How does a consumer products company build a long-term relationship with the largest retailer in the world? How do you enhance that relationship when the retailer has a reputation for the difficulty encountered during the nego- tiation process? How do you structure your relationship so both firms derive extra benefits, which elude the normal manufacturer-retailer processing? These were the questions faced by Tom Muccio, Vice President of Customer Business Development at Procter & Gamble Worldwide, as he and his team developed a winning CRM program with mega-retailer Wal-Mart.
The enormous success of the partnership between these firms led P&G to launch its customer business development (CBD) strategy, centered on
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the multifunctional teaming practices developed for this leading-edge alli- ance. This concept, now deployed globally with nearly 80 teams, is considered a core competency at P&G and defines the working relationship with its most strategic customers. It involved the transition from national to global teams, as well as changes that support multifunctional customer relationship man- agement with the firm’s entire customer base.
The relationship being considered was initially fraught with the typical problems confronting such a large base of business — P&G provides more than $5 billion worth of products on an annual basis to Wal-Mart. There were individual ego problems to be overcome, questionable executive sup- port, poor clarity of goals, misaligned objectives, and the usual problem selling the idea across a number of business units and functions. In spite of these complications, a team began, back in 1987, to review the relationship and determine how it could be improved for both parties.
In 1987, the team characterized its relationship with the retailer as one based on a military model with an absolute hierarchy that had to be observed. P&G had a silo approach that dictated sales and went through each product division, no matter how many people called on the retailer. Sales approaches were tactical in nature and interdivision competition was fierce. A new approach to customers was required and two forces emerged from the team’s initial assessment. There had to be better methods that would provide better results, a central ingredient of which is a holistic approach with a focus on quality and an end-to-end total system of response.
A telling anecdote described the initial condition. Three years before the team exercise, Wal-Mart officials contacted P&G headquarters in Cincinnati to deliver a “Vendor of the Year” award to P&G. Unfortunately, they were told that the P&G CEO did not take calls from customers. So the award went to another firm. It was not long after that event that P&G took on a greater customer orientation. The driving hypothesis became: If we focused the same “internal” management principles toward the customer, we could expect better alignment, relationship, profit, and sales for both parties. The joint mission statement secured senior management acceptance. It stated:
The mission of the Wal-Mart/P&G Business Team is to achieve the long- term business objectives of both companies by building a total system partnership that leads our respective companies and industries to better serve our mutual customer — the consumer.
Of interest, when the team mapped the P&G competencies against what the assessment team listed as practices desired by the customer, they found most of the competencies (product data analysis, floor and display planning,
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etc.) never came into play in the relationship. The best results came from what the team called “little clusters of overlap” where competencies enhanced the overall supply chain process steps — on-time delivery from the supplier, for example, matched with fast turnaround at the retailer’s dock.
Next came the operating principles for the emerging relationship:
Apply performance-based reward and recognition
Take a positive approach
Win as a team
Treat everyone as an individual
Communicate openly
Be honest
Be an owner
Respect confidentiality
With these very sensible but business-difficult objectives as their guide, the mutual teams set forth to develop the relationship strategy. Consumer research from both firms was shared. Categories were studied to determine where the best results were being achieved. SKU proliferation was addressed to bring the store offerings to those that made sense for both firms. The two companies shared common analytical tools — to diagnose the meanings and trends from their data — and databases so both companies could look at each other’s information. Logistics and systems coordination took on high value and activity-based costing and joint business planning went to the heart of the team’s structuring of what would be the ultimate CRM process.
To guide the effort, a set of expected results was quickly developed:
Increase sales, profit, and shares of market
Reduce costs
Increase capacity and capability
Develop precision service
Introduce speed and innovation
Demonstrate better consumer insight
Some of the key findings that emerged during the relationship-building exercise have meaning for all firms pursuing CRM. In spite of a high self- perception of its products and the firm’s capabilities, the team found customer satisfaction was not what was perceived and was a crucial per- quisite to growing share. In spite of offering well-known branded products, some customers were not happy with what they received. Responding to
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some of those specific problems led to better customer satisfaction ratings. Finance had the biggest problem with the transition. They wanted to measure performance to budget. The best results occurred when the P&G CFO sat down with the customer CEO to discuss how the manufacturer could get proactive to meet the customer’s needs.
The team also found the capabilities of account leaders were crucial to the outcome. Constructive, move-forward, effectiveness-oriented, and col- laborative attitudes were often not characteristics of the national account sales representative. The sales structure at P&G subsequently went from high silos of product capability to integration within a new format focused on customers. Emphasis is now placed on the “customer experience” as a guide to enhancing the relationship.
The P&G/Wal-Mart relationship has blossomed since this early team work effort. Over 160 multifunctional teams have been involved. Working together on joint goals, a strategic partnership emerged that is essentially unprece- dented in the manufacturer-retailer arena. The focus is on the end consumer and what P&G products make the most sense. Shared consumer data lead to focused selling and merchandising. P&G instituted a supplier-managed inventory system by which the racks and floors of Wal-Mart and Sam’s Club outlets are replenished by P&G. Data on what to stock comes from daily cash register receipts so replenishment is based on consumption and not sales forecast. It is truly a state-of-the-art relationship that only improves as the teams continue their joint focus on joint opportunities.
Summary
In this chapter, we considered an element of supply chain management that really should be viewed as the price of admission for a company interested in being a decent service organization. Nevertheless, most CRM efforts fail. The reasons have been discussed in detail. The secrets to success begin with an understanding of what the effort is all about and what should be the intended purpose. It progresses with the help of a few willing and trusted customers to develop a sensible business proposition and to design systems that benefit both parties.
At all times, a focus must be kept on the users of the system so they see value for themselves as they transition to what is typically a technology-based information transfer system. Once the concepts are clear, a strategy that fits CRM into the business plan will assure the firm that attention will be given first to what the customer needs and appreciates as differentiating service, and then provide the desired top- and bottom-line improvements. The basics are clear but often overlooked. CRM is a tool to get closer to customers and then build more sales.
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