Capturing Value Through Customer Strategy

By Tom Casey, Thomas Snarr

Mitch Rosenbleeth

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Executive Summary

Senior executives continue to make significant investments in customer relationship management (CRM) systems, as they face their most pressing management challenge – improving customer loyalty and retention. However, there is increasingly sharp discord about whether all of the operations and systems investments, let alone the business model changes, are paying off.

Based on our experience helping clients develop customer strategies and implementing technologies to support improved customer loyalty and intelligence, we believe the CRM dilemma stems from several root causes:

• CRM can mean everything from a class of software to a reclassification of the entire set of sales and marketing functions
• Companies take an overly passive approach to implementing new customer-oriented initiatives, assuming that a single customer strategy will work across all their customer segments
• Technology deployed without a clearly articulated customer strategy will fail
• Technology alone will not fulfill the promise of a customer strategy

In this article, we lay out a five-step approach to create and capture value from customer strategy. We believe all successful companies must take an active approach and build a practical plan to optimize their customer relationships – or they will lose ground to competitors that do.

Capturing Value Through Customer Strategy

We believe companies can capture value from customer alignment if they focus on performing five basic things well (See Exhibit 1):

• Understand Your Situation
• Develop and Articulate Each Customer-Segment Strategy
• Design and Blueprint the Business Model and Management System
• Decide Upon and Invest in the Enablers of Alignment
• Execute a Value-Capture Plan

To be customer-aligned, all companies need to go through each of these steps to reliably capture the value from their investments.

Exhibit 1

1. Understand Your Situation

Although the extent to which value can be extracted depends upon each company’s particular situation, there is mounting evidence that enhanced customer strategies will deliver bottom-line benefits for those companies that adopt them correctly.

The most important consideration when crafting customer strategy is to understand that for each industry – and for each company within an industry – there is likely to be a very different approach to building relationships. A one-size-fits-all approach does not exist.

Obviously, understanding the customer alignment issues inherent to any industry is only the beginning. Comprehending the distinctions among the segments a company serves specifically, and the channels to those segments, is equally crucial. To further emphasize this point, review a classic segmentation based on customer profitability (See Exhibit 2). The customer-segment strategies (such as, pricing, promotions, services) for customers representing the lion’s share of profitability (such as, “Value Creators”) will almost certainly be dramatically different than those tailored for unprofitable customers (such as, “Value Destroyers”).

To truly understand their situation, a company must develop the strategic insights into their business to allow them to develop the detailed elements of their customer strategy that differs by segment. Understanding how customers can be valued, what the distinct markets segments are, how the competitive environment operates, and the organizational strengths and weaknesses will allow a company to determine which levers are most important to define their customer strategy and alignment (See Exhibit 3).

Develop and Articulate Each Customer-Segment Strategy

Defining the customer-segment strategy is an exercise in developing clarity. This is critical, as customers will want to know how they will benefit, and those in the organization will want to know how expectations for their behavior will change.

A good expression of strategy must articulate, at a minimum:

• Clear and precise description of what the strategy is and is not
• How the new strategy differs from the organization’s current strategy
• Customer segments the strategy will address
• The path to capturing increased value from the strategy and the business case for the change
• Capabilities needed to execute the strategy and make it competitive, defensible, and sustainable
• Reasonable timeframe for realizing benefits
• How the strategy will change the expectations being placed on the organization

In place of the potentially meaningless “our goal is to be customer focused,” take the time to detail what this means. A full articulation of the strategy will serve as the tool to motivate people in the organization to pursue the effort.

3. Design and Blueprint the Business Model and Management System

If the new customer strategy depends upon changes in behavior, it is reasonable to assume that the organization needs to be focused on a common goal. In many instances, this means breaking the barriers that exist across functional silos to allow a focused pursuit of the goal. Our experience indicates that a clear delineation of accountability, definition of decision rights, and creation of appropriate incentives are critical to success. We call this discipline Strategically Aligned Organization, or SAO. The principles of SAO are illustrated in Exhibit 4.

Once the parameters have been set to guide the relationships for each customer segment, it is then time to design, acquire, and implement all of the enablers required to support the change program. Although technology is a critical enabler of change, focusing on CRM alone is unlikely to result in capturing all expected benefits. Three sets of CRM enablers must be in place for any successful customer strategy: organizational structure, business processes, and CRM technology (Exhibit 5). Each of these enablers plays a very important role and cannot be ignored.

4. Decide Upon and Invest in the Enablers of Alignment

While all three of the enablers must be considered together, it would be difficult to fully leverage many capabilities without the appropriate CRM technology. It is clear that CRM will continue to be a major technology priority for organizations for the foreseeable future. As companies increasingly look to customer alignment as a primary source of differentiation, they will require the appropriate CRM technology to support their customer strategy.

As we have noted, customer strategy fundamentally requires companies to have a sound understanding of differences in customer value, needs, and preferences that define meaningful segments. Further, customer alignment also requires companies to engage and serve those segments in different ways. CRM technology is critical to both these objectives. It provides the instrumentation necessary to capture, track, and analyze customer data on which the alignment strategy is based. And, it provides the systems by which organizations can differentiate the way they engage and serve customers.

5. Execute a Value-Capture Plan

Implementing explicit value-capture mechanisms must be a priority of your customer strategy. Defining where the benefits (e.g., sales, profit or their proxies) will be derived is important, but it does not need to be an overly complex exercise. What is important is that benefits are real, measurable, and time constrained. Across many industries, we have found that there are seven basic levers for value creation (Exhibit 6). The appropriateness of the levers depends on you’re a companies position in the value chain and the dynamics of both the industry and each customer segment that they serve.

To ensure that the benefits are captured, an explicit value-capture plan should be put in place. Start by clearly defining the benefits and corresponding metrics that will be tracked. Far too many companies begin investing in CRM programs without first identifying the detailed metrics that will indicate the program’s success.

Once the metrics are defined, companies must continuously evaluate the benefits being captured by the initiative. Markets, competition, and customer behavior are dynamic; therefore, making midcourse corrections should not be considered failure, but a prudent response required to maintain focus on creating value.

Moving To Create and Capture Value

There have been some healthy advances in how to craft business strategies more rapidly and efficiently. Although we have advanced a pragmatic view of the customer-alignment difficulty, in reality, most companies simply do not have the luxury of time when it comes to solving the complex customer equation. Too much is at stake and too much value can be created to simply take a wait-and-see approach to customer management.

Obviously, companies will be at different points along the 5-step approach. A company can assess where you are by examining your organization and catalog the things your company calls CRM today. Is there consensus? A plan? A vision? Multiple projects that when taken together represent an emerging strategy? Does the data leave you confident that your company will be better off when the plans or projects are in place? These are relatively straightforward questions; unsatisfactory answers indicate a need for a more thorough examination.

The debate over customer strategy and the value of CRM within any company is likely only beginning. While some companies will get swept up in the discord and confusion on this topic, be assured that others will move fast on developing winning strategies for their customer relationships. Developing and implementing the appropriate customer strategy is not an option, it is an imperative, and can mean the difference between the success and failure of an enterprise.

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