marketing purposes as lead generation, lead qualification, sale of a good or service, or maintenance of customer relationships.
r
Database marketing is the process of building, maintaining, and using customerdatabases and other databases (products, suppliers, resellers) for the purpose of contacting and transacting.
In business marketing, the customer profile contains the products and services the customer has bought; past volumes, prices and profits; team member names (and their ages, birthdays, hobbies and favourite foods); status of current contracts; an esti- mate of the supplier’s share of the customer’s business; competitive suppliers; assess- ment of competitive strengths and weaknesses in selling and servicing the account; and relevant buying practices, patterns and policies. In consumer marketing, the cus- tomer database contains demographics (age, income, family members, birthdays), psychographics (activities, interests and opinions), past purchases, and other relevant information about an individual. For example, the catalogue company Fingerhut pos- sesses some 1,400 pieces of information about each of the 30 million households in its massive customer database.
Database marketing is most frequently used by business marketers and ser- vice retailers (hotels, banks, airlines and, in particular, Internet retailers). It is used less often by conventional packaged-goods retailers (Coles and Woolworths) and consumer-packaged goods companies, though some (Quaker Oats and Nabisco, among them) have been experimenting in this area. A well-developed customer database is a proprietary asset that can give the company a competitive edge.
(Source: Adapted from P. Kotler, Marketing Management: The millennium edition, Prentice Hall, Upper Saddle River, NJ, 2000, pp. 652–4)
Table 5.2 Mass marketing versus one-to-one marketing
Mass marketing One-to-one marketing
Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising Mass promotion One-way communication Economies of scale Share of market All customers Customer attraction Individual customer Customer profile
Customised market offering Customised production Customised distribution Customised message Customised promotion Interactive communication Economies of scope Share of customer Profile of customer Customer retention
Source: Adapted from D. Peppers and M. Rogers, The One-to-one Manager: Real-world lessons in customer relationship management, Random House, New York, 1999.
A wide range of customer relationship management technology has been developed to assist organisations to get closer to their customers, to understand their customers’ needs and, hence, to support strategies designed to exceed customer expectations. However, accord- ing to Rod Bryan, a corporate leader in CRM in the Asia-Pacific region, the all-or-nothing part of CRM is about committing to a way of doing business, not to a set of tools. ‘The key to business success lies in the strategy, not the software. It’s absolutely not about technology. . . . But you need the technology to realise the strategy’ (Bryan, cited in Bennett, 2002, p. 14).
Bryan offers the following example to illustrate the gulf between CRM technology and a strategy. Two competing organisations, such as banks, may be exactly the same size and offer more or less the same services product set and customer base. The two banks might both install exactly the same CRM technology, but if they are using different CRM strategies, they will get very different results. Research findings in 2001 indicate that more than half of CRM projects fail to measure up to expectations (Connors, 2002, p. 16).
A recent Merrill Lynch survey of Chief Information Officers in the U.S. found that 45% were not satisfied with their CRM installations. These findings are supported by plenty of anecdotal evidence. There is no shortage of explanations as to why disappointment is so common. CRM is as much a business strategy as a technology. The software requires a company to have its customer data bases in order and to ensure the right access for the right people. This is no easy task, but ensuring an entire organisation adopts a CRM mindset, where all activity really does revolve around the customer rather than long-entrenched work habits, is a lot harder. (Connors, 2002, p. 16)
These perspectives place emphasis on the crucial importance of the strategic business man- agement approach to building the multifaceted management and marketing capacity required to build and sustain a specific customer base. Table5.2highlights the different customer- and
M a r k e t i n g m a n a g e m e n t 183 Stage ‘memorable’ experience Deliver ‘intangible’ services Make ‘tangible’ goods High Economic v alue Customisation Low High Differentia tion Extract ‘fungible’ commodities Servitisatio n relational orientation De-ser vitisation transactio nal orienta tion Importance to customer s High High
Figure 5.6 Strategic management of customer value through customisation
product-oriented mindset strategies applied in mass marketing, and the one-to-one marketing approaches used in goods and services industries.
Strategic management of customer value creation through customisation
The growing attention to individual customers and their needs, backed with enabling mass customisation technologies, has founded a platform of new market competition. In the influential book, The Experience Economy, Pine and Gilmore (1999) suggest the dawn of a new type of economy, the experience economy, in a framework of the progression of eco- nomic value. They explain the core economic function of the new economy as the staging of memorable memories in relation to those of its preceding economies – namely, the extracting of fungible commodities of the commodities economy, the making of tangible goods of the goods economy, and the delivering of intangible services of the services economy.
Partly drawing from Pine and Gilmore’s conceptualisation of the progression of the eco- nomic value, Figure 5.6illustrates a model of the strategic management of customer value creation through successful customisation, in relation to the preceding discussions on servi- tisation of businesses and relationship marketing. For operationalisation of the model, some additional explanations would be beneficial. First, Figure5.6treats the four economies as alter- native core business functions of an organisation. Second, it should be stressed that economic
value is not synonymous with customer value. While the former can be viewed as the cost to a customer incurred by the purchase of a given product, the latter involves the customer’s perceived benefit associated with the purchase as well as the purchase cost. More commonly, it is understood as either a ratio or a subtraction between the two. The customer’s perception of product benefit may vary; thus, enhanced economic value of a market offering does not nec- essarily denote enhanced customer value to everyone. It is because of this customer idiosyn- crasy that some customers find greater customer value in deservitised, low economic value market offerings, while others equate high economic value, servitised offerings with greater customer value. Finally, Figure5.6illustrates the criticality of customisation (and sometimes its absence) to the above ‘determinant’ attributes (that is, both important to customers and differentiated from competitors) for the strategic management of customer value.
The following box demonstrates the progression of core economic functions, as well as strategic alternative in customer value management through servitisation by customisation and deservitisation by standardisation.
Box 5.6 The changing nature of weddings in Japan
Traditionally in Japan, a wedding ceremony was religious. It was performed by a Shinto priest of a local shrine in accordance with a Shinto rite, in the presence of close family members of the groom and bride. Often the ceremony was accompanied by a reception party for local community members, as well as the relatives of the two families, to introduce the bride to the local community of the groom as a new member and to initiate kinship and social networks between the two families. Instrumental in ensuring the success of the ceremony was the labour and skills of those volunteering female community and family members who made the wedding outfit (kimono) and catered for the reception.
Nonetheless, this tradition is increasingly becoming a thing of the past as a result of the country’s economic and social development – in particular, Japanese young adults’ affection for Western culture – since the Second World War. Rapid urbanisation, and the emergence of catering service providers in the large cities (such as hotels and specialised wedding function service providers), have made the wedding ceremony and reception less a community-based event and more the province of commercial service businesses. In addition, Japanese youth’s preference for Western culture has meant that many newlyweds wear Western-style wedding outfits in addition to traditional outfits during the reception. Some couples are converting to Christianity solely for the purpose of having a formal Western-style wedding ceremony.
By the 1980s, Japan had firmly established itself as an economic superpower. The country’s prosperity manifested itself as increased earnings and spending among the Japanese. Operators of luxury hotels were quick to capitalise on the emergence of wealthy Japan and began to market wedding services and lavish receptions that were intended to provide memorable wedding experiences for everyone in atten- dance. Some hotels installed an in-house chapel, in addition to a Shinto altar, so as to be able to offer one-stop, full wedding service in both the traditional and Western