The need for customer relationship management grew out of changes to the buyer-seller model. This shift away from transactional sales and marketing behaviors, and toward a customer-centered model started in the 1970s. Relationship marketers refined the model in the 80s, and in the 90s, technology accelerated changes even further. In the 2000s, the complexities of the internet, advances in social media technology, and empowered customer behavior changed the model forever. The result was a shift in perspective regarding how to address customers as the primary business asset. Customer relationship management strategy needed to achieve the following:
Determine a Distinctive Customer Relationship Management Value Proposition
Magretta describes Porter’s first test, the value proposition, as a reflection of the choices your company makes (consciously or unconsciously) concerning the kind of value you offer. It is the core component of a customer relationship strategy because it considers the customer’s point of view or, as Magretta writes, the value proposition “looks outward at customers.” The value proposition answers three fundamental questions:
- Which customers will you serve?
- Which customer needs will you meet?
- At what price (price accounts for value and profit)?
Tailor Communication to the Value Proposition
According to Magretta, this test in Porter’s analysis of good strategy is less intuitive. Porter found competitive advantage in the performance of business activities (i.e., choosing different activities or performing the same activities as the competition, but in a different way). Individual business operations link together to form what Porter refers to as the value chain. Modern CRM processes and technology enhance the communication between the activities of business operations and the customer. This communication includes marketing automation, email drip campaigns, or the advertising copy that gives your brand a voice. Tailor communication activity to the CRM value proposition to satisfy Porter’s second test.
Use Trade-Offs to Enhance Customer Service Strategy
Porter’s third test of a good strategy focuses on the critical role that trade-offs play, and it is the most difficult test of business strategy. The essence of making difficult choices — choosing what not to do — is built on accepting limitations in a competitive market. The need for trade-offs is the critical linchpin of good strategy, according to Magretta’s work. A sound CRM strategy also requires making sacrifices or choosing trade-offs. Customer service is both a business process and a culture within a company.
Customer service activities best represent a CRM strategy involving buyer and seller trade-offs. By enhancing your customer service strategy with trade-offs, you make it difficult for competitors to mimic your overall CRM value proposition. The commitment to a primary customer segment and their unique needs is a practice in trust, competence, and integrity. CRM business processes and technology directly impact the capabilities of customer service activities. A CRM strategy built on strategic customer service trade-offs has the potential to increase customer satisfaction, minimize customer churn, and boost profitability.