Customer Relationship Management for a Higher Level of Customer Service - Case Study Example

Part A: Customer Relationship Management Important Aspects of CRM Customer Relationship Management, or CRM, is the management of a number of objectives which have the two important goals of acquiring and retaining customers. In order to accomplish those goals, businesses must understand their customers’ wants and needs so that customer service and other processes can be designed to serve them effectively. This improves customer satisfaction, but also helps to increase productivity, reduce operating costs, and improve profitability for the business. (Gollan, 2005) By using customer relationship management to develop processes and procedures to maximize every customer interaction, businesses can maintain a competitive advantage. (Jan, 2007) CRM is highly dependent on the efficient gathering of relevant information about customers; the more a business can learn about not only what the customer has purchased and expressed a preference for in the past but what the customer is likely to want in the future, the more successful the CRM strategy. This means not only gathering information about the customer’s interactions with the business, but his interactions with the business’ competition as well. At the very least a business should try to learn where else the customer shops; ideally, however, if the business can also learn which products the customer looked at, which ones he ignored, which ones he eventually purchased, and how he got along with the staff – in other words, the same information the smart business should be recording about its own customer interactions – it can better personalize its products and processes to appeal to the customer. (IMN, 2003) Every CRM strategy has the elements of customer acquisition and customer retention, but depending on the nature and the competitive position of the business, one of these goals will be a priority. For new businesses, or businesses that do not have many competitors, customer acquisition will be the focus of their CRM. For businesses in highly-competitive markets, customer retention will be the primary objective. (Syams & Hess, 2006) This is particularly true for businesses where the products offered by each are very similar in price and features, and where customers are likely to switch products quickly; a very good example of this is the telecommunications market. (Geppert, 2002) Importance for Companies of Developing Customer Relations The most obvious reason it is important for retailers to understand, interact with, and build relationships with their customers is that by doing so the businesses will better understand what makes the customers buy their products. CRM is especially important when the business’ customers have different characteristics, the business offers a large variety of products or services which the customers add or replace on a frequent basis, and the business has a variety of ways of interacting with customers. (Microsoft, 2009) One of the most important uses of CRM is to accurately assess the value of a business’ customers, separating high-value customers who make many purchases from infrequent, low-value customers. (Syam & Hess, 2006) The business can then provide the customers different levels of service, applying strong customer retention management to their best customers. In the case of the less valuable, infrequent customers the business can either choose to ignore them and focus on the better customers, or more likely will choose to apply customer acquisition management to try to raise these customers’ value. A good example of a CRM technique that accomplishes both the goals of customer retention and customer acquisition and the task of assessing customer value is the “preferred shopper card” issued by many grocery chains and other retailers. Frequent shoppers using the card are promised slightly lower prices and other benefits by doing so, and these customers are retained by the simple fact that the card is only useful in the store or chain that issued it. New customers are acquired and low-value customers are turned into higher-value customers by the store’s offering the card free to anyone who cares to sign up for it. Because the customer’s buying habits can easily be tracked through the card the store can continuously monitor their best customers, and use the information to provide a better product mix as well as tailor advertising and marketing to the customer’s specific shopping patterns. Using Customer Relations in Marketing Communications The example of the store card given above is an example of targeted marketing, which is one of the most common uses of CRM. Information collected about the customer, not only about his buying habits but demographic information as well, can be used to market specific products and services to that customer. Another good example of this process can be found online at Amazon.com, which makes suggestions to customers based on their previous purchases, product ratings, and even the products they are browsing at the time. (Hogansworth, 2007) The benefit of using CRM in targeted marketing is that the marketing becomes relatively more effective, both in terms of marketing to existing customers and in using targeted marketing to acquire new customers. Targeted marketing increases the likelihood of sales, simply by identifying the products the customers are most likely to buy based on the information the business has gathered about them. This reduces costs, because each dollar spent on marketing generates a proportionally higher amount of sales. (Hogansworth, 2007) This is particularly important in markets with high degrees of customer “churn”, where customers quickly switch products and providers such as in the telecommunications market mentioned above. Often the only differentiation between one business and another with similar products and prices is the level of customer service they offer; effectively responding to and anticipating the needs of customers through CRM can be a significant competitive advantage. (Geppert, 2002) CRM can also be used in targeted marketing aimed at acquiring new customers. Demographic information about existing customers can be used to establish who new customers are likely to be, and the buying patterns of existing customers can be used to establish what these new customers are likely to be interested in. (IMN, 2003) For example, suppose an auto manufacturer sells a particular model car to mostly 24- to 30-year-old women. The carmaker can then use the information it has gathered through its CRM program to focus its marketing in media such as the Internet, TV, or magazines with a similar audience, and then highlight the features of the car model that have proven to be most popular with its existing customers. It can be a very successful strategy, but it is important that the CRM process be efficient and generates relevant, accurate data. (Jan, 2007) Part B: Home Depot CRM Strategy The Relationship of Employee Management to Customer Relations The reason for the philosophy of empowering its employees by Home Depot is to live up to its catchy slogan: “You Can Do It. We Can Help.” The entire concept behind Home Depot is to cater to the do-it-yourself market, and the company has gone to great lengths to seek out and employ people with experience in home-improvement and building areas to provide customers with a knowledgeable staff that can answer questions and give advice about different projects. From an employee perspective, this can help build enthusiasm and a sense of ‘ownership’ as the case study explained. The employee can feel as though customers are coming to him not simply because he is a Home Depot employee but because he has a certain area of unique expertise. This helps to personalize the transaction for the employee, and motivate him to complete it as effectively as possible. Empowering customers is Home Depot’s mission: giving people the supplies and advice they need to do things on their own. But the company cannot promote that agenda without also empowering the employees to make decisions on how best to serve the customers, because no two customers have exactly the same needs. Having recognized the expertise of their employees, Home Depot allows them to apply their knowledge as they deem appropriate for each customer with whom they interact. The personal interaction with customers, particularly since it will involve specific products and materials, is a great CRM information-gathering tool. It can be used to determine customer needs, preferences, and habits in great detail, and further personalize the product mix and services for individual stores and markets. The effect is that customer retention is increased in Home Depot stores, because the service can be highly individualized for each customer. A very simple example of this might be a customer buying paint for a room in his house. The Home Depot employee – who has experience in painting – can expertly suggest the best kind of paint to use, offer color choices that would suit the customer, mix the color, and explain the best way to apply the paint. When the customer wishes to paint another room at a later time, provided he was satisfied with the outcome of his first interaction at Home Depot, he more than likely will return. Because his first experience was positive, he will feel confident that he will get the product he wants, and he will feel as though he is saving time in not having to explain what he wants all over again to someone else at a different store. Customer Support Strategy Home Depot’s customer support strategy starts with an understanding of who their primary customers are, the individual homeowners and small contractors mentioned by the case study. Although the case study does not provide any further details than this, it is possible to draw the conclusion that Home Depot’s customers must fall into two broad categories. First, there are the people who have to do their own repairs and renovations for economic reasons; hiring someone to do it for them would just be too costly. Small contractors who do repairs and renovations for a living could fall into this category as well. Second, there are the people who simply want to do their own repairs and renovations. The same customer support strategy can be applied to both sets of customers, and it consists of two components. First is price, which Home Depot moderates by keeping its costs low. Originally, this was managed by the ‘warehouse’ style of the stores, which required minimal expense for product presentation and allowed the stores to keep a large amount of stock on hand, minimizing inventory handling. After the arrival of Robert Nardelli in 2000, other measures such as streamlining and centralizing some operations and modifying procedures such as the returned merchandise policy were other ways in which Home Depot reduced costs. Managing costs allows Home Depot to be price competitive, particularly against formidable competition like Lowe’s. Managing costs also allows Home Depot flexibility to invest more in the second component of the customer support strategy, which is the actual service provided to the customers by the people in the store. In 2006, under Nardelli’s direction, Home Depot spent about $350 million dollars to upgrade its customer service, including $85 million in additional payroll, installing self-checkout lanes in some stores, and beginning a test program with a ‘call box’ system in some stores, which allows customers to quickly summon an employee for assistance. (Bond, 2006) In 2008, in the midst of the financial crisis, Home Depot again spent nearly $250 million in customer service upgrades, while Nardelli’s successor, Frank Blake, again found others ways to aggressive cut costs. (Birchall, 2009) The reason the customer support strategy is so successful is because, beyond having competitive prices that make the “do-it-yourself” option affordable, it recognizes the differences in the level of skill and confidence among Home Depot’s customers. With a move toward more customer-friendly store layouts and such innovations as self-checkout lanes, Home Depot makes it convenient for those who require no direction at all to visit the store and purchase what they want without really interacting with anyone if they choose. On the other hand, for customers who need some assistance or have questions about products or techniques, knowledgeable staff is on hand to help; Home Depot has particularly focused on this part of their strategy, for example, having hired over 3,000 licensed plumbers and electricians as sales associates since 2007. (Birchall, 2009) For those customers who need a lot of help, or simply want to learn something new, Home Depot offers different in-depth how-to clinics and longer classes in various home improvement subjects. Strategic Advantage of Customer Services Home Depot’s customer services do provide the company with a strategic advantage. With competition from other retailers such as Lowe’s and Wal-Mart, Home Depot is at risk for customer ‘churn’ because the products and prices of these competitors are similar. (Geppert, 2002) This seems to be particularly true in the case of Lowe’s, which according to the case study directly targets Home Depot by placing stores in the same area and providing a more attractive, less ‘warehouse-like’ store layout to appeal to women shoppers, an important home-improvement customer segment. Customer churn is easy when the competition is just across the street, which is why it is no accident that Lowe’s built many stores literally that close to an existing Home Depot store. Price and product mix are things that competing retailers can adjust rather quickly, so any advantage one gains over another is likely to be short-lived; these are things that are better-suited to the customer acquisition aspect of CRM, because they are often the first means of attracting new customers. (Syam & Hess, 2006) Customer services, on the other hand, are the best means of retaining customers, which is the primary objective of businesses in highly-competitive markets. Home Depot’s recent history gives evidence of the strategic importance of customer service. Prior to 2006, Home Depot’s focus on other aspects of the business caused its rating in the University of Michigan’s annual Customer Satisfaction Index survey to fall to its lowest level in five years, while Lowe’s increased, along with its market share. (Bond, 2006) After Home Depot’s aggressive investment in customer service issues between 2006 and 2008, its ratings had improved and it gained back market share from Lowe’s, even though the economic downturn had cut into the company’s profits. (Birchall, 2009) Home Depot itself is aware of the strategic importance of customer service. As Jose Lopez, Home Depot’s chief customer officer, noted in 2006, the feedback the company had gathered from its own customers ranked the availability and engagement of Home Depot’s associates as the most critical part of their shopping experience. (Quoted in Bond, 2006) It would be irrational to assume that those customers are not making comparisons between Home Depot’s customer service, which they consider very important, and that of competitors like Lowe’s. On that basis, customer services most definitely provide Home Depot with a strategic advantage, or conversely, a strategic disadvantage when the company’s attention to customer service is diverted. References Birchall, Jonathan. (2009) Home Depot targets customer service. Financial Times, 16 March 2009. [Internet] Retrieved 24 April 2009 from http://www.ft.com/cms/s/ 0/7f82efd0-1250-11de-b816-0000779fd2ac.html?nclick_check=1. Bond, Patti. (2006) Home Depot revamps service. The San Diego Union-Tribune, 2 September 2006. [Internet] Retrieved 25 April 2009 from http://www.signonsandiego.com/uniontrib/20060902/news_1b2homedepot.html. Geppert, Carl. (2002) Customer Churn Management: Retaining High-Margin Customers with Customer Relationship Management Techniques. White paper, KPMG, 2002. Retrieved 24 April 2009 from the BNET database at http://jobfunctions.bnet.com/abstract.aspx?docid=144790&tag=content;col1. Gollan, Casey. (2005) What Is CRM, Customer Relationship Management? Retrieved 24 April 2009 from CompareCRM at http://www.comparecrm.com/articles/crm-articles/What-Is-CRM-Customer-Relationship-Management.php. Hogansworth, Matt. (2007) CRM For Beginners – Customer Relationship Management Basics. Retrieved 24 April 2009 from CompareCRM at http://www.comparecrm.com/articles/crm-articles/CRM-For-Beginners-Customer-Relationship-Management-Basics.php. IMN, Inc. (2003) What, Really, Is Retention Marketing? White paper, 2003. Retrieved 25 April 2009 from the BNET database at http://jobfunctions.bnet.com/abstract.aspx?docid=73725&promo=110000. Jan, Sue. (2007) Customer Relationship Management For A Higher Level Of Customer Service. Retrieved 24 April 2009 from Article Dashboard at http://www.articledashboard.com/Article/Customer-Relationship-Management-For-A-Higher-Level-Of-Customer-Service/60522. Microsoft Small Business Centre. (2009) What CRM Can Do for Your Business. Retrieved 25 April 2009 from Microsoft at http://www.microsoft.com/australia/smallbusiness/themes/sales-and-marketing/what-can-crm-do-for-your-business.mspx. Syam, Niladri B., and Hess, James D. (2006) Acquisition versus Retention: Competitive Customer Relationship Management. White paper, University of Houston, 21 March 2006. Retrieved 24 April 2009 from TechRepublic at http://whitepapers.techrepublic.com.com/abstract.aspx?tag=content;col1&docid=277591&promo=100511. Read More