Marketing Management Assignment 3

Marketing Management Assignment 3 3. Identify and discuss what Strategic Customer Management is and why it is important to companies in contemporary markets. 12/9/2009 IB3A50 0633631

IB3A50 Marketing Management

0633631

Introduction: In the current era, the sales environment is facing radical change. The market is becoming overly saturated with alternative products and services resulting in severe competition within the market place, whilst demand is being hit by the economic crisis. With markets facing global economic recession there is even more pressure on companies to perform better than their competitors in order to survive and secure their market position. The constant rise in customer demand for added value, results in the role and operation of the traditional sales approach to be inadequate for the development of companies (Nigel Piercy & Nikala Lane 2004). A much more drastic and revolutionary approach needs to be adopted. Where there is a transformation from the traditional sales approach to a strategic customer management focused approach (Nigel F Piercy & Nikala Lane 2003). Strategic customer management is a customer lead marketing strategy, with the purpose of providing seamless and superior value to the customer (Nigel F Piercy & Nikala Lane 2003). Direct selling channels via the internet, are reducing sales costs and proving to be a more viable option for routine transactions, the traditional sales force domain, as a result, is shrinking. Figure 1.1 illustrates the shrinkage of the sales force domain. Companies such as Dell adopted the internet based direct sales channels, proving to be very profitable, but in addition to this for their major customers they employ field account executives and sales representatives. Their strategy is such that they integrate the internet channel with the sales process so as to, “develop the sales process into the order making role and placing as much order taking as possible onto the Web” (Nigel F Piercy & Nikala Lane, 2003). This is an example of how companies may profitably strategise their customer management. The transition from traditional sales to strategic customer management is not a simple one. So the question that arises is: are sales the new form of marketing?

2| Page

IB3A50 Marketing Management

0633631

Fig 1.1: What’s left for sales? Source: Journal of marketing management, 2003, pg. 564

This essay discusses the importance of strategic customer management to companies in contemporary markets. “At the midpoint of the first decade of the 21st century it is apparent that executives face unprecedented challenges in strategic marketing to cope with turbulent markets, competitive revolution, and escalating customer demand for value.” (David W. Cravens & Nigel F. Piercy, 2006) Due to the change in customer demands with regards to added value. There is a need to develop means and ways, by which to manage the buyerseller relationships in search for customer value. The challenges faced by companies today are; the managing and building of strategic relationships with retaining a competitive advantage, managing customer portfolio, building a value proposition, better understanding of customers as compared to competitors. Figure 1.2 illustrates how customer demand affects the salesperson’s role in managing new customer demands, which results in a shift from transactional to a relationship approach. The evolution of the sales role will be discussed later on in the essay.

3| Page

IB3A50 Marketing Management

0633631

Fig 1.2: Substitution and evolution of sales role Source: Journal of marketing management, 2003, pg. 575

New Customer Demand: Customer demand, as previously mentioned, is centred on the idea of added value. The question that arises is what the customer’s perception of ‘value’ is. In the case of customer demand being transactional, the most important aspect of the managing sales operation is efficient and effective order-taking. However as the task of purchasing becomes increasingly complicated, customers demand for greater interaction when they buy and consider more alternatives. Then the “order-making role becomes more important, and this provides an enhanced role for the sales person”. (Nigel Piercy & Nikala Lane 2004) The continuous evolution of customer demand for exclusive and superior relationships with the supplier, results in the need for strategic management of the relationship with the customer. In order for suppliers to attain long lasting relationships with their customers they must have an in depth understanding of the customer’s business, to deliver a seamless service to customers, catering to their needs. In the case of a supplier-customer relationship it is not just a routine transaction involving a product or service, but it is the setting up of a value chain. Whereby the supplier provides the technical support and any required training, comes up with solutions to logistic and maintenance issues, resulting in a smooth product or service delivery. In this case customer’s perceived value exceeds the cost of the service. Since they avoid the cost of switching suppliers. This allows for the customer to maintain global consistency. “Relationship marketing can be beneficial in the case of customers with long time horizons, as the switching costs are quite high.” (Kotler, 2005).

4| Page

IB3A50 Marketing Management

0633631

Figure 1.3 illustrates the different customer relationships.

Fig 1.3: Customer relationships Source: Principles of Marketing 4th edition, 2005- Philip Kotler, Veronica Wong, John Saunders, Gary Armstrong.

Figure 1.3 helps illustrate the feasibility of relationship marketing. In the top left hand corner lie sleeping giants. These customers are very profitable and are relatively not demanding. In this case a relationship is feasible, whereby the customer is met by field account executives, which have a strong knowledge base on the customer requirements, or in the case of retailers, the end customer requirements. Then the customer is handled by intrinsic sales representatives within the supplier for support services and repurchases. The power traders at the top right are high maintenance with good profits, but result in being as profitable as pets, due to their high demand for buyer-seller relationships whereby the supplier must provide a value chain. A value chain “breaks a company up into nine activities, of which five are primary activities; inbound logistics, operations, outbound logistics, marketing and sales, services, and four support activities; firm infrastructure, human resource management, technology department and procurement,”(Kotler, 2005) in order to result in a seam less delivery of products or services meeting customer requirements. Pets are customers with transactional demands which may prefer the ease and swiftness of the internet, or other direct sales channels. Finally delinquents are those customers, with high demand and are not very profitable. The way in which they would be handled is via shifting them to easier products to use. (Kotler 2005) Customer Relationship: “The goal of relationship marketing is to deliver long term value to customers and the measure of success is long term customer satisfaction. It involves building relationships at many levels, economic, social, technical, and legal- resulting in high customer loyalty” (Kotler, 2005).

This is the fore front of a company’s marketing strategy, determining who their customers are. The problem faced with customer relationship management is that when companies have difficulty in determining whether the customer, in question, is right for their marketing strategy. This results in a tendency to being taken in by ‘relationship rhetoric’, whereby the buyer and seller are in a relationship in which the supplier is unable to satisfy the customer’s requirements properly, or has to exhaust an excessive amount of resources to do

5| Page

IB3A50 Marketing Management

0633631

so. The way for companies or businesses to avoid such a disaster is by steering clear of building a strategy that relies on beliefs and trusts that do not exist. (Nigel F. Piercy, 2009)

Customer Relationship Management (CRM): Customer relationship management is a system comprising of sophisticated software tools, used to integrate customer information, from all sources of the company, analyse the data in depth. Then apply the results to build better customer relationships. (Kotler, 2005) Through CRM companies such as MVC the music store are able to know what they have, brought in and sold so as to target specific customers on promotions as they know that they exist and how many there are, so via news were able to attract customers who like country music over their promotions during the Nashville country music festival. And Ping the golf equipment manufacturer have customer specific data on products sold and brought in or manufactured in their data-warehouse with specific details such as grip size and assembly instructions, so all a customer has to do is call in and give then their serial number and ping will ship the exact club to them within 2 days, when otherwise this process would take a few weeks. (Kotler 2005) Key Account Management: Key account management is a relationship marketing approach which companies adopt in order to adapt to their business environment, so as to build close relationships and/or partnerships with major customers to bring about long term customer loyalty (S. Wengler, M. Ehrt, S. Sab, 2006). An example is the involvement of airlines by Boeing in the design of the Boeing 777, the partnering of Dell with large cooperate customers. (D.Cravens & N. Piercy, 2006) . Boeing and Motorola warned all suppliers that those who would be unable to make the transition to web based supply models would be locked out of their business. (Royal 1999) The basis of key account management is that it assumes that customers would like to have a close relationship with their suppliers. This is not always the case as some companies try to refrain from creating partnerships with their suppliers as they may develop into a “partner shaft”. Companies that reach the 20:80 rule position, that is 80% or more of their profits originate from their key accounts, tend to fail in their business model (N. Piercy & N. Lane, 2006). Another example is that of when Rover went bankrupt, Dunlop tyres sales dropped by 30%. (N.Lane, L5,pp5, 2009). The business model fails due to the fact that there is a high dependency on the customer, which results in the supplier losing their “strategic freedom”. The customer then enjoys enough power to govern the relationship on their terms, conditions and prices. The outcome is that the prices plummet, the product is transformed into a commodity, dragging profits down. Key account management fails to provide a proper relationship, instead it induces inter dependency, which has harmful effects on the supplier’s business.

6| Page

IB3A50 Marketing Management

0633631

Strategic Customer Management: In the current era, the customer demand newer and greater value. Companies have realised the need to meet customers’ value led demands, and have started to evolve new forms for re-structuring the front-end of the company. An example of this evolutional restructuring of the front –end is the introduction of customer business development structures. Where by the focus is on the opportunities presented by major customers and suppliers. “Proctor & Gamble transformed itself from a slow moving inward-looking bureaucracy of the 1990s into a nimble, innovative and aggressive competitor beating the rest. Part of that transformation has been the creation of the customer business development (CBD) organizations at the front of the business. The CBD team work collaboratively with experts from finance, management systems, and customer service and brand management to develop and implement business strategies that deliver sustainable competitive advantage for P&G brands.” (N. F. Piercy & N. Lane 2009) Companies require a strategic customer management approach, as it is imperative in identifying customers and competitive issues. Strategic customer management approach requires for an innovative role of the sales organization for the deployment of strategic sales capabilities. Due to the evolution of the role of salesforce, companies now focus on strategic customer management. Figure1.4 illustrates the imperatives for the sales transition process.

7| Page

IB3A50 Marketing Management

0633631

The Strategic Sales Organization:

Fig 1.4: Imperatives for the transformation process. Source: Adapted from the marketing review, 2006. Pg 9

Companies, in which all the departments and employees team up to form a competitively superior customer value-delivery system, have an effective marketing department. (Kotler, 2005) View of Sir John Browne of BP Amoco: “we have more than 10 million interactions with customers every day; and more than 100,000 staff in 100 countries. Every action and every activity is an act of marketing”.

Involvement of the sales organization in the marketing and business strategy, highlighting the strategic response to drastic changes in the market is the challenge faced when placing sales as a core element of the company’s competitiveness. (Stephens 2003)1 Evaluation of the relationships that may be formed with a range of customer types as the basis for long-term business development. (Olson Cravens & Slater 2001)2 The constant reviewing of the processes and activities carried so as to provide and maintain a greater form of value driven product/ service delivery to the customer. Intelligence, that comes from the sales force, understanding the customer and gaining knowledge of the customer’s business so as to add value to the relationship and the managing of the customer portfolio. For example Dell doesn’t sell computers to Boeing, instead Dell manages Boeing’s IT strategy. The 8| Page

IB3A50 Marketing Management

0633631

management of interfaces requires the close engagement between resources from customer relationship management, human resource management and key account management resources, which have an impact on customer value. These interfaces are managed via the company’s sales personnel working together in teams and in close collaboration with each other. Therefore there is a flow of knowledge due to the sharing of information. For companies to succeed in the prevailing market, it is imperative that they integrate their departments internally and externally so as to deliver seamless and customer perceived value to the customer. The challenge of such cross-level, cross-border and cross functional integration is that functional specialization, divisional specialization and multi levelled bureaucracies are more often weak at achieving consistency when it comes to superior value to customers. The larger the company the worse this phenomenon gets. The imperatives for the sales transformation process are all interconnected and are vital in succeeding to achieve the goal of strategic customer management. (N. Piercy & N. Lane, 2004) Figure 1.5 illustrates the integration of various departments in order to add value to their customers.

Fig 1.5: The Pressures for Total Integrated Markets. Source: Journal of marketing management 2003, pg 580

9| Page

IB3A50 Marketing Management

0633631

Conclusion: During the period of global recession, the customer’s demand is highly value driven. It is important for companies to adopt a strategic customer management approach, by which they are able to identify and target customer requirements. Post recession customer habits may be classified as: “flight to thrifty”,” flight to quality”, “flight to provenance”. (Nikala Lane, lecture 5, 2009) Flight to thrifty is used to describe those customers, who have not been directly affected by the recession. They develop the habit of resorting to cheaper forms of suppliers, an example being; grocery shopping at Aldi. Flight to quality is used to describe those customers who may have been affected by the recession but choose to treat themselves, and so resort to Waitrose and Sainsbury. Finally flight to provenance describes those customers who have weathered the recession and continue to shop at delicatessens. Companies need to integrate all their departments, headed by the sales department and must strive for innovation, product and service excellence, differentiation of brands and corporate social responsibility in order to uncover customer perceptions, and learn more of their habits so that they may consistently and seamlessly deliver greater customer value.

10 | P a g e

IB3A50 Marketing Management

0633631

Bibliography: •

Cravens D. W. and Piercy N. F. (2006) Strategic Marketing, 8th edn, (New York: McGrawHill/Irwin)

•

Olsen, Eric M., Cravens, David W. And Slater, Stanley F. (2001), “Competitiveness and Sales Management: A marriage of Strategies,” Business Horizons, March/April, 25-30

•

Kotler, P, Armstrong, G, Wong, V, Saunders, J. 2005. Principles of Marketing. 5th european ed.

•

Piercy, N.F. (2009) Market-Led Strategic Change: A Guide To Transforming the Process of Going to Market, 4th edn (Oxford: Butterworth-Heinemann)

•

Piercy, N.F. and N. Lane (2004), Strategic Customer Management: Designing a Profitable Future for Your Sales Organization', European Management Journal, 22 (6), 659 - 668.

•

Piercy, N. F and N. Lane (2006), 'The Underlying Vulnerabilities in Key Account Management Strategies', European Management Journal, 24 (2/3), 151 - 162.

•

Piercy, N.F and N. Lane (2006), 'Ethical and Moral Dilemmas Associated with Strategic Relationships Between Business-to-Business Buyers and Sellers', Journal of Business Ethics. 72 (1), 87 - 102.

•

Piercy, N.F and Lane, N. (2003) ‘Transformation of the Salesforce: Imperatives for Intelligence, Interface and Integration’, Journal of Marketing Management, 19 (5/6), 563 – 582.

•

Royal, Weld (1999), “Death of Salesman”, wwwindustryweek.com, may 17 pp.59-60.

•

Stefan Wengler *, Michael Ehret, Samy Saab (2006) Implementation of Key Account Management: Who, why, and how?An exploratory study on the current implementation of Key Account Management programs, Industrial Marketing Management 35 (2006) 103 – 112

•

Stephens, H (2003) CEO, The H.R Challey Group, Presentation at the American Marketing Association, Summers Educators’ Conference, Chicago

11 | P a g e

1 2