Issue 22

CRM

The Value of Marketing and Customer Management

"Customer management" and "marketing" are terms intimately related to each other, widely used and as frequently misunderstood. They are also both under the business microscope, with their value to business challenged. In this article, I examine this challenge and explain why I think it is due to a misunderstanding of the nature of both terms. Let me start with definitions.

Defining the difference between customer management and marketing is not easy. I define customer management as the things organisations do to define, target and manage their customers - before, during and after the sale, as long as a customer has any dealings with the organisation and to plan these things. Customer management therefore encompasses, amongst other functions: sales, customer service, direct and interactive marketing (using media from direct mail and telephone to e-mail, the Web and wireless messaging), distribution channel management and communications with customers (whether in the context of marketing, sales, service or customer administration). I define marketing as the things organisations do to define which customers they serve and how they serve them so as to meet both customer needs and those of the organisation. So marketing includes most aspects of customer management, but in its treatment of areas such as branding, product planning, pricing and distribution channel, its focus is balanced between the organisation's needs (e.g. profit, survival against competition) and the customer needs. If anything, the difference is one of emphasis. Customer management tends to focus on the effect of decisions on customers, while marketing tends to focus more on the effect of decisions on the company. Note that there is no presumption that one or the other focus is right or predominant. They are both important.

Customer management has been the subject of strong business focus in recent years. There are many reasons for this. Information and communications technology allows organisations to do much more in terms of managing individual customers. Consumerism has put the spotlight on failures of organisations to use these new capabilities to satisfy customers. Perhaps most importantly, the suppliers of systems and software designed to help companies manage their customers have created a tidal wave of interest and aspiration, especially in Customer Relationship Management (CRM). But as this wave has retreated, businesses are asking what value they are getting from their CRM.

• Companies do not have free choice about what propositions to offer or how to manage customers. Their route to success is also influenced by factors such as
  
• The type of propositions that customers want
  
• Who else is offering them
  
• The environmental factors (particularly legal and technical) that determine how propositions can be developed and offered
  
• The capability of the organisation and its competitors to deliver particular combinations of proposition and customer management, and how well they use them

I call this the "model" of marketing or customer management. A (simplified) example will make this clear. Until recently, the main proposition and customer management offered to frequent business flyers could be expressed as: "Flying frequently is an awful business, but if you fly often with us at the right (premium) price, we'll insulate you from the worst of it, giving you various kinds of preferential treatment, discounts and free additional flights, and keeping you informed about this and various other matters by keeping in touch with you individually, using information about you to make sure we meet your needs". All airlines offered similar propositions and customer management approaches. Along came low cost airlines, with this message: "We have so simplified and cheapened short-haul flying that all you need to do is book on the Web and turn up. It's much cheaper and it really isn't worth paying extra to be treated as a business traveller. We don't want to know anything about you except your name and your credit card number." These very different approaches demand very different marketing and customer management. The first focuses strongly on CRM, the later on brand, basic customer service, pricing and yield management And of course, the question about the value of marketing and customer management must be interpreted very differently.

That is why questions like "Should the marketing - or customer service - director be on the company board?" or "What is the value of marketing or customer management?" are pointless. Nor can marketing be effective if only the marketing department makes decisions on proposition and customer management. In the most successful firms an awareness of customers and their needs exists throughout the enterprise, and the board.

The key questions for a company's senior management should be:

• Does the company know what its model for proposition and customer management is or should be, and how it might change as the company changes its business strategies or as competition, technology and other environmental factors change?
  
• Is senior management sure that accountability for success in proposition and customer management is properly allocated and that significant success or failure in proposition and customer management is reported to the board?
  
• Does senior management understand broadly the relationship between strengthening (or weakening) of proposition or customer management and overall organisational success (e.g. profit), taking into account the influence that other organisational activities (e.g. purchasing, HR, operations) have on both?
  
• Has the board got well-defined control levels, so that if proposition or customer management need to be changed, the board can do it securely?
  
  

About the Author
Merlin Stone is, IBM's Business Research Leader and Director of QCi Ltd and The Database Group Ltd. He is currently moving his professorship back to Bristol Business School.