication channel, over time. This requires knowing the identity of each customer at every contact point in the organization. Because it is not easy to respond to customer needs; the authors suggested a four step process to implement the CRM successfully ‘IDIC’.