Chapter 10 - Discussion Questions - Answers

1. This chapter refers to a “revolution” in customer management. What does this mean?Answer:The relationship of power between the customer and the business has dramati-cally changed and will continue to evolve into radically new forms presenting exciting new challenges. In the past, the producer and the distributor deter-mined product and service content, pricing, methods of transaction, fulfill-ment, and information transfer. In contrast, today’s customers are exerting an ever-expanding influence over product development, the way content con-cerning product and service is communicated, and the terms of order manage-ment. By using the power of today's networking technologies, customers no longer feel invisible, are demanding to be treated as individuals, and requiring their supply partners to provide them with configurable, solutions-oriented bundles of products, services, and information custom designed and priced to meet a specific want or need. In addition, the power of the customer has been heightened by their ability to use Internet technologies to source their prod-ucts and services from a range of delivery mediums, providing access to po-tential suppliers from anywhere, at any time on the earth. Finally, customers increasingly feel that the individualized buying experience, whether online or in person, should be as value-packed and fulfilling as the product or service received. Satisfying this desire for positive, satisfying engagement, in turn, grows relationship value and customer equity for firms and their supporting supply chains.

2. In the supply chain, there are multiple customers. Detail who these customers are?Answer:There are several types of customers in the typical supply chain. Integrators. This type of customer normally buys raw materials and fin-

ished components from channel suppliers for the purpose of consuming them in the production of finished goods.

Internal customers. This type of customer pulls materials and products from channel suppliers or has products pushed to them from upstream channel integrators internal to the business. Products are either consumed internally or further processed and sent back upstream to company inte-grators, distributed to downstream stocking points, sold to external part-ners in the supply chain, or sold to end-customers.

Distributors. This type of customer normally acquires products in large lot sizes in a finished or semi-finished state from either an integrator or another intermediary higher up in the supply channel. These products are then processed to a finished state or sold as-is to downstream channel in-termediaries for resale or to be consumed by other integrators.

Agents or brokers. This category of customer differs from a distributor in two important regards: they rarely take ownership of inventory and they offer a very limited range of services. For the most part, their function is to act as middlemen, who for a commission, facilitate the buying and selling of products between suppliers and customers.

Cybermediaries. The application of the Internet has spawned a radically new type of customer that, while occupying a position in the supply chain, may never actually physically own inventory. This type of cus-tomer can take the form of a buying exchange or a virtual supplier that leverages Internet technologies to perform matching of products and buy-ers and to coordinate marketing and transaction processes for network partners.

Retailers. The function of retailing is to acquire and deliver finished products and services directly to the end-customer for their personal, non-business use.

End-customers. The end-customer occupies the terminal point of the sup-ply chain process. End-customers normally buy products for private, non-production use.

3. Today’s customer has a different view of what provides value. How do you define this new sense of customer value?Answer:There can be little doubt that customers still consider the exchange process as providing them with goods and services that possess “worth” or that meet a particular desire or need. However, instead of a passive recipient of standard-ized goods and services, today’s customer has become an active driver in the structuring of the exchange event itself as well as in the design, production, and distribution of products and services. The customer is increasingly de-manding a say in issues relating to pricing, the use of technology, order man-agement, delivery, reverse logistics, and what brands they will or will not give their loyalty. Past marketing strategies focused on the value garnered by the supplier and were driven by such attributes as optimizing economies of scale and scope, mass production and distribution, and cost efficiencies. Today’s customers, on the other hand, want their suppliers to orient their businesses around what adds value to them, not what adds value to the supplier.

4. How does a lifetime customer create value for the supply chain?Answer:Lifetime customers provide unique sources of value by Lowering the total cost of marketing. Since the majority of the cost in

customer management occurs in customer acquisition, the greater the proportion of lifetime customers, the less the long-term total costs of marketing and sales.

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Satisfying customer experiences. Today's CRM technologies enable mar-keters to construct a precise profile of customer wants, needs, and buying habits. The longer customers do business with a supplier, the easier it is for marketers to create unique product, pricing, discounting, and other of-ferings targeted at retaining and enriching their relationships with their best customers.

Providing increased revenue and profit opportunities. As customer-sup-plier relationships grow, marketers can expect lifetime customers to in-crease their purchase of company products and services. As revenue grows and the cost of customer maintenance declines, profits and mar-gins increases.

5. Define customer experience management (CEM).Answer:CEM is defined as “the customer’s perception of interactions with a brand, from marketing communications to sales and service processes to the use of the product or service.” CEM is about understanding the content of and effec-tively managing customer interactions while building brand equity and long-term profitability. Although the hard elements of customer interaction, such as transaction management, information transfer, and brand identification re-inforcement, are critical, they constitute only part of the customer relationship story. Of equal importance are the perceptions and interactions customers come away with from a buying experience that demonstrate a supplier’s value to them, their feelings of assurance and peace of mind aroused when dealing with the supplier’s people and systems, and the emotional content of the prod-ucts and services they receive. In short supply chains must be shaped to pro-vide customers with an overwhelming buying experience, a veritable “wow” experience that distances them from the competition and cements in customer loyalty.

6. Discuss the impact of Internet technologies on customer management.Answer:The rise of Internet technologies has dramatically altered forever the tradi-tional landscape of customer management. Today’s web-enabled applications are providing radically new approaches to generating value for customers by facilitating the sales process, enhancing customer service capabilities, and re-structuring companies into highly integrated, customer-centric organizations. On the surface of things, the Internet has enabled customers to utilize applica-tions that provide simple, self-directed tools for browsing and locating solu-tions to product and service needs from anywhere on the globe. Web-enabled tools have made it easy for customers to execute order entry and pricing nego-tiations, engage in bidirectional communications that increase personalization of the transaction, and source directly from suppliers, thereby by-passing channel intermediaries that simply add time and cost. Finally, today’s order

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management technologies permit customers to be self-directed with access to 24×7 service, real-time information, online support, digital documentation and training, and Web-page customization that provides them with personal-ized methods of influencing their suppliers’ value propositions in order to dra-matically increase individual customer value.

7. What are the characteristics of customer relationship management (CRM)?Answer:CRM is characterized as follows: CRM is both a management concept and a software technology. As a

management concept, CRM is a philosophy that requires companies to migrate to a customer-focused way of doing business. Its goal is nurtur-ing a lifetime customer through the establishment of a long-term relation-ship. As a technology, CRM describes a set of software applications used to manage and analyze marketplace sales, promotion, pricing, and ship-ment history to gain greater insight and intimacy into customer buying habits.

CRM is a strategic management tool. CRM is a strategic technology fo-cused on increasing profitability, enhancing the marketing plan, and ex-panding competitiveness by understanding and growing the customer. While the software applications provide marketers with critical tools to gather, segment, and query customer sales data for effective decision-making, its real value resides in the strategic advantage it provides the or-ganization. CRM is a comprehensive toolkit encompassing marketing, sales, service, and supporting technologies focused on forging customer relationships that provide mutual value, revenue, efficiency, and unique solutions to business problems.

CRM is focused on facilitating the customer service process. Being more responsive to the customer requires that sales and service functions be able to make effective customer management decisions and design strate-gies enabling superior responsiveness based on their capability to identify what brings value to the customer. CRM provides database analysis tools specific to the needs of executives, marketing, product and brand man-agement, sales, operations, and other functions. Often success requires the availability of metrics and analytical tools that provide a comprehen-sive, cohesive, and centralized portrait of the customer.

CRM is focused on optimizing the customer’s experience. CRM enables companies to continually win customers through an array of objectives from providing a level of personalized service and customized products to utilizing advertising, ease in ordering a product, or ensuring a service call-back that will positively influence a customer’s perception of the buying experience.

CRM provides a window into the customer. CRM functions ensure that all fulfillment nodes along the supply chain are provided with critical in-formation about the customer, what that customer values the most, and

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how they can ensure the customer has a positive buying experience each and every time. CRM enables companies to target the service attributes that each and every customer desires the most by providing all-pervasive, integrated, and insightful intelligence, such as individual buying habits, pricing and promotions histories, channel preferences, and historical con-tact information.

CRM assists suppliers to measure customer profitability. Effective cus-tomer management requires that companies be able to determine which customer segments, if not each individual customer, are profitable and which are not, what product and service values drive profitability for each customer, and how marketers can architect processes that consis-tently deliver to each customer the values they desire the most.

CRM is about partnership management. CRM is about nurturing mutu-ally beneficial, long-term relationships intimate enough to provide im-provement opportunities and tailored solutions to meet the short- and long-term goals of both supplier and customer beyond the immediacy of physical product and service delivery. The goal is to build unbreakable customer loyalty regardless of what actions are pursued by the competi-tion.

CRM is a major facilitator of supply chain collaboration. No customer transaction is executed in a vacuum but is actually an instance in what is often a long chain of events as products and information progress from one supply chain entity to the next. Firms that create integrated, synchro-nized processes that satisfy the customer seamlessly across the supply channel network will be the ones that will have the most loyal customers, are the most attractive to new customers, have the deepest collaborative relationships, generate the highest revenues, and have sustainable com-petitive advantage.

8. The objectives and operations of CRM and CEM have been compared to the two parts of the brain. Describe what this analogy refers to.Answer:CRM defines what the company wants from the customer relationship and gathers the intelligence and insight necessary to unearth what products and services to market and sell into what customer profiles. CEM, on the other hand, is the mechanism by which marketers clearly identify and build cus-tomer loyalty and long-term value. The CEM side of CRM provides an under-standing of what creates a positive emotional experience that bonds customers and their favorite suppliers. Similar to the human brain, which is divided into right and left spheres of cognition, CRM should be considered as consisting of two separate but integrated customer management spheres. The left side of the human brain is described as the “rational” side and governs language, logic, interpretation, and mathematics (or classic CRM). The right side of the brain is described as the “intuitional/emotional” side and governs nonverbal

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processes, visual pattern recognition, perceptions, and interactions (or CEM). The left side of CRM looks at customers from the viewpoint of “functional value” while the right side views them from the perspective of the “emotional value” the company provides to them.

9. What are the five critical attributes of effective customer order management?Answer: Cycle time. Cycle time is defined as the total elapsed time from the

moment the customer identifies a product or service need to the moment stock is placed into the customer’s inventory or the service is performed. Normally order cycle time is divided into the following subprocesses: order transmission is concerned with the time it takes for a customer to transmit an order to a supplier; order entry is the time required for the supplier to enter an order into their business system; order allocation and picking is the time required to verify product availability and to perform picking functions; order packing is the time it takes to package the order; order delivery is the time required to perform logistics functions such as carrier selection, documentation, transport, and delivery; and, order invoicing and payment is the time necessary to generate payment documentation, billing transmission, and actual payment.

Availability. This attribute refers to the capacity of the supply chain to have the products or services available when desired by the customer. One method is to stock products in anticipation of customer orders. Another model, followed by many manufacturers, is assemble-to-order or make-to-order production.

Dependability. Effective order management requires businesses to match actual cycle times, inventory availability, and operational performance with the expectations of the customer. It can be argued that dependability is perhaps the most important service value.

Convenience. In today's web-enabled, multichannel distribution environment, ease of product and price search, order entry, and robust services are critical customer-winning values. Web browsers enable customers to see online information about supplier products and services, work with online catalogs, perform research and comparison shopping, review inventory availability, configure and enter orders directly online, determine delivery options, and perform self-service order tracking.

Performance. This final attribute refers to the ability of suppliers to per-form order management functions within published and competitive stan-dards. There are four specific performance values to consider: the speed of cycle times to delivery; consistency with which suppliers’ order man-agement, service, and logistics functions execute accurate orders and de-liver products on time; how agile and flexible are fulfillment functions and their ability to respond to customer requirements; and ability of sup-pliers to handle out-of-bounds situations such as massive logistics or sys-tem failures, quality problems, new technology introduction, and order changes.

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10. List and describe the 10 customer service attributes.Answer:These elements are: Tangibles. This element refers to the appearance a firm's service func-

tions project to the customer. Often the image a company wishes to com-municate to the marketplace includes such tangibles as new facilities, state-of-the-art technology, highly qualified personnel, and the latest equipment. Tangibles are designed to give customers a sense of confi-dence and assurance that the products and services they are receiving are truly "world class."

Reliability. Once a company publishes their commitment to a specific level of customer service, their ability to live up to that standard is the measurement of their reliability. Service leaders must continually per-form the promised service dependably and accurately each and every time. Reliability of service permits supply chains to "lock-in" their cus-tomers who will gladly pay premium prices for delivered quality.

Responsiveness. The ability of a supply chain to respond to customer needs quickly and concisely lets customers know that their time and costs are important. Whether rendering prompt presales service or a willing-ness to assist with product quality issues, a helpful attitude and timely service will always leave the customer with the sense of dealing with a winner.

Competence. Customers need to feel assured that the supplier possesses the required skills and knowledge to assist them when product or support issues arise. Firms that support their products with superior services will always be leaders in their marketplaces.

Courtesy. Many a sale is won or lost based on the way the customer is treated in the presales and post-sales cycles. Companies who do not re-spond to their customers with politeness, respect, consideration, and pro-fessionalism are destined to lose them to competitors who do.

Credibility. Service leaders base their success on high standards of hon-esty, trustworthiness, and believability. Customers purchase products from firms that live up to claims of the best quality possible at the lowest price.

Security. The delivery of products and services must be accompanied by a sense of security on the part of the purchaser. Issues range from Internet transaction security to confidence about shared proprietary information. Security frees customers from doubts and provides "peace of mind" for the products and accompanying services they purchase.

Access. This service element has several facets. Foremost, access is the degree of ease by which customers can purchase products or contact sales and service staffs. Access can also refer to the availability of goods and services within a time limit generally accepted by the industry. Finally, access also means the speed by which after-sales replacement parts and services are delivered to the customer.

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Communication. The availability of sales and services staff to respond quickly and intelligently to customer questions concerning products, ser-vices, account status, and the status of open orders is the primary tier of a firm's customer communication function. Other communication forms, such as printed literature, manuals, product and service news-letter up-dates, and advertising, form the second tier. Effective customer commu-nication stands as a fundamental cornerstone for service leadership.

Understanding the Customer. Unearthing and responding to the needs, desires, and expectations of the customer is the first element in effective sales and service. Firms that provide the products and services customers really want will always enjoy an edge over their competitors.