Managing the New Customer Relationship

Strategies to Engage the Social Customer and Build Lasting Value

Ian Gordon

• Publisher: Wiley
• Year: 2013
• ISBN:
  9781118255858
• Edition: 1
• Topic: Business
• Subtopic: Sales
• Index: Business

Praise for MANAGING THE NEW CUSTOMER RELATIONSHIP

"Gordon delivers an impressive synthesis of the newest methods for engaging customers in relationships that last. No organization today can succeed without the mastery of customer relationship management strategy fundamentals. But to win in the decades ahead, you must also understand and capitalize on the rapidly evolving social computing, mobility and customer analytics technologies described in this book. Checklists, self-assessments and graphical frameworks deliver pragmatic value for the practicing manager."

— William Band, Vice-President, Principal Analyst, Forrester Research Inc., Cambridge, MA

Chapter 1

Managing the New Customer—and the New Customer Relationship

“All for one, one for all, that is our device.”

Alexandre Dumas (1802–1870), The Three Muskateers

Relationships Matter

More than the machinery in the factory, more than inventory in the warehouse, more even than people who work for an enterprise, relationships are yet more valuable. While physical assets are a product of a company's past, derived from the resources that created them, relationships are predictive. Relationships suggest the direction in which a company's value will trend. If relationships depreciate, so will the future value of the company. And if relationships grow in value, there will be a commensurate growth in company value. When a company is about to launch a new product, the relationships it already has with its customers could provide an opportunity for testing. Customers will try products such as these if their relationships have built trust in the company. When there is some kind of problem between the company and its customers, it will be relationships that will get it past the bad times as customers remember the good. Relationships stop the unraveling of valuable business connections. Relationships provide a bridge of continuity and an opportunity for companies to develop ongoing revenues from their customers. More generally, relationships help a company reach its potential. And when a company gets weaker, when its products become older, when its competitive advantage declines, when its financial performance deteriorates, when some among its employees or channel intermediaries leave or defect, even then—and perhaps especially then—relationships will still be there to help pick the company up and put it on a successful path again.

So relationships matter. Even more, relationships are vital. Developing relationships and increasing relationship value should be the central strategic focus for every organization. Historically, many companies—especially those driven by mass marketing—sought to convert prospects into current customers using traditional marketing principles and then to cater to them in the usual, transactional way. These well-known marketing principles are no longer of much value if relationships are a fundamental determinant of enterprise value. It is now at least as important for marketers to develop a process for relationship development that comprises relating to existing customers and increasing customer value, and acquiring additional customers by connecting, attracting and converting non-customers into customers.

The first challenge for most companies is to transition their strategies from those based on transactions to relationship-based strategies. The initial focus is on existing customers—especially the ones the company wants most. It is common to build on relationships the company already has with existing customers to acquire new ones. The second challenge is therefore to develop relationships with new customers who may be accessed from existing customer relationships, first by reaching out to these individuals and then causing each to be attracted to the company. There is an important third step that considers customer engagement, the process of engaging with new potential customers—especially social customers—who may not be known to existing customers, engaging with them and then attracting them to the enterprise. Figure 1 describes these various steps with the labels “relate,” “connect,” “engage” and “attract.”

Figure 1 Moving from Transactions to Relationships and from Current Customers to New Ones

Earlier relationship management principles were concerned mostly with listening to and conversing with existing customers, and developing, sustaining and growing the value of relationships with them. The management of the new customer relationship—the focus of this book—retains a focus on existing customers and their value but goes beyond, to include consideration of new customers and the potential customers who are known to current and new customers.

Marketers naturally and generally understand that relationships matter and that relationships are the very essence of most businesses. For some, this understanding leads management to develop IT plans and enhance some relationship aspects of their marketing plans. But customer relationships are much more important than that and merit their own plans from which IT implementations and other tactical considerations can flow. That most companies are still without plans to develop this most important aspect of their business remains a material shortcoming and a gap between intent and execution that needs to be closed. In short, companies need not only marketing plans or IT plans, but plans for customer relationships.

The Old Rules of Marketing Don't Work

It would not be a significant overstatement to pronounce the death of marketing as it once was. It is clear that the traditional marketing principles that focused on standard products, pricing, promotion and distribution for mass markets and market segments is much less important today than was once the case. The importance of marketing has eroded because the nature of markets has changed.

In part the result of product and supplier proliferation, ubiquitous availability and the substitutability of goods and services, most products and services are today much less differentiated than was the case just a few years ago. The consumer's mind is crowded with multiple brands competing for attention and position. When Al Ries and Jack Trout published their influential book Positioning: The Battle for Your Mind in 1980, the market was a simpler place.¹ There were relatively few companies and brands competing for rungs on the cerebral brand positioning ladder that Ries and Trout described as occupying the minds of customers. At the time, the financial resources of the companies that owned the brands were unequal and this mattered enormously in an era when purchase behavior required deep pockets to fund the desired communication's reach and frequency. That is, for consumers to hear you, you needed to shout loudly where and when they could hear you, and to do that a fat wallet was of much help. Today you can shout the benefits of your brand until you are hoarse—and broke—and still there is the potential that no one will hear you above the general din of the marketplace. The marketplace is simply too cluttered, resources are much more equal and companies have established more powerful means for communications than simply firing outbound messages using TV that no one watches, radios that no one hears, or newspapers and magazines that no one reads. Okay, perhaps an overstatement—but not vastly so. The digitization and fragmentation of media not only enables a two-way conversation, it demands engagement and two-way communications—a dialog—if companies are to develop progressively deeper bonds with their customers and be in tune with the changing context, needs, wants and feelings of each one.

In the simpler marketplace of the near past, communication was from the enterprise to the customer only. Winners found the best channel and message to motivate purchase. Today this just sounds like noise to most consumers. It doesn't much matter how companies say “buy me, buy me,” or how often they say it, because customers pay a lot less attention to what companies communicate than to what their friends say. And when everybody is yelling more or less similarly, the differentiated firm is the one that connects, engages and resonates. While customers might flit from one company to another, they will only form lasting relationships with a few. Those with which customers do form relationships will be on the basis of a trust-building dialog and longitudinal actions that create mutual value—that is, the dialog extends across time to create value from which each individual can benefit.

In social marketplaces, customers serve as the gatekeepers of communications to the potential customers the company does not yet know. These customers serve up messages to their friends. They collectively maintain a repository of marketplace knowledge. They govern the path to a consumer's mind. In this environment, companies have two choices: either be part of the social marketplace in which customers and their friends reside, or compete on transactions, all the while presiding over the declining relevance of their products and services.

Now that “social” governs marketplaces, marketing as it once was is no longer the primary driver or enabler of social acceptance. Marketing has been particularly weak in responding to new technology developments for social media and areas beyond. Bluntly put, the 4Ps of marketing—the core marketing touchstones of product, place, price and promotion—don't work as discrete marketing tools anymore. Technology has digitized the 4Ps of marketing and in the process has enabled an infinite range of possibilities for companies and customers to contemplate more or less equally. Now both are putting practical meaning into the word “custom” that is to be found within the word “customer.”

Marketing theory is also not particularly well prepared to provide direction to a number of other technology-enabled changes that govern today's marketplace. These changes include the discrete and interrelated challenges of real-time marketing, local marketing, mobility, context-sensitive marketing, e-learning (and m-learning, which is the e-learning equivalent on mobile devices), teaching customers new behaviors, data mining and much else. For example, marketing theory might frame a customer engagement strategy and consider tactics to execute this strategy. Many of these tactics are driven today by newly emerging technologies. It is common for many companies to have these tactics lead their strategies, in part because marketing personnel are not driving the technology bus and companies cannot wait for strategic oversight to catch up with the enabling capabilities of their technologies. Firms thus have a bias to action and then to corrective action to improve upon their initial thrusts rather than waiting for strategies to frame perfect initial direction. Absent this strategic oversight, new technologies can result in tactics being implemented without a strategic framework to provide focus, clarity or priority. Consider the case of the company that uses geotagging and GPS on mobile devices to determine if its customers are in proximity to one of their stores. They decide to send customers an e-coupon so that they can get a discount on merchandise of a type bought previously. Generally, actions such as these are done without strategic oversight or direction because these strategies usually lag behind the technologies firms have adopted. The result can be the appearance that marketing is more of a hindrance than a help in the generation of new revenues from new technologies or that marketing is simply a service function, operating in support of IT or sales functions.

Technology Has Changed Everything

The most important enabler of customer relationship development has been the declining cost, increasing performance and, now, growing relevance of technology. Moore's Law, taken to mean the doubling of technological performance every 18 months, continues to underpin the proliferation of increasingly powerful technology infrastructure and the ability of marketers to put it to economical use.² Consider where we would be had the price/performance ratios of computer chips not enabled memory, databases, processing, bandwidth, robotics, software, cloud computing (Internet-enabled data storage, processing and communications) and so many other aspects of technology that marketers have put to use. Most notable for marketing is the ability technology provides companies to identify, understand, remember and respond to individual customers, engaging each for mutual benefit. Not only can this engagement be done at lower than mass market costs, it can actually be done at zero marginal cost—that is, virtually free. Since most of the technology infrastructure in a company can be regarded as a fixed cost, the incremental costs associated with customer relationship technologies are minimal. This differs markedly from mass marketing where the variable costs of marketing activities such as advertising are much higher in relation to the fixed costs of marketing.

Although technology has enabled marketers to engage with individual customers at a very low cost, this engagement remains a marketing responsibility and, as such, should still be governed by marketing strategy. Technology without marketing strategy is like a boat without water. It is interesting to behold, it probably won't sink, but it's not going to get you very far either.

The Truth Is Visible

Marketers have long held that positioning is all about what a company does to the mind of the customer rather than what it actually does. Charles Revson of Revlon famously said, “In the factory we make cosmetics; in the drugstore we sell hope.” Some companies still adhere to the argument that what matters most is what customers believe they do rather than what they actually do. Increasingly, though, companies understand that if they don't really make hope in the factory, they won't be selling much of it in the drugstore. That is, reality is starting to trump perception.

Today, truth will out. What is said behind the walls of the enterprise (and government, as leaks frequently reveal) is soon audible beyond the walls. Today's enterprise is more transparent; in this glass house, more or less everything is visible. If all the resources of the governments very much invested in secrecy can't prevent damaging facts from appearing on the Internet, how is a company to make sure it tells a single story to all and maintains consistent positions using anything other than facts? The truth is evident and customers really can tell whether the emperor has any clothes. Promote your vehicle as having a higher gas mil...