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8/12/2019 Session 9 Target
1/64
Targets
Differentiation Strategy
James Oldroyd
Kellogg Graduate School of Management
Northwestern University
[email protected] TNRB
mailto:[email protected]:[email protected]:[email protected]:[email protected]8/12/2019 Session 9 Target
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1
To Date
Dual Advantage
Willingnessto Pay
Supplieropportunity
cost
Differentiation
GoldmanSachs
MerrillLynch
McDonaldsBurgerKing
Low Cost
Wal-mart
K-mart
Momand Pop
Store
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Dimensions of Value
Value
Price
Differentiation
Product
Service
Bottom LineValue
Top Line
Value
Willingness to Pay
Cost
Price
Value Captured byCustomer
Value Capturedby Firm
Value Capturedby Supplier
Supplier Opportunity Costs
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Achieving Differentiation Advantage
How one goes about obtaining a differentiation advantagedepends upon the nature of the product/service:
Observable Goods: the buyer can easily form accuratejudgements about the quality of a product.
Experience Goods: the buyer finds it difficult and/or costly todetermine the quality of the product prior to purchase and use.
Communication/Network Goods: the value to the buyer rises asthe number of buyers and users increases.
And it embraces the whole relationship between supplier andcustomer
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Differentiating Observable GoodsBy differentiating an observable good the producer acts to reduce the totalcost of use to the buyer. Very often this requires an increase in productprice. But in successful differentiation the price increase is more thanoffset by a reduction in the costs experienced by the buyer. The aim is notbe the low cost producer but TO BE THE LOW COST PROVIDER.
Manufacturer'sValue Added
EngineeringLaborMarketingDistributionAdministration
ProductPrice
RawMaterials
Buyers Costs
SearchLearningSwitchingRisk/lossPerformanceService
Total Cost ofUse to Buyer
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Differentiation-Based Strategy
Users Total Cost of New Software
Product
Price
Search Learning Risk
Utility Software
Resources
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Firm A:
Firm B:
Price
Price
Total cost to buyerProducers cost Producers margin Buyers cost
Firm A has acost advantage
Value Chains for Cost Advantage
and Differentiation Advantage
Firm C:
Firm B:
Price
Firm C has adif ferent iat ion
advantage
Price
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Strategic Positioning
The essence of strategic positioning is to
make choices that are different from thoseof rivals
Strategy is not a race to one ideal position ---it is the creation of a different position
Differences in positioning are necessary butnot sufficient for sustainable competitive
advantage
Sustainable advantage depends on barriers toimitation
Advantage is magnified by mutual reinforcementacross activities
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
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Multiple Data Sources
People have typically sought an
understanding of their customerby using one or twoof thesesourcesindependently
CustomerResearch
Market Data
Internal
Data
Observation
DataWhat is purchased,
notwhyBehavioral not
attitudinal
Attitudinal
notbehavioral
or fact-based
Marketconditions,
notcustomer
preferences
GAP
Source: Arthur Anderson, 2002
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Customer Relationship Management
v To deepen customer relationships.
v To build customer loyalty
v To increase profitability
Purpose of CRM
The Proliferation of CRM
161 CRM companies funded since 1998$1.3 billion raised by CRM companies
Source: Red Herring May 2002 p. 27
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Sources of Expense:Typically $5,000 a seat and $2 million to $5
million per deployment.CRM systems required data conversion when
consolidating data from multiple legacy systems.At the enterprise level, CRM software is justplain difficult.
Additional Investments of $100,000 to $1million.
Need to hard-wire and hard-code the twosystems together to connect the Siebel suite to
the mainframe.Time and money running data reconciliations.
Custom coding to pay for, too. Source:Computerworld Inc. Dec 3, 2001
And FallSurveys show 55 per cent of NorthAmerican executives don't believethey've seen a return on their CRM
investments.
Gartner Group
Major Players:
Siebel Systems
26%
Oracle andBroadvision
6% share
Despite the troubles CRMsoftware sales are expectedto rise 10% to $4 billion in
2002 and to rise 33% to $29.4
billion in 2003
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
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Customer Management Loop
Respond
Identify
Dialogue
Interpret
1. Decide what you will do with the information. Make it a part of your overall customer plan.2. Establish customers as the information pivot in your organization. Gather the right Customer
Information (Who what when where and WHY) from the right customers through the right means(not the most expensive).
3. Make this information useable, available and actionable throughout the organization where it isneeded.
4. Add context to the information. Interact with customers and understand their needs.
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Case Study: Harrahs
Created a Total Rewards program to track players atelectronic gaming machines. These machines account
for 80% of operating profits
Links 40,000 machines in 12 states
The goal is to create brand loyal customers
Comps(comps) good
toward shows,meals or hotel
rooms.
Identify
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Customers Are Not Created Equal
Frequency:Numberof
CustomersatEachValueLevel
Value Per Customer
MeanStandard Deviation
Why are theyunprofitable?Can behavior orcost be changed?Should wedisengage?
Unprofitable
Modestlyprofitableor breakeven
Modestlyprofitable
What can be done todevelop the profitabilityof these customers?
Who are thesecustomers? How dowe keep them, attractmore like them?
Veryprofitable
Identify
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Tufts Plan
As the pie shrinksthe table manners
get worse.
A prominent physician onthe current state ofphysician satisfaction
.01% = $7,880PMPM
5% = $1,191 PMPM
95% = $22 PerMember Per Month(PMPM)
The Problem
Information Solution - CRMPatient Identification and Treatment RecommendationWorkflow StandardizationMulti-disciplinary CollaborationAlerts care managers enables them to intervene earlyPersistently reminds and motivates patients, families andproviders to comply with proven health management careplans
Results fromsimilar programs:44% reduction in
readmission36% reduction inhospital days for
patients withcongestive heart
failure400% ROI for
pediatric asthmaprogram
12% annual costsavings for diabetes
management
Identify
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Pharmaceutical
Health Care
Physicians
Patients
Insurance/Gov.
Pharmacies
Defining your customersIdentify
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Tribunes Customers
The Reader The Advertiser
The Brick Wall
The Division Between Church and State
20% of Revenues 80% of Revenues
Identify
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General Electric Medical Systems
Customers
HospitalPurchasing
Department
The LabTechnicians
Doctors
HospitalAdministration
Patients
Identify
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Guidants Customers
Electro-Physiologists
ImplantingCardiologists
CardiologistsPrimary CarePhysicians
Patients
PrimaryRelationship
Secondary
Relationships
Referral Chain
Identify
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Customer Management Loop
Respond
Identify
Dialogue
Interpret
1. Decide what you will do with the information. Make it a part of your overall customer plan.2. Establish customers as the information pivot in your organization. Gather the right Customer
Information (Who what when where and WHY) from the right customers through the right means(not the most expensive).
3. Make this information useable, available and actionable throughout the organization where it isneeded.
4. Add context to the information. Interact with customers and understand their needs.
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Using Customer Information to
Initiate Dialogue
Customized WebInterface
Customer Serviceand Support
Pop-up ads
Sales Force Calls
Bulk MailersBroadcast ads
Internet Physical
Push
Pull
Dialogue
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Response Rates For
Marketing Communications
Differential Marketing6-15%range dependingon quality of marketinglists/segments defined
Relationship (1:1) Mktg.18-30%range when usinghighly targeted, one-to-onetype marketing campaigns
Traditional Marketing2-5%range for traditionaltypes of mass media type
campaigns
Informational Marketing1-3%range for customer
passively collectinginformation
Passive
Interactive
Company Initiated(Outbound)
Customer Initiated(Inbound)
Dialogue
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Customer Management Loop
Respond
Identify
Dialogue
Interpret
1. Decide what you will do with the information. Make it a part of your overall customer plan.2. Establish customers as the information pivot in your organization. Gather the right Customer
Information (Who what when where and WHY) from the right customers through the right means(not the most expensive).
3. Make this information useable, available and actionable throughout the organization where it isneeded.
4. Add context to the information. Interact with customers and understand their needs.
The potential of segmentation has
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The potential of segmentation has
vastly increased in the new world
In the old world, segmentation was mostly static using demo- andsocio-graphics, attitudes and customer value. In the newworld, segmentation is behavior based, real-time and dynamic
Is there no value in static segmentations anymore and does everysegmentation have to be real-time?
Is behavioral segmentation the means to all ends and how do you
integrate it with existing (mostly offline) segmentationmethods?
Can multiple segmentations methods be used simultaneously fordifferent value creation purposes?
Interpret
Segmentation of Customers
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The Customer Pyramid
Platinum
Gold
Iron
LeadLeastProfitable
Most
Profitable DifferentiateCustomers
Depending on theLevel of
Involvement
Source: the Customer Pyramid, Zeithaml, Rust, and Lemon. Cal. Management Review, Summer 2001
InterpretPrediction toOptimize
C t B k E A l i
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Customer Break Even Analysis
Cost to Serve
Price
High
Low
Low High
Goal is tomove
Customersfrom below
the lineabove theline or tolower the
line
InterpretUnderstanding Customers patterns
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Customer Management Loop
Respond
Identify
Dialogue
Interpret
1. Decide what you will do with the information. Make it a part of your overall customer plan.2. Establish customers as the information pivot in your organization. Gather the right Customer
Information (Who what when where and WHY) from the right customers through the right means(not the most expensive).
3. Make this information useable, available and actionable throughout the organization where it isneeded.
4. Add context to the information. Interact with customers and understand their needs.
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Target rightcustomers
Cross-selling
Reducelapse rate
Attractmore effective
acquisition
DevelopMore sales percustomer per
year
RetainIncreasecustomerlifetime
Source ofimpact Typical lever
Stages ofcustomerrelationshiplifecycle
Churn
Market capitalisation($ bn)
Market cap./customer ($)
5.4%
7.0
3,721
1.4%
35.3
5,883
CRM Creates Value by Improving Attraction,
Development, and Retention of Customers
Average revenue percustomer per year ($)Average assets per account
($)
130
21,000
170
102,000
Number of accountsNew accounts (Q4 1999)Average acquisition costs ($)
E-trade
1,881,000413,500
360
CharlesSchwab
6,000,000390,000
200
Respond
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Segmentation
Victorias Secret places all visitors on its slower
servers but once a customer places something in
the shopping cart they are switched to a fasterserver.
Customer Patterns
Amazon monitors browsing and makessuggestions. Customer who bought this book also
purchased a book by.
Businesses that use Differential
Treatment Respond
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
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Organizational Barriers to Customer
Information
1. Information Flow
2. Channel Obstacles
3. Company Barriers to Entering theData
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Why CRM Fails: Strategy & Organization
What CRM is:
A strategyA cross functional and crossdivisional initiative
Difficult both costly and time
consuming
What CRM is not:
a technologyA software package
A marketing departmentinitiative
Easy
55% of CRM implementations dont produce results
(Gartner Group)
20% Damage long standing customer relationships
(Bain Report)
Implement a CRM without a strategy
Implement CRM before readying the organization
The perception that more is better
Staking not wooing customers
Source: Avoid the four perils of CRM by Rigby, Reichheld and Schefter. HBR, February 2002.
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
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10% beneficial change in increases NPV by %
Targets Differentiation Strategy:
Loyalty
New customer acquisition cost
New customer conversion rate
New customer revenue change
Cost of repeat customer
Conversion 0.84
2.32
4.64
0.69
Repeat customer revenue change
Repeat customer conversion rate
Customer churn rate
Retention 5.78
9.49
6.65
Visitor acquisition cost
Visitor growth
Attraction 0.74
3.09
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Source: Frederick Reichheld and W. Earl Sasser, Customer Retention: A New Star to Steer By, Working Paper, Bain & Company,November 1999.
10
20
30
40
50
60
Auto ServiceChain
BusinessBanking
CreditCard
CreditInsurance
InsuranceBrokerage
IndustrialDistrib.
IndustrialLaundry
OfficeBuilding
Management
Software
PercentIncreasein
Profit
28%35%
125%
25%
50%45%
55%
40%
35%
And Profits
Profit Impact of 5% Increase in Retention
Loyalty
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Loyalty
Loyalty has been hijacked and
tortured by opportunisticmarketeers. Your search willreveal more than 100,000
(1,620,000 actual) loyalty relatedpages overwhelmingly dominatedby loyalty cards, loyalty marketing,loyalty programs, and my personalfavorite loyalty schemes. It seemsthat loyalty has been reduced to apotpourri of marketing gimmicksdesigned to manipulate customer
behavior with cheap bribes.
Frederich Reichheld,Loyalty Rules!
Loyalty obviously demands
superior profits, but it demandsmore. It requires that those
profits be earned through thesuccess of partners, not at
their expense. Loyalty can beearned only when leaders put
the welfare of their customersand their partners ahead of
their own self-serving interests.
IsntIs
Data = Satisfaction = Loyalty
Lock-in vs. Loyalty
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Lock in vs. Loyalty
Truly Loyal Accessible
Locked-in High Risk
Attitude
BehaviorPositive Negative
High
Low
Source: Stakeholder Power, 2001 Steven Walker and Jeffrey W. Marr Perseus Publishing
Purchase Dont Purchase
Enjoy
Despise
Loyalty Programs
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Loyalty Programs
American StoresNeiman MarcusJ.C. PenneyToys R UsOffice Max
StaplesKohlsTargetSaksSearsCVS
CitgoRite AidDaytonsNordstromFederatedMedicine Shoppe
Amoco Conoco Exxon Phillips Shell Ultramar A&P Albertsons
TJXKroger
ZellersTalbots
SafewayValue CityFood Lion
Foot LockerVictorias Secret
Source: The Price of Loyalty by James Cigliano, Margaret Georgiadis, Darren Pleasance, and Susan Whalley. The McKinsey Quarterly 2000 number 4.
US Retailerswith LoyaltyPrograms
Costs:$1.2 Billion tied up inannual customer discounts
Entitlement:The programsare nearly impossible tostop
Dont work: most customersare looking for an alternative
Non-value Reward: Ifcustomer spends $500 peryear most programs wouldonly give $5.
Most Programs Fail Because:
1Dual Purpose programs. (Targets TakeCharge of Education donates 1% of Purchases)
2Built to provide customerinformation. (Grocery Stores use to obtain information)
3Align the Organization!!
Successful programs are:
R d M
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRMFails
Lock-in vs. LoyaltyThe DarkSide of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
The Perils of Market Focus
http://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DGhttp://images.google.com/imgres?imgurl=www.pachamama.org/updates/pm3-full-moon.jpg&imgrefurl=http://www.pachamama.org/memberinfo/newmoon.htm&h=571&w=572&prev=/images%3Fq%3Dfull%2Bmoon%26svnum%3D10%26hl%3Den%26lr%3D%26ie%3DUTF8%26oe%3DUTF8%26sa%3DG8/12/2019 Session 9 Target
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The Perils of Market Focus
Listen to the wrongcustomers:
Too manymessages:
everyone isapproachingcustomers
withrelationship
Companiesoffer intimacy
but are notable to
reciprocatewith custom
offerings
Focus on
too smallof a groupwhile
alienatingmany
customers
1
2
3 4
Data = Satisfaction = Loyalty = Payback
Customers actuallymiss the days whena transaction was
just a transaction,when purchasing abar of soap didnt
mean entering into alifetime value
relationship.
The Hotelasks me for
detailedinformationevery time I
check in.
The rental carshuttle made
me walkbecause I
wasnt club
member. But I
was a loyal
customer
Sony Walkmanand ChryslerMinivan wereboth products
that customersin focus groupssaid they did
not want.
Source: Torment Your Customers (theyll love it) by Stephen Brown. Harvard Business Review, October 2001. And Preventing the Premature Death of RelationshipMarketin b Susan Fournier Susan Dobscha and David Glen Mick. HRB Jan-Feb1998.
E l
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Examples
Sure they can call me at dinner, but I cant reach
them on the phone. They can send me 100 piecesof mail per year, but I cant register one meaningful
response with them. Companies claim that theyre
interested in the customer. But the focus is on thecompany
From Preventing the Premature Death
of Relationship Marketing Fournier,
Dobscha, and Mick, HBR 1997.
Th M th f M C t i ti
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Build to OrderBuild to Replenish
Build to Forecast0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1992 1994 1997 1999
From Dealer
Stock
Via Dealer
Out of
Distribution
Centers
Build to Order
McKinsey estimates
that in automanufacturing aloneBTO could save $80
Billion a year inreduced excesses
stock
Why the Clamor? Sales of mass market cars in Britain
While BTO haseluded many firms,
others have madesignificant progressby using
ChoiceBoards.
The Myth of Mass Customization
DELLs ChoiceBoard Options
Source: A long march The Economist, July 14, 2001
F M t i t C bi O i ti
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Chaos
Conflict
Coordination Failure
Ownership and Accountability
From Matrix to Cubic Organization
CEO
North America Europe Asia
Production
Service
Sales
Marketing
Geography
2X 3X
1
2
3
1
2
Matrix2
R d M
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Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
Th D lit f M k t D i
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The Duality of Market Driven
Organizations
Accountability Coordination
Decentralized Centralized
Product Focused Market Focused
Vs.
Vs.
Vs.
I t l Ch ll I f ti
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Internal Challenges - Information
Wall Street doesnt care how much product
we sell to a particular customer.
A Corporate Executive
Getting the information from the business silos andcombining it to see all interaction with a customer
Coordinating
Mechanism
Unified View ofthe Customer
Aggregate theinformation
BusinessSilos
We had 86 internal
accounts for IBM
We aggregatedall IBM
information
One view of the
big picture of IBM
Challenges Coordination
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Challenges - Coordination
Give and Take
A B C A B C
Product Silos Solution
Clients dont care if a certain business line is losing money.They view the account in its entirety. Clients want
accountability. They want you to run the relationship asbusiness not a product
Account Manager
External Challenges
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External Challenges
New Sales Methods Alignment
Economics Mega Aggregators
Channel Conflicts
Information Can Be Consolidated at a
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Information Can Be Consolidated at a
Any Level
No SegmentsThe Organization
Level
Some SegmentsVarious Types of
Customers
1-2-1 DirectThe Individual
Customer
Customer Segmentation Continuum
AverageCustomer theSoccer Mom
Club WedLullaby Club
Target.direct
Targets Vendor Club
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Targets Vendor Club
6 Premium CharterMemberships
Exclusive opportunity to partner
Guest centric analytics
Targeted offers
Target Visa - electronic offers andmarketing support
Club Redexclusive offersNowSeptember 2003
$1.5 Million
10 CharterMemberships
Target Visaelectronic offers andmarketing support
Club Redexclusive offers
NowSeptember 2003
$750,000 Million
Vendors input $16.5 million
Target will offer:
Other Benefits of the Vendor Club
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Other Benefits of the Vendor Club
Build a Competitive Advantage
18 month limited access
Guest Data Base
Analytics Suite
Focused Attention
New Channels
Vendor Opportunities
1. Offer a $ or % off oneor more items bought
in a singletransaction
2. Offer $ or % off one
or more items boughtin multipletransactions
3. Offer free item withsingle or multi
purchase
Access to Guest Specific Data
Whos Buying What
Who Are Your Key Segments
Market Basket Analysis
Geographic Profile
Case Study: The Problem of Complexity-
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Case Study: The Problem of Complexity-Who Owns Customer Loyalty?
Median Age (female) in 2001
Median Income
% College Graduate +
% Professional/ Managerial
% with Children
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The Role of The Chief Guest Officer
Chief Guest Officer
Vendors
Information
Merchants
StoreManagers
Other relationships are much more difficult
Trade Offs
8/12/2019 Session 9 Target
56/64
55
Trade Offs
High
Low
Independent Integrated
Road Map
8/12/2019 Session 9 Target
57/64
56
Road Map
CRM= Customer + Relationship + ManagementThe Rise and Fall of CRM
Strategic Framework for CRM
Why CRM Fails
Lock-in vs. LoyaltyThe Dark Side of Market FocusTargets Market Focused Strategy and the
Challenges of Implementation
Conclusion
Differentiation Advantages
8/12/2019 Session 9 Target
58/64
57
Differentiation Advantages
Differentiation allows a firm to command a premium price for its product orservice.
Competitive advantage is realized if the value of the price premium is greater thanthe cost of differentiation.
Differentiation strategies require a deeper understanding of the customers needs
(customer value chain) than cost-based strategies. This typically requires anin-depth customer segmentation analysis.
Differentiation strategies often require a different firm value chain withappropriate linkages between the value chain of the firm and that of thecustomer (e.g., Dell provides desired customization for each customer).
Differentiation may be more sustainable than cost leadership because it is buildon features that are harder to imitate.
CRM and Loyalty
8/12/2019 Session 9 Target
59/64
58
CRM and Loyalty
Respond
Identify
Dialogue
Interpret
Truly Loyal Accessible
Locked-in High Risk
Attitude
BehaviorPositive Negative
High
Low
Purchase Dont Purchase
Enjoy
Despise
Challenges
8/12/2019 Session 9 Target
60/64
59
Challenges
Accountability Coordination
Decentralized Centralized
Product Focused Market Focused
Vs.
Vs.
Vs.
New Sales Methods Alignment
Economics Mega Aggregators
Channel Conflicts
Internal
External
8/12/2019 Session 9 Target
61/64
60
Examples
CRM Best Practice: Williams - Sonoma
8/12/2019 Session 9 Target
62/64
61
CRM Best Practice: Williams - Sonoma
Source: Adapted from 2000 Annual Statement
Seek to own the home through multi-channel retailing
Become the single most dominant force in
home furnishings by selling great products instores, through catalogs, and on the Internet.
Williams-Sonoms delivers on this visionthrough powerful brands, consumer
satisfaction, channel synergy, vertical
integration, and operating efficiency.
Williams-Sonoma knows their consumers, and understands how themarketing they do impacts their behavior. For example, they know
that mailing a new catalog boosts traffic in the retail stores. Thestores in turn provide consumer data that is leveraged by thecatalog, Internet, and merchandising groups to deliver better
solutions to consumers.
CRM Best Practice: Ford
8/12/2019 Session 9 Target
63/64
62
CRM Best Practice: Ford
Source: Accenture Consulting
The company began by building a data warehouse to provide a single, integratedview of each consumer.
The second step was analyzing the consolidated data to achieve superiorconsumer understanding as a basis for one-to-one marketing. The result:unprecedented ability to understand consumers and differentiate and targetmarketing messages.
The third step was leveraging the results of data analysis to create highly targeted
marketing campaigns. They also developed metrics to gauge campaigneffectiveness, as well as procedures to ensure that all data collected in campaignsare captured by the company's data warehouse for continual enrichment ofconsumer profiles.
The company now has a rich,constantly expanding data source forpredicting consumers' long-term valueand developing appropriate, targetedcampaigns for every stage of itsrelationship with a consumer.
1
2
3
CRM Best Practice: DuPont Agricultural
8/12/2019 Session 9 Target
64/64
CRM Best Practice: DuPont Agricultural
Products
DuPont project team that began by interviewing employees to gaininsight into their needs for serving consumers and to help themunderstand the multi-level consumer base resulting from DuPont'sacquisition of Pioneer. Then the team designed and built a datawarehouse, seeing it as the strongest solution for gaining consumerinsight and the best basis for building consumer offers.
The data warehouse consolidated and cleaned existing consumerinformation from all sources and was equipped to capture new data fromtransactions and to permit updates.
The next step: leveraging the warehouse with TruChoice, a marketingapplication with built-in incentives for farmers to encourage purchasesand for dealers to encourage data sharing.
TruChoice launched at the end of 1999, and results have beenoutstanding. DuPont expects sales growth in their corn and soybeanoperations; dealers and distributors have overcome their distrust andbegun providing consumer data; and farmers are so sold on TruChoicethat in areas in which it's not offered they're demanding dealers make itavailable.