Strategic management of E-Business

1. Strategic managementof E-Business Chapter 7 Transforming external relationships with customers Paula Goulding ICT326

2. 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 ICT326

3. 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 ICT326

4. 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) ICT326

5. An about face… ‘Present a single face to the customer’ Customer focus win and retain loyal and profitable customers ICT326

6. 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 ICT326

7. 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 35-95% (Reichheld 1996) Retaining more customers can have significant impact on organisational performance. ICT326

8. Potential customer Loyal customer Former customer Customer Costs Benefits Why are loyal customers more profitable? ICT326

9. 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) ICT326

10. Dissatisfied customers Share bad experiences with others Loss of customer loyalty Dollars lost compound over time Customer dissatisfaction escalates ICT326

11. Supply chain perspective Product / service flows Supplier Manufacturer Distributor Retailer Consumer Customer demand flows Demand chain perspective Conceptof demand chain ICT326

12. 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 ICT326

13. 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 ICT326

14. 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 ICT326

15. Customer self-service systems (cont.) • Customers take control of process of ordering • 24 hours/day access ICT326

16. 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) ICT326

17. 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 ICT326

18. Channel management • Refer figure 7.5 • Multiple channels by which organisation can interact with customers • May increase chances of sales • But dramatically increases complexity ICT326

19. 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 ICT326

20. 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 ICT326

21. 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 ICT326

22. 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) ICT326

23. 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) ICT326

24. 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) ICT326

25. 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) ICT326

26. Perspectives on CRM • Movement from mass marketing and transaction-based 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 customer-centric organisations • Customer centric organisations ~ 60% more profitable than others ICT326

27. 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 ICT326

28. 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 ICT326

29. Perspectives on CRM • Loyal customers contribute disproportionately to profitability • Tailor goods and services to meet the needs of most profitable segment(s) ICT326

30. 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 ICT326

31. 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 ICT326

32. Interactivity • Websites • call centres Database technologies Mass customisation technologies Role of IT in CRM • Provide interaction opportunities • Provide opportunities to customize • Collection, storage, manipulation of data • User-friendly, real-time analytical tools ICT326

33. 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 ICT326

34. 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 ICT326

35. 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 ICT326

36. 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 ICT326

37. 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 ICT326

38. 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) ICT326

39. 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) ICT326

40. 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 cross-sell and up-sell products. (Kiely 2001) ICT326