You are on page 1of 12

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 buyer-
seller 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.

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

6| Page
IB3A50 Marketing Management 0633631

forms for re-structuring the front-end of the company. An example of this evolutional re-
structuring 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 companies’ customer and competitive issues, so as to structure their futures. With
the implementation of a strategic customer management approach there is a requirement for
an innovative role of the sales organization for the deployment of strategic sales capabilities.
(N. F. Piercy & N. Lane 2009)

Due to the evolution of the sales force roles, companies now focus on strategic
customer management. A structure as proposed by Nigel F. Piercy and Nikala Lane suggests
that the imperatives for the transition. This is illustrated in figure 1.4.

The Strategic Sales Organization:

7| Page
IB3A50 Marketing Management 0633631

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
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

8| Page
IB3A50 Marketing Management 0633631

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

Conclusion:

The development of the transformation sales process to counter the customer


demand for added value comes at a time when the global markets are in recession. The

9| Page
IB3A50 Marketing Management 0633631

customer base still seems to be value driven, but not as much as pre recession periods.
Companies in the market today need to transform their traditional sales techniques into a
strategic customer management approach. The key is for companies to understand their
strategy and who they are targeting, integrate all departments, and have in depth knowledge
of their customer requirements. With pulling in resources from CRM, KAM and HRM,
companies can keep adapting their strategic customer management techniques for ever
innovation. For companies in the markets of today I think that strategic customer
management is imperative. It allows for a greater understanding of the customer’s
requirements and so forth adding value.

Bibliography:

• Cravens D. W. and Piercy N. F. (2006) Strategic Marketing, 8th edn, (New York: McGraw-
Hill/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)

10 | P a g e
IB3A50 Marketing Management 0633631

• 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