Daniel Millsap MBA School Research
Customer Relationship Management Systems As A Means Of Improving Advertising And Marketing Business Processes
- IS/IT Product Description: Customer Relationship Management Systems
- Industry Analysis
- The Five Forces Governing Competition in an Industry
- Threat of Entry
- Threat of Substitute Products or Services
- Jockeying for Position Among Current Competitors
- Bargaining Power of Suppliers
- Bargaining Power of Customers
- Firm-Based Value Chain Model
- Model Application
- Implementation of Opportunity Analysis
- Implementation Effectiveness
A company is constantly striving to gain and maintain a competitive advantage.In order to do so, it turns to information technology where, through the use of strategic decision making and technology, it is able to improve core competencies and business processes. The author interviewed the CEO of ___ in addition to an independent senior business analyst. Based upon the interviews, a recommendation to implement a Customer Relationship Management system was made in order for the company to better focus its advertising and marketing efforts.
A firm rarely exists in isolation within the market. Once others identify the potential to gain a profit they will attempt to enter into the same market as well. Once more than one firm has entered into the market, they must compete with one another to attract customers. Though price wars are certainly one way in which firms compete with one another, once perfect competition has been reached the price can not go any lower without companies selling at a loss. Thus companies are forced to find other ways in which to gain a competitive advantage. If a company is able to improve its product through better business processes then it may gain that advantage. Using Porter's value chain model, the complexity of a firm's infrastructure can be glimpsed at. Companies strive to improve in both primary and secondary activities, but a point is reached when the complexity of information outgrows the ability for the firm to manage it.It is at this point that smart companies turn to the use of information technology. Whether a company strives to improve its customer data collection methods for marketing purposes or whether it strives to improve its relationship with its suppliers through the use of data analyzation software, a company is always in the position to benefit from more efficient, safer,and more useful methods. In this particular study, ___, a retail custom jewelry store specializing in diamonds, is used as an example of how a company can improve its decision making through the use of Customer Relationship Management systems.
A successful company is one which is able to
attract, satisfy, and retain the most valuable customers. One
useful method for studying the company/customer dynamic is through the
use of Customer Relationship Management systems.
systems provide information to coordinate all of the business processes
that deal with customers in sales, marketing, and service to optimize
revenue, customer satisfaction, and customer retention(Laudon
Laudon, 2006, p.64).
CRM software packages range from specific tools with which to
custom-tailor a website according to specific customer tastes all the
way to all-encompassing tools which offer specialized reporting tools
on a variety of business processes. The most comprehensive
packages allow companies to manage their partner relations (PRM) and
their employee relations (ERM) in addition to their relations with
customers. Major CRM software vendors include Siebel Systems, Clarify,
and Salesforce.com. The more comprehensive CRM systems allow a
company to focus on various business processes like sales force
automation, customer service, and Marketing.
Sales force automation allows companies to custom-tailor their selling efforts to specific customers. For example, a company using CRM software could develop several selling strategies based upon different customer demographics. Instead of advertising to each customer in a similar manner, sales force automation allows a company to automate the selection of advertising tools to use depending on its targeted customers.
Customer service functions of CRM systems allow companies to increase the functionality and efficiency of their customer service functions. For example, an automated voice routing service allows a company to save money by more efficiently routing customer calls to the proper help representative.Customers appreciate having their problems quickly resolved over the telephone and companies appreciate cutting unnecessary costs caused by inefficient service.
Marketing functions of CRM systems allow companies to efficiently and precisely market to current and prospective customers. The software is able to monitor the effectiveness of marketing campaigns so that management is better able to select from the many choices it has in terms of marketing strategies. For example, using the CRM system, a company may find that there is no positive correlation between spending on advertising and revenues for the month of July and can thus decrease its expenditure for that month in the future.
SIC: 5944- Jewelry Stores
Line of Business: Retail Jewelry, Wholesale Jewelry/Precious Stones.
Firms within this sub-industry primarily engage in the retail sale of jewelry, such as diamonds and other precious stones which are mounted in precious metals and sold as rings, bracelets, broaches, sterling and plated silverware, watches and clocks. In terms of market capitalization, the three top performers include Tiffany Co,Signet group PLC, and Zale Corporation. Based in New York, New York, Tiffany Co was founded in 1837. The company and its subsidiaries design, manufacture, and retail fine jewelry. It utilizes catalogs, retail sales, and business to business direct selling within the United States and it also sells through department store boutiques, as well as the internet and wholesale stores internationally.As of January 31, 2008, Tiffany Co. operated approximately 184 retail stores worldwide. (http://finance.yahoo.com/q/pr?s=tif) Based in London, UK, Signet Group PLC was founded as Ratners Limited in 1950. The company offers gold and silver jewelry, watches, diamond jewelry and gifts. Signet Group plc operates as a specialty jewelry retailer in the United States and the United Kingdom. The company operates its mall stores under Kay Jewelers, Jared The Galleria Of Jewelry, and other regional names in the United States; and H.Samuel The Jeweler, Ernest Jones, The Diamond and Watch Specialist, and Leslie Davis names in the United Kingdom. As of February 3, 2007, Signet operated 1,308 stores in the United States and 581 stores in the United Kingdom. (http://finance.yahoo.com/q/pr?s=sig) Based in Irving Texas, Zale Corporation was founded in 1989. It operates as a specialty retailer of fine jewelry and operates under six different brands offering watches, gemstones, gold products, diamond products,precious gemstones and other giftware. As of July 31, 2007, the company operated 1,471 specialty retail jewelry stores and 793 kiosks in the United States, Canada, and Puerto Rico. (http://finance.yahoo.com/q/pr?s=zlc)
In analyzing the ways in which competitive forces shape company strategy, Michael E. Porter created a model based upon five specific forces.(Porter, 1979) These forces represent areas which companies must take account of when assessing their current position in the market. Is a company safe in the market or should it be prepared for competition? Will it be able to raise prices whenever it wants to or is it constrained by other parties such as its suppliers? These important questions are more easily answered while making use of the five force analysis.
Profitable markets draw in new firms wanting a share of these profits. The more companies there are within a specific market, the more the profit rate will resemble that of perfect competition. A firm naturally does not want to share its valuable profits and thus established firms try to block the entry of new firms into the market. For example, entrants are sometimes deterred by the use of patents and intellectual property rights. For example, a pharmaceutical company takes a patent on a certain chemical formula and thus preserves the right, for a certain period of time, to exclusively offer the medicine in question. Other things which can be seen as barriers to entry are costs of doing business, access to distribution channels, the learning curve of the industry, and the expected retaliation from established companies. For example, before opening a business, a company has to consider the cost of purchasing equipment, renting office space, in addition to learning who the major suppliers are, with whom it is necessary to speak with to make a deal etc. Established companies might retaliate by lowering their prices and selling at a loss temporarily in order to ruin a new company's chances of success. In the case of jewelry stores, a major barrier to entry is the cost involved in purchasing merchandise.In addition to merchandise, there is a steep learning curve within the industry. To a layperson a diamond is just a pretty stone but to an expert it quickly becomes a study of the detailed physical properties of the stone and the ways in which it can be cut to best reflect light rays.
If company X is the only one in the world that offers flying cars, then naturally it can charge a higher price and dictate the options to the customer. Henry Ford was quoted as saying that a customer could have a model T Ford in any color he or she wanted as long as it was black. This was in response to customers wanting more variety. Because he had no competition, he was able to do such a thing. If, on the other hand company x is one of a hundred companies offering similar products, it must take into consideration the actions of its competitors. The more options the customer has the more he will be able to demand from the company.If a company refuses to shape its products in response to customer demands, customers will simply go to a competitor that is willing to do so. Substitute products place a ceiling on prices as customers, given the choice of similar products, will most likely choose the lower priced one. In the case of custom jewelry stores, products are similar to a point but are rarely exact. Customers request custom jewelry and go to the store which is best able to convey the artistic design that they have in mind. For example, ___ has been contracted in the past to design and create championship rings for sports teams. Certainly there are other companies willing to do the same thing but the cost, in terms of time, of waiting for another company to respond to a bid is quite high and thus the threat of substitute products and services decreases.
Companies jockey for market position using any and all means possible. Means of doing so include price competition, advertising increases and the implementation of new products. For example, larger companies may benefit from having economies of scale, thus allowing them to cut prices lower than smaller companies which are unable to create products at such low costs. As an illustration, consider a company like DELL in competition with a neighborhood computer store. Both are in need of computer processors and both wish to purchase from Intel. DELL has the resources to purchase 100,000 processors at once while the neighborhood store only has enough to purchase 50. Intel naturally offers DELL a discount for ordering so many at once while the neighborhood store must pay the same price as anyone ordering from Intel directly. As the computer processor is only one of a myriad of different parts to make a computer, this process is repeated until the finished product is made. Suppose that DELL spends $1000 to build a computer while the neighborhood store spends $1900.If both sell for $2000, DELL makes $1000 profit while the smaller store only makes $100. If DELL wishes to do so, it may decrease its price to $1600 per computer. It would still make $600 profit per computer while the smaller store would be losing $300.In the jewelry industry, price wars may not be as common as advertising and new product implementation. For example, a store may advertise in certain magazines in order to attract newly engaged couples, or it may be the first to offer a special diamond necklace geared to attract tennis players.
Suppliers exert their power on an industry by raising prices or reducing the quality of products. Suppliers have the most power when they are one of only a few able to supply materials and when switching costs are high for customers.
Customers can also force down prices and demand higher quality products. Buyers are the most powerful when they comprise a large percentage of a company's purchases or when they can get similar products elsewhere. For example, if one person calls DELL saying that he wants computer screens to come in the shape of a circle, he will probably not get past the customer service representative. A government agency purchasing one million computers, on the other hand, will be put straight through to the CEO who will certainly deliver some circular monitors.
The value chain model developed by Porter
highlights specific activities in the business where competitive
strategies can best be applied and where information systems are most
likely to have a strategic impact(Laudon & Laudon, pp.
105). The model looks for and identifies specific areas in which a
company can use information technology in order to improve its position
in the market place. These areas are identified as being either
primary activities or support activities. Primary activities,
comprising inbound logistics, operations, outbound logistics, sales and
marketing, and service, are related to the activities which create
value for the customer. The activities most directly involved in
the production and distribution of products and services are primary
activities. Secondary activities are the activities that allow
the primary activities to happen in the first place. For example,
a company needs to handle its infrastructure, human resources,
technology, and procurement. A company strong in secondary
activities will have a better chance of performing well in its primary
activities.The two sets of activities complement one
another. The firm is only one link in the chain, however,and must
thus take into account the other links of the chain, beginning with the
suppliers of its suppliers, its suppliers, itself, its distributers,
and finally its customers. At each link in the chain the firm
must ask itself how it can enhance its role in the relationship by
using information technology. For example,
Is there a
better way for us to communicate with our suppliers so that we are
supplied in a more timely manner? Another advantage in
using the value chain model is that it allows companies to benchmark
their performance and compare it to certain standards or the
performance of other companies. For example, a company may
determine that it usually takes its suppliers 3 weeks to send the
correct supplies. In isolation this data would be of little
value. If, however, it was determined that the average shipment
time for all suppliers within an industry was 1.5 weeks, then the
company would know that it had a problem. The achievement of
benchmarking allows for the establishment of industry best practices.
Industry best practices are the result of the compilation of data by
different organizations which is then used to determine the best
solutions to often reoccurring problems. In this case, a company
may wonder how it could enhance its supplier's performance.
Should it enter into negotiations with a new supplier? Based on
the best practices, the company may realize that the cost of finding a
new supplier would outweigh any benefits of saved shipping time.
The value chain model is an important component of the decision-making
process. The decision making process consists of four components.
The first is intelligence, which involves identifying problems within
the organization. The second is design, where the company
determines what the possible solutions to these problems will be.
Once solutions have been postulated, the company must make a Choice as
to the best solution and finally it must implement and monitor the
chosen solution (Laudon & Laudon, pp.476). The value chain model
allows a firm to identify areas in which it can improve, it allows the
firm to identify possible solutions, make a choice, and implement and
monitor the results.
According to its founder ___ is a very user-oriented company. Therefore its focus should be on customer relationship management. In terms of its primary activities, ___ should focus on its sales and marketing systems in order to better promote and sell its products. Using the decision making process: (Intelligence)- ___, in analyzing its current practices, may determine that its website design could use some work based on industry best standards comprising proper fonts and colors. (Design)- It may choose to hire a web designer and specify that he/she is to create 3 possible alternatives to the current state. (Choice)- The person in charge of decision making reviews the possible solutions and chooses one.(Implementation and monitoring)- The company will closely monitor the web-traffic, phone call volume, and end of the week revenue reports to see if the solution has had any impact. In terms of its support activities, ___ may find that it needs to improve its technology in order to better track its customer's attitudes, needs, and satisfaction levels. For example, it may choose to implement video equipment in its communications so that customers may call in and see a product demonstration from their home-computer. Or ___ may choose to upgrade its systems so that information about customers is compiled in a more timely manner, giving ___ an advantage over its competitors.
The functional operation of focus in this case is sales and marketing systems. Specifically, ___ has a website where customers are given information on a variety of topics. For example, one may read engaged couples' proposal stories; one may enter into a contest to win a diamond necklace; one may enter information into a data-field in order to have a diamond appraised online; one may order a book written by the founder of the company. The implementation of customer relationship management software will allow ___ to focus its efforts in a more efficient manner. For example, a software program could determine exactly which sections of the website were most popular with customers. Which section of the website did customers enter first? Were customers staying to read all information on the site or did they exit at a certain section? If they exited at a certain point, was it because they were through reading or because they found something too confusing to bother with? Using such information, ___would have the intelligence necessary to to enhance its business processes in order to gain market share, increase customer loyalty, and increase revenues.
Sales and marketing is an important primary activity within a company. The ability to determine who the customer is and what he/she wants is priceless information that a company can use to cut its own costs and increase its revenues. A website is a good start but why stop there when other information technology can help a company further focus its efforts on certain types of customers and help determine whether or not its current policies and procedures are effective? The implementation of a customer relationship management system focusing on the sales and marketing aspect of a company will increase the effectiveness of ___'s decision making process. By quickly analyzing complex information using computer software, ___ will have the intelligence necessary to monitor and improve its business performance.
It is recommended that ___ implement a CRM system, allowing it to improve its decision making in the areas of sales and marketing. With highly specific data, ___ will be able to to attract more customers and to retain the customers that it already has. Information which might normally be dispersed among different systems can be safely stored and accurately analyzed using CRM software. Users will be able to highly customize their data queries, allowing for hypothetical analyses of potential changes in business practices. Furthermore, using a CRM system, the user may see patterns that might have otherwise passed by unnoticed. For example, ___ can use the software to analyze which sections of a particular website are most effective in causing customers to make a purchase. Using this data, ___ could make this section of its website even more visible, perhaps increasing revenues even more and causing greater customer satisfaction.
In conclusion, it is recommended that ___ implement a CRM system to enhance its sales and marketing activities. Without customers a business will not remain a business for long. In order to attract customers, a company must be able to identify the needs which a customer is seeking to have satisfied and must be able to communicate to these customers the ways in which the company can help them satisfy these needs. Advertising and product development are quite expensive and so it is beneficial, financially, for a company to know before-hand which products will likely to be successful and which advertising strategies will be most effective. Some companies may rely on intuition and some may rely on trial-and-error. CRM systems allow for the objective study of the interaction between company and customer. These systems allow for the collection of important data, the storage of this data, and the means of analyzing the data in a way which will be useful to the company. Companies should realize, however, that IT systems are not magical and that they may introduce problems of their own. A company should be prepared for problems during the testing and implementation phase using any new software. Specifically, the company should not rely too much on the new software until it has been properly tested. Data loss can pose a serious threat to the functioning of any company and thus old systems should not be taken off-line until the new ones are functioning properly. It is also very important for a company to correctly analyze its situation before hand so that it can choose the best software package for its needs. The implementation of software is expensive and time-consuming. Switching systems is not like switching clothes. The costs involved include time and money and both of these are things which a company does not want to waste.
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Laudon, K., & Laudon, J. (2006). Management information systems. Managing the digital firm. Upper Saddle River, NJ: Pearson education Inc.
Porter, Michael E. (1979). How competitive forces shape strategy. Harvard Business Review,Mar/Apr79, Vol. 57 Issue 2, p137-145,