The Relationship Revolution

Going round, going up or going down?

It’s all change again as marketing thinking moves up onto another plane….. Or is this one a rocket ship.

Relationship Management, One-to-One Marketing, Knowledge or Wisdom Driven Communication and a host of other new age philosophies, have created a lexicon of terminology and cast it upon the world with a zeal and passion not seen since the early days of quality and excellence management. The very energy and passion of the zealots  make it easy to believe that this really may be the last bus and if we miss it we’ll be left penniless in the wilderness watching the tumbleweed blow by.

The fact that “technology” appears to have a serious involvement as well raises further confusion and the spectre of other corporate nightmare, dealing daily with the IT department.

So what’s going on? Is this really the end of customer communication as we know it, can we say farewell to the ad agency for ever and do we really have to change our whole corporate behaviour by Friday next, or could the dream be a vision of a great new business opportunity.

Perhaps a good place to start might be to look at a few basics like….

  • What drives what customers want and need,
  • What drives what companies want and need, and
  • What do we currently know about their respective behaviour in such things. 

It may also be useful to think about:

  • The various functions of the company involved
  • The performance of the distribution channels through which the wants and needs of the former are fulfilled by the latter and the behaviour of
  • Different kinds of customer and
  • Different kinds of companies and
  • Different kinds of channels? 

This is beginning to get tricky.  Is there a way of organising the thinking?

The model below seeks to provide a template on which to base such a discussion and may assist in the first and most important part of any navigation exercise  - finding out where we are now. 

For the purposes of the model a “customer” is thought of as “an entity with spending potential”.  A “company” as a collection of  “People, Money and Resources”

The basic premise of the model is that the size and shape of the market in any industry or sector is driven by a range of forces such as (legal, economic, social, political, technological etc.) as described by Michael Porter’s Competitor Advantage Model.  Without going through the intervening steps, suffice it to say that emerging from these forces are identifiable customer wants and needs which drive their behaviour.

While customer wants and needs are not easily summarised, company wants and needs can generally be described as Productivity and Profitability which in turn drives their Behaviour.

The model takes Customer and Company through a process which is always controlled by the customer but over which the company has the opportunity to exert greater influence in the distribution channels through the application of greater knowledge of the customer.

What is true to a greater or lesser degree is that at the start of the process both customer and company may exist in blissful ignorance of each other.  Here lies the first clue about what one dimension of the relationship revolution is about.  “Ignorance” is an opposite of “knowledge” so the process is a voyage of discovery.

The first stage of customer action is to engage in a buying process.  It is not important at this stage to explore what stimulates the inception of the process or describe the steps contained in various buying processes but it is important to contrast the roles of customer and company.  The customer is the one who “buys” and however companies like to pride themselves on their ability to “sell” it is always the customer who decides. Companies do what they call  “Sales and Marketing” to manage the customer buying process..

Sooner or later the customer will select a supplier and wide range of attributes usually influence that decision. 

  • The product/service promotion by the company,
  • The way they manage the buying process,
  • The perceived suitability of the offer to meet their needs,
  • The brand values transferred
  • The price/quality perception of their product/service or
  • Simply the way the company behaves in its service performance. 

The final decision will be a trade off between the customer’s wants (emotional factors) and needs (rational factors).  Not that all such factors are carefully processed and analysed by customers.  In such a complex equation customers may not always be analytical they be impulsive and just do it.

Buying is not a difficult behaviour to learn.  If customers have the means they can easily exchange it for the product or service (“whatever”) they perceive most satisfies their wants or needs.  Having selected the supplier for their “whatever” they will then be satisfied to a greater or lesser degree with “Delivery and Performance” of their purchase. The degree to which the company is able to or wishes to become involved is through the function they call Customer Satisfaction Management.  Some companies are good at this, some appear not to have heard of it, but it is a widely accepted management and operational practice.  It is still relatively new. 

Ten years ago, the situations vacant carried no advertisements for “Service Quality” or “Customer Satisfaction” directors, managers or staff.  Now they do. 

This is another important milestone in the journey.  As the importance of customer satisfaction as a competitive issue grew so the infrastructure of companies wishing to be successful had to address it.  People skills, money and resources were refocused.  Some took radical re- engineering steps, other simply renamed things they already did.  Some of course did nothing but this sector, the “soon dead” are further excluded from the debate as there is not a single known example of commercial success emerging from the group who ignored service quality.  The only think to learn from them is don’t be like them.

One activity that has grown out of the quality age (whether product or service) is measurement.  It is both necessary and productive but it has in many organisations become an art form in itself, which no longer continues to drive beneficial improvement actions to the degree that it should.  The old soar

You don’t make pigs fat by weighing them

is truly revolutionary thinking to  some service quality measurement processes which have become institutionalised within the remit of a new breed of corporate bean counter whose sole aim in life is to produce the score and whose actions have about as much influence on the performance of the business as the cricket scorer has on the performance of teams on the pitch.  If measurement ain’t driving improvement action, it ain’t worth doing.  Customer satisfaction measurement is not about measuring customer satisfaction, it’s about improving business performance by applying the knowledge gained to the next buying experience.  As Alvin Toffler said ‘The customer pays twice, once with money and secondly with information that is worth money.

So, back with the customer.  Now delighted or otherwise by the experience of their “whatever” they will sooner or later be ready to re-enter the buying process for another “whatever” or a different “whatever”.  The degree to which their satisfaction has been managed will be a new influence in their buying equation.

It may be negative or positive but it will become one of the most important factors, for it embodies trust.  An important emotional bond.  But here lies another myth.  The belief that 100% customer satisfaction = 100% customer loyalty.  Trust is important but it is not everything. There is the little matter of the competition to be considered.  Even though the customer may have never bought a “whatever” before buying the one they bought from you, the very act of buying creates two important new factors.  Firstly the buying process sensitises customers to competitive products or suppliers, and secondly the act of “coming out” immediately announces their presence as a customer with “whatever” tendencies.  Whether competitors know the specific identity or the general fact they know the customer exists.  The bad thing about competitors is they never sleep, they are all market insomniacs whose sleepless quest is not simply to steal your customers but to steal your best customers, and guess what?  They will to a greater or lesser degree succeed.

How?  Simply through one or two reasons.  Either you screwed up to the degree that your customers are now allergic to your company or that your competition has been better at understanding and interpreting the customers’ needs.  They may have done this by luck but trusting to luck is a risky growth strategy.  More likely they have achieved the conquest on the basis of better awareness of, ability to use and appreciation of information – they have used their knowledge better.

So loyalty is the next level competition, another activity that needs to be managed.  It is not an automatic right.  So far the company has been through some Sales and Marketing, Customer Satisfaction Management and now its Customer Loyalty Management. 

In the customer’s mind doing business with a supplier mans just that – a supplier is a supplier.  Initially the customer only wants to get what they want.  How the suppliers business is structured, organised, etc is a matter of supreme indifference to customers.  The responsibility to make it easy for the customer to buy rests absolutely with the company.  Customers are entirely free to choose and to react to what they receive in any way they wish. And so it should be.  So the more effectively the company is organised and managed to facilitate this the better.

The chances are, however, in most companies Sales, Marketing, Customer Satisfaction and Customer Loyalty are all seen as separate functions and may often operate in different parts of the business, report to different divisional heads.  Having spent twenty years breaking down the old silo mentalities that were such a straightjacket in the bad old days of organisational pre-death rigormortis a new silo mentality appears to be avoiding emerging technology like the plague and promoting the construction of new impenetrable specialisation silos.

There may be an element of corporate lunacy at work here.  In reality Sales have much to gain from Loyalty.  The business has much to gain from a better mutual understanding of the two, but it appears not to happen that often.

Consider loyalty in the corporate, rather than the canine sense.  Given that it has to be managed, given that it is not a right, given that competitors can screw it up is still a measurable factor in every business.  Whether its 0% or 100%, it’s there.  All companies, except start ups and undertakers has a loyalty factor.  What’s important about this is that loyalty is a sales driver.

There are two kinds of factors that influence loyalty performance.  Those a company cannot control, and those they can control.  Most of the uncontrollable elements will affect the company and their competition equally.  (E.g. 10% of the market dies each year). Of the loyalty factors a company can control they will be succeed to a greater or lesser degree.  So if an example is considered in which a company currently sells 1000 “whatevers” in a given period and has an uncontrollable erosion rate of 10%, then their best volume forecast for the next period will be 90%.  Assuming that they are 80% successful within the factors they can control them the next period volume reduces to 720.  If the company decides it wants growth of 10% period on period than its target is 1100.  So a gap between the loyalty driven base of 720 and the target of 1100 means that sales have to achieve 280 to stand still and 380 to hit the growth target.  If the controllable loyalty factor can increase from 80% to 90% the sales effort to achieve the same target will be reduced from 380 to 290 over 25% reduction.  (See diagram below).  This may also means that sales are more able to concentrate on reaching more profitable customers rather than taking every customer they can get to replace lost volume.  Therefore the effective management of loyalty in a way which optimises its potential is more than good for customer relations it is also commercially astute.

When customers place value on the relationship they have with the company they begin to exhibit preference for a supplier. They define the relationship in their own terms and for their own reasons. The customer places value on dealing with a supplier that usually goes beyond financial advantage. Obvious in some sectors, ”My hairdresser, my solicitor” it is the same emotion that drives it in all areas.  An important milestone.  It is easier to ask the question “What is the value of the customer to the company?” but it is more important to know “What value the customer places on their relationship with the company”.

Loyalty is defined as “An investment in a relationship”.  If the investment is to produce the best return then companies should take action to invest to get the best return.  Two important attributes flow from the customer placing value on the relationship.  As with all things of value they are protected.

The first customer action is to reject competitor approach.  “Do you want a whatever” – “No, I’m fine thanks”

Thus competitors have to work harder to get their foot in the door and they may be prepared so to do.  The second is to become either a passive (at worst) or an active (at best) advocate of the “whatever” and thereby either not impede further sales or promote further sales in their area of influence.   The interesting observation from the model (fig.1) is that promoting the “whatever” is the first thing the company does but the last thing the customer does.  Therefore investment in relationship management is for the long term.

So what emerges from all this?

The key points are that customers initially resolve a very complex equation when buying from a new supplier.  Things can be done to help them resolve the equation but really only in a general way.

The delivery performance of the product/service is fundamental to customer satisfaction but more importantly it has the potential to generate information about buyer behaviour.

That information is invaluable in the design of subsequent propositions to the customer as it should reduce the complexity of the buying equation, help the company reduce competitive impact and reduce the sales effort required to achieve growth objectives.  The ability to apply relevant knowledge is vital in this arena – not so much what you need to do to satisfy customers but what you need to know to satisfy customers.  Companies are most vulnerable when they don’t know what they don’t know

When customers make a commitment to a supplier, the competition have greater difficulty capturing the customer and so the commercial security of the company is enhanced.

Some key issues to consider are:

  1. It is up to the company, not the customer to take the initiative.  The customer is a free agent whose first buying action owes no allegiance to anyone.
  2. It is not possible to manage buyer behaviour if it is not understood at every stage on the journey from supplier selection to relationship commitment.  In these areas, research and performance measurement of the key drivers of behaviour is essential.
  3. The company has to identify the actions it currently does take and should take at every step.  This includes people, money and resources both within the business or its channels of distribution.
  4. Knowledge must be gathered, analysed and available to all and must be used to:
    1. Build trust with customers
    2. Simplify their buying equation
      If the company has islands of knowledge in a lake of ignorance it cannot be effective as if it has a continuous pipeline flowing from a reservoir of knowledge to every part of the business.
  5. All elements of company behaviour are interactive.  Most companies do not manage or operate them in such a way.  The functions are often at worst disorganised and at best competitive.  This is often even further complication by relationships in the distribution channels where conflicts about “who owns the customer” often seem to be more important than “how do we both work together to build a profitable relationship with the customer”.  This is particularly important where the ideal of one-to-one service is enabled by the reality of one-to-one delivery being possible.
  6. Relationship Management is not easy, it needs to be carefully planned and executed, there are no quick fixes and it takes time, its stewardship needs to be built into the organisational infrastructure.
  7. Technology has a huge part to play but technology alone is not the answer.  This is not direct mail or direct marketing, or frequency reward programmes, though each may be a component element.  It isn’t databases, data mining, merging and everything else you can do with them.  It isn’t inter or Intranets.  This is the dawn of 21st century business practice.  This is a pioneering revolution and like most pioneering it is toughest on the pioneers, but the reward for the hardship is the discovery and ownership of the most fertile pastures.  It should be remembered that as fast as technology allows us to connect with our customers, it allows them to connect with others.  Just because a customer is on your list doesn’t mean they are not on your competitor’s list.  Getting them to be exclusive to you is not a simple technological exercise.
  8. Relationship management is not an alternative to the existing functions, it is a logical extension of the scope of those activities and may radically change some of their operational processes.

What to do next.

Because of the very fundamental nature of relationship management its introduction needs to be designed and approved with those who lead the company.   It is not simply a new marketing idea.  It is a fundamentally different way of running a business that in the perfect world in which we will never live it could call for a total organisational overhaul.  In the imperfect real world in which we do live it will require careful strategic planning, investment in resource and technology and the development of new thinking and skills by people at every level.  It is also likely to require a shake up in the performance of suppliers, and everyone in the distribution chain.

Relationship management will be different in every industry dependent upon the nature of the “whatever” it is they supply and the “however” it is distributed.  What is common across all industries is that “information” is easier to acquire and cheaper to store, translating it into “knowledge” about the customer is technically practical.  What is more difficult is the Awareness of its value, the Ability to understand its power, the Application of that power to the mutual long term benefit of the customer and the company, and its Alignment to a set of operating values which are harmonic with the customers wants and needs.

The new game is not to see how many customers you can get but to obtain and maintain the number and type of customers you need to meet the company’s growth needs.

The hard thing to understand for most businesses hypnotised by the quarterly results straight jacket of the city, is that success will come not from getting a return on investment in a business, but a return on investment in the knowledge of the customers of that business.  That means that in the consumer centred future, successful companies will be paying better attention to the sole source of revenue of every company, the customers wallet, by using technology, research and most importantly people to ensure that customers feel they are dealing with a supplier who recognises who they are, understands what they want and knows how to deliver it.

It can be argued that the “knowledge” – the “intellectual capital” resides in a business, represents the difference between its market value and the cost of starting the business again.  The closer these two figures the easier it is for competitors to enter the market.

Relationship Management is a revolution, it ain’t rocket science but it is a rocket ship.

Relationship Management

Ten Quick Checks (Yes/No Answers) 

  1. Has your company defined what Relationship means to you?        
  2. Have you built a model of its potential impact?        
  3. Is there a relationship management strategy?        
  4. Are the four functional areas on the model identifiable in your company?            
  5. Are they all managed by the same division?        
  6. Can you identify the actions and behaviours taken by the company in each of the 4 implementation steps?        
  7. Can you identify your customers needs and wants?        
  8. Do you understand their actions and behaviours in each of the four steps?        
  9. If you don’t understand customer wants and needs and behaviours do you still expect to be able to manage them?        
  10. Are all your values, people, technology and distribution channels, directed at building positive customer relationships?        

What to Do About Those No’s.

  1. Has your company defined what Relationship means to you?
    Getting a clear philosophical and practical understanding of what it means in your industry and to your company and it’s competitors is a good place to start.
  2. Have you built a model of its potential impact?
    If profit and productivity are important, relationship management can have significant impact on business performance. Considering the projections that most business do it is extraordinary that those relating and customer revenue potential is not more carefully considered. 
  3. Is there a relationship management strategy? 
    Perhaps there should be.  Its development should be a carefully carried out exercise as its impact on the business can be substantial.
  4. Are the four functional areas on the model identifiable in your company?
    Given that these are proven good practices they should all be set up, bedded in and firing on all four.
  5. Are they all managed by the same division?
    This is really a continuous type activity perhaps you should look at the overlaps and gaps between the operations to review how they may be restructured to save costs, increase productivity, promise better quality at all levels and build a relationship with the customer.
  6. Can you identify the actions and behaviours taken by the company in each of the 4 implementation steps?
    It takes a little time to fill in the boxes but it is usually a very worthwhile strategic review and planning activity.
  7. Can you identify your customers needs and wants?
    These should be front of mind.  This first rung in the knowledge ladder.  At this stage, gather the information and build on understanding.  This is not R & D, that is the customers job, it is about understanding how they prefer to deal with what you do now.
  8. Do you understand their actions and behaviours in each of the four steps?
    The same answer as Q.6 but you will need a repository for the answer which all of the information is accessible to all of those who manage your boxes.  It is the first step towards knowledge integration.
  9. If you don’t understand customer wants and needs and behaviours do you still expect to be able to manage them?                                        
    Managing something you don’t understand is tricky.  You are always at your most dangerous when you don’t know what you don’t know.
  10. Are all your values, people, technology and distribution channels, directed at building positive customer relationships?
    It’s a big task but it’s difficult to build a good relationship with anyone without a mutually beneficial end in mind.

Knowing About Knowledge

Our Company Has (Yes/No Answers) 

  1. Understands what knowledge management is
  2. High awareness and consensus of the need for a knowledge management function.
  3. There is a recognised leader who champions knowledge management.
  4. There is a group within the business responsible for knowledge measurement.
  5. There is clear structural accountability for knowledge management.
  6. There is a plan to decide how to invest knowledge equity into the operational effectiveness of the business.

Written by Katie Smith, Jan 05, 2018
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