Customer Relationship Management: Creating Competitive Advantage through Win‐Win Relationship Strategies

Citation

Ballantyne, D. (2005), "Customer Relationship Management: Creating Competitive Advantage through Win‐Win Relationship Strategies", Managing Service Quality: An International Journal, Vol. 15 No. 5, pp. 485-488. https://doi.org/10.1108/09604520510617329

Storbacka and Lehtinen challenge the popular perspective of customer relationship management.

Introduction

This book by Storbacka and Lehtinen (2001) brings a welcome strategic emphasis and an analytical approach to customer relationship management (CRM). Kaj Storbacka is a past professor at the Swedish School of Economics and Business Administration in Helsinki and Jarmo Lehtinen is an associate professor at the University of Tampere. These authors have a Nordic School sensibility to service quality management and relationship marketing, and they also have extensive practical experience in CRM, so their text has a fusion of features from all these sources.

You might expect the role of technology in information management to dominate any CRM text, yet Storbacka and Lehtinen hardly mention the “T” word. Having said that, it is clear to the reader where information technology could assist as “enablers” for various business processes. CRM, as they present it, is about enabling people to work more collaboratively with customers. The task is to win the hearts, minds, and patronage of customers, and to build longevity into customer relationships. Storbacka and Lehtinen make the important observation that the competence of a firm can grow old and lose its value over time, so “… the only lasting competence is characterized by continuous learning” (p. 90).

What stands out immediately in any critical reading of this text is the provocation offered to readers to go beyond the limits of marketing orthodoxy and find new ways to analyse relationships as a continuing process. In this, they stand apart from many technology driven “expert” providers of CRM systems who give primary emphasise to the capture, correlation and circulation of information, and in so doing, confuse the nature of customer relationships with statistical “relationships” between data points. Storbacka and Lehtinen seem also to have drawn inspiration from TQM's approach to managing the linked processes buyers and suppliers as “value chains” (Oakland, 1989). This value creating process logic also resonates with Normann and Ramirez (1993), who emphasised finding a “good fit” between customer relationships and organisational competencies.

I will now discuss the main features of the Storbacka and Lehtinen CRM approach.

Relationship process

Storbacka and Lehtinen declare three main principles:

1. 1.

   To emphasise claim a catalyst role in helping customers create value for themselves;

2. 2.

   To participate in customer value creation as a process, so that exchange includes all interactions between provider and customer processes, and not just product or service deliveries in a finished sense; and

3. 3.

   To develop strong relationships with customers with the intent of expanding the possibilities for more customer value creation.

In other words, the first principle is a particular kind of customer orientation, the second is a co‐producing activity with customers, and the third is a sustaining principle, setting up conditions for a recurrence of the cycle.

The cycle begins with a good knowledge of particular customers and how they currently create value for themselves. As the authors say, “Without a thorough understanding of value creation, it is difficult to develop a relationship which is beneficial to both customer and provider” (p. 6). As I understand it, rather than ask about abstractions of needs, the questions to ask of customers should be more “grounded”. For example, what is my customer trying to do, and how can I improve it? The provider can then become concerned with transferring organisational competence in whatever form is most useful to the customer. The aim is to adapt the providers' process and the customers' process, each to the other. This adaptation may mean the provider company changes, or the customer changes, or both must change. Any discussion about whether the offering is a product or a service becomes an unnecessary diversion. Also, in consider the nature of the offering, so called product differentiation becomes process differentiation (p. 11).

The authors choose to view relationships as processes because relationships may contain (or support) many encounters (or episodes) over time. The idea that a relationship is a “process” is ontologically contestable in my view, however Storbacka and Lehtinen wish to emphasise that a broadening of all kinds of mutual benefits and cost savings (not just gaining recurrent sales) will help the longevity of the relationship – and that this happens because both sides win. Clearly this focus involves a shift in marketing orthodoxy from value distribution to value creation, and this certainly puts emphasis on the competency of the provider to make that value creating contribution.

All this may seem unnecessarily complex at first and outside marketing's remit, but Storbacka and Lehtinen's strategic aim is to create the most effective customer relationship possible, and to do that, to transfer organizational competence to the customer, in whatever form is most effective. Of course, it is open to debate as to which comes first, the relationship, or competent value transfer. However, without an initial degree of trust‐based relationship operating between the parties, mutual adaptation of processes and investment in change will not get far.

As the authors' acknowledge, this perspective involves making a shift in the traditional concept of marketing exchange, to remove the nexus between “transactions” and exchange, and allow for the inclusion of unexpressed customer needs and all kinds of future value previously outside discrete transactionally determined time horizons.

Relationship structure

The authors set out a number of technical pointers to examining what they call the structure of a customer relationship. The building blocks for this structural perspective are the acts “exchanged” between the participants, which together form a series of acts, or a time‐based process, which in turn can be understood as episodes in the life of the relationship (Holmlund, 1997). Put another way, all these acts comprise part of the interaction, which in turn is the enactment of exchange (Ballantyne, 2004).

The key point is that understanding something about the experience of a customer through many past episodes helps explain the state of the relationship existing between the customer and the provider at any particular point in time, and this may help predict the future patters of activity as well. There are data gathering opportunities at the various interaction points, for example. Once a firm understands the nature of the acts that are of most customer value, they can make improvements or take steps to fix weaknesses, or eliminate unwanted process steps, and thereby reduce costs (p. 43). Those relationships that share similar structural profiles can be grouped together in portfolios for strategy setting and for analysing the value of the customer base (or the database in CRM software systems).

The point of particular interest is that different relationships will have different revenue and cost profiles (p. 43). These two factors plus customer longevity determine relationship profitability (p. 47). The key question in any analysis of the customer database is usually to determine the reasons for profitable and unprofitable relationships. Of course this is not as straightforward as it may at first appear, as most companies do not have adequate information capture systems. Even with state of the art CRM software, the information needed may still be beyond the reach of “capture”, or perhaps the cost of capture outweighs the benefits. This is an ongoing concern and many CRM software systems are well short of payback or breakeven (Ballantyne, 2003a). There is also the problem of estimating the profitability of current relationships which may have an entirely different future profitability profile.

Contribution

One striking point of interest in considering the authors' perspective on these relationships issues is their claim that as a firm's “competence” ages it becomes less valuable, so “… the only lasting competence is characterized by continuous learning” (p. 90). How then do you achieve such continuous learning and knowledge renewal? The in vogue idea that marketing departments should be strictly accountable for marketing performance starts to look naive when external market relationships are properly seen as dependent on internal competencies. This external‐internal dependencies link raises an interesting question about internal marketing, or the lack of it, in most firms (Ballantyne, 2003b).

Overall, the usefulness of the Storbacka and Lehtinen thesis is the way it seeks to align provider and customer value creation at the strategic level, at the customer interface, all in the context of “win‐win” relationship development. The tell‐tale betrayal of customer relationship thinking begins when CRM semantics such as statistical data “capture”, “warehousing” and “mining” are espoused as if these application technologies were social in nature. Storbacka and Lehtinen do not fall into the “technology first” trap, and furthermore, they manage to balance emergent CRM philosophy and technique, which makes thoughtful reading for academics and practitioners alike.