Skeptical musings on ‘treating different customers differently’ and the expertise of business gurus

You may know that I value skepticism in the sense of questioning the taken for granted.  In this post I question the  central tenet of the customer business.  And I question the insight and expertise of customer gurus and management consultants. Let’s start with the central tenet.

What is the right basis for treating different customers differently?

If there is a central tenet of the whole customer business (CRM, CXM, customer retention & loyalty) then it is this: treat different customers differently.  How does that work in practice?  There are two options: you can treat different customers differently based on their needs or based on their financial value.  Which should take priority?

Imagine that you are in pain doubled up in the waiting room of a hospital emergency room. It is late at night during the new year holidays and there is a shortage of doctors.  So there are some ten people there with you in the waiting room – each of whom is keen to get seen to quickly.  What basis should be used to decide who gets access to the scarce/valuable ‘resource’ (the doctor) next?  Should the basis be first come first served?  Should it be the person who is in most need of urgent attention because his/her life is at risk?  Should it be the person who is willing to pay the highest price – the one that represents the most financial value?  What do you say?

What would the ‘customer guru’ say if he was to act consistently with his business philosophy?  He would say that if the hospital is a business then the people in the waiting room should be divided up (segmented) first by their financial value (to the hospital) and then by their medical needs.  Which means that the person who is going to make the most money for the hospital and who is most in need of urgent attention should be the next one to get to see the doctor.

What actually happened?  I was that person in the waiting room doubled up with pain.  And the lady next to me was in a lot of pain as well.  We were talking and complaining about the shortage of doctors, how slow the process was, how long we had been waiting – over an hour. We both hoped that we would get seen to quickly – ideally next.  Then a mother came in with a young child who was clearly in a lot of pain.   What was our reaction?  Both of us were adamant that the young child had to be seen next and seen immediately; we forgot our pain, we no longer thought about ourselves, our humanity reached out to that young child who was suffering so much!  And I noticed that all the other adults in the waiting room forgot themselves and collectively we gave one big sigh of relief when that young child was taken to see the doctor after a couple of minutes. Clearly, the hospital got this because they were seeing us on the basis of our need – how serious our condition was.  And that  is what allowed us all to bear our pain and go with the system: the system occurred as fair, as just – as one that does justice to human dignity.

I hope that you get what I am getting at here.  If you do not then let me spell it out for you.  What the ‘customer gurus’ espouse contradicts certain ingrained values that go with being human.  Most of us have a sense of ‘right’ and ‘wrong’ including that which contributes to our human dignity and that which takes away from our human dignity.  Visibly treating different customer differently is a minefield because it brings out into the open the question of human dignity.  It occurs to me that only people who are not called to by these values are economists, MBAs, business gurus and management consultants.

Why you should be skeptical about business gurus and management consultants

First and foremost, I say, you should be skeptical of any business guru and every management consultant.  Why?  Because business gurus and management consultancies are in the business of passing of philosophy as science, as scientific management, as truth, even if they are not aware that this is what they are doing.  Put differently, when you take a thorough skeptical look then you find that the business gurus and management consultancies are like the king who was not wearing any clothes – it just took a child to see it and call it.

At his point, I wish to introduce you to Colin Shaw because has written a post that has generated high emotion.  Colin is the CEO of Beyond Philosophy – a customer experience consultancy which  makes a big point about the importance of tapping into the irrational side of customers and says it has a scientific proven method for doing so.  On LinkedIn Colin describes himself as “Author 4 Customer Experience books | Consultant | Customer Retention & Customer Loyalty | Keynote Speaker” 

His latest post hasn’t got the kind of reaction (comments) that he was expecting. I think it is fair to say he shows up as being totally surprised by the reaction as expressed through numerous comments many of which are not supportive of him and his point of view.  Which occurs to me as interesting given that the heart of  all things customer is a good grasp of the human condition.  Colin starts off his latest post (Missed opportunities to identify high value Customers – Virgin Atlantic Case Study)  with the following:

“I fly a lot. I have Diamond status on the Delta airlines loyalty scheme, the highest you can get. I really fly a lot! On my briefcase and all my bags I have the Delta Diamond tags. This is like wearing a beacon that says ‘this guy flies a lot’!

My question is, “When I fly with other airlines, do they ignore this display that says I am a high value Customer and could be one of your best customers?” It seems that my badge has the cloak of invisibility as everyone ignores it. Why?

Back in my past career, when I used to run call centers, I remember saying, “Wouldn’t it be great if we knew how much potential revenue the caller could spend with us”. The reality was if I knew someone could spend $1m dollars I would treat them differently to someone that could only spend $10. Airlines seem to ignore this in the choices they make when designing their Customer Experience. This is a lost opportunity. 

Let me give you five examples from a recent experience with Virgin Atlantic on how they are missing these opportunities:”

What kind of reception did this post receive?  An emotional one!  A human one, that discloses reality as experienced by the ordinary airline customers: the lived experience rather than theory. Allow me to share some of the comments that showed up as particularly interesting:

1. “Welcome to the real world Mr. Shaw!”

2. “is this dude serious?”

3. “Colin…here is part of the issue that people are having with your rant. I also fly quite a bit, but simply not enough to get this kind of status. When I go to the airport, I have to wait in a security line while people with “status” have their own priority line, and the airport decides that having the two lines converge on the same TSA agent is a good idea. This means that people without status feel that they are being held up because you have your fancy Delta tags. Then the boarding begins and they do the same thing…..put lines converging on a door where people with status move to the front and cause others to wait. Then there is me – a frequent flier who is in the airport enough to hate travel, and not enough flights to get the airlines to recognize how unpleasant it is to travel…..A significant part of that unpleasantness is the fact that I have to be put aside by a wave of people like yourself who have that level of status. Think about every other industry where status matters. Credit cards offer status to high value customers, but recipients of the cards do not inconvenience other card holders when they make a purchase, so no resentment exists. The backlash you are feeling is from people who have to witness and be inconvenienced by what we all know you deserve. Virgin should take care of you, but not at the expense of other travelers.

4. “Wait, it gets better. So now (in your clarification) you’re saying that Virgin could buy your loyalty back by putting you in a shorter check-in queue, and giving you a $48 rebate on your excess baggage, and accepting responsibility because you had lost your headphones? So, not only are you arrogant and self-important, you have no brand loyalty – Delta should value their relationship with you so highly that they treat you like a king, but you value YOUR relationship with Delta so little that after years of good service, upgrades, priority check-in, etc. you’d defect to Virgin for $48 and a check-in queue that is 3 minutes shorter. In other words, for you brand loyalty is a one-way street. As one of the previous comments asked, who exactly do you consult for? I bet they’d be interested to know your new views on asymmetric brand loyalty, and on exactly what can be bought for $48 and 3 minutes…… Then, in your next follow-up, you suggest that you should be treated better than other economy class passengers because you travel more often! So now you’re expecting Club Class treatment while flying economy! Amazing! I drive far more than average, should I have a booklet of “get off with speeding fines” vouchers, or my own special lane as a reward for being a frequent driver? With each post your position sounds more and more ridiculous. Please, stop digging, it’s becoming embarrassing.

5.  “Over 700 million a year fly a year. What makes you any different? Are you military flying back and forth from deployments? No I didn’t think so. Those are the only people that deserve to be treated like royalty when flying. Though I’m sure you’ve given up your first class seat multiple times for a military member haven’t you. No, I didn’t think so. Should people that ride the bus to work on a daily basis be treated better than a person who only rides it occasionally? Did you once think why they have to limit carry on size? Maybe they have calculated the capacity of the overhead storage and this allows all customers to be able to store the same amount of carry on luggage. Its ok cause you fly so much everyone else should have to suffer so you can carry your oversize bags. I bet that $48 dollars will make you think twice before trying to carry on a small suit case next time. Then again if your so high value, I’m sure $48 is pennies to you People try to do this all the time, carry on large bags to avoid waiting at the luggage belts. I fly with Virgin anytime I fly home to the UK with no complaints. Then again I don’t expect to have my A#$ kissed everytime I fly. If thats what your looking for, maybe you should be looking at different services. 2 christmas ago I got stuck in London due to blizzard that hit the east coast of the U.S. While other airlines had their customers sleeping on air port floors, Virgin paid in advance for hotel for 3 nights and even paid 75% of my expenses. Its funny you pick Virgin to bash on when customer service is so terrible and a lot worse in so many other services. Have you tried to call your cable recently or tried making a large purchase at Best Buy during the holiday season? Try bashing them for not bowing down before you go after airlines.”

6. “”Try replacing the word airline with wife/husband/partner. I used to take her out to nice restaurants, go on romantic holidays, buy her presents. Then I left her for someone closer to work. The other week I thought I’d pop round to see her. With my new kids. Showed her pictures of us on holiday. And then (and this makes me really angry), she says she’s moved on!!”

7. “You seem to be a very important man. How disconnected from real life you must be…”

And finally

I say that if you want to excel at the game of Customer then cultivate the human. My experience is that to excel at the Customer game one has to have an intuitive feel for the human in the human being.  How do you do that?  By putting yourself into real, commonplace, human situations and being present to what shows up for you.  By reading the right kind of literature – that means avoiding business and management books!

I say be skeptical about any advice coming from Tops, business gurus, management consultants, MBAs and economists. Why? They are disconnected from real life – the real world experienced by most of humanity, most of your customers.  And, like all philosophers they fall so in love with their philosophy that he forget that it is just philosophy – at best a partial view of reality. I really do believe that Colin Shaw thinks that he is not doing philosophy and that is why he has called his business Beyond Philosophy.

Please note, I have only used Colin Shaw and Beyond Philosophy as an example to illustrate a point simply because this landed on my lap at the right time.  Recently, there was the much publicised demise of The Monitor Group a strategic consultancy established by the king of strategy (Michael Porter).  Which is my way of saying that I am talking about academics, consultants, gurus and not any one single person or organisation.

What do you say?

Posted on December 14, 2012, in Case Studies, CRM, Customer Experience, Customer Insight (inc VoC), Customer Loyalty, Customer Philosophy, Customer Service, Customer Strategy, Social and tagged , , , , , , , , , , , . Bookmark the permalink. 17 Comments.

  1. Maz -

    I’ve known Colin for many years, very much respect him as a champion for customer experience optimization, and appreciate his perspectives. Although his comments were, somewhat unfortunately, taken as ‘holier than thou’ pedantic posturing (in part because one airline doesn’t typically recognize, or much care about, an individual traveler’s status with another airline), there’s a valid central point here. All companies would benefit from having better, more real-time and real-world, and more actionable insights into the emotional and rational drivers of customer decision-making.

    Michael Lowenstein, Ph.D., CMC
    Chief Strategic Marketing Officer
    The Relational Capital Group
    http://www.relcapgroup.com

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    • Hello Michael
      I am in total agreement with you that Colin does act as a champion for customer experience and is hailed by many as a customer experience guru. I also have no doubt that Colin is great guy – most of us are, few are psychopaths.

      My conversation is not about Colin though I have used Colin, Colin’s post and the reaction to it as an illustration about my general concern relating to philosophy and sophistry masquerading as science, as truth.

      My central point is that the fundamental axioms such as tiering customers by value and treating customers differently as a result of their financial value are appropriate only in certain circumstances – a little bit like snow tyres make great sense if it is winter and there is snow on the road.

      Further, I am pointing out how the philosophers love of his philosophy (and his livelihood) blinds him to the reality – the human condition, the way that the world shows up for us. If you take a look at Colin and his post he has undermined a key axiom of the whole customer movement: treat customers well and they will stick with you. As one of the commentators stated: Colin clearly stated that he was willing to dump Delta for Virgin pretty much at a drop of a hat. Furthermore, Colin pointed to fundamental truth: convenience matters – the business that is more convenient to do business with generally wins.

      Now lets get down to another key matter – an understanding of human nature. Beyond Philosophy makes a BIG deal of the ‘irrational’ and says it has a scientific method for accessing the subconscious of the customer. That occurs to me as hype – it occurs to me that even Sigmund Freud would not claim that. Now, how is that claim going to be credible when Colin could not even forsee the rational: how the ordinary customers feel about the way that they are treated compared with how the ‘superstars’ (like Colin) are treated.

      Finally, lets get down to a solid relationship with reality. Who thinks like Colin does? Who thinks that cabin crew’s first concern is or should be to woo over customers like Colin – the big hitters? If you step into the shoes of the cabin crew you find a different reality – I have some understanding as I have friends who are cabin crew. Their job, their concern is to get the plane boarded in an orderly manner and to leave on time. And that is it. Furthermore, it does not take genius to realise that if you start making exceptions – visibly – for some passengers then you inflame resentment and even anger from other customers. That is called favouritism and we don’t like it. Why? Because it goes against the concept of equality that our culture pride’s itself in. So whilst passengers accept that first class customers are treated differently to say economy passengers, this acceptance is so much easier for all parties if this difference cannot be seen. Which explains why the first class section is kind of made invisible from say economy.

      To sum up: I am not making a personal statement about Colin Shaw. I am not in a position to make it. I am making a statement of philosophy/advocacy and even fantasy masquerading as management science, as truth. And, I have come across many management consultancies where all it takes to be an ‘expert’ is several hours studying the right business book. My biggest issue is the disconnect between reality and theory, between the practitioner who has his hands dirty and the academic/MBA/guru who espouses theory and assumes that he knows better than the practitioner. Sometimes that is the case, most times it is not the case.

      Maz

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  2. Maz, the scenarios you pose take me back to my post about common sense and about truly human leadership. Be human. Be kind. Be respectful. Do what makes sense. (Of course, you must have common sense to begin with.) It seems simple, and yet, so many don’t get it. Do all the analysis you want, but if we step back for a moment and just use a bit of common sense, we can do the right thing. Most people, anyway…

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    • Hello Annette,
      What can I say? I find myself to be in agreement with you. And the remarkable is that common sense is no longer common – it is an exception.

      It occurs to me that so many in business think that the domain of business is distinct from the personal domain. It is as if in the domain of business the human cannot enter: the employee is simply a resource to be worked and the customer is a resource to manipulated and milked. Being straight and truthful is out of the question/naive in the business domain. And yet it is valued in the non-business, personal domain.

      Further, it occurs to me that so many in business are wrapped up in an ideology that they simply cannot be present to and access common sense.

      As you say often the access to common sense is to step back, reflect/think and so that common sense shows up. And as you know the issue is that just about nobody does that. We swim in an ocean where what counts is swimming as fast as we can: get from A to B, then B to C, then C to D, eventually you die!

      Maz

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  3. Maz,

    I don’t have a problem with segmenting customers, it seems like a wholly reasonable thing to do if you need to prioritise and resources are scarce.

    I think the question that should be posed is on what basis should you prioritise your customer’s requests.

    Level of pain or baggage tag?

    James

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  4. Hello James

    I am and I am not with you.

    Imagine that you are the captain and the ship has capsized. You find yourself in a boat with a couple of passengers and a couple of crew – say five of you. You drift along and run out of food. Starvation sets in and someone mentions that four of you would have a better chance of surviving if one of you were to die. Pushed to select one to die, do you select one to die? Do you segment the customers say by crew and passenger? And then having selected a passenger to die, which one do you choose? The youngest one, the oldest one, the one that has no dependants? Or, do you, even in this dire circumstance say that the right thing to do is to honor the dignity of human life – and you all survive as one, or you all die. That you will not segment and select who gets to live and who gets to die.

    Whilst segmentation is necessary it has to be approached ever so delicately. Please notice that when Adolf Hitler came to power his socialist government did indeed segment its customers/workers (the population) into two groups by value. The group that was deemed to be of low value was put into concentration camps! The same happened in America – it was called slavery. The same happened in South Africa – it was called apartheid. The same happened in Yugoslavia. The same happened in Rwanda.

    Segmentation is not simply a financial calculation. Segmentation ALWAYS bring with it a question of ethics. Anyone that thinks that this is not the case has lost sight/touch of his humanity. That is my central point.

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  5. Hi Maz,
    What a great post and one that ‘outs’ a lot of the theorising and posturing that takes place in the ‘customer’ place.

    However, I’d like to defend the economists, MBAs, and management consultants only because I am an economist, MBA and a consultant to management and I would like to think that I take the human approach before I take the financial value approach in the way that I think about business. Just didn’t want to be ‘tarred’ with that brush.

    Adrian

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    • Hello Adrian
      There are always exceptions to the rule. And I am delighted that you declare yourself to be an exception!

      For the record I make my living as a management consultant. And I make it very clear what I have the requisite expertise to do and what I do not have the requisite expertise to do. Furthermore, I strive to make it clear that there are no silver bullets, no guarantees – to live is ALWAYS to live at risk. I remember reading the code of ethics when I became a chartered accountant – for some reason I have never forgotten it.

      Finally, If there was a recipe that really worked and then was applied, it would not longer work. Why? Because, then each player would use it and all the players would end up the same – commoditised.

      There is no sound basis for declaring that you should segment customers by value and then focus on your best customers. There is no evidence! And if you take Clayton Christensen’s work seriously then you’d get that the route to failure, being disrupted, is to focus on your best customers and neglect your worst customers. If you use politics as an example then the customers to focus on are those that have not strong affinity for your brand or the competing brands.

      The surest way to make money is not to take care of your customers. It is to drive out the competition, to become the monopolistic supplier! There are various ways to get there.

      Maz

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  6. Treating different customers differently made more sense when customers couldn’t compare notes. And couldn’t complain on social media.

    All of us customers want to be treated as “special” even if we are not. Yet as Maz points out, it’s irritating to perceive others are (unfairly) getting better service, deals, etc.

    That’s the conundrum business leaders face. The reality is that good management means focusing resources, not spreading them around. That’s the philosophy CRM was built on, and it still works so long as customers think it’s fair.

    Unfortunately, I think this philosophy came to mean it’s ok to treat non-valuable customers badly. As Dave Carroll of United Breaks Cars fame told me in an interview: “No customer is statistically insignificant.” (See http://bit.ly/R5HNvm for full interview transcript.)

    I’m personally a fan of companies like Southwest and Zappos because their philosophy seems to be treat everyone great, and not to single out “most valuable” customers for special favors. But since I don’t buy a lot from either company, I don’t really know. All I know is that when I’m a customer, I get a fair deal and I’m treated well. That’s good enough for me.

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  7. Hello Bob

    Welcome to The Customer Blog – I am pleased to hear your voice here! Thank you for sharing your perspective. One that speaks to me and with which I am in agreement.

    One point I wish to pick up and pursue. Strategy requires focus. Resource limitations require focus. You and I are on agreement with that. The fundamental questions is which customers should you focus on? Should you focus on existing customers or non-customers for your category of product? Should you focus on your best customers or your worst customers? Or the customers that are in the middle.

    I draw your attention to the huge win that Nintendo came up with by designing games and games consoles for the ‘non-gamer’ – the ordinary person like me. I did not touch games before even though my kids had a playstation, xbox etc. I went out and bought the Nintendo when Nintendo came out with the brain games. I did end up going out and buying and then playing the Wii: my favourites are tennis and bowling. So Nintendo opened up the pie and got a big share of it by focussing on non-customers! This is a great example of disruptive innovation of the kind that Clayton Christensen.

    Why focus most resources on your best customers? I have done the work on this area and I can say that the best customers are often not the best customers. Too often companies take the easy way out and focus on the customers that generate the most revenue. When I have looked at these customers I have also found out that these customers are the most demanding and they drive up costs – companies often end up having to do all kinds of special work to please these customers. The net result is that some of these customers offer poor margins at best.

    Not paying attention to ‘worst’ customers is simply foolish. As you say we live in the social era. I cannot tell the financial value of a customer. I can read about their poor customer experience. And there is a saying which goes along the lines of ‘the true character of a person shows up by how they treat people who are not in a position to do much for them’. That is an indicator many of us look for. If a company treats high flyers well then the ordinary person does not show goodwill towards that company. It is kind of obvious why. Just today I heard my wife say “It is so good to do business with decent people!” Why? She had just bought a kettle as a present and it had a scratch. She rang up the company and they said just email us a photo and we will send you a new kettle through the post; no need to make your way to our store and return the kettle! My wife has never done business with this company and the kettle is only around £25. So she is not a high value customers. And if the company deliver on their promise then I will be writing about them here on this blog. How much will that be worth to them in terms of reputation and thus sales? It is the kind of publicity/reputation building that advertising cannot buy.

    What do you say Bob?

    Maz

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    • Maz, I agree with much of what you say. And I’ve argued the same that companies have a blind spot for what they perceive to be low-value customers, ignoring their value as influencer to others. Or overlooking ways to serve those customers more effectively.

      But couldn’t your advice to focus more attention on the “worst” customers be greeted with the same skepticism you have for too much attention on “best” customers? Where is the evidence?

      I think it’s the rare company that can innovate into new areas, because it seems easier to just continue to “harvest” as much business as possible from existing customers. To me, innovation a big differentiator between merely successful companies and real industry leaders. It requires a kind of schizophrenia to execute well with today’s customers while building new customers of tomorrow.

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      • Hello Bob

        Many thanks for sharing your perspective. I am not saying that companies should focus on their ‘worst’ customers nor ‘best’ customers nor ‘middle of the road customers’ nor ‘those who are not yet customers’ nor those ‘that used to be customers’.

        My central assertion is that there is dogma at the heart of CRM orthodoxy which says focus on your best customers. And there is no ‘evidenced based’ proof that shows that this is the best course of action. What I am asserting is that this is simply a rational sounding fiction that sounds good and has been accepted as gospel.

        The reason I used Nintendo as an example is that Nintendo went from a ‘has been’ into the leader when it broke from the pack and instead focussed on ‘non-customers’. And that was a brilliant strategic manoeuvre. Please bear in mind that I strive to think/act from a strategic perspective. And the essence of that is ‘surprise’ / ‘difference’ – breaking from the herd. Please note Hannibal did as well as he did because he ‘broke the rules’ and caught the Roman napping – time after time. He was probably the best military general (strategy = art of generalship) of all time!

        As for you observations on companies, innovation and harvesting, I find myself to be in agreement with you. Innovation is the harvest one reaps from experimentation and creativity – the willingness to play, to tinker, to embrace failure as a step in the process of innovation. And experimentation / playfulness has no place in the orthodoxy of organisational practices and scientific management that is in place today.

        All the best to you Bob and many thanks for an interesting conversation.
        Maz

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      • Maz, I agree there is a certain dogma in the CRM (and direct marketing) industry that says focus on “best” customers.

        However, I think there is a fair amount of evidence that supports the idea. Marketing campaigns that focus on more responsive customers (RFM) outperform those sent to a random sample. Sales efforts are more successful if targeted to customers that have bought before.

        The problem is not lack of evidence, in my view. It’s the opposite. The evidence that is easy to get supports doing more of the same. The bigger payoff from innovation is difficult to measure, so more strategic opportunities get put on the back burner for lack of evidence.

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  8. Hello Bob
    You and I are going to have to disagree with this one. I say there is NO empirical, unchallenged, evidence that supports the fundamental pillars upon which CRM is based. Specifically, there is NO universally applicable empirical evidence that proves (as in stands up to challenge) the following:

    a) higher spending customers pay higher prices, cost less to serve and generate more profit than other customers;
    b) customers who have been doing business with the company are more profitable than those who have only been customers for a short time.

    For example, I did work with a mobile telecoms company and after carefully analysis was shocked to find that the most profitable customers were the top 10% of the pay-as-you-go customers! These were more profitable then even the most profitable contract customers. I also found the the contract customers that generated the most revenue for the mobile company and had been customers the longest were the most unprofitable customers. The figures showed that the mobile company was losing money on these customers. And each year it was losing more money as these customers were demanding more and more and the mobile company was giving them more and more.

    We are dealing here with human beings who have free will. We are talking about an arena where there is change in suppliers, products, services, marketing offers, societal changes. In short, we are talking about free agents in a dynamic world. In such a world there are no universals laws as there are in physics.

    If you still disagree then I ask you to provide me with the empirical evidence – undisputed by a credible source – that vouches for the universal truth of the central tenants of CRM. I am open to being persuaded that I have a mistaken view of the world. And if you can show me that then I will thank you as I wish to have an accurate picture of the world.

    Where you and I agree is that every industry has a set of dogma which has become embodied in habits. And pretty much each players in the industry subscribes to that dogma and goes about competing in a similar manner. Given this addiction to dogma it is difficult to get the players to shift until and unless the acknowledged leader of the pack shifts. Once that happens then all the other shift. Yet, there is no incentive for the leader to shift as it is the leader who is making the most money out of living from the existing dogma. I used to work for such a leader many years ago.

    My final word, i am open to being shown that I am wrong. I have been wrong many times. And it will take solid evidence from trusted/credible sources to convince a skeptic like me that the whole customer movement (loyalty, CRM, CXP) is anything other than folk wisdom / philosophy as opposed to ‘science’. And I get that my stand is the least popular with the people who make a living out of selling/milking this folk wisdom especially management consultancies, software vendors and the marketing & advertising industry.

    Maz

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  9. Maz, I think your first CRM pillar is a “loyalty myth”…

    a) higher spending customers pay higher prices, cost less to serve and generate more profit than other customers;

    … and the second one is a derivative of the first, since retention is one facet of loyalty

    b) customers who have been doing business with the company are more profitable than those who have only been customers for a short time.

    I don’t agree that these are fundamental pillars of CRM, although they are part of the mix that some CRM proponents have used to promote the CRM ideology.

    There is no irrefutable proof that ANY management theory works. You can always find an exception, like your example, which proves that you can’t blindly apply some theory to all situations.

    In a large scale scientific study we did quite a few years ago, we studied 100s of CRM projects and concluded that increasing loyalty was not a significant benefit of most CRM projects. More tactical benefits like improved decision making, process efficiencies and reducing cost were cited more commonly.

    My conclusion: the CRM industry “sold” business leaders on loyalty, and they bought it. Increasing loyalty was one of the top expected benefits of CRM project leaders. But when the dust settled what most companies actually got was process automation in marketing, sales and customer service. And the ROI story is pretty good here — about 2 out of 3 projects were successful.

    What I was trying to say was simply that there is evidence that CRM *can* work, not proof that it always works or that increasing loyalty is the main outcome. Your evidence to the contrary in one company doesn’t prove that loyal customers are never more profitable, lower cost to serve, etc.

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  10. Hello Bob

    Many thanks for continuing the conversation. It occurs to me that I am now clear on what you are getting at!

    I do not doubt that many companies got ROI from their CRM investments. As a strategist I say that it is quite possible to win a battle whilst at the very same time losing the war. Put differently, winning the wrong battle can and does contribute to losing the war – think Japan/Pearl Harbour. Which is my way of saying that gains in efficiency (process automation) can and do hinder effectiveness. How much of a role have CRM systems played in reducing the quality of service delivered to customers? And taking the ‘personal’ out of service? How much sales effort has been wasted in having sales folks make up stuff to feed into CRM systems just to have management off their shoulders?

    You see the issue with ROI is the matter of ‘externalities. I see this all the time: put more powerful marketing automation systems in the hands of marketing and they do more marketing and generate more leads. And that is hailed as a marketing ROI success. Until you step into the sales function and find that the vast majority of the marketing generated leads are ‘waste of time’. And who has to sort out the junk from the valuable leads? Sales folks. If you allow me to draw the boundaries (space, time) I can make the numbers look good. Heck, I am a qualified chartered accountant and have some expertise in gaming numbers. Most people don’t get this and it is true: great accountants are artists with numbers: all the solid numbers in accounts melt when you look into the assumptions behind them!

    Can CRM work? Yes. Is it necessary ingredient or pillar of business success? No. Apple’s success is based on great products – products that are delight to use e.g. my wife loves the iPad, my daughter loves iPod Touch, I value the iPhone…. Zappos’ success is based on a humanist philosophy and a culture that creates/delivers happiness. USAA’s success is based on noble mission and culture that connects the people inside the organisation to the customers they are serving. Here in the UK, John Lewis is doing remarkably well because of culture and constitution which connects the wellbeing of the employees with serving customers and generating profits. Amazon does well because it enables ALL customers, irrespective of financial value – to easily find and buy pretty much whatever they wish to buy.

    You and I are in agreement when you say, without saying it explicitly, that there is no magic formula/recipe/potion for creating a successful business. What works for one business does not necessarily work for another. Even the same business never enters the same river twice – time moves on. There are no universal principles. More accurately, there are universal principles and from a practical purpose they are as useful as ‘exercise and eat healthily’. Yet, just about every business guru is in the business of pushing the opposite view: I have that magic recipe/potion/formula for your business success.

    Maz

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    • Yes, winning the battle and losing the war is exactly right. ROI does not mean competitive advantage. A successful “CRM project” doesn’t mean real differentiation in the customers eyes.

      That said, we may not completely agree on the importance of CRM. I think it is one of the pillars of success for most companies, based n my research. Or if you prefer, a foundation element.

      CRM (as marketing-sales-service process optimization) means running an efficient business that does a good job “extracting” value from its customer base. That phrase grates on me, but it aptly describes what most CRM projects are about, getting value from customers, not delivering value for customers.

      And if you consider big data/analytics part of the CRM meme, then some companies have shown they can win with better analytics than their competitors.

      Generally speaking (and I know generalities are dangerous!) I see CRM as necessary but not sufficient in successful businesses. Even companies known for great experiences (e.g. Zappos) or innovation (e.g. Apple) practice good CRM.

      But I struggle to think of a great company/brand that *only* practices CRM. The key differentiators in my view are in experiences and innovation. CRM is almost a given – table stakes as they say in poker. A company may lose because of poor CRM practices, but it won’t win if that’s all it does.

      As you say, winning the battle, but losing the war.

      Thanks for a interesting discussion. I hope others will weigh in with their thoughts, too.

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