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Treating
Customers Badly
By Michael Alan Hamlin
June 21, 2002
Companies ought to treat customers
unequally. The notion that the customer is king is flawed, or at
least an incomplete thought. Only some customers get to be treated
like kings, and those are the most profitable ones. Maybe that shouldn't
be hard to figure out, but as marketing guru Philip Kotler frequently
says, "If it's so easy, why isn't everyone doing it?"
The reason is that treating customers unequally is
hard. Not hard in the sense that companies don't like being mean
to marginally profitable and unprofitable customers. Rather, it's
hard to treat bad customers badly because most companies don't know
who their good customers and bad customers are. Neither do they
know how to turn good customers into great customers because they
don't really know or understand their customers.
Efforts by companies to better understand and interact
with their customers, especially their good customers who deserve
to be treated like kings, is the inspiration for what has in the
past few years come to be called Customer Relationship Marketing
(CRM). CRM has become a big thing for the usual historical reasons
(as opposed to insightful reasons). A few really good companies
learned how to manage customer relationships in a way that helped
them expand what's known as "share of customer" or "share
of wallet." That means, of course, successfully encouraging
customers to give these companies more of their business.
General Electric under Jack Welch is the perfect example.
Welch's tenure with GE is characterized in a very profound way by
specific periods in which new business model refinements (and major
overhauls) took place. The first of those is the legendary vow to
be number one or two in every industry in which the company was
engaged. Where this couldn't be done, the division was sold. That's
how Welch got GE focused on profitable, core sectors (relatively
speaking, of course, since GE is a huge conglomerate).
The next game was the Six Sigma quality initiative.
During this period GE sought to compete on the basis of quality,
which worked for a while. But eventually competitors benchmarked
GE's quality and showed they were just as good. So next Welch concentrated
on efficiency and productivity improvements, otherwise known by
the infamous term, reengineering (although the term as disappeared,
reengineering is alive and well, especially in Asian companies preparing
for liberalization). This provided another period of competitive
advantage until companies again benchmarked GE's efficiency and
productivity.
Welch looked around for the company's next source of
profitability and decided it would be stronger relationships with
customers. Now, identifying these different sources of profitability
wasn't quite as neat as I've made it sound. It was actually a pretty
messy process that involved a lot of upheaval at GE. A lot of people
left, or were asked to leave, who couldn't get with each of these
programs. History shows that Welch doesn't mess around when people
get in the way of progress and profitability.
CRM for GE in those days meant every line executive,
including Welch and his top lieutenants, spent most of their time
with their customers and learning more about their businesses. Before
long, they became almost like consultants, as it became apparent
that GE was well positioned to offer its customers much more than
just products. Specifically, it could offer support services. One
popular instance involved large sales of PCs to clients. GE doesn't
make PCs, but sells them as part of a bundle of products and services
that include systems engineering, systems maintenance, upgrade plans,
and financing among other things. It makes no money on the PCs.
It's the other things that generate profit.
Okay, that's the first reason that CRM became popular:
high-profile success. Note that it had nothing to do with technology.
Rather, it started as an intellectual exercise intended to enhance
business models, and it did. But the second reason CRM is a big
thing these days is that technology has come into the picture. In
the same way that technology automates everything from spreadsheets
to materials planning, it's now being applied to CRM.
Unfortunately, while lots of companies have invested
in CRM in a very major way, by some estimates up to 80 percent of
implementations fail. And most fail not because of the technology,
but because the companies don't really understand what CRM is, and
isn't. Yes, there are some technology issues, especially with best-of-breed
systems that work great on the front end but aren't integrated on
the backend. But the reason companies buy these best-of-breed systems
is precisely because they don't understand CRM.
Here's why. The way companies interface with their
customers has changed dramatically in the past 10 years. Before
then, most companies communicated with their customers through a
single channel, a sales force, retail outlets or branches, or mail,
for instance. Now companies interact with their customers in lots
of different ways. Take banks for example. It wasn't that long ago
that to transact with a bank, you had to actually go to the bank.
Now you enjoy lots of alternatives: ATM, telephone, and the Internet
are the most popular.
The problem with this for banks and other companies
is that it was relatively simple to keep track of customers when
all communication went through a single channel. Now companies must
be able to track communications through multiple channels so that
the customer, despite these many channels, is presented a single
corporate face. An added dimension to this challenge is the need
to have all of the information about a customer, and her orders,
on hand for every channel: sales force, branch, Internet, telephone,
e-mail, etc.
The only way that can be done is if CRM solutions are
integrated with the backend systems of a company. Otherwise, a customer
representative may have plenty of historical sales information on
the person she's talking to, but have no idea where her present
order is. Even more important, the representative won't know how
profitable this customer is because CRM solutions alone can't tell
you that (remember, we're talking about profitability, not just
sales volume). If they did, they wouldn't be just CRM solutions.
They'd be enterprise solutions. So despite the big investment in
CRM, your channel representatives would be treating profitable and
unprofitable customers alike the same way.
The bottom line is this: In tough times like this and
in competitive marketplaces, companies can't afford to waste resources
on marginal customers. Good customers and the company all suffer
when that happens. So if you or your clients are implementing CRM,
make sure that it includes the capability necessary to treat customers
unequally. If it doesn't, it's not going to work.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia and the author of three books on Asian economies and companies.
His latest book is Marketing Asian Places, of which he is co-author.
His e-mail address is mahamlin@teamasia.com)
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