Five Lessons in Successful Customer Management

By QS Contributor Updated Aug 20, 2014

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Introduction
Lesson 1: CM is not for everyone
Lesson 2: It's best fit, not best practice, that matters
Lesson 3: Justify your investment, not someone else's
Lesson 4: Manage the team over time
Lesson 5: It's insight that matters, not just data

Customer Management is emerging into, potentially, a management tool of great strategic importance. The future development of Customer Management depends not simply on more investment in IT, but on understanding how Customer Management really works; building transferable knowledge and turning it into effective practice.

We have all known for a long time that providers of both goods and services have to focus on the needs of their customers and try to build a long-term relationship with them. The relationship that the brand holds with the end consumer is equally important to overall success. Therefore customer satisfaction at multiple levels is the real key to competitive advantage in business today. However, most companies continue to be driven by more basic metrics such as short-term profitability and, even more basic, gross revenue. Therefore it is worth looking at how others try to manage the customer interface and extrapolate from that to glean the key learnings which can be then adopted more widely.

The first point to note is that there is still a long way to go across the spectrum – only 24% of companies, when asked, saw management time spent with customers as important and only a third offer any form of customer training for their staff. Sadly the key point we can take from this is that, while organisations may wish customers to be loyal to them, in reality they are not willing to invest in the return relationship. Anyone who has tried to get lost luggage returned, renegotiate a mortgage, return a product without a receipt or ask for a reduced rate on an insurance renewal will be only too familiar with this conundrum.

So, having concluded that customer management is worth embracing, what climate is needed to make sure it can be a success? Like any new initiative, balanced foundations need to be in place otherwise it may fail to gain roots within the organisation. These need to be evaluated prior to the implementation of a customer management system and continually monitored throughout to ensure that the environment is ideal for prosperity. The three main factors to consider here are IT conditions, marketing strategy conditions and culture / climate conditions within the organisation. Research at our centre has uncovered 15 success factors, grouped loosely under these headings. The effects of these preconditions are additive, so that weaknesses in some are compensated for by strengths in others. Important factors include things like well-defined segments, strong cultures and market-oriented IT systems.

The measurement of organisational climate that we have developed is based on the use of a questionnaire to research five key themes and their dimensions. Results are presented using a spidergram that can clearly illustrate where the strengths and weaknesses are within the implementing organisation. This graph shows the results for an organisation in comparison to a Service Excellence Award winner. Clearly, the organisation needs to improve and, from the spidergram, key personnel can determine minimum levels that must be in place for customer management to be a success and qualitative output from the survey can provide insight into the actions necessary to achieve them.

Once the above pre-conditions have been met, an organisation can commence the journey to customer centricity. At the Henley Centre for Customer Management, we have carried out extensive research amongst best practice firms and from that research can reveal five more key lessons, which will help you on your journey.

Lesson 1: CM is not for everyone

It's only worthwhile pursuing CM if the company is set up to act on its data by tailoring its value proposition. Companies that can vary communications, people, channels and other parts of the mix between customers, can create advantage by flexing their overall value proposition – whatever the product or service. By contrast, companies without proposition flexibility can't really use the outputs of strategic CM and so might do better to invest their money elsewhere. This is summed up in figure 1, which shows that only companies with well-matched market granularity and proposition flexibility should attempt strategic CM. The others, in the zones of low return on investment or inaccessibility, either should not, or cannot.

Lesson 2: It's best fit, not best practice, that matters

The idea of CM best practice was emphatically debunked in the research. The ideal form of CM depended on the nature of the market and the capabilities of the company. As a result, we identified five% subspecies' of CM, each of which fitted a place in the CM ecosystem. Companies that tried to copy the best practice of other firms in different contexts tended to fail. Treat the idea of a single 'best practice' with caution and, instead, look for the type of CM that is a `best fit' with the particular context of your company's market and internal situation.

Lesson 3: Justify your investment, not someone else's

Justifying investment in customer management is never easy. Marketing departments that depended solely on financial arguments could never make the case for CM because so much of the benefit is hard to quantify. Their more savvy rivals used three kinds of arguments: financial (it will save X and make Y); strategic (competitive threats and market changes) and linked decisions (other investments and strategies connected to CM). Every company's finance director was amenable to a different blend of arguments, as if a different key was needed to open each firm's capital investment coffers.

Lesson 4: Manage the team over time

Successful CM requires exceptionally effective cross-functional working. However expecting everyone from board member to customer service assistant to be in on every meeting is clearly unworkable. We discovered that the critical variable is the project life cycle stage. Effective project management deployed very senior but narrow teams at the start, gradually broadening them and introducing less senior membership as the project advanced. The critical features of this approach included a 'brain storming pool', as the project went from definition to the building phase, and the careful channelling of the team's effort by project leaders, to avoid the whole task going off down a blind alley.

Lesson 5: It's insight that matters, not just data

Firms that extracted real customer insight were those that had synthesised both hard, digitally held data and soft, qualitative knowledge. They grasped that data was only a means to an end – the understanding of customer motivations. Data that revealed this (eg. Conference attending, re-print requesting, appointment cancelling), combined with hard data (eg. financial and market research), highlighted previously unexpected segments based on needs and motivations. By contrast, companies that stuck to crunching hard data only (often collected for financial and operational not marketing reasons) were stuck in a rut of endless reclassification and labelling which provided little insight or no competitive advantage. Good firms found value by having 3D data which had length (a long enough history to iron out anomalies), depth (enough data points to be representative) and breadth (enough different types of data to give insight into customer needs). It is difficult to capture the findings of years of research into one article.

However, while a lot more detail, and several useful diagnostic tools emerged from the research, the lessons summarised briefly here capture the essence of the work. Their use will allow a customer management solution to be implemented that is in line with the requirements of the market in which it will operate and will deliver the competitive advantage necessary from such an initiative. After all, the quality and history of customer relationships is perhaps the only source of competitive advantage that ultimately cannot be copied.

Moira Clark is Professor of Strategic Marketing at Henley Business School and Director of the Henley Centre for Customer Management.