Harvard business review on customer relationship management

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Harvard Business Review           The series is designed to bring today’s managers and professionals the fundamental information they need to stay competitive in a fastmoving world From the preeminent thinkers whose work has defined an entire field to the rising stars who will redefine the way we think about business, here are the leading minds and landmark ideas that have established the Harvard Business Review as required reading for ambitious businesspeople in organizations around the globe Other books in the series: Harvard Business Review Interviews with CEOs Harvard Business Review on Brand Management Harvard Business Review on Breakthrough Thinking Harvard Business Review on Business and the Environment Harvard Business Review on the Business Value of IT Harvard Business Review on Change Harvard Business Review on Compensation Harvard Business Review on Corporate Governance Harvard Business Review on Corporate Strategy Harvard Business Review on Crisis Management Harvard Business Review on Decision Making Harvard Business Review on Effective Communication Harvard Business Review on Entrepreneurship Harvard Business Review on Finding and Keeping the Best People Harvard Business Review on Innovation Harvard Business Review on Knowledge Management Harvard Business Review on Leadership Harvard Business Review on Managing High-Tech Industries Harvard Business Review on Managing People Harvard Business Review on Managing Diversity Other books in the series (continued): Harvard Business Review on Managing Uncertainty Harvard Business Review on Managing the Value Chain Harvard Business Review on Measuring Corporate Performance Harvard Business Review on Mergers and Acquisitions Harvard Business Review on Negotiation and Conflict Resolution Harvard Business Review on Nonprofits Harvard Business Review on Organizational Learning Harvard Business Review on Strategies for Growth Harvard Business Review on Turnarounds Harvard Business Review on Work and Life Balance This Page Intentionally Left Blank Harvard Business Review          Copyright 1998, 1999, 2000, 2001 Harvard Business School Publishing Corporation All rights reserved Printed in the United States of America 05 04 03 02 01 All rights reserved No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the copyright holder Requests for permission to use or reproduce material from this book should be directed to permissions@hbsp.harvard.edu, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163 The Harvard Business Review articles in this collection are available as individual reprints Discounts apply to quantity purchases For information and ordering, please contact Customer Service, Harvard Business School Publishing, Boston, MA 02163 Telephone: (617) 783-7500 or (800) 988-0886, A.M to P.M Eastern Time, Monday through Friday Fax: (617) 783-7555, 24 hours a day E-mail: custserv@hbsp.harvard.edu Library of Congress Cataloging-in-Publication Data Harvard business review on customer relationship management p cm — (A Harvard business review paperback) Includes bibliographical references and index ISBN 1-57851-699-4 (alk paper) Customer relations—Management I Title: Customer relationship management II Harvard Business School Press III Harvard business review IV Harvard business review paperback series HF5414.5 H37 2002 658.8´12—dc21 2001039850 CIP The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Publications and Documents in Libraries and Archives Z39.48-1992 Contents Co-opting Customer Competence .     Get Inside the Lives of Your Customers    The Old Pillars of New Retailing    27 49 Want to Perfect Your Company’s Service? Use Behavioral Science 67       Don’t Homogenize, Synchronize   Firing Up the Front Line 85 105        Preventing the Premature Death of Relationship Marketing 133  ,  ,     See Your Brands Through Your Customers’ Eyes      About the Contributors Index 151 175 183 vii This Page Intentionally Left Blank Harvard Business Review     About the Contributors 179 research centers on the nature and role of meaning in consumer behavior, particularly in the domains of advertising, gift giving, and the consumption of technological products His research has appeared in numerous outlets, including the Journal of Consumer Research, Journal of Marketing, Harvard Business Review, and International Journal of Research in Marketing His writing has been acknowledged with many awards, most notably the 1999 Maynard Award for the most significant contribution to marketing theory and thought, a recognition for Best Article in the Journal of Consumer Research for 1986–1988, and two other notable recognitions from the Association for Consumer Research and the American Marketing Association He has been invited to present his research at business schools and universities worldwide, including Oxford, the London Business School, the Stockholm School of Economics, Columbia, Duke, Harvard, and others .  is the Harvey C Fruehauf Professor of Business Administration at the University of Michigan Business School His research focuses on the role and value of top management in large, diversified, multinational corporations, and he has consulted with numerous firms worldwide Mr Prahalad is the coauthor, with Gary Hamel, of Competing for the Future, named by Business Week as one of the year’s best management books in 1994 He is also the author of many award-winning articles, such as “Strategic Intent” and “The Core Competence of the Corporation,” which won McKinsey Prizes in 1989 and 1990, respectively  ⁽“”⁾  is a Professor of Marketing, Hallman Fellow of Electronic Business, and Director of the Center for Business Innovation, University of Michigan Business School Dr Ramaswamy addresses fundamental issues in the “new” economy, particularly the transformation of value and its creation, and its implications for innovation 180 About the Contributors He is codeveloping “The Experience Revolution Community,” a software innovation in knowledge creation enabled by the PRAJA platform    is an Investment Banking Associate at Morgan Stanley & Company in New York City and is a recent graduate of The University of Pennsylvania’s Wharton School of Business Prior to Wharton, Mr Santamaria worked at McKinsey & Company as a Business Analyst, served as an artillery officer in the United States Marine Corps, and conducted research in Venezuela as a J William Fulbright Scholar   is the McCormick Tribune Professor of Electronic Commerce and Technology and the Chair of the Technology & e-Commerce Program at the Kellogg School of Management, Northwestern University Professor Sawhney is a globally recognized author, teacher, speaker, and consultant in e-business strategy and technology marketing He is the coauthor of two recent books: The Seven Steps to Nirvana: Strategic Insights into eBusiness Transformation and Techventure: New Rules on Value and Profit from Silicon Valley His research has appeared in leading journals like California Management Review, Harvard Business Review, Management Science, Marketing Science, Journal of Interactive Marketing, and Journal of the Academy of Marketing Science He also writes extensively for trade publications like Financial Times, CIO Magazine, Context, and Business 2.0 His speaking and consulting clients include dozens of Fortune 500 companies in over fifteen countries He serves on the advisory boards of several early-stage technology companies Professor Sawhney has received several teaching awards, including the Outstanding Professor of the Year at Kellogg in 1998 and the Sidney Levy Award for Excellence in Teaching in 1999 and 1995 He is a About the Contributors 181 Fellow of the World Economic Forum, a Fellow at DiamondCluster International, a member of Merrill Lynch’s TechBrains Advisory Board, and a member of the NRI Advisory Committee on Telecom for the Government of India    is the Founder and CEO of the Patricia Seybold Group (www.psgroup.com), a worldwide research and consulting firm and the customer-centric executives’ first choice for strategic insight, technology guidance, and e-business best practices Founded in 1978 and based in Boston, Massachusetts, the firm offers customized consulting services, an online strategic research service, executive workshops, and in-depth research reports Ms Seybold is the author of Customers.com, a Business Week, New York Times, Wall Street Journal, and USA Today best-selling book Customers.com offers insight into creating breakthrough practices in electronic commerce and asserts that successful e-businesses tend to be more customer-friendly Ms Seybold’s latest book, The Customer Revolution, demonstrates how to measure and monitor what matters most to a company’s customers This Page Intentionally Left Blank Index access convenience, 64 accounting, and customer competence, 23 airline service encounters, 75–76, 79 Amazon.com, 9–10, 11, 14, 17 America Online, 144 Andrews, Jonlee, 143 Apple Computer, 20 Macintosh, 21 Argyle, Michael, 142 AT&T, 13, 87 auctions, 22 Autodesk, 40 baggage collection process, 75–76 Barnes & Noble, 56–58 behavioral science duration effects and, 70–71, 73–74, 77–79 operating principles from, 67–68, 72–82 rationalization effects and, 71–72 sequence of events and, 70, 76–77 service management and, 67–84 types of perceptual effects and, 69–72 Berkson, Brad, 113 Best Buy, 29–30 blame, ascription of, 72 blood donors, 78–79 Bonaparte, Anne, 40–41 Borders Books, 15 brand management See also brand portfolio molecule brand strategy for Cadillac and, 170–173 interweaving of brands and, 152–153 portfolio mapping and, 151, 153–155 “viral marketing” and, 10–11 brand portfolio molecule, 151–173 classification of brands and, 161, 163–164, 166, 168 creation of, 158–169 elements of, 155–158 interpretation of, 170–173 183 184 Index brand portfolio molecule (continued) inventory of brands and, 159–161, 162, 166–167 lead brand and, 155, 157, 161, 163, 172 linkage (brand connections) and, 158, 166 location (brand positioning) and, 157–158, 166 low-tech approach to mapping of, 165, 169 mapping of, 164–165, 169 nodes in, 157, 164 “partitioning” and, 165 shade (brand influence) and, 157, 163–164, 166 size (brand importance) and, 157, 166 software for mapping of, 164–165 strategic brands and, 157 support brands and, 157 thickness (degree of control) and, 158, 164, 166 usefulness of, 152 versions of, 165 brand system, as term, 154 business-to-business relationships, 2–3, 148 Buzzsaw.com, 28, 30, 40–45 customer scenario at, 44 Cadillac brand molecule classification of brands and, 161, 163–164, 166, 168 creation of, 158–169 existing brand strategy and, 170–173 interpretation of, 170–173 inventory of brands and, 159–161, 162, 166–167 view of, 171 catalog companies, 137–138, 140–141 causes, discrete versus continuous, 72 Charles Schwab, 9, 15 choice commitment and, 79–80 consumer frustration and, 139–142 relationship marketing and, 139–140 Cisco, collective pride, 110, 115, 116, 124 commitment choice and, 79–80 managerial paths to, 111 competitive advantage core competencies and, 5–6 customers as competitors and, 21–22 “compromise units,” 121 Conference Board, 107 construction industry, 40–45 consulting projects, 74–75 consumer specialists, 149–150 Container Store, 53–55 control brand portfolio molecule and, 158, 164, 166 Index customer loss of, 140–142 convenience, 63–66 core competencies concept of competence and, customers and, 6–14 shifting locus of, corporate culture, 108 See also frontline employees “counterfactual thinking,” 71–72 credit-card companies, 138 Crucible (Marine Corps exercise), 114 cruise lines, 73 customer communities, mobilization of, 10–11 customer competence, 1–25 co-creation and, 13–14 competition from customers and, 21–22 as core competency, 6–14 customer communities and, 10–11 customer diversity and, 11–13 dialogue and, 3, 5, 8–10, 23–25 distribution channels and, 14–17 evolution in roles and, organizational structure and, 22–25 personalized experiences and, 14–21 customer expectations, 20–21 customer experiences See also 185 frontline employees; service management personalization and, 14–21 relationship marketing and, 135–142, 143–144 total customer experience and, 51 customer satisfaction, 133, 135, 146 customer scenario, 27–48 as business model, 40–45 creation of, 45–48 multiple scenarios and, 47 strengthening of relationships and, 30–36 Web strategy and, 36–40 customer-service hot lines, 147 “customer visits,” 148 customization versus personalizaton, 13–14 Davis, Al, 122, 124 department store chains, 54 dialogue with consumers, 3, 5, 8–10, 23–25 discipline, 108, 126–128 distribution channels, 14–17 diversity among customers, 11–13 drill instructors (Marine Corps), 114, 116–117, 124 duration in service encounters, 70–71, 73–74, 77–79 eBay, 11, 22, 93 “eBay effect,” 93 education of customers, 20–21 186 Index emotions See also frontline employees; relationship marketing retailing and, 58–60 service encounters and, 68–69 entrepreneurial managerial path, 111 E*Trade, 9, 11, 16 explanations, need for, 72 “extended enterprise,” fairness, and pricing, 60–63 field research, and relationship marketing, 148 financial industry, 94–96 See also Thomson Financial flexibility, 14, 23–25 fragmentation, 87–88, 89, 91, 94–95 See also synchronization Franklin, Aretha, 55 frontline employees, 105–131 See also customer experiences; service management attentiveness to bottom half and, 122, 124–126 core values and, 112–115 MVP path and, 109–110, 111, 112–128 paths to motivation of, 111 teams versus single-leader work groups and, 120–122, 123 training for leadership and, 115–120 furniture retailing, 58 Gates, Bill, 20 General Electric (GE), 126 General Motors (GM), 16, 158 See also Cadillac brand molecule Gibson, Phil, 31–35 globalization, 12–13 goals, and relationship marketing, 145 grocery shopping, 36–37, 139, 144 group-discipline, 126–128 Grove, Andy, Harrington, Dick, 95 health care, and patient encounters, 76–77, 78, 79, 83 Henderson, Monica, 142 Hewlett-Packard (HP), 112 Hollywood Stock Exchange, 10 Home Depot, 107, 110, 112 HP Way, 112 human resources, and customer competence, 24 individual achievement managerial path, 111 influence, and brand portfolio molecule, 157, 163–164, 166 information technology integrated versus tiered architecture and, 96–97, 98 synchronization and, 93–99 Index infrastructure, and multiple distribution channels, 16 integrated versus tiered information architecture, 96–97, 98 Intel, 8, 147 International Society for Quality-of-Life Studies, 147–148 Internet business model for, 40–45 chat rooms, 10–11 customer interfaces and, 17–18, 73–74, 92 customer respect and, 57 distribution channels and, 14–17 marketing research and, 147 on-line versus physical shopping and, 65–66 synchronization and, 91–93 unsolicited e-mail and, 144 Web strategy and, 36–40 Jordan, Michael, 93 Journeys (shoe store chain), 59–60 Kahneman, Daniel, 82–83 KFC, 107, 110 lead brand, 155, 157, 161, 163, 172 leadership “leadership partnerships” and, 118–120, 129–131 187 learning while leading and, 129–131 styles of, 117–118 training of frontline workers for, 115–120 “leadership partnerships,” 118–120, 129–131 Learning Company, 19 linkage, in brand portfolio molecule, 158 loyalty, and relationship marketing, 138–139 Lucent Technologies, 12–13 MACtel, 107 Magna International, Malaysian Airlines, 75–76 managerial capabilities, and customer competence, 24 marketing See also relationship marketing customer competence and, 23 furniture retailing and, 58 synchronization and, 92–93 marketing research qualitative methods and, 146–147 role of, 149 Western analytic methods and, 146 Marriott International, 107, 115, 125–126, 128 McKinsey & Company, 107 Merrill Lynch, 16, 94–95 Microsoft Hotmail, 12 188 Index Microsoft (continued) Windows 2000, Middleburg Interactive Communications, 147 “middleware,” 96 Miller High Life brand molecule, 155–158, 165, 169 mission, at The Container Store, 53 “mission, values, pride” (MVP) path, 109–110, 111, 112–128, 129 Monsanto, 21 motivation of frontline employees, 105–131 Motorola, Cellular Systems division, 33 M-3 service, 147 Multex, 95 mutual trust, 110, 116, 124 MVP path See “mission, values, pride” path National Semiconductor, 28, 30–36, 47 customer scenario at, 34, 35 Webench and, 31–33 WebTherm, 33–34 New York City Ballet, 112 Nielsen Media Research, 145 nodes, in brand portfolio molecule, 157, 164 OCS See U S Marine Corps, Officer Candidate School offerings synchronization, 90, 91–93 organizational structure cross-business teams and, 87–88 customer competence and, 22–25 permeable boundaries and, 88–89 product-focused versus customer-focused teams and, 99–101 synchronization and, 90, 99–101, 102 3M and, 89–93 Palm (company), 86–87 “partitioning,” and brand portfolio molecule, 165 Pathways to Independence program (Marriott), 125–126 perceptions, and service encounters, 69–72 personalization customer communities and, 10–11 customer expectations and, 20–21 versus customization, 13–14 management of experiences and, 14–21 multiple channels and, 14–17 product development and, 17–20 Index Philip Morris, 154 Miller High Life brand molecule and, 155–158, 165, 169 Philips Electronics, 11, 19–20 photography, and marketing research, 147 portfolio mapping, redefinition of, 151, 153–155 See also brand portfolio molecule possession convenience, 64 Priceline.com, 16, 22 pricing, and retailing, 60–63 pride collective, 110, 115, 116, 124 discipline and, 126–128 Primerica Financial Services, 125 privacy and customer competence, 12 relationship marketing and, 144–145 process and metrics managerial path, 111 Procter & Gamble (P&G), 3, 102–104, 143–144 product management design and, 14, 32, 143–144 development and, 17–20 information control and, 93–94 product-focused versus customer-focused teams and, 99–101 189 support functions and, 101 synchronization and, 92–94 promotional sales, 62–63 psychology See behavioral science rationalization, and service encounters, 71–72 reciprocity, and relationship marketing, 137–138 recruiting, and frontline supervisors, 125 Redelmeier, D A., 83 regional Bell operating companies, 13 relationship marketing, 133–150 consumer views of, 135–142 as “one way,” 137–138 rebuilding trust in, 142–145 useful tools in, 145–150 relationships, strengthening of, 30–36 reliability, 19 respect, and retailing, 55–58 retailing, pillars of, 49–66 convenience and, 63–66 emotions and, 58–60 as interlocking techniques, 49–66 pricing and, 60–63 respect and, 55–58 solutions and, 52–55 reward and celebration managerial path, 111 Riggio, Len, 56–58 190 Index rituals, 72, 80–82 Sargeant, Gary, 37–40 Scott, Jeff, 98 Sculley, John, 20 search convenience, 64 second-guessing, 71–72 security, and customer competence, 12 self-discipline, 126–128 sequence of events, and service encounters, 70, 76–77 service bookends, 72–73 service management See also customer experiences behavioral science research and, 67–84 duration of events and, 70–71, 73–74, 77–79 emotions and, 68–69 errors and, 83–84 finishing strong and, 72–76 perceptions and, 67–68 rationalization and, 71–72 respect and, 55–58 retailing and, 54–55 rituals and, 80–82 sequence of events and, 70, 76–77 Sharp (company), 143 ShopKo (discount chain), 64–66 Simply Interactive PC (Microsoft initiative), 144 SKUs, 139, 144 Smith, Ian V., 130–131 social science, and product design, 143–144 solutions relationship marketing and, 139–142 retailing and, 52–55 Sony, 143 Southwest Airlines, 107, 115, 127–128 stability, and customer competence, 24–25 State Farm, 125 store organization, 53–54 strategic brands, 157, 163 strategic specialists, 149 support brands, 157, 163 synchronization, 85–104 dimensions of, 90 information technology and, 93–96 Internet and, 91–93 of offerings, 90, 91–93, 95–99 organizational, 90, 99–101, 102 at P&G, 102–104 technological, 90, 93–99 at Thomson Financial, 93–99 at 3M, 89–93 teams management of, 108 product-focused versus customer-focused, 99–101 versus single-leader work groups, 120–122, 123 Index technological synchronization, 90, 93–99 technology road maps, 18 telecommunications industry, 12–13 telephone company marketing initiatives, 136–137 telephone help-line menus, 78 Tesco, 28, 30, 36–40 theme parks, 78–79 theoretical perspectives, and relationship marketing, 148–149 Thomson Financial, 93–99 3M, 89–93 tiered information architecture, 96–97, 98 Tierney, Pat, 95 time See convenience TiVo (product), 19–20 total customer experience, 51 trade shows, 78 training customer competence and, 24 of frontline employees, 108–110, 111, 112–128 leadership development and, 108, 115–120 learning while leading and, 129–131 in U S Marine Corps, 108–109, 112–114 transaction convenience, 64 trend analyses, 147–148 trust mutual, 110, 116, 124 191 pricing and, 63 relationship marketing and, 142–145 Unilever brands, 154 U S Marine Corps attentiveness to bottom half in, 122, 124 discipline and, 126–127 frontline performance in, 107–109 leadership training in, 116–119, 129–131 Officer Candidate School (OCS), 117–118 setbacks and, 129 teams in, 121 values training in, 112–114 utility, 22 Vail Ski and Snowboard School, 107 “valued” customers, 138–139 values Marine Corps training and, 108, 112–114 training in business and, 114–115 videotapes, and marketing research, 147 “viral marketing,” 10–11 Volk, Martin, 33 Wal-Mart, 3, 61 Walt Disney (corporation), 45, 78–79 Webvan Group, 17 192 Index Wells Fargo, 15 Whitney Museum, 14 Williams, A L., 125 work groups versus teams, 120–122, 123 World Wide Web See Internet Zane, Chris, 63 Zane’s Cycles, 61–63 ... 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