Author: Chen
Der-Fu
Candidate of
Doctor of Business Administration
International
Graduate School of management, National University of South Australia
Email: teacher2001@ms52.url.com.tw
Abstract
Wroe Alderson, the father of modern marketing
thought, described marketing channel as ecological system. Alderson offered this
description because of the unique, ecological-like, connections that exist among
the participants within a marketing channel. The organizations and persons
involved in channel flows must be ‘sufficiently connected to permit the system
to operate as a whole, but the bond they share must be loose enough to allow for
components to be replaced or added’.
The collective and common goals for marketing
channel are customer (market) value creation, the concept of value creation
infers a high degree of cooperation and coordination between customers and their
suppliers, close relationships between them have revolutionized marketing
channels in two ways:
1.
Close
relationships emphasize a long-term, win-win exchange relationship based on
mutual trust between customers and their suppliers.
2.
They
reinforce the relationship dimension of exchange that is at the heart of
marketing.
The progression of marketing channels through a
production to a relationship approach has been fostered by the evolving
contributions channel intermediaries have made toward the creation of customer
value (market value).
As much of the developed world faces a recessionary
tide, age-old questions on the nature of creating and sustaining lasting market
value are once again being asked. In the past, questions of market value
creation were answered by investing in tangible assets. Today, those same
questions are being answered by investing in intangible assets. Intangible
assets, such as knowledge, patents, organizational structure, copyrights,
information technology, business processes and brand, among others, now
constitute the majority of value created by firms today. However, ultimately,
businesses are made up of a network of relationships: relationships with
customers, employees, suppliers and partners. These "relationship
assets" constitute a firm's most valuable store of capital and their most
important intangible assets. The ability to create and sustain maximum market
value, therefore, requires a focused set of twenty-first century management
rules. Rules focused on intangible, relationship asset leverage.
In measuring
a firm's ability to build and sustain value creation, one could certainly point
to a firm's ability to leverage its core capabilities over a long period of
time, to a firm's ability to innovate around products or services, or to a
firm's competitive position in its industry. One could even point to a firm's
ability to move quickly in constantly changing markets. We believe, however,
that revenue growth and earnings ultimately come from customers, not products or
services, or even core business capabilities. Furthermore, we believe that a
value-driven ecosystem of employees, suppliers and partners is the
"core", sustainable business asset necessary to capture customers and
their lifetime value - and to generate net future opportunities that will
sustain revenue and net income growth.
Keywords:
Relationship, Marketing Channel, Knowledge, CRM, Core capabilities,
Internal Marketing, IT
To achieve success in a competitive arena, members
of relay teams must pool individual resources to achieve collective goals
through a connected system. In addition, this connected system must be flexible
enough to accommodate changes in the environment. Similarly, for marketing
channels to succeed in a competitive marketplace, independent marketing
organizations must combine their resources to pursue common goals. Wroe
Alderson, the father of modern marketing thought, described marketing channel as
ecological system. Alderson offered this description because of the unique,
ecological-like, connections that exist among the participants within a
marketing channel. The organizations and persons involved in channel flows must
be ‘sufficiently connected to permit the system to operate as a whole, but the
bond they share must be loose enough to allow for components to be replaced or
added’.
Lately, the
industries in Taiwan have seen extreme volatility. Many industry sectors are
again enduring painful layoffs. Warnings of slowing earnings and revenue growth
abound. The indicators of a slowing economy have been evident for some time.
Even the fear of a prolonged recession - and possible depression - is on nearly
everyone's mind. In the midst of such turmoil - only heightened by the fact that
the Taiwan economy is coming off its most prosperous period of growth in history
- fear, uncertainty and doubt reign supreme. Additionally, paranoia and deep
concern of a global recession run high. In a period of slowdown and weakness,
the age-old question is once again begged: How is market value created and
sustained? Certainly, recent moves by many firms reflect short-term survival
tactics. Furthermore, many sectors have seen massive value destruction (in the
form of market capitalization loss) over the last several months, and along with
that, individual investors have also seen severe wealth destruction. In spite of
current conditions, firms would do well not to take their eyes off a long-term
view - off the long-term strategies needed to create and sustain market value -
even in such a period of seeming global economic slowdown and market
instability.
In order to
keep a firm focused on long-term value creation - its net future opportunities -
effective management is essential. In order to manage for value creation, one
must first understand what constitutes value. But what constitutes
value is changing, and the rules of value creation have changed in the
twenty-first century.
The progression of marketing channels through a
production to a relationship approach has been fostered by the evolving
contributions channel intermediaries have made toward the creation of customer
value (market value).
Determining
company value used to be a straightforward process. Chief financial officers,
controllers and accountants painstakingly tracked their business's assets -
items such as property, plant, equipment, machinery and inventories.
Historically, these assets constituted the bulk of what contributes to a firm's
overall value. They could easily be measured and utilized to calculate a return
on investment, as well as easily reported from an accounting perspective. Over
the last several years, however, increasing discrepancies of what determines a
firm's market value have emerged. Arguably, for decades, public markets have
valued firms by the sum total of corporate assets (or tangible assets) that can
be measured through 500-year-old accounting rules and practices. However, the
rules that govern market value have clearly changed.
Many pundits
have argued that with the rise of the "information age", knowledge
became the most valuable corporate assets. However, as knowledge rose in
importance, the ability to measure and account for its value proved elusive.
Nonetheless, knowledge and other "invisible" or "intangible"
assets heavily influence the value-creating process. As such, the last ten to 15
years have seen the rise of intellectual capital - company components such as
trademarks, patents, copyrights and even the tacit knowledge of employees - as
the key determinant of market value. Today, it is quite common for companies to
be valued at more than the sum of their net, or book assets, precisely because
of these intangible components.
In terms of
market-to-book ratio gaps, we can highlight examples from the past and the
present. In 1986, Merck had the biggest gap: its book assets covered just 12.3
per cent of its market value; in 1996, Coca-Cola's book assets were only 4 per
cent of its value, whereas the same figure for Microsoft was 6 per cent; in
2001, even depressed Internet leader Cisco Systems' book assets cover only 25
per cent of its market value, while stalwart GE has book assets covering 10 per
cent of its market value. The examples go on and on. At the same time, some
companies are trading below book value, which might suggest the existence of
"intangible liabilities" (Harvey and Lusch, 1999). Interestingly,
market capitalization has now widely become an important corporate objective,
both to drive perceptions of economic success and to help firms achieve their
strategic goals. Market capitalization is used as a metric for corporate
performance, not just current performance, but more importantly, future
expectations. And the future expectations mantra doesn't just apply to
US-based firms, but also in Asia and Taiwan.
One can
deduce from this trend that building future expectations of growth is becoming
more important and relevant for active value management, and we argue that
managing and maximizing intangible assets is the key driver of these future
growth expectations. However, few firms have systematically begun this process.
Ernst & Young consultants Cambell and Knoess (2000), in a recent industry
white paper, reveal the following:
Tangible
assets amount to just a fraction of the value of the S&P 500 companies. In
fact, less than 25 per cent of their market capitalization is backed by cash
flows to be derived over the next five years, even though most of these
companies admit their planning horizon is far shorter than that. More than 75
per cent of their value must be derived from cash flows far into the future, for
which most cannot specify business plans or management goals, not to mention
budgets or operational plans.
Logically,
it stands to reason that firms must tie strategic energy and vision, allocation
of resources and operational objectives to their intangible assets in order to
drive future growth expectations. But just where do future growth expectations -
and sustained market value - come from?
Where did
the revenue growth and earnings come from? What generated future growth
expectations? According to the Bain study, revenue growth and earnings came from
businesses that focused on growing their profitable, core businesses while
subsequently driving that competitive advantage into areas adjacent to the core.
The assumption we can draw from Bain's study is that firms create net future
expectations by maximizing their core capabilities, over time, while leveraging
adjacent market opportunities for sustainable revenue and income growth.
In measuring
a firm's ability to build and sustain value creation, one could certainly point
to a firm's ability to leverage its core capabilities over a long period of
time, to a firm's ability to innovate around products or services, or to a
firm's competitive position in its industry. One could even point to a firm's
ability to move quickly in constantly changing markets. We believe, however,
that revenue growth and earnings ultimately come from customers, not products or
services, or even core business capabilities. Furthermore, we believe that a
value-driven ecosystem of employees, suppliers and partners is the
"core", sustainable business asset necessary to capture customers and
their lifetime value - and to generate net future opportunities that will
sustain revenue and net income growth. But these assets are not tangible; they
are intangible.
Ultimately,
revenue and net income growth come from a firm's relationships - customer,
employee, supplier and partner relationships that affect the firm's ability to
maximize and grow those customers. While intellectual capital, or intangible
assets, such as trademarks, patents and copyrights may improve the probability
of future growth expectations, customers still choose whether to buy a
firm's products and services. The value of relationships, including customers,
employees, suppliers and partners, is the key predictor of a firm's net future
expectations.
Given our
premise that premium valuation in the market comes from intangible asset value -
the primary driver of any company's future value according to Lev (2001), Philip
Bardes professor of accounting and finance at the Stern School of Business, New
York University - the recent market volatility should not distract the
responsible company from focusing on long-term value creation, regardless of
whether the company might have taken a recent 30-plus per cent hit in its market
capitalization.
The reality
is that competitive survival and success will depend on smart intangible
investments in the twenty-first century. Economic slowdowns and capital market
declines do not change these fundamentals. In order to maximize net future
opportunities, firms would be wise to focus on the most important of intangible
assets, their relationship assets. Maximizing and managing relationship assets -
the new rules of value creation - are essential for a firm's performance in a
new economic era.
Firms do not
exist in isolation. Strategies are first created to identify attractive market
segments to enter, customers to target and products or services that need
developed and sold to generate revenue and profit. Suppliers are a necessary
component of the value chain to build a product or service. Employees are needed
to tackle a whole host of issues including:
 | managing
organizational efficiency; |
| deploying
and maintaining all types of information technology; |
| providing
research and development expertise; |
| acting
as marketing and selling agents; |
| providing
customer service; and even |
| providing
general and administrative support. |
Partners are
needed to distribute and sell, or are leveraged to outsource and manage
components of a firm's business. And, of course, customers are needed to
purchase (initially and repeatedly) the product or service - either directly or
indirectly - that the firm offers. What becomes easily apparent is that the
firm's success is ultimately derived from relationships, both internal and
external. To manage the turbulent waters effectively as we enter a new century
on a note of uncertainty, we must understand that relationship assets are the
most valuable store of any firm's capital. Jeremy Galbreath (2002) submitted a
new order of management rules, or at least an enlightened focus on existing
ones, is in order.
Quality
management guru and author K.R. Bhote (1996) summarizes this research:
| Finding
new customers costs five to seven more times than retaining current
customers. |
| Reducing
customer defection by 5 per cent can increase profit between 30 and 85 per
cent. |
| Increasing
customer retention by 2 per cent equals cutting operating expenses by 10 per
cent. |
Furthermore,
Bhote (1996) uncovers the following sobering facts about customer relationships:
| Of
customers who say they are "satisfied" 15 to 40 per cent defect
from a company each year. |
| Of
dissatisfied customers 98 per cent never complain; they just switch to other
competitors. |
| "Totally
satisfied" customers are six times more likely than
"satisfied" customers to repurchase a company's products over a
span of one to two years. |
Cost and
revenue factors must be appropriately associated with customer assets, just as
they are with traditional, tangible assets.
Interestingly,
in their 1997 book Customer Connections, consultants and authors
Wayland and Cole discovered that the vast majority (greater than 70 per cent) of
Fortune 1,000 firms have not identified their most valuable customer
relationships. These firms and others that do not understand or recognize their
most valuable customer relationships are vulnerable to lost financial and market
rewards.
The
groundbreaking research of Reichheld and Sasser (1990) sheds light on the
financial impact of customer relationships. There are associated costs to
acquire, to maintain the relationship with and to lose a customer. What
Reichheld and Sasser (1990) found was that, across industries, a firm loses
money acquiring a customer and does not see a financial return until later
years, sometimes as many as two to three years, a firm must maintain
relationships with the right customer base over time and accelerate their
purchasing frequency to generate profits (it costs five to seven times more to
acquire than retain). and, retention and loyalty are key predictors of
operational success (a 2 per cent increase in retention rates can cut operating
expenses by 10 per cent). To achieve the loyalty effect, firms must learn and
apply the mathematics and economics behind the measurement and management of
their customer assets.
Survey after
survey reveals that most businesses - most CEOs - are placing significant
attention on customer satisfaction today. In fact, a Juran Institute study found
the following: a full 90 per cent of the top managers in the study were
convinced that maximizing customer satisfaction maximizes profitability and
market share (Bhote, 1996). Contrary to common logic, customer satisfaction does
not necessarily equate to loyal or profitable customers. The reality is merely
"satisfied" implies the customer is sitting at the point of
indifference. Interestingly, the correlation between customer satisfaction and
customer loyalty is very weak. A high customer satisfaction rating is no
predictor of customer loyalty. By contrast, there is a very strong correlation
between customer loyalty, as measured by retention rates, and a firm's
profitability.
The point
here is that customers should be valued as strategic assets, whether or not they
show up on the balance sheet. Managing for customer loyalty will return great
rewards, namely long-lasting relationships where value exchange is high on both
sides and resultant market value creation is assured.
A firm's
employees constitute one of its most critical assets. In the 1999 edition of
PricewaterhouseCooper's annual report, Inside the Mind of the CEO, CEOs
from 19 countries in Asia, Europe, Latin America and North America discussed a
multitude of competitive, technological and management issues. However, when
asked to describe the key asset to competitive advantage in the next ten years
as compared to the present, the number-one response was the same: outstanding
people. Here are a few of the comments from the 1999 report
(PricewaterhouseCooper, 1999, p. 17):
Managing
people in a modern way will be most important - stimulating and empowering them
to act on their own. Another key challenge will be making correct decisions in a
shorter time frame (CEO from Argentina).
People will
always be people. However, despite how much technology changes, people will
remain the most important asset (CEO from France).
Not much
will change. People will be the principal challenge for management - as they
have been for the last three thousand years (CEO from the USA).
Given the
multitude of assets necessary to drive a firm's economic value, one key asset
remains the same: people. A firm's employees will continue to remain fundamental
to economic growth. In a recent edition of Management Review, the
results of a Deloitte & Touche survey of 400 top executives revealed that
two out of three respondents believe attracting and retaining qualified workers
will become increasingly difficult by 2005, as compared to today
(Comeau-Kirschner, 1998). Employees do have significant impact on a firm's
outcome, especially the firm's market value. How a business finds, develops and
retains them is a fundamental management challenge for competing in an era where
intangible assets, such as employees, constitute the majority of a firm's value.
Finally,
firms must pay closer attention to the economic value of its employees within
the context of their relationship assets. While the associated economic value of
customers is becoming refined through newer economic models and analysis tools,
employee value, outside of pure sales professionals, is proving more elusive to
measure. However, a recent report found that companies with employee turnover of
10 per cent or less have as much as a 10 per cent customer retention rate
advantage over a company with employee turnover of 15 per cent or more
(Comeau-Kirschner, 1998). This difference is a clear, measurable bottom-line
advantage when taken in context of customer retention and operating expense
reductions. Additionally, it is estimated that over US $1 trillion in market
capitalization is being lost in four high turnover industries due to stock price
and operating earnings reductions from the costs associated with employee
turnover (Sibson & Company, 2000).
Furthermore,
for leveraging employees relationships assets, we should implement internal
relationship marketing strategy for knowledge renewal and to increase customers
satisfaction.
More
recently, taking a relationship marketing perspective, Ballantyne et al.
(1995) seek to legitimise internal marketing, not by its methods but by its
purpose, which for them is to channel staff commitment and team-work into
market-orientated problem solving and opportunity seeking. They offered the
following definition:
Internal
marketing is any form of marketing within an organization which focuses staff
attention on the internal activities that need to be changed in order to enhance
external marketplace performance (p. 15).
Ahmed and
Rafiq (1995) express a contrary view. They seek to avoid task and functional
ambiguity by setting methodological boundaries for internal marketing. They do
this by proposing a multi-stage schema built around the 4Ps with three strategic
levels (direction, path, and action). In limiting the range of the internal
marketing "tool-box", they are seeking a return to marketing-like
methods (1995, p. 34). The irony is that this was a phrase earlier used by Gro
roos (1990, p. 223) in an attempt to create more (not less) developmental
latitude. Groroos (1990, p.152) makes his holistic intent clear:
Total
management of marketing has to be an integral part of overall management ...
market-oriented management is what it's all about.
Finally,
Varey (1995) offers a holistic model for market-oriented management that permits
a variety of internal change management approaches to enhance the operation of
the model. He sets few limits on the range of means for achieving
market-orientated ends, subject to collaboration through internal alliances.
My analysis
of the literature leads me strongly to this conclusion: The common denominator
in all internal marketing perspectives is knowledge renewal. This may seem a
surprising claim on the surface but I arrive at this focus simply by reframing
the evidence. By knowledge renewal, I mean generating and circulating new
knowledge. This could involve, for example, market intelligence made usable as
an organizational resource by capable employees who can define and share its
meaning with others. "Staff satisfaction", in this reframing, becomes
a possible indicator of the process of internal marketing in action rather than
its goal. Whatever methods are used, the goal is to enhance the customer
consciousness of employees, or customer perceived performance, or, more broadly,
stakeholder value.
From this
analysis, two methods for internal marketing emerge. The methods of internal
marketing are aligned either:
1.
With transactional marketing (aiming to satisfy customers' needs profitably); or
2.
With relationship marketing (aiming to create mutual value with customers or
other stakeholders).
In each case
the marketing methods are turned inward. However, from the literature, it is
transactional marketing that embraces 4Ps didactic methods, whereas relationship
marketing embraces more collaborative approaches. Thus, with internal
relationship marketing, the disciplinary origin of particular "tool
box" methods is less likely to become a territorial issue.
Reframing
internal marketing this way, I have developed a 4-square matrix of internal
marketing activity (see Figure
1). The dimensions of this are:
(Monological
methods - limited two-way interactions):
1
To capture new knowledge (measure and control data with guidance from a
"select few" staff and supported possibly by information technology);
2
To codify knowledge (promulgation of new product information, policy and
procedures, etc.)
(Dialogical
methods - open two-way interactions):
3
To generate new knowledge (cross-functional project groups, creative approaches,
innovation centres, quality improvement teams, etc.);
4
To circulate knowledge (team-based learning programmes, skills development
workshops, feedback loops, etc.)
The purpose
of internal relationship marketing is knowledge renewal and this takes two
discrete forms. The first is knowledge generation, meaning the creation or
discovery of new knowledge for use within the organization, with external market
intelligence as inputs. The second is knowledge circulation, representing the
diffusion of knowledge to all that can benefit, through the chain of internal
customers to external customers.
As I have
argued elsewhere, dialogue and generating new organizational knowledge are two
sides of the same coin (Ballantyne, 1999). However, Dixon (1999, p. 7) cautions
that the process of organizational learning is not to be confused with the
codified store of accumulated knowledge of an organization (its intellectual
capital). One may of course feed the other in a continuous process of
"construction and reconstruction of meaning". The key point here is
that organizations do not just capture and process information from the market
and adapt to it, as is commonly supposed. In order to create new knowledge, they
actively engage in reshaping the assumptions on which existing knowledge is
built. This is the reconstruction of meaning or, more simply put, knowledge
renewal.
How do the
four learning activity modes connect to the concept of knowledge renewal? To
show this I will draw particularly on the insights of Nonaka and Takeuchi
(1995). Each phase of the internal marketing activity cycle will be discussed
once more (see Figure
2), this time specifically linked to Nonaka and Takeuchi's four-phase theory
of knowledge creation (their four phases are contained in the bracketed
sections):
1 Energising:
developing common knowledge (socialization: knowledge interactions from tacit to
tacit) What is at issue at this phase in knowledge renewal is the
willingness of employees to pass on to each other their hard won know-how
(Nonaka and Takeuchi, 1995, pp. 56-94).
2 Code
breaking: discovering new knowledge (externalization: knowledge interactions
from tacit to explicit) In terms of Nonaka and Takeuchi's (1995) theory,
this phase is understood as raising tacit knowledge to explicit levels through
creative dialogue.
3 Authorizing:
obtaining cost-benefit knowledge (combination: knowledge interactions from
explicit to explicit) The transfer of knowledge in this phase is from
explicit to explicit, between departments, their decision-makers, and those
proposing changes.
4 Diffusing:
integrating knowledge (internalization: knowledge interactions from explicit to
tacit) New knowledge is not just a matter of processing objective
information (with technologies such as "data mining" and "data
warehousing"). According to Nonaka and Takeuchi's theory, the final
knowledge transfer, completing the cycle, is from explicit to tacit, as new
knowledge is circulated, tested, integrated and codified into new designs,
policies, procedures and training programmes.
A cycle of
activity for knowledge renewal is the other side of the cycle of organizational
learning (Figure 2). The circularity of the process challenges the marketing
assumptions that need to be changed. The shift to "customers first"
logic meant that existing organizational knowledge could be reframed, a
consequence of looking at the world through new eyes. Thus new knowledge was
"discovered" in a new patterning of the verities. Much of what we call
new knowledge occurs in this way, that is to say, when we recognize the
possibility of new patterns of cognition and act them out.
Thus far the
developing theory of internal marketing makes strong connections between
learning activity and knowledge renewal. However, there is one more connection,
and this is the key to the sustainability of the other two. This is the
spontaneous community of participants, shaped within and by a supportive network
of relationships.
My
interpretation is that a series of behavioral intentions underlie relationship
development through the four activity phases for knowledge renewal. These move
from commitment to trust, trust to obligation, obligation to trust, and from
trust back to (re) commitment (see Figure
3).
Given the
initial commitment that voluntary participants bring to any project, these
developmental changes seem to occur as a result of interactions within the
spontaneous community of participants and with supportive executives, not
because of any innate imperatives participants have of their own. As a result of
the experience of working through the four phases, the commitment of
participants is strengthened by their experiences, or it falls away. These
behavioral intentions seem to be cognitive adaptations to the working
environment, where people are learning as they interact with each other, gaining
knowledge as they learn.
Personal
commitment would seem to be of two forms that are often subsumed into the one.
First, a commitment to achieve something or to behave in a certain way and
second, a commitment inspired by obligation to others. In the banking case, the
first involves a personal view of the likely beneficial outcomes of internal
marketing, and the second involves the operation of reciprocal benefits in order
to get things done. For this reason I have retained the separation of terms and
meanings.
Trust, in my
view, is a pre-condition for obligation but not for personal commitment. Trust
in the context of the banking case meant that reliance was placed on another
person or happening in relation to a hoped for or expected outcome. There was
some risk involved, or even faith (as in "blind" trust), and certainly
some confidence in others as a consequence of past experience, or as a condition
of the banking norms of particular kinds of relationships. Some would go further
and say that trust is a precondition of social life (Sabel, 1993).
Certainly,
cooperation in group-tasks comes into play through interactions based on trust.
That is to say, trusting in oneself and containing your own anxiety and, at the
same time, trusting others through interactive experience (Ballantyne, 1999).
Put another way, the interdependence of participants, a condition of effective
group membership, became in part a consequence of dissolving boundaries of
mistrust, one to the other, and between wider coalitions, one to another.
Institutional
economists have argued that risk, not trust, is "exactly suited" to
describing the calculative behaviour of economic actors (Williamson, 1993). Yet
this is a poor indicator of behavioural intent in the banking case. It does not
provide a guide to behaviour in situations where institutional norms provide
limited protection. In the banking case, risks were often faced by acting
provisionally in trust in unfamiliar situations and without formal institutional
safeguards. Trust was viable because it was a necessary condition for a job that
was beyond anyone acting alone.
Interpersonal
relationship development within internal marketing, based on these fluxing
behavioral intentions, is interpreted as the evolution of a series of cognitive
re-appraisals along a personal path to "customer consciousness".
Customer
consciousness can be understood as a belief in the centrality of the customer in
the conduct of the affairs of a particular business organization. This would
seem to align with Groroos' use of the term (Groroos, 1981, 1990). However, I
wish to go further and capture a deeper meaning for customer consciousness as a
form of tacit knowing, a human quality that means more than memory and
perception but relies on both. This is a part of a personal realm of
understanding, an "intuitive" sense that we can know more than we can
tell (Polanyi, 1996, p. 4).
Customer
consciousness is developed through internal marketing and the learning and
knowledge that come from that experience. It may also be renewed directly
through interacting with customers or perhaps through market intelligence, aided
by database "mining" of correlations of customer behaviors. However,
possession of market intelligence does not itself signify customer
consciousness. Just as tacit knowledge is acted out, so is "customer
consciousness" acted out, and observable in action.
In summary,
the tacit knowledge of participants, coming and going, and market research
intelligence provided renewable inputs for the internal marketing activity
cycles. Internal relationship quality, improved customer consciousness, and
enhanced marketplace performance were the outputs, expressed in different ways
at different places (see Figure 3).
I will now
conceptualize the internal network pattern that grew quite spontaneously to
support the internal marketing effort in the banking case. The network of
participants and supporters proved invaluable in generating and facilitating
knowledge transfers of value to the host organization (Ballantyne, 1997, p.
361). Three separate clusters within this network can be identified according to
function. These I have termed catalyst, coalition, and constellation.
Over five
years the recurring activity cycles gained in mass, one cycle giving rise to
another, with the head-office team acting as a catalyst. Their commitment and
continuing support of the network were important as the network drew their cues
from this source. However, in no conventional sense was the overall programme
"managed". It was their task to try to create the conditions,
environmental settings and workshops where "customer consciousness"
might be exemplified and experienced. Care was needed to try to make sure that
every explicit or implicit promise made was fulfilled in action; otherwise the
credibility of the programme was at risk (Ballantyne et al., 1991, pp.
209-10). The umbilical cord to the catalyst was necessary as support at first,
less so as time went on. The catalyst function gave protection from predators by
providing creative space for volunteer teams to work with autonomy and in trust,
enfolded within rounds of their more routine work activity.
Next, staff
coalitions emerged in head office specialist departments, and their self-chosen
function was to provide advocacy and information across hierarchical borders.
The role of the bank's premises department was critical, for example, in
providing political clout for the redesign of customer interactive environments.
Collaboration with specialist departmental stakeholders enabled other
departments to discover new ways to have their goals met within a common
purpose.
Likewise, in
the regions and branches, constellations of internal marketers emerged. Their
function was to provide informed support for regions new to the "customer
first" programme. Again, such involvement was voluntary. The term
"constellation" is borrowed from Wikstrom and Normann (1994) as it
seems apt to talk of a great number of "stars" spreading their light
in newly recognizable patterns.
My
interpretation of these relationship-developing events is as follows. The
network pattern of catalyst, coalitions and constellations grew in response to
the cyclical "spin" of learning activity, the related knowledge
renewal processes at work, and the cohesion provided by strong personal
relationships among the agents of change (participants). Also, I recognize the
role of catalyst in providing constancy of purpose and in maintaining a climate
of legitimacy for the internal network. These are non-trivial issues from my
perspective.
The
organization of internal networks is seldom mentioned in mainstream marketing
literature. The closest links would seem to be innovation and entrepreneurial
studies. Guidance as to how a marketing network operates within a host
organization therefore breaks some new ground. However, we need to consider the
International Marketing and Purchasing (IMP) network theory developed from
empirical studies in industrial settings. Here we find that relationships are
understood as the interplay of activity links, resource ties and actor bonds
(Hakansson and Johanson, 1992; Hakansson and Snehota, 1995).
Nevertheless,
there are two interesting points of difference. First, the banking network was
located within one company rather than comprising many companies within one
network. Second, the banking network comprised individual employees, acting as
an internal agent of change in a service company setting, not business to
business activity. This leads me to support the conjecture of one leading
relationship marketing author that all marketing activity develops
through interactions within networks of relationships (Gummesson, 1999a, p. 73).
Thus my
working hypothesis (following Gummesson) is that all marketing is grounded in
interactions within networks of relationships, regardless of defining industry
groups and regardless of legal-rational company borders. On this basis, all
internal marketing is potentially relationship marketing turned inward. If the
purpose of this activity is knowledge renewal, then it comes down to the choice
of traditional or relationship marketing methods, and making important
judgements about the degree of company-wide cooperation available.
The specific
implications of this research for the practical development of internal
marketing are as follows:
| The
potency of internal marketing depends on the circularity of a multi-phase
relationship development process and the evolution of a voluntary staff
network of advocates. |
| Three
strands of the relationship development process work together and are
interdependent. These involve learning activity, knowledge renewal, and the
behavioral intent of the community of staff participants. |
| Transactional
methods of internal marketing (especially one-way communications) have a
limited potency for knowledge renewal, except for the promulgation of
explicit and indisputable facts. The more complex the task, the more
important it is to work through the relationship development cycle in all
its modes to generate purposeful knowledge. |
The strength
of internal (relationship) marketing is its intent coupled with trusting
employees and being trustworthy. The forgotten truth is that organizational
knowledge is renewed through interaction and dialogue. The traditional marketing
mindset blinds us to the fact that with collaboration, across departmental
borders, new knowledge and interdisciplinary tools are available.
Internal
marketing of the ambition and scope of the banking case is unlikely to succeed
as a stand-alone departmental effort. Marketing may provide leadership but the
cycle of activity demands collaboration between departments.
"Energizing" and "diffusing" involve new learning behaviors
and thus require the cooperation of HRM, and "code breaking" and
"authorizing" beg support from operational departments.
It is a
matter of concern that the market orientation literature has not recognized that
internal marketing is a way of engaging employees in knowledge renewal, as a
unique resource for competitive advantage. This is especially so when some
theorists include inter-functional coordination and learning organization theory
as part of their concept (Narver and Slater, 1990; Slater and Narver, 1995).
Internal
marketing is a strategy for relationship development for the purpose of
knowledge renewal. The case study interpretation suggests that the limits to
creating new knowledge within networks of relationships are where you want to
put them, be they external, internal, or the borderlands between the two.
Figure 1 Internal marketing matrix, Source: David Ballantyne (2000)
Figure 2 Internal marketing as knowledge renewal, Source: David Ballantyne
(2000)
Figure 3 Knowledge renewal as relationship development
Figure 4 Interactions within networks of relationships, Source: David Ballantyne
(2000)
Prahalad
(Prahalad and Ramaswamy, 2000), entrepreneur and professor at the University of
Michigan Business School claims that, as firms incorporate the customer
experience into their business models, the "co-opting of customer
competence" relies heavily on the supply chain. We believe that in the
extraction of value from relationship assets, suppliers do indeed play a dynamic
role in creating corporate worth and growth and are a key determinant of a
firm's performance and ultimately market valuation. Careful attention and
measurement must be given to this component of the value chain.
A firm's
supply chain is a network of facilities that aims to have the right
products/services in the right quantities at the right moment, all at minimal
cost. Historically, many firms have viewed the dynamics of this complex system
as being out of their control, or simply as the cost of doing business. Today,
the Internet is acting as a great "aggregator" of supply chains. With
the ability to create electronic supply-chain processes and real-time delivery
of information, and the ability to review and contract with suppliers from
anywhere in the world - all nearly instantaneously - many firms now find
themselves on equal billing with the largely closed environment of the EDI-based
supply chains of the past. Additionally, information-based supply chains -
largely driven by the Internet - are chiefly responsible for mass customization,
real-time demand forecasting and decreased production and inventory costs, all
aspects of the supply chain that a company such as Dell Computer has enjoyed -
and exploited - for years.
| Dell
Computer, among many other firms, not only has been exploiting effective
supply-chain management for years, but also is realizing considerable
financial returns in the process. Supply chains must be managed not just to
create efficiency or to reduce costs, but to achieve growth and maximum
market value. |
In the end,
supply chains, regardless of the technological form they take, are increasingly
becoming a competitive differentiator and, thus, one of a firm's most important
assets. Proper focus and management are in order to exploit the value of this
asset. According to supply-chain analyst and Newton (2000, p. e6) with AMR
Research:
Companies
are no longer competing so much on their products as on their supply chains.
For many
industries today, sources of revenue as well as the ability to craft and execute
strategy come through means other than the firm itself. Forward-thinking firms
recognize that the economic ecosystem "contract" is the tie that binds
their success in the marketplace. As such, value from the various partner
relationships must be evaluated with the same rigor as other relationship
assets. Although many firms have a variety of partnerships, we believe they can
fundamentally be divided into two distinct categories:
1
alliance partners; and
2
distribution / indirect channel partners.
The ability
to leverage alliance partners is no longer a "nice to have"
proposition, but rather a strategic imperative today. In fact, in the last two
years alone, more than 20,000 alliance partnerships were formed worldwide, more
than half of which were formed between competitors. Furthermore, the typical
large company manages 30 or more alliances, which account for anywhere from 6 to
15 per cent of its market value (Kalmbach and Roussel, 1999). Why the sudden
explosion of alliance creation? One factor may be due to the tremendous time
constraints and financial pressures imposed on firms as they seek to maximize
competitiveness with limited resources. Another driving factor may be the
expensive failure of many acquisitions over the last several years. Alliance
partnerships are proving to be not only a good vehicle to achieve the growth
goal, but also an extremely important corporate asset.
Alliance
partners typically constitute relationships between firms focused on filling
single and multiple gap deficiencies, creating integrated products and/or
services or forming a breakout offering. Joint partnerships might also leverage
R&D capabilities as a means of sharing costs or creating proprietary
technology or standards. In an era of increasing speed, creating alliance
partnerships can also serve as a means of getting to market faster, ahead of
competitors.
Many firms
rely heavily on distribution and indirect channel partners. Indeed, some sectors
of the economy, for example, high-tech and drugs, sell as much as 60 to 70 per
cent - even 100 per cent - of their product through indirect channels.
Delivering the right product or service, at the right time, at the right place
and at the right cost may require multiple sales channels, especially for firms
competing in global markets. Indeed, for firms to compete in such markets, both
direct and indirect selling are necessary. Therefore, the channel partner, while
in some respects under threat via the Internet, is still a viable and thriving
component of a firm's relationship assets. Managing channel partners for market
value creation is tricky at best. However, partnerships, whether they are in the
form of alliance partners, channel partners or both, do significantly enhance a
firm's ability to create value in the market and, thus, its financial
performance.
Furthermore,
firms that successfully integrate and manage partnerships enjoy higher
profitability on their alliances. Successful partnerships see 20 per cent
profitability, as compared to only 11 per cent for the less successful
companies. Revenue generation from high-success alliances equates to 21 per cent
of a firm's overall sales, as compared to 14 per cent of low-success
partnerships. Those numbers will rise to 35 per cent and 24 per cent,
respectively, by 2004 (Harbison et al., 2000). However, research from
KPMG suggests that as many as 70 per cent of all partnerships fail to achieve
stated goals (Murphy and Kok, 2000).
As firms
seek to close ever-complicated strategic gaps, they increasingly embrace
partnerships to achieve their goals. But what constitutes a successful
partnership if up to 70 per cent fail? Determining partnership success is
complicated at best because many partnerships do not establish measurable goals
- nor do they actively measure the outcomes of the partnership. Perhaps the best
way to determine success is through understanding why partnerships fail.
According to KPMG, firms identify, select and engage in partnerships through a
variety of "hard" and "soft" reasons. Hard selection
criteria are based on rational, objective reasons such as market position,
complementary skills, financial strength and geographic reach. Soft selection
criteria are based more on intangible aspects such as commitment, chemistry and
trust. KPMG's research suggests that in the 70 per cent of strategic partnership
failures, 30 per cent of the reasons are attributed to the hard issues of
complementary skills and market position, and 70 per cent to the soft issues of
chemistry, commitment and culture (Murphy and Kok, 2000). So relationship
issues, rather than structural issues, are perhaps the largest determinant of
partnership failure today.
Careful
partner selection, coupled with the ongoing management and the nurturing of
trust throughout the lifecycle of the partnership, is critically important to
ensure optimal performance. Firms seeking to generate positive value from
partnerships would do well to carefully determine their full impact within the
overall scope of their relationship assets, and then select, manage, measure and
learn from their partnerships appropriately.
Channels Relationship
Model (CRM)
According
earlier definition of marketing channel as an array of exchange relationships
that create customer value in the acquisition, consumption, and disposition of
products and services. Each component of this definition is embedded in the
channel relationship model.
The term
array refers to the assortment of human (social) interactions that occur within
and between marketing channels. In the CRM, there are three fundamental human
interactions.
1.
Within the marketing
organization (intraorganizational).
2.
Between marketing
organizations (interorganizational)
3.
Between marketing
organizations and their environment.
How do these
exchange relationship play out in the market ? fundamental changes are currently
unfolding in nearly all industries and these changes are redefining the nature
of the marketplace. The needs of industrial users and consumers are becoming
increasingly sophisticated, to the point where many now insist on consultative
and vale-added partnerships rather than impersonal and brief encounters. The
array of exchange relationships is critical to the development of customer
value.
Creating customer value
Four
components of customer value:
For customer, marketing channels create form, place, possession, and time
utilities.
Maintaining
customer relationship:
Investing in efforts to maintain existing customers is far more cost efficient
than investing in attracting new customers. In fact business spend six times
more money attracting new customers than they do to keep existing ones. About 70
percent of complaining customers will continue doing business with an
organization if they perceive the problem had been resolve in their favor.
Typically, the newly satisfied customer then spreads the good word to about five
other people. Given such word-of-mouth communication, it is obvious that the way
problems within the customer-supplier relationship are resolved has far-reaching
ramifications. And the opportunity to develop long-term customer relationship is
not limited to product manufacturers or suppliers.
The
CRM captures four classes of exchange relationship in marketing channels:
1.
The relationship between a
channel member and its external environment.
2.
The relationship between a
channel member and its internal environment.
3.
The relationship between
channel systems.
4.
Long-term relationship between
channel members and their channel system.
One of the
most dynamic information technology (IT) topics of the new millennium is the
area of customer relationship management (CRM). At the core, CRM is an
integration of technologies and business processes used to satisfy the
needs of a customer during any given interaction. More specifically, CRM
involves acquisition, analysis and use of knowledge about customers in order to
sell more goods or services and to do it more efficiently. It is important to
note that the term "customer" may have a very broad definition that
includes vendors, channel partners or virtually any group or individual that
requires information from the organization.
In IT terms,
CRM means an enterprise-wide integration of technologies working together such
as data warehouse, Web site, intranet/extranet, phone support system,
accounting, sales, marketing and production. CRM has many similarities with
enterprise resource planning (ERP) where ERP can be considered back-office
integration and CRM as front-office integration. A notable difference between
ERP and CRM is that ERP can be implemented without CRM. However, CRM usually
requires access to the back-office data that often happens through an ERP-type
integration.
CRM
principally revolves around marketing (Kotler, 1997) and begins with a deep
analysis of consumer behavior. It uses IT to gather data, which can then be used
to develop information required to create a more personal interaction with the
customer. In the long-term, it produces a method of continuous analysis and
refinement in order to enhance customers' lifetime value with the firm. Wells et
al. (1999) noted, "both [marketing and IT] need to work together with
a high level of coordination to produce a seamless process of interaction".
However, in order to work effectively with marketing, IT managers need an
understanding of the fundamental marketing motivations driving the CRM trend.
Long ago,
businesses were well adapted to managing customer relationships; the old
mom-and-pop grocery store is a good example. Customers were greeted by name;
staff knew exactly what each customer ordered, what things they preferred, and
how likely each customer would pay on time. As a firm's knowledge of marketing
"advanced", the needs of any one customer were lost in exchange for a
more efficient trend known as a marketing orientation (Pride and
Ferrell, 1999). A notable result of the marketing orientation is what is now
coined as customer segmentation. Segmentation is essentially
aggregating customers into groups with similar characteristics such as
demographic, geographic or behavioral traits and marketing to them as a group.
Consequently, each member of the segment has similar needs and wants; however,
they are not completely uniform. The result was that customers often received most
of what they wanted but still had to compromise on many desires.
This method
was a cost-effective way to target groups of customers and proved to be a strong
competitive advantage. However, after nearly five decades of use, customer
segmentation is no longer the competitive advantage it once was and is now often
considered a minimum requirement of doing business. In order to regain the
competitive advantage, leading firms are now ushering in a new orientation that
might be termed a customer-centric orientation (see Figure
5).
During the
1850s, businesses could sell almost anything they made. Consequently it was a
seller's market and businesses focused on production. Early in the 1900s,
competition was creeping up and businesses realized customers wielded more power
and firms had to find reasons for people to buy their products. This brought
about a sales orientation. By the 1950s, businesses began to realize they had to
make what people wanted instead of trying to convince them to buy whatever they
had to sell, which ushered in the marketing orientation. The marketing
orientation focused on addressing the needs of market segments. We are now at
the beginning stages of a new customer-centric orientation.
A
customer-centric firm is capable of treating every customer individually and
uniquely, depending on the customer's preference. As Berger and Bechwati (2000)
put it, the "core of relationship marketing is the development and
maintenance of long-term relationships with customers, rather than simply a
series of discrete transactions". They further note that a guiding
principle is the management of a customer's lifetime value (CLV). Rather than
calculating profit from a discrete transaction, the firm must consider the value
of a customer over his or her entire relationship with the firm.
Many are
likely to argue that a customer-centric orientation is simply a subset of a
marketing orientation and an extension of segmentation (down to a one-to-one
relationship). The author of this article disagrees, in that companies will now
fundamentally have to change the way in which they market their products - it is
a fundamental shift from managing a market, to managing a specific customer. In
a marketing orientation, firms were still very much in control of the marketing
mix, in the future, firms will be driven more and more by individual customer
preferences.
As an
example of this trend, Levi's can custom tailor your next pair of 501 jeans, and
perfumes and cosmetics can be quickly blended for specific users. Nearly
everyone can imagine a car-buying experience where they had to purchase
something they did not want, missed out on an accessory that was not available
or both. Customers are forced to compromise because manufacturers make products
for groups, not individuals. However, in this day and age, it is hard to accept
why it is so difficult to get a car exactly as you want with so much technology
available!
CRM was
invented because customers differ in their preferences and purchasing habits. If
all customers were alike, there would be little need for CRM. Mass marketing and
mass communications would work just fine (McKim and Hughes, 2000).
In the
future, the firms most successful will be the ones practicing CRM. Wells et
al. (1999) summarizes the overall philosophy of CRM, by saying:
... a
one-to-one marketing paradigm has emerged that suggests organizations will be
more successful if they concentrate on obtaining and maintaining a share of each
customer rather than a share of the entire market, with IT being the enabling
factor.
So, what is
fueling this new shift in marketing? One word: Technology. Niche firms have
always had a role in customizing products, but it is just recently that
customization of products and services on a mass scale have become a realistic
objective; thanks mostly to fast, low-cost, networked environments.
With the
above discussion on the fundamental understanding of the business and marketing
principles driving the CRM trend, let us now turn our attention to the IT
manager's role in creating the technical infrastructure.
Figure 5 Business orientations of the last 150 years
The value
creation and management rules of the new century focus squarely on
relationships. The value of the firm's relationships - the relationships with
customers, employees, suppliers and partners - constitute its most valuable
assets. In an era of intense competition, price battles, daunting human resource
issues, globalization, product and service commoditization and near technology
overkill, once the smoke has cleared, businesses are left with the relationships
they acquire, build and maintain. The value of relationships is what firms must
stand on. And understanding the value of these relationships and how to maximize
that value will determine the winners and losers in the twenty-first century.
Developing
an efficient, leveragable framework for measurement and management of a firm's
relationships is, therefore, paramount in the quest for maximizing market value.
Intangible
assets, by their very nature, are hard to quantify and measure. The reality is
worldwide-adopted accounting principles, developed 500 years ago, are used by
nearly every business enterprise today to value and account for assets, namely
assets that are tangible. And these principles and rules, enforced by
government-regulating bodies, say little or nothing about accounting for or
valuing intangible assets, beyond the accounting for goodwill in merger and
acquisition transactions. That being said, there are efforts focused at the
university, private and even governmental levels on creating standardized
practices to measure, account for and report intangible assets, especially in
Europe and the USA. However, the best guess consensus is that we are many years
away from realizing standardized, broad-based intangible asset accounting
practices. In the meantime, businesses of all types are left to their own
creativity in how they measure and ultimately manage their intangible assets.
Fortunately, there are a few guiding principles that have been put forth by both
academicians and practitioners over the last few years.
As with many
assets, there can be multiple ways to measure their value. Unfortunately,
intangible assets pose difficulty in even finding a single method to measure -
with accuracy and confidence - their real value. There are no standards in
place, at least at the discrete, component level. There is no hard-defined
science behind valuation and measurement techniques. However, there are a few
valuation "equations" that managers and executives can leverage to
begin to measure the value of these hidden assets. A few major methods are
listed below:
| Market-to-book
ratios. This ratio is
perhaps the most widely used ratio today to determine the value, or worth,
of public companies. The measurement itself is rather simple: price share
?total number of share outstanding = market value. Subtract book value (i.e.
book assets) from the market value number and you have either a positive or
negative number, indicating the value of intangible assets or possibly,
intangible liabilities. The market-to-book ratio would be considered a
market-based approach. |
| Tobin's
Q. Developed by Nobel prizewinning economist
James Tobin, the Tobin q compares the market value of an asset with
its replacement cost. Tobin developed this calculation as a way to predict
corporate investment decisions independent of any macroeconomic factors such
as interest rates. Summing up the equation, if q is less than 1
(i.e. if an asset is worth less than the cost of replacing it), then it is
unlikely that a company will buy more assets of that kind. In the reverse,
if an asset is worth more than its replacement cost, a company will likely
invest in similar assets. While Tobin's q was not developed as a
measurement of intangible assets, it is a good one. Tobin's q would
be considered a cost-based approach. |
| Cash
flow. This approach basically looks at the income
producing capability of the asset (including an intangible asset) to be
valued. The future economic benefits are equated to the present value of the
net cash flows anticipated to be derived from ownership of the asset. The
calculation of the present value of the cash flows is derived by utilizing
an appropriate discount value of the factor, which will of course be
different at each company. Cash flow would be considered an income-based
approach. |
| Calculated
intangible value (CIV).
Created by NCI Research and the Kellogg School of Business at Northwestern
University. The CIV, in essence, compares the average return on assets of a
company versus that of the industry. The CIV doesn't measure market value,
but rather measures a company's ability to use its intangible assets to
outperform other companies in its industry. The CIV would be considered an
asset-leverage approach. |
The reality
is, since most businesses don't even know what intangible assets they have, the
ability to accurately measure their value is most difficult, especially at the
individual asset level. As intangible assets, and particularly relationship
assets, continue to take center stage in the minds of companies and even
governmental institutions concerned with creating accounting standards for these
assets, broader and more refined measurements will be developed.
The old
adage "If you can't measure it, you can't management it" rings
especially true with intangible assets. For hundreds of years we have measured
and managed tangible assets, but the focus on measuring and managing intangible
assets has just begun. By example, Celemi, a knowledge management services firm
based in Sweden, offers practical steps in the management (and measurement) of
intangible assets.
Celemi uses
what it calls an intangible asset monitor (IAM), developed by author and
knowledge management consultant Dr Karl Erik Sveiby. The IAM not only provides a
system of measurement, but a system of management of intangible assets as well.
Celemi has been using this system since 1995. The company uses the IAM to
monitor three overall intangible asset categories:
1
customers (external structure);
2
people (competence); and
3
organization (internal structure).
Under each
of the interdependent categories, Celemi tracks three key areas:
1
growth/renewal;
2
efficiency; and
3
stability.
Each has its
own set of specific performance indicators. An excerpt from Celemi's (2000) 1999
annual report, shown in Figure
6, reflects how the company monitors its intangible assets.
Celemi has
developed a color-coding system in order to help them monitor the overall
performance of their intangible assets. Cells that are colored green (grey in
Figure 1) are an indicator that the measurement is equal to or greater than
their strategic plan target. Red (black in Figure 1) cells indicate values less
than 80 per cent of target. Yellow (white in Figure 1) cells indicated values in
between.
At first
glance, this system may appear to be purely a measurement and performance
indicator tool. However, Celemi clearly uses their IAM as a management tool as
well. First of all, the tool allows Celemi to understand how well they are
positioned for the future; it acts as a lead indicator. This allows Celemi
management to understand better where resources need to be allocated and managed
to improve effectiveness. Second, the IAM allows Celemi leaders to ensure the
company is growing in line with its strategic plan and to be alerted to untapped
potential in the way they are developing and managing their business. Lastly,
the IAM allows Celemi not only to set overall strategic goals for the global
business, but enables global managers to set their own goals based on
marketplace differences - and to manage their businesses appropriately.
Ultimately, Celemi's IAM serves as a framework to develop, measure and manage
their intangible assets (in accord with their tangible assets) in order to
create and deliver positive future opportunities.
Figure 6 intangible
asset monitor (IAM)
Relationships and the
interaction process
Long-term
inter-firm relationships
Three
types of exchange relationships:
1.calculative exchange relationships 2. ideational exchange relationships 3.
genuine exchange relationships.
Four
elements that are associated with all exchange episodes: 1.products and services 2.
information exchange 3. financial exchange 4. social exchange.
Four
stages of channel relationships:
1.awareness 2.exploration 3.expansion 4. commitment
Apply
the basic principles of relational exchange to buyer-seller dyads: there are five levels of
relationships may develop as markets move from the discrete transaction to
relational exchange. 1.buyer-seller relationships is high discrete. 2. is
reactive marketing 3. known as accountability. 4.is demonstrating continuing
interest in customers. The interest should be proactive. 5. is a real
partnership. Here, sellers form alliances with customers.
Strategic
implications for the new millennium
Channel
relationship council members unanimously agrees with the primary proposition
forwarded in that, as Seong-Soo Kim put it, ‘the future of marketing channels
lies in long-term, ongoing and flexible relationships.’ According to our
expert panel, in future channel settings interaction process will be
increasingly open and will feature a multi-layered sharing of information and
resources.
The channel
relationship council offered several other projections pertaining to interaction
processes within marketing channel settings:
1.
Network development
2.
Standard information formats
3.
Increased interdependency
A
relationship perspective of marketing channels was continuously endorsed in the
study. Relationships are hardly simple connections. They can be stripped down to
little more than webs of expectations shared between channel members. The nature
of these webs of expectations should continue to evolve as marketing channels
draw closer to the new millennium. In any marketing setting, actually achieving
an accurate reconciliation of prediction with outcomes is something of an
Olympian feat in and of itself. Still, channel members had darn well better take
a strong interest in the future, because that is where they are going to spend
the rest of their competitive and cooperative lives.
Relationships
between various country or people or religion has a large difference, therefore,
if we want to reach real partnership and maintain long-term relationships
between channel members, then cultural, identity and image factors are what we
should concern.
Besides
review relationship among suppliers, customers, employees and partners, the
study also has addressed relationships between organizational culture, identity
and image. In the theoretical conceptualization of these relationships the study
has suggested an analytical framework that focuses on bridging the internal and
the external symbolic context of the organization (Figure
7). Although the concepts of organizational culture, identity and image
derive from various theoretical disciplines that have traditionally focused on
different constituencies of the organization, we have argued that they are all
symbolic, value-based constructions that are becoming increasingly intertwined.
The intertwined symbolic texture of the organization provides a number of new
management challenges and opportunities which were explored along with the
research implications of our argument for the field of marketing.
Figure 7 A model of the relationships between
organizational culture, identity and image
Source: Mary Jo Hatch, Majken Schultz
(1997)
Stepping
into 21st century, marketing channel already enter into a IT
(information technology) era, therefore, elements of marketing besides
“people”, “culture”….etc., IT is a key element for enabling marketing
and to create value in customer relationships.
IT
enabled marketing: a framework for value creation in customer relationships
Social
exchange theory explicitly views exchange relations as dynamic processes (Heide
and John, 1992). How will these "dynamic" process be affected by the
increasing information intensity of customer-firm relationships made possible by
IT and its use in marketing? The costs of the technology required to run
individually addressable customer focused activities lends itself to gaining
economies of scope rather than simply those of scale. Boynton (1993) describes
such IT systems as "systems of scope", that is, systems which allow
managers within the organization to rapidly develop, gather, store, and
disseminate information across all boundaries about markets, products, or
process capabilities. "Systems of scope are designed to maintain stable,
permanent reservoirs and conduits of knowledge about internal capabilities or
experience as well as the capabilities of competitors. They are designed to be
dynamically responsive for managers who have a need to know and must be able to
access firm-wide knowledge in response to local, fast-changing business
environments". (Boynton, 1993). Such IT capabilities will This involves
firms in broadening and deepening the scope of their product/service offerings
to exploit their customer knowledge and to define their businesses according to
the customers they both understand and serve best (Blattberg and Deighton,
1991). An example is seen in the expansion of the Virgin brand name to include
not only music, but travel, food and personal finance - all driven by an
understanding of the "core Virgin customer". This approach to business
definition will increase the importance of understanding the goal satisfaction
required by customers, the source of their intrinsic satisfaction with the
relationship. Because "systems of scope" make information available to
all managers, are fast, and offer a degree of self-design (Boynton, 1993), the
introduction of such systems increases the need for guidance in their use and a
clarity of purpose in the creation of value for both the firm and its customers.
Another
crucial area of business concern which has been impacted by IT enabled marketing
is that of inter-firm strategic co-operation. Interfirm relationship strategies,
where co-operation requires a thorough study of the partner firms' business yet
yields the reward of access to important information, is seen by Parvatiyar et
al. (1992) as providing opportunities to create economies of both scale and
scope (the importance of which has been discussed). Cross-selling, new
distribution channels, and unique product/service offerings are all ways in
which co-operative marketing strategies can enhance customer relationships for
the firms' involved and increase customer choice. Increasingly information is
seen as an integral and important part of the firms' offerings and a key factor
in determining their extrinsic market value (see Figure
8).
The impact
of IT upon marketing practice has been seen in the development of the ability to
both individualize offers and develop two-way communication between customers
and firms. These developments have led to an increase in the information
intensity of the firm, and to an increase in the importance of activities which
take place outside the immediate boundaries of the customer/firm relationship.
In particular, those of the legal and ethical environment and the arena of
strategic co-operation between firms.
Problems
encountered by firms in developing customer relationships include goal
incompatibility in the acquisition and use of customer information, the need to
focus on economies of scope rather than simply those of scale in developing
individualized customer offerings, and the importance of co-operative
interdependence both within and between firms. These issues will require
managers to assess the impact upon the value created in customer relationships
of both functional and political activities in organizations. Long-term and
short term value creation must be considered, and strategies pursued which avoid
placing these in conflict. In addition, the relationship between intrinsic and
extrinsic exchange satisfactions needs to be addressed. The framework put
forward, and the propositions relating to it, seek to highlight the dynamics of
value creation in IT enabled marketing environments.
The benefits
of effective IT enabled marketing include the re-alignment of products and
services with long-term customer value enhancement, the increased value
creation, competitive advantage, and discouragement to competitors of inter-firm
strategic co-operation, and the avoidance of legal and ethical retaliations
through greater understanding of the underlying norms of relationship building.
Exploration in relating these benefits to the utilization of customer
information in managerial decision making could prove fruitful.
As marketing
activity and value creation becomes IT driven, managers will be required to
integrate both product and market knowledge, and to develop IT systems which
allow them to manage the "dynamic stability" required. Such
integration will increasingly take place in "real-time". Understanding
how the potency and temporal dimensions combine to enhance customer relationship
value will be vital if marketing decision-makers are to develop the skill and
speed needed to link decisions with outcomes and develop strategic responses
that build profitable businesses.
Figure 8 value derived from exchange, Source: Linda D. Peters (1997)
In the
study, we have examined the changing value equation for firms competing in the
global marketplace. Where once tangible assets were managed and controlled to
create value, intangible assets, and specifically relationship assets, are now a
key determinant of a firm's market value and its future opportunities. The
question can now be asked: what do relationship assets have to do with future
opportunities? The answer is simple: everything. One could argue that the
financial results discussed herein, which speak for themselves, reflect past
performance and short-term opportunity. This argument is shortsighted. Clearly,
management must decide where to invest limited capital. Allocation of resources
must balance short-term gain with long-term growth. The firm's strategic
decisions must focus on value creation for future opportunities. Relationship
assets drive net future opportunities. In summary, here's how:
| Customer
assets. Customer retention and loyalty drive repeat
business that enables future revenue streams and lower sales and marketing
costs, translating into revenue and profitability growth over time, thus
increasing the probability of a firm's net future opportunities. |
| Employee
assets. Employees, like other assets, create or
destroy market value. High employee retention rates lead to higher customer
retention rates, which lead to higher revenue and net income growth, which,
in turn, lead to higher net future opportunities. Conversely, high employee
turnover leads to market capitalization destruction, due to stock price and
operating earnings reductions from the costs associated with that turnover,
thus eliminating future expectations of value creation. |
| Supplier
assets. Automated and efficiently managed supplier
relationships lead to better forecasting, which leads to higher inventory
turns and, thus, reduced inventory levels, which ultimately leads to reduced
carrying costs. This efficiency ultimately translates into consistently
reduced operating costs, higher revenue and net income growth over time.
Capital markets value the future expectation of revenue and net income
growth, which can be achieved directly through effective supply-chain
management, translating into higher stock prices and market capitalization. |
| Partner
assets. Effectively leveraged partnerships,
including alliance and channel partners, have shown to increase revenue
growth while improving profitability. Like customers or even employees,
retention of the most valuable partners will position a firm well to create
future revenue streams as well as consistently improved profits. |
Market
capitalizations are expectations of future earnings, or the cumulative total of
the value created from a firm's customer, employee, supplier and partner
relationships. Present and future success in increasingly competitive and
volatile marketplaces will be based less on the strategic allocation and
management of physical and financial resources and more on the strategic
management and leverage of intangible assets, namely relationship assets.
In the end,
the fundamental driver of today's new economy, which probably began about 25
years ago (not five years ago like many pundits would claim), is the customer.
Today, with global competition, a growing amount of overcapacity exists in
nearly every industry - whether it be manufacturing or services. More and more
businesses are chasing a finite number of customers. Where once customers had
limited choice, now they have virtually unlimited choice - and access to
comparative information - about the goods and services they care to purchase.
This "knowledge" forces any business to create the most value-add
capabilities possible and compelling differentiation in order to capture, and to
keep, customers. But having a good product or service at a competitive price is
not enough. Outstanding employees, efficient suppliers and supply chains, and
trusted partners are critical to create competitive differentiation and
long-term survival. These assets are the most valuable and goals should be
established to leverage and manage them most effectively.
Finally,
while many would strongly argue that the foremost goal of any company is to
deliver shareholder returns, management beware: the length of the time a stock
is held may not be as long as you think. For example, in the USA, the longevity
champ is General Electric, where shares stay in the same hands an average of 3.5
years. For Microsoft, the average is 3.5 months and for Yahoo! Inc., it is 3.5
days (Fingar and Aronica, 2001). Be careful how much time, energy and resources
are focused squarely on satisfying shareholders (which can lead to an over
emphasis on short-term efforts) when literally, they may own your stock one day
and sell the next. Customers are the top priority. Companies may wish to provide
a good return to shareholders, but without consistently satisfied, paying
customers, there will be no returns period. Focusing strategies and management
attention on leveraging intangible assets, specifically relationship assets, not
only will produce financial success in the short run but will also help
companies to weather the storms of the long run. The returns will follow.
The biggest
threat to CRM is managements' focus on short-run profits rather than long-term
vision. CRM is an expensive, time-consuming and complex proposition. Even in the
best case, CRM requires a certain "leap of faith" by a firm, as
technology is still not available to completely develop the full power of a
customer-centric approach. In addition, there are those who believe that even if
the full potential is achieved, it might not be enough to justify the staggering
costs that some firms have invested in present-day CRM.
There is one
thing for certain, and that is the fact our world is rapidly changing and
competition for each customer's dollar is intense. Consequently, firms are
becoming frustrated by competing with only minor advantages and gimmicks that
are easily assimilated by competitors. CRM is an opportunity to rise above minor
advantages and develop an actual relationship with your customers. It is not
simple, but no enduring advantage is. Companies that are the most successful at
delivering what each customer wants are the most likely to be the leaders of the
future.
Where will
CRM be headed in the near future? While no one can predict the future with
certainty, there seems to be three trends that will be driving CRM in the near
term:
1
extension of CRM to channel partners;
2
added visual tools; and
3
a trend towards industry consolidation and partnering.
CRM already
is capable of integrating companies horizontally and vertically as long as the
chain is a single firm. However, firms can benefit from increased sharing of
information between each other. Papazoglou et al. (2000) said:
Unlike
previous decades where enterprises prized independence, the next decade will be
one of business alliances and competing, end-to-end value chains. Enterprise
value chains comprised of powerful business alliances partners will exceedingly
compete as single entities for customers.
Currently,
integration within a single organization is quite complicated and extending the
integration to another firm would be difficult today. Papazoglou et al.
(2000) provide a framework for such integration that includes integrating
business processes and introducing additional middleware.
Angeles and
Nath (2000) agree, noting that the quantity of suppliers in the chain is a
critical factor for integration:
Highly-integrated
supply chain management (SCM) and accompanying logistics services have now
become the basis of competition in the increasingly electronic and Web-driven
marketplace.
Rackham
(2000) has also elaborated as to why the channel relationships are so important:
The expert
consensus now is that you can't choose channels for reaching customers; your
customers will choose their channels for reaching you. And, most likely, they
will want every single channel that your competitors could possibly offer them.
Kim (2000)
has even developed quantitative models to analyze the value of the
supplier-manufacturer relationship. It is not surprising to learn that each
channel member must play a role in the value chain in order to maintain a
successful relationship with each other.
CRM can
provide a substantial competitive advantage to most firms. However, as more and
more firms implement such systems, the advantages will begin to decrease. The
next logical step will be to extend the technology to business partners within
the product value chain in the expectation that sharing the information will
make all channel partners more competitive.
Interpreting
data and relationships between data can be difficult, especially when you are
analyzing "soft" data such as consumer preferences and marketing
effectiveness. New visual tools specifically for analyzing large data warehouses
are now more widely available (Whiting, 2000). Previously, database
administrators had to tediously pull names from the database using SQL queries.
Most visual tools go quite a bit further than traditional OLAP technologies.
Integration
of a complete CRM solution can be a daunting task given the large number of
packages and the diverse vendors that IT managers must coordinate with. Waltz
(2000) discusses the massive scale of vendor consolidation within the CRM
industry. Every company is seeing the value of CRM. Companies offering
"core technologies" such as Oracle, Lucent and Cisco, are acquiring or
partnering with CRM specific vendors to ensure smooth integration of both
hardware and software - which is good news for IT managers!
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