Capitalizing on the internet opportunity

Opinions about the impact of the internet of customer relationships have evolved over the last 15 years. The prevailing view in the 1990s was that the resulting market transparency would shrink margins and reduce customer loyalty. As firms gained experience with the internet, some replaced their anxiety with enthusiasm over the possibilities for cutting customer service costs while tightening connections with customers. The main view today seems to be that digital technologies - and especially the internet -offer only limited advantages because the applications are readily copied.

Day and Bens surveyed 165 senior US marketing, sales and management information systems managers on the impact of the internet on their ability to manage customer relationships. The research reveals that a quarter of the managers saw the internet as a major opportunity and only 1 per cent viewed it as a major threat. A further 57 per cent saw the internet as a minor opportunity and 13 per cent said it was neither an opportunity nor a threat. Overall, the internet was judged to offer opportunities to reduce customer service costs, while tightening customer relationships by encouraging dialogue, linking more parts of customer contact and facilitating the personalization of communications. Fears of channel conflict, price wars and new business models disrupting their markets were overshadowed by these opportunities.

Firms in business-to-business markets appear to believe that the internet will enable the customers they do not currently serve to find them more easily, and then they have a good chance of being chosen on their merits. At the same time, they have confidence that their current customers will stay with them even after having considered new sources.

Between 32 and 43 per cent of all business-to-business respondents to the Day and Bens survey saw major opportunities to encourage customer feedback and dialogue, facilitate linking more points of customer contact and make it easier to personalize marketing messages. For some firms, the personalization of interactions and communications is a step on the road to using the internet to help customers to design products to their specific requirements. However, only 14 per cent of respondents saw such "mass customization" as a major opportunity, while 35 per cent viewed it as a minor opportunity.

Journal of Business & Industrial Marketing 20/4/5 (2005) 253-259

e Emerald Group Publishing Limited [ISSN 0885-8624]

The size of the opportunity to reduce customer-service costs, because customers can serve themselves, was the third most important determinant of the overall judgement about the internet.

The firms that saw the internet as a major opportunity were operating in market environments that were especially conducive, and were better equipped to exploit the opportunities than their rivals. Firms seeing the greatest opportunity in the internet as a tool for strengthening customer relationships were much better than their rivals at managing customer relationships generally, and had a lower market share rank, which suggests that smaller firms see the internet as a way to add another channel to reach their customers and close the gap with larger rivals that have broader channel systems.

The authors believe that most firms will not realize the expected benefits of the internet. The gains will mainly go to firms that were already good at forging close customer relationships. These leaders were able to anticipate earlier how to use the internet to connect with customers, exploited it faster and implemented the initiative better.

At the peak of internet enthusiasm, extravagant pronouncements were made about the possibilities for reverse auctions, open exchanges, buying groups, infomediaries and name-your-own-price models. But the authors' research confirms that these models have limited or negligible roles in most markets.

The internet is more than an additional channel to reach customers. When used creatively, it enhances all the other channels. For example, call-centre employees with net-based customer relationship management systems deliver better service, bricks-and-mortar stores using location-based services are found by more customers, and sales people equipped with mobile devices have more information and tools available during their sales calls. Firms need to synchronise the various channels. Customers pick the channel that is most convenient or effective for the situation, and assume that the firm will recognize them at each step of the way. Companies should therefore ensure that when, for example, a customer places an order over the internet the call-centre records are updated, that inventory information is consistent across the channels and that they can return goods to the store. Firms should assess what target customers want from the channel system, then work back to assess how well the current channels meet those needs.

Internet technology is only a tool. Firms need to know how well their internet capability compares with that of their rivals. Companies should therefore ask their best and most demanding customers for a frank assessment. Firms should assess the quality of their present customer relationships and judge whether internet-enabled services based on new market models will strengthen or undermine existing relationships.

Deploying internet and customer relationship management technologies successfully is more about organizational alignment than database management, systems integration and software selection. Internet-enabled customer relationship management has to be managed as a cross-functional initiative that deepens overall capability. It will take strong leadership - including the assignment of a senior manager to spearhead the initiative, cross-functional structures and collective incentives - to motivate functions to work together and ensure a return on investment in technology.

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