Managing the relationship with customers

Leading high-tech firms also are extremely skilled in leveraging the value of their customer-installed base. More specifically, they treat customers differently, on the basis of their long-run value. Consequently, they manage to increase the durability of the relationship with large and profitable customers. They also reduce the defection rate of customers. Moreover, they boost their revenues with cross-selling and up-selling, meaning the selling of complementary products or services thanks to an ability to identify the existing customers' needs more accurately. Finally, they try to avoid unprofitable customers. For instance during the Internet boom, IBM did not run after every Internet startup without considering their long-term ability to pay [35];this approach paid off and saved IBM the financial problems that faced Lucent, Nortel, Sun, or Compaq when this category of customers went broke and could not pay the bill.

Such an approach relies mostly on the use of customer-relationship-management CRM software from vendors like Siebel, Oracle, SAP, or PeopleSoft, which allows firms to manage their customer contacts and call centers, to identify sales leads, and to plan and analyze marketing campaigns [36]. According to AMR Research, by 2001, in Western countries, more than 40% of the high-technology companies and two-thirds of the telecom operators had implemented CRM systems.

Leading software companies such as Microsoft, Intuit, and Cadence, as well as successful hardware firms such as IBM, HP, Acer, and Legend, are using CRM programs also to manage, synchronize, and coordinate all customer contact points, such as sales representatives, but also call centers, the Web, field organization, and third parties like distributors.

The main point is to know the customer and to get as much information as possible about that customer. Consequently, all the CRM programs rely extensively on the set up and the manipulation of a customer database where all the information stored in a data warehouse are then sorted and analyzed through data mining software.

The CRM approach has proven very effective for some high-tech firms, but it has its downsides, as well. First, it is extremely costly—up to $100 million for the most sophisticated projects—and requires a big investment in computer hardware, database and communication software, and skilled experts. Some CRM projects have cost overruns more than two or three times the initial budget. However, the technological infrastructure is a key factor for CRM to succeed, because very often the failure of the infrastructure will lead to the failure of the CRM project [37].

The second obstacle is that CRM requires everyone in the company to be customer oriented in order to acquire and to use the available data. The firm's top management must drive this cultural orientation and encompass it in the corporate culture, but actually, many technology-oriented hightech firms are not able to make this cultural shift. As a consequence, they end up with some kind of advanced database marketing, but no better relationships with their customers [38].

Finally, CRM has not proven very effective in B2C for products with low unit sales or where customers show little brand loyalty [39]. Actually, some researchers even argue that loyal customers are often less profitable, because they expect a reward for their loyalty [40].

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