Studies have shown that the cost of replacing a lost customer is from five to seven times greater than the cost of raising the value delivered to an existing customer. Taking care of customer relations is of vital importance for the health of most businesses, and the signs are that this is going to be even more important in the future.
Sales organizations play an important role in building long-term customer relations. It is common for a special salesperson to be appointed to be in charge of customer relations. Titles such as Key Account Manager (KAM) and Relationship Manager are becoming more and more common.
A success factor in building good customer relations is to continually measure and evaluate customer satisfaction in different areas and, if need be, to take appropriate action. A rule of thumb is that every customer account should be reviewed at least once a year. This can be appreciated by customers, especially as it is one customer meeting that will not focus on selling. See Sales force for more information on customer metrics.
The trouble with customer surveys is that they only give us an index and do not tell us what action to take to develop customer relations. They can even be dangerous if a customer sees that no action has been taken on something that s/he complained about in a survey. In order to avoid this, it is important for questions in surveys to be precise and for the results to be quickly communicated to the operative parts of the organization which can then deal with what may be an unsatisfactory state of affairs.
A Problem Detection Study (PDS) is a method that can be used to iden-tify areas for improvement. Instead of asking how satisfied they are, customers are asked to formulate the problems they experience and to rank them in order of importance. This method reveals the areas in which company action will have the greatest positive effect on customer satis-faction. More about PDS can be found in the section of that name.
Good customer relations often become what can only be called a partner-ship between the supplier and the customer, so much so sometimes that it can be difficult to draw a boundary between the two businesses. Systems and processes become so integrated that the companies collaborate in all areas, with the exception of direct sales.
RECOMMENDED READING
1. Evert Gummesson, Total Relationship Marketing.
2. Jill Griffin, Customer Loyalty: How to Earn It, How to Keep It.
3. Kenneth Blanchard and Sheldon Bowles, Raving Fans: A Revolutionary Approach to Customer Service.
4. Sallie Sherman, Joseph Sperry and Samuel Reese, The Seven Keys to Managing Strategic Accounts.
Customers
By customers we mean regular buyers of goods or services. Potential customers are usually included in the abstract concept of market. The concept of a customer is appearing more and more in non-commercial activities where the term used to be ’user’ or ’buyer’. In this respect, a customer is the person who receives and evaluates a producing unit’s goods or services.
Greater local and global competition, shorter product cycles, more and more imitation and consolidated purchasing, have all given the customer increasingly greater power in many industries. The building of long-term customer relations characterized by satisfaction and loyalty has thus become more of a priority than ever. For more on this see Sales force.
The customer was not nearly so important during the years from the end of World War II to the mid-1970s as s/he is today. When demand exceeded supply, much less attention was paid to the customer’s wishes than has been the case since the mid-1970s. Customers were formerly regarded as an abstract mass who were charged handling fees and subjected to a ration-alization process designed to make them buy as much as possible every time they placed an order. Producers put their own production appara-tus first and tried to adapt customer behaviour to it.
Since the mid-1970s, producers have had to focus their attention on the customer and his need structures in order to influence customer demand for their products. Large corporations still have a tendency to treat the
customer as an abstraction. Comet-like careers in big organizations tend to make high-ranking executives uninterested in who their customers actu-ally are, or what their underlying need structures might be. In this case, the term customer refers to executives and individuals who make or influ-ence buying decisions.
It is sometimes difficult to identify the customer in the sense of discover-ing the need structures to be satisfied, especially where there are dealer structures, which are becoming increasingly common. In the pharmaceu-tical industry there are at least three categories of person who could aspire to being customers: the patients/end-users, the doctors/pharmacists, phar-maceutical committees and other organs that influence decision-making.
It is important then to sort out what we mean and not simply babble about
‘the customer’. The same is true for schools. Is it the pupils, their parents or society as represented by the government of the day, who are to be seen as the customers?
The most generally businesslike definition of customer is: the physical person who makes decisions on purchasing or utility outside of the tradi-tional buying situation.
RECOMMENDED READING
1. Bradley T Gale, Managing Customer Value: Creating Quality &
Service That Customers Can See.
2. Gerald Zaltman, How Customers Think: Essential Insights into the Mind of the Market.
Decentralization
A process of decentralization is under way almost all over the world, in busi-ness as well as in public administration and non-profit organizations. The aim of this process is often to make operations more efficient by utilizing people’s intelligence so as to increase an organization’s pool of wisdom.
Another important aim is to put the responsibility for decisions close to customers and the market in the hands of people who know them best.
Decentralization is impelled by three principal motives:
1. Organizations become more market-oriented and thus more efficient in respect of the people they serve.
2. People feel more involved, which encourages motivation, entrepreneurship and job satisfaction.
3. People want to be their own masters instead of being bossed around.
Decentralization is desirable by both management and employees in times of prosperity. It is easy to accept delegated responsibility when success is assured. But decentralization is not such a cut-and-dried affair in times of adversity. It is hard for people to have to reduce volumes, cut capac-ity and fire colleagues. And it is not pleasant to have the responsibilcapac-ity to decentralize when there are hard decisions to be made in respect of the productivity axis (see the section on Efficiency). In the good times, deci-sions are primarily about expansion and customer value. In a slump, belts are tightened and the hair shirts are brought out.
The early 20th century witnessed dramatic developments in people’s working lives. When Fredric W Taylor developed his theories on scien-tific management (see Taylorism) it was an extremely small section of the working population that had any kind of management responsibility. The majority of wage-earners carried out more or less repetitive work without the need for problem solving skills or decision-making.
Nowadays there are a great many more work arenas and the situation could not be more different. A vast number of jobs now carry some responsibil-ity, people have to think about the work they do and management skills are required of many people, whatever their position in the organization. Routine
production work is now mostly assigned to machines, leading increasingly to the intellectualization of most of our work. From a management perspective, organizations have simply become more customer-oriented and efficient, while the working environment is giving employees more job satis-faction and an opportunity to exercise their creativity.
One of the principal causes of decentralization is competitive pressure, i.e. customers can choose between several good alternatives. When there is little pressure from competitors the need for market and customer orien-tation is less obvious. Corporate thinking can be left to top management with the rest of the organization following orders. This is an extremely inefficient way to lead a company however when competitive pressure is high. Substantive decision-making is too far removed from customers who then turn to more agile organizations that respond more quickly to their needs. Decentralization then becomes a question of self-preservation and competitive ability. Studies have shown that decentralization is highly desir-able to increase efficiency where customer utility is concerned but is considerably less effective in relation to the cost dimension. This can be seen in organizations that have felt it necessary to lower their cost levels.
Decentralization then tends to go overboard, with top management taking over control. Of course the world is not so constituted that only one course – centralization or decentralization – has to be the right one. The intelli-gent approach is to strike a balance between these two opposites and look at a number of factors:
Centralized/decentralized
1. What essential functions ought to be kept together from the standpoint of overall strategy?
2. Which functions call for local initiatives, customer-perceived value and variation?
3. What economies of scale, i.e. advantages of ‘scale and skull’, are there?
4. What is necessary to manage the organization?
5. How do small-scale advantages affect the efficiency of the organization?
In many systems largely shielded from competition, a kind of anarchis-tic decentralization can be made to work. By this we mean a division of responsibility without the need for a cohesive executive.
A slight, inadvertent shift to decentralization can sometimes be discerned, particularly in the transition period when regulated public systems begin to face competition and the balance between centralization and decentralization has not been sufficiently pondered. The following points can be made:
1. It may be strategically necessary to keep brand, R&D and marketing together.
2. Functions that require local initiatives are often connected to sales, service and after-sales.
3. An analysis of how the advantages of scale and skull (or the total competence of an organization) relate to efficiency, is often lacking.
An important function at a bank can appear to be cost-motivated, while one of its branch offices is busy creating customer value which, however significant, may well escape analysis.
4. Sometimes, in decentralized systems, there is not sufficient analysis of cause and effect and this can make the work of management difficult. Certain expenses may be activated in the balance sheet in one place while they appear as a cost in the profit and loss account in another. Customer contracts stretching over several years may be taken up as income in one region but split into periods in another.
5. Small-scale advantages need to be commented on separately as they are often behavioural in character and ignored by technocrats.
Small-scale advantages are difficult to measure and therefore get less attention than they deserve. Without small-scale advantages there would only be one company in every industry, as the ability to compete would be determined by size.
The following small-scale advantages have been identified:
1. Motivation and energy 2. Communication 3. Customization 4. Optimal processes
5. Economization of resources 6. Flexibility in the use of personnel 7. Sick absence – productivity
Small-scale advantages may sometimes be impossible to measure but an awareness of the factors present in a given situation can affect the outcome.
Analyzes have revealed that the advantages of a decentralized structure are mainly due to sales, service and after-sales. Consideration should thus be given to what is best done by centralization and, on the other hand, what issues are best served by decentralization. Some of the hazards of organization rationality are:
1. Coordination mania 2. Compromise 3. Lack of flexibility
The dilemma of organization that always calls for ‘manual control’ is the dichotomy between rational, large-scale, coordinated solutions on the one hand and the efficiency-boosting effects of small-scale entrepreneurship on the other. It is a sound general rule that decentralized entrepreneur-ship is a good thing in good times, whereas many questions require centralized action in bad times. See Small-scale advantages.
RECOMMENDED READING
1. Henry Mintzberg, Structures in Fives: Designing Effective Organizations.
2. Kenneth H Blanchard, Empowerment Takes More Than a Minute.
3. Robert Heller and Tim Hindle, How to Delegate.