The Customer is King Is corporate America really giving customers the royal treatment

The Customer is King
Is corporate America really giving customers the royal treatment, or is that just a fairy tale told by those who rule the CRM kingdom? by Lisa Picarille

From CRM Magazine November 2002

The customer is king, or some variation of that adage, seems to be the rallying cry of CRM vendors attempting to convince corporate America that focusing on customers will result in a big payoff.

But is there a catch to that catch phrase? Are CRM systems and corporate CRM practices actually driven by customer needs? Or is the current state of CRM really about how businesses can leverage customers to make more money, cut internal costs, or both?

Sadly, most of the CRM business processes and best practices are used to fine tune the agenda of the corporation, not the customer, says Patty Seybold, president of the Patricia Seybold Group, a market researcher and consultancy in Boston. So although it seems that everyone has been invited to the draw the sword from the stone, in fact, many customers don't have the power to free it.

"If the customer were really king, businesses would be reinventing around the customer and reorganizing around the customer. That is not happening," says Sheryl Kingstone, an analyst with CRM Strategies Group, a Boston-based market researcher. "Technology does not make the customer king." Kingstone cites Walt Disney Co. CRM efforts as an example. About two years ago Disney was looking to segment its businesses around customer demand and map technology to support that, she says. The plan was never fully realized.

Although Disney's plan fizzled out, it shows that some companies truly are focusing on their customers. "Saying the customer is king is industry double speak--but double speak with a caveat" says Denis Pombriant, an analyst with Aberdeen Group, a Boston-based market researcher. "The longer the CRM trend evolves, the truer it becomes. Early CRM was all about transactions and tracking data, not about the customer. Modern CRM is taking a stab at implementing best practices and processes that put the customer first."

Knight or Knave?
But even as customer expectations and influence increase, does it make business sense for companies to crown all of their customers as rulers of the kingdom?

"The goal of a CRM system is not to make the customer king, but to treat the customer appropriately," says Andy Goreing, senior director of service product development at Oracle Corp. "It doesn't mean customers get an increased level of service, but the appropriate level of service."

CRM never promised to make the customer king, says David Thacher, general manager of global CRM for Microsoft Corp. "The premise is not the value of the individual customer, but the customer as an aggregate."

This is one reason that there is a big difference between the impact CRM has had on business-to-business customers and on business-to-consumer customers. B-to-B customers, especially the largest ones, are often considered partners in a relationship (consider Wal-Mart's relationship with supplier Procter & Gamble). Because both the customer and the supplier have something to bring to the B-to-B party, customers often have the leverage to negotiate and in some cases dictate the terms of their deals. That means large B-to-B customers are often given some sort of access to a supplier's CRM system, a customized portal, or at the very least preferential customer service.

Michael Boyd, IT technical project leader for Fujitsu PC, in Memphis, has experienced this firsthand. "As a bigger company we have some leverage in deals with our partners and suppliers. The bigger you are the more you have to offer and the better you are treated." Boyd says.

An executive with a national electronics retail chain who asked not to be identified says CRM systems have helped the midtier companies get better service and support as well. "It used to be that only the largest companies had special discounts and access to companies. Now, even though we are not the biggest customer, we are treated as though we have special clout," he says.

Wielding Excalibur?
Meanwhile, business-to-consumer customers--individuals shopping online, dealing with banks, phone companies, and cable providers--are not given the same treatment. Although many of these types of business have set up Web sites that allow users to check their accounts and pay bills, the companies are still dictating all the terms and conditions. The reason? Unlike large B-to-B customers, the average individual customer rarely knows his value to the company, and therefore rarely attempts to exert any leverage to negotiate better deals.

Still, Seybold says, individual users can make a difference. Two years ago she spoke with Fidelity about its relationships with large customers and Fidelity told her it dealt primarily with top-level human resource executives to set up or modify benefit plans. However, recently Fidelity told Seybold it absolutely has to offer a great experience to the individual employees, because some of its largest corporate customers give employees the option to choose benefits providers. "That is where the power of the end customer can come back to bite a company that is only focused on their customers as corporate entities," she says.

Seybold cites airline frequent flyer programs as the first and most explicit time when companies have showed individual customers their value. Credit card companies also let customers know their value, by offering different levels of credit.

Goreing imagines that in the near future third-party firms might use CRM technology and analytics packages to start a new type of business. He speculates that these new services would charge people to deliver values or ratings associated with how that individual ranks among other users of the same service. For example, an individual might spent $200 per month with her long distance provider and not know that amount is significantly more than what the average person spends monthly. Using that information might give them some power to ask for a more beneficial rate plan.

Some companies might welcome that level of influence from individual customers, because customer who feel empowered might also be more loyal. But even loyal customers can sometimes come with a caveat. Many companies are finding that their most loyal customers are also the most demanding, says Paula Kruger, General Manager of CRM at EDS Corp., in Plano, TX. "The most loyal customers are not always the most profitable, since they are often demanding more service, which means on a transactional basis they are costing businesses more," she says. For example, if a banking customer with $90,000 in savings goes to a teller for every transaction and calls the bank three times a week, then its likely they are less profitable than a customer with $40,000 in the bank who never visits a teller and rarely uses customer support.

Aberdeen's Pombriant says if more people knew their value to the firms they purchase goods and services from, there might be even more churn, an industry term for those who switch services, such as long distance phone providers.

"There are some people who do nothing but churn. Yes, they have some power but they are the least valuable and least loyal group and they act as if they have clout," Seybold says.

The Quest for Power
Although customers may not always know their value to the vendor they buy from, most of those vendors certainly know the value of their customers. The current breed of CRM systems and sophisticated analytics tools have made it possible for those companies to know exactly how loyal and costly or profitable customers are to them. Companies can and should use this knowledge to create a strategy that treats customers individually and appropriately based on their value.

However, businesses should also use CRM to maintain a customer focus. "The more you know your customer, the more you can control them," Pombriant says. "CRM is a tool that is often being used in irresponsible ways and can have deleterious side effects. What you get out of CRM is not always good." Pombriant cites a marketing example: "Overuse of targeted promotions supported by CRM can have a negative effect on company profits and the best CRM in the world isn't going to change that."

The fact is that consumers in the United States are savvier than ever and getting more and more demanding. To many of these customers, having vendors misuse the information they have gathered is as bad or worse than receiving poor service.

"Customers may become more demanding and the landscape may change, but an integral part of what [CRM delivers] is the ability to change and adapt quickly," says Ed Abbo, vice president of technology for Siebel Systems Inc.

This is one reason CRM is so popular among businesses that sell commodity products and services. Currently, for example, the banking industry is feeling economic pressure, and according to a report released in September, customer intimacy is the only viable strategy for financial institutions.

The report, "Competitive Strategies in the Consumer Age," issued by Meridien Research, states that strategies based on product leadership, market leadership, and cost leadership, are not viable for financial institutions. "While each of these has merit, for the majority of institutions only customer intimacy provides the basis of a sustainable strategy," says the report's author, Richard Bell, a senior analyst at the Newton, MA, market researcher. "Successful customer intimacy requires much more than customer knowledge. It requires delivery excellence, support excellence, and becoming a trusted partner with your customers."

Bell says that to date most financial institutions engage in "some unconscious combination of all four strategies, and have yet to come to grips with the fact that this is an attitude problem. It has to be what a bank does. It has to be pervasive. This is not just a customer-driven strategy or one of five strategies. It has to be what the bank is about as an organization."

Bell defines customer intimacy as dealing with complex financial issues such as education, retirement, wealth management, wealth transition from one generation to the next, and getting insurance in order.

"The engagement is complex, but the value to the customer is large and the profitability for the bank is even larger," he says. "There are enormous engagement costs, and the resources are consumptive, but the fees are enormous and it's a way to make money hand over fist." Translation: Treating the right customers royally--having a customer-centric strategy--returns a king's ransom in profits.

Whose Throne Is It?
Whether the customer is or should be king, the fact remains that CRM systems and the Web have set and continue to raise customers' expectations higher. "People expect a higher level of service," says Holly Holt, senior product manager of CRM for Microsoft Great Plains Business Solutions, in Fargo, ND. "And while CRM is a strategy supported by software. You have to have people at the core making decisions."

Customer loyalty expert Dianne Durkin agrees. As customers get more demanding, businesses will need more than sophisticated CRM software, she says. "Software is great, but it is not the answer," says Durkin, president of Loyalty Factor LLC, a Portsmouth, NH, training and consulting firm that specializes in customer care. "There needs to be a human side, where people are properly trained to clearly identify the emotional and technical needs of their customers." In other words: Beware of overautomating customer care and technical support.

Oracle's Goreing says the first myth to dispel is that moving service to the Web saves money. "If a customer feels compelled to get in touch with a company and finds the Web experience annoying or frustrating, they have twice the frustration," Goreing says.

"Businesses have gone overboard in automating services," Durkin says. "In some cases it is more effective to deal with an automated system, but for the most part people want to talk to another human being." The upside, according to Durkin, is that service centers can use this initial (and possibly negative) interaction and turn it into a positive experience by converting service and support groups into revenue generating centers. Her theory is that once customers receive a polite, prompt resolution, they will be receptive to someone selling them additional goods or services--provided these are targeted specifically to them.

She also says that as customers begin to demand more, businesses will have to have a more systematic way of measuring satisfaction levels. "It needs to be communicated to everyone in the company that their paychecks are coming from you as a customer, and that they need to keep you, the customer, to continue getting paid. The customer certainly will be treated as king if [employees] believe customers pay their salaries," Durkin says.

The next step, according to Seybold, is to know the other relationships of your customers. For example: An individual who spends merely an average dollar amount per month with a wireless phone provider might be considered even more valuable if the wireless company knew the customer's spouse was responsible for selecting the wireless service plan for 5,000 workers at a large company.

Aberdeen's Pombriant says one day we will get to that point, but that right now we are "one step too far removed to identify those types of influencers."

But the technology continues to evolve and the CRM market continues to mature, so most industry- watchers who see the upside of using CRM plan to use it to be customer-focused. "In sales they say hope is not a strategy," Pombriant says. "In CRM kissing up isn't a strategy."

True. But treating customers individually and treating the right customers as royalty can help companies' dreams of profitability come true.

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