Customer Relationship Management (CRM) and the Role of Leadership in Digital Marketing
Marketing Management versus Customer Relationship Marketing
All the changes in technologies for marketing discussed so far have substantially altered the role of the customer in the marketing process and the relationship between the customer and the marketer. These final chapters discuss the context for that change and focus on activities where the marketer can still affect what happens in this relationship. Creating a sound database, developing strong leadership, and being aware of the complex legal environment are all part of the task of marketing.
This book is called Digital Marketing Management to indicate the shift in marketing toward the use of marketing management technologies which facilitate engagement of the customer and personalization of each customer’s particular experience with the firm. If customers interact with firms today through digital technology, then these interactions must change the process of how managers think about their customers and manage the entire process of marketing of the firm. Chapters 7 through 9 are dedicated to exploring techniques to manage the customer relationship across channel and to organize for such activity within the firm.
It is important to remember that the core of competitive advantage is having a product or service that customers wish to purchase at the price the firm is offering. Competitive advantage is not necessarily dependent upon digital marketing methods. Digital channels can enhance and complement the firm’s existing channels but are not a substitute for that which sustains growth in the firm.70
We have looked at the learning organization to understand how firms can use digital technology to learn in Chapter 2. Learning comes from internal resources, the competitive environment, our customers, and suppliers/partners. Learning is facilitated by but not limited to, the use of digital technology, which by its nature supports the learning process. There are two types of market sensing capabilities, those from the firm to the outside world and those from the outside world to the firm. It is useful therefore to think of digital technology as playing a pivotal but supporting role in facilitating the learning processes of the organization.
There are many ways digital technologies can be crucial in learning processes. Crowdsourcing technologies can help us understand customer needs, for example, and private label social media networks can help us interact with our suppliers. Data from learning processes flows from the outside into the firm and from the inside out, forming a continuous feedback loop whereby the firm continuously updates and creates itself. In fact, the concept of market orientation itself means that the firm is constantly processing information about the marketplace to meet customer needs and expectations.
Although there are some companies that rely primarily on Internet Technology for their business model, in the Fortune 500, the largest firms produce a product or service that is more reliant on the physical world of stores, distribution arms, and factories. Most firms use many marketing channels of both distribution and communication. Facebook is still only a fraction of the size of Wal-Mart, the leader in the Fortune 500 and other firms such as amazon.com have yet to reach other than marginal profitability.71
Therefore, every firm can benefit from advances in digital technology and digital marketing. Without the emphasis on one-way communication and focusing on conversation in marketing, the process becomes one of slowly developing the relationship with the customer instead of seeking a one-time transaction. We have moved from the product focus to the customer focus, from transactions to relationships, from acquisition to retention, from product profitability to customer profitability, and from trial and error to testing and measurement.
However, marketing management thought principles as they are usually taught have not changed from the time of the 1950s. The traditional process of marketing management is said to include the principles of product, price, promotion, and place. The manager is like an orchestra conductor or puppeteer, adjusting these elements of what is known as they marketing “mix.” As the manager makes these changes, the customers, like an orchestra, respond to commands. Lower the price, alter the product slightly or put out a promotional coupon, and the consumer buys more.
In the new world of marketing thought, consumers do respond to what are known as marketing actions, but the process has become more complex and individualized. Customers interact with the firm and each other and often initiate the conversation. So rather than marketing being an orchestrated process with the marketer as conductor, the process of marketing today is more like music made by a jazz ensemble, where the players work off of each other to create a work of music. This new way of imagining marketing requires new process to manage and measure.
Marketers not only have the capability to personalize and customize communications but to interact with individual consumers in way not imagined previously. Using digital technology, marketers can rapidly seek out the most influential consumers, those known as thought leaders and engage them in such a way as to hope to influence their thinking and writing about a product. Marketers can interact on social media with specific customers to answer their questions individually and communicate with them directly. There has been a shift in emphasis from managing a process of marketing tasks to campaigns that are integrated across channels and seek to engage the customer across these multiple channels.
Marketers want to engage the customer but also struggle for a way to measure the success of these interactions or engagements. The traditional way of analyzing customer response to advertising was attention, interest, desire, and action (AIDA). Although AIDA focuses on how to move the customer through a process, in the digital age, we focus on treating different customers differently in a process often called customer relationship management (CRM) (see Chapter 3). Sometimes this process is called customer relationship marketing because relationships are difficult to manage in order to get the desired result; customer relationship marketing as a term focuses on the customer more and the process less. CRM can be defined as the “process of managing and measuring customer interactions across various channels with the goal of optimizing the value of the customer relationship to both parties to the exchange process.” Often this process involves building a customer profile or profiles, the characteristics of different customer segments that allows us to select different treatments for different groups. CRM technology can be powerful, as using personalized communications based on customer profiles can significantly improve the results of marketing programs. As an alternative to identify, differentiate, interact, and customize (IDIC), Martha Rogers and Don Peppers suggest the IDIC profile,72 indicating that each customer should be receive unique communications, offers, and interactions. In our research, we suggest that we personalize communications and customize product offerings, which means that IDIC becomes IDICP, identify, differentiate, interact, and customize/personalize.
In talking about CRM we must include CRM systems tools because these tools allow companies to manage their customer interactions and measure them to determine which approaches are most effective for a specific customer or a set of customers. These systems have long been advocated in marketing literature. However, there are problems with implementation and these systems are really only effective if supported through the corporation Another problem with these systems is the proliferation of marketing communications tools that we talked about earlier in this text as well. Multichannel marketing has made CRM much more difficult.
CRM tools vary from contact management systems like salesforce.com to more complex implementation systems for larger companies like Eloqua or SAP. The tools are designed to track and manage customer information, automate customer interactions, simplify workflow, and monitor and track results. The idea used to be to get a “360 degree” view of the customer and all interactions, although I would argue the relationships are now more complex and difficult to chart.
The need for this type of system has occurred because of the trends documented in the previous section of this book. Not only can we engage more with the customer but we can do so across many marketing channels. In order to manage this process effectively there has to be a shift from the internal processes of the firm to the external processes of the customer. This shift is known as “customer experience marketing” (CEM) and requires a services marketing orientation. This trend means that marketers must consider how the consumer interacts with the product/brand and must do so across all available channels. The customer has come to expect that the marketer will engage with him across all channels consistently, including understanding past purchases and interactions.
Multichannel (Omni-Channel Reality): “Always On Marketing”
As discussed in Chapter 1, the developments in Internet technology which resulted in digital marketing mean that the process of marketing is an interactive, conversational one that in the customer’s mind occurs 24/7. This trend of a marketing engagement model that never rests is called “always on” marketing. So if a customer buys something online, writes about it in social media, and returns it in the store, the customer expects the marketer to have knowledge of these prior transactions and to understand what has happened and respond accordingly. Especially in consumer markets but also in business-to-business markets, this type of response could not be possible without the applications and their underlying data facilitated by digital technology. Increasingly, CRM systems are focusing on “real-time” responses and analysis73 such as “real time” advertising. Multichannel marketing has become omni-channel marketing, which means customers expect the same relationship across all channels.
Figure 7.1 The House of Quality for multichannel and digital marketing
One of the challenges of multichannel marketing in terms of CRM is measurement. The reason measurement is a challenge is because the multichannel experiences occur across a variety of dimensions. It is difficult to capture in just a simple chart or matrix everything that is going on in the multichannel process. In Figure 7.1 I have adapted the traditional House of Quality74 from new product development to the House of Quality for multichannel marketing. The House of Quality was developed as a methodology to ensure that all relevant dimensions were included in the development of a new product, user needs, competitor competencies, and our own internal capabilities. Similarly, we need to think about all of these dimensions together.
Using the House of Quality analogy, we must consider the customer channel preference, our current capabilities, and competitive capabilities in developing our multichannel strategy and measurements. For example, the customer base has a certain communication channel preference. The first question to ask is are we spending our money where our customers are spending their time? If the customer is primarily focused on mobile devices and we communicate rarely over that channel, then there is a mismatch of resources that the analysis will highlight. The overlap in customer channel preferences and our strategy in Figure 7.2 represents an opportunity to develop our communications in those preferred channels. So the first step to developing multichannel metrics is to develop a strategy that is consistent with customer preferences. Only by understanding first where the customer is spending time and second, how they like to communicate can we hope to develop an effective multichannel measurement program.75
For example, recent studies indicate that consumers are spending more time online but that advertising budgets are still focused on traditional media.76 Another example of channel “mismatch” is the tablet market. Tablets are rapidly outperforming mobile devices for shopping. The screen sizes are larger and allow for easier shopping. Not surprisingly, average order values, retail traffic, and conversion rates are higher on tablet.77 Yet again, the spending on tablets lags the activity on the tablet by the consumer. The relationship matrix takes an honest look at our channels versus those preferred by the customer to ensure that there is a match (Figure 7.2). If the customer is primarily focused on mobile devices and we communicate rarely over that channel, then there is a mismatch of resources that the relationship matrix will highlight.
We also need to develop a matrix of how our channels are meant to work together known as a channel correlation matrix. Do we create a blog post, send out the information by e-mail, and then drive customers to our website? How do we perceive that channels will work together to create customer engagement? We also need to look at our competitors and see how they are focused in terms of customer channels. Is there a better mix between their channel choices and ours in terms of where the customer spends their time?
Figure 7.2 Customer channel preference versus our channel strategy
Finally, in Specifications and Metrics, we determine which channels we will use, how frequently, and how we will measure the effectiveness of our multichannel communications. For example, we know there is a clear disconnect between the time spent on mobile devices and ad spend. This trend is only going to be more prominent as users have been flocking to mobile devices in even greater numbers since 2011. Our matrices would show the time spent on channel by the consumer, cross-device and cross-channel synergies, the corresponding resources we have allocated to that channel and highlight how we can best measure results. CRM systems, in particular, must now manage results across mobile and social channels.
Measurement and Management
Once the program is put together, the process of measuring the results of CRM initiatives can be tricky. Instead of looking at the results of a single campaign, we must try to explain results across channels, called channel attribution. In a customer-oriented measurement world, we use terms such as “share of wallet” (the percentage of a customer’s spending on a particular product line that we have) rather than “market share.”
Therefore, the core of any CRM system is its data management system (Chapter 9). The three foundations of CRM are often said to be data maintenance, marketing, and follow-on customer service. Together these internal disciplines allow us to engage the customer and measure the results. Data drives every step of the CRM process. Tesco is a UK-based grocer that began a loyalty program in 1995. Quite often the best reason to start a customer loyalty program is to collect data on the customer, which the company did. Gradually, the company built a behavioral database and began segmentation and targeting using that data and created offers, promotions, and communications specific to each customer. The program yielded strong successes for the retailer, although recent trends in grocery retailing such as multichannel shopping (particularly online) and the tendency for shopping in more than one store, have brought the future direction of the program into question.78
In spite of the benefits of CRM systems, half or more fail to meet their ROI (Return on Investment)targets. It seems as though half of the companies are building a system and half are abandoning the system. The reasons for abandonment and failure are often more organizational than technological. For example, of the eight Gartner Group CRM building blocks,79 for example, most of them are not technology-based but rather leadership-focused.
Most of the factors that influence the success and failure of digital outcomes are also managerial. Senior management buy-in, leadership and alignment of goals all facilitate digital outcomes. McKinsey & Company asked 850 C-Level executives about digital engagement of customers, big data, and digital engagement of employees, automation, and digital innovation of products. The biggest challenges were managerial and structural, such internal organization and good quality data.
The Importance of Data Quality in Measurement
In fact, the Corporate Executive Board (CEB) Marketing Leadership Council80 echoes that B2B marketers in particular are struggling with implementing data analytics and measurement solutions in their firms. Not surprisingly, the issue is often one of data quality. Poor data quality and analytics capability leads to a lack of meaningful insight, which in turn can lead to a lack of funding for data quality and analytics efforts.
The result of poor data quality is a vicious circle where marketers cannot get the proper funding for their efforts. Our research results reinforce this idea but also link data quality to customer performance. In our recent paper in the Journal of Interactive Marketing that was voted best paper of 2014, coauthors James Peltier, Don Lehman, and I present a model with empirical evidence of this relationship from the financial industry, both B2B and B2C applications.81
Vicious Circle of Data Quality
In the article mentioned above we measure customer data quality in the organizational context. We not only show the linkages from customer data quality to ultimate firm performance as measured by growth, we explore this result in the context of the firm’s organizational and management structure. Without the culture that values analytics and data, data quality cannot result. Culture means not only top management support but parts of the organization working together.
Therefore, the top three reasons I see why organizations cannot achieve analytics success necessary for a successful CRM program are as follows:
1. Lack of a cooperative culture that supports data quality.
2. Lack of support by upper management for data quality efforts.
3. The resulting poor quality data that leads to poor decisions.
Figure 7.3 The key role of the top executive in data quality
These relationships are indicated in Figure 7.3. The executive leads by creating a culture that fosters cross-functional cooperation and the integration of efforts between marketing and IT. These organizational factors then lead to better data sharing and data quality, customer performance (share of wallet, retention, lifetime customer value), and ultimately firm performance (growth in sales and profits).
The Importance of Middle Management
If data quality gets lost in the shuffle in CRM implementation, so also does the role of middle management. Despite the promise of data management and big data, many of the firms investing in customer information technology have witnessed limited financial success from their data-driven efforts designed to get close to customers.
As a consequence, many adopters became disillusioned and learned for themselves that customer-centricity is difficult to accomplish, requires a high level of coordination between IT and marketing, and involves a cultural shift with regard to how customer data are integrated and shared within and between functional areas.82
The interpersonal and organizational factors of big data implementation, which my coauthors and I have been studying since 2007, have only recently come to the forefront as critical to the success of CRM projects. In fact, our research shows that companies where middle management believes it is involved in customer data management and feels supported, data quality improves and so does firm performance. So it is critical to involve middle management in customer information processes.
Middle managers often take a back seat or are assigned limited importance in organizations. However, these managers play a key role in strategy execution, particularly in cross-functional efforts such as CRM and Big Data. As indicated above, work from the Gartner Group suggests that among the building blocks of successful CRM implementation, which is a customer data-dependent application, are organizational collaboration and organizational processes. Also, as the millennial generation becomes more influential in purchasing decisions and moves in to middle management roles, their style of decision making must be taken in to account.
What does it mean to involve middle management and improve organizational collaboration? These reported results are based on 128 survey responses from managers in the financial services industry. In our survey we asked middle managers three key questions to which they responded on a scale of 1 to 5 with 5 being strongly agree and 1 being strongly disagree. The questions were as follows:
1. We feel comfortable calling our upper management when the need arises.
2. Our marketing management is responsive to our customer information ideas.
3. Marketing managers can easily schedule meetings with upper management.
In these data, marketing management support was strongly correlated with customer data quality, which in a other research mentioned above we have demonstrated to be related to ultimate firm performance. In a regression analysis, marketing manager support was also significant in predicting customer data quality. These results are consistent with other research we have conducted and show the importance of involving middle management in the process. It appears that in order to ensure data quality, the firm’s middle management and upper management must have an open and communicative relationship. Consistent with findings from practice, the most successful organizational relationships in these companies had a clear role for middle management in translating the language of quality customer information management to upper management. These results are also consistent with several schools of thought in strategy, which support the idea that strategy comes from the bottom up, or at least from middle management back to top management.
Figure 7.4 How to organize for customer data quality
Therefore, CRM implementations are complex and rely on top management support and good quality data to be successful. The tenants of organizing for customer data quality are shown in Figure 7.4. An agreed, shared vision and proper reward structures can go a long way to creating good customer data quality by getting the organization to work together. While the stakes are high, the rewards can be great for successful companies. Every year, Gartner Group and 1 to 1 Media announce their CRM Excellence Award winners83, many of whose case studies can help illuminate this process.
What to Do Next after Chapter 7:
1. Think about your own company or a company you might choose and perform a quality analysis for digital marketing. Is the company communicating where its customers are? What about versus competitors? Do the communications channels work together and which are most effective (Figures 7.1 and 7.2).
2. Based on your analysis in question 1, develop recommendations for the company to align its channel strategy more closely with customer needs.
3. Analyze your own company or another firm in terms of Figure 7.3; is your organization optimized for customer data quality? If not, what needs to be done to get there?
Chapter 7 Discussion Questions:
Discussion 7.1: Think about organizational issues and data issues and the impact on delivery of exceptional customer service. Have you encountered any customer service instances in which people in the same organization seemed to be giving you different information or advice? Why do you think this happened?
Discussion 7.2: Select one of the 2014 CRM Excellence Winners in the link provided in the text. Briefly describe what made that firm successful.
Discussion 7.3: For the company you selected above, relate the course material to the company selected. How did the company achieve CRM success using any or all of the suggested techniques in the readings? Was there anything else they did that was not mentioned?
Discussion 7.4: What would your first three steps be if you were assigned to spearhead a CRM implementation in your company and why?
Chapter 7 Glossary:
CRM: An acronym for customer relationship management, an attempt to provide meaningful interactions with the customer.
360 degree view: Being able to integrate data across the company to understand past and current purchase behaviors, web activities, and the like; requires integrating data “silos.”
Always on marketing: Being able to respond to the customers 24/7.
Omni-channel marketing: Marketing across channels in a seamless way. Sometimes referred to as being channel “agnostic.”
Relationship matrix: A matrix of our channels versus those preferred by the customer to ensure that there is a match.
Channel correlation matrix: Using a matrix to determine how channels work together to achieve goals.
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79 Gartner. 2001. “Eight Building Blocks of CRM: A Framework for Success,” PDF. http://www.gartner.com/2_events/crmawards/2006/docs/buildingblocks.pdf
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81 J. W. Peltier, D. Zahay and D. R. Lehmann. 2013. “Organizational Learning and CRM Success: A Model for Linking Organizational Practices, Customer Data Quality and Performance.” Journal of Interactive Marketing 27, pp. 1–13.
82 D.L. Zahay and J. Peltier. 2008. “Interactive Strategy Formation: Organizational and Entrepreneurial Factors Related to Effective Customer Information Systems Practices in B2B Firms.” Industrial Marketing Management 37, no. 2, pp. 191–205.
83 1 to 1 media. 2014. “And the 2014 Winners are. . . .” Website. http://www.1to1media.com/crmexcellence/view.aspx?itemid=34850 (10/13/2014).