CHAPTER 19

Integrating customer relationship management and supply chain management

MARTIN CHRISTOPHER and ADRIAN PAYNE
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Introduction
Traditionally, the routes to competitive advantage have typically been based upon strong brands, corporate image, effective advertising and, in some cases, price. These are the classic components of conventional marketing strategies. More recently, however, there have been a number of signs that suggest that the power of the brand in both consumer and industrial markets is in decline (Brady and Davis, 1993). For whatever reason, the customer seeks more than brand value, as it is sometimes called, and is looking increasingly for value in a much wider sense. In the new paradigm of marketing, the emphasis changes from brand value to customer value. Essentially this means that the supplying organization must focus its efforts upon developing an offer or package that will impact customers perception of the value they derive through ownership of that offer. This value might either be derived through the delivery of benefits in performance terms and/ or in the form of a reduction in the customers costs. Increasingly, customer relationship man-

agement (CRM) is being viewed as a strategic approach that can help realize improved customer value. In this chapter we examine CRM with a special focus on its critical linkage with supply chain management (SCM). First, we discuss the decline of the brand. Second, we examine the concept of competing through capabilities and the interlinking roles of CRM and SCM. Third, we outline a strategic framework for understanding the key components of CRM. Fourth, we review the changing nature of customer supplier relationships and the impact of superior SCM. Next, we examine the role that CRM and SCM have in improving customer service. Finally, we consider the development of market-driven CRM and SCM strategies.

The decline of the brand: the need for integrated CRM and SCM strategies
There is strong evidence from many markets that brand loyalty amongst customers is not

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of competitors, such as advertising and claimed what it was. Perhaps because of growing buyer product superiority, need to be augmented by a sophistication, or because of a growing simgreater emphasis upon building customer relailarity in the composition and functionality of tionships and customer value through service. competing products, or because of the emphaTodays customer is far more sensitive to sis on price competition and frequent discountservice than was previously the case. Survey ing activity, the power of the brand seems to be after survey suggests that perceived quality in decline (Brady and Davis, 1993). This pheand service outstrip price as the determining nomenon seems to be widespread from factor in choice of supplier in many markets. computers to cars. The revised model of marketing effectiveIt is important to distinguish between ness that is increasingly being recognized is brand loyalty and brand preference. Many cusshown as Figure 19.1, which emphasizes that tomers have a preference for a brand or a relationships with customers are of equal supplier and will typically express that preferimportance as the relationships we have with ence through their purchasing behaviour. Howconsumers, and that both of these need to be ever, when the preferred brand is not available, underpinned by superior supply chain those same customers will quite readily choose management. an acceptable substitute. This is equally true in Buy this file from http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=1377 What is being suggested is that it is no industrial markets or consumer markets, for longer sufficient to have a strong franchise with example the choice of suppliers to a just-in-time the consumer meaning that because of supemanufacturer is very much influenced by delivrior brand values or corporate image the ery reliability. Similarly, a retailer in making supplier can expect continuing market success. shelf space allocation decisions will look very Strong consumer franchises need to be augcarefully at vendors logistics performance. mented by equally strong relationships with The traditional means through which marchannel intermediaries the customer franchise. keters have differentiated their offer from those

Consumer franchise Brand values Corporate image Benefit focused

Marketing advantage

Customer value Costs of ownership Value-adding relationship Service quality

Supply chain effectiveness Low cost supplier Reduced asset base Quick response

Figure 19.1

The convergence of marketing and supply chain management

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Both of these franchises need cost-effective SCM and effective CRM to support them.

Competing through capabilities

customers; they are fundamental and, to a large extent, generic across business types. Processes are horizontal in that they cut across traditional vertical functions, and by definition they are interdisciplinary and crossfunctional. The four high-level business processes that are common to most firms are:

As the power of the brand declines, organizaThe market understanding process. tions are having to reappraise their traditional The innovation management process. definitions of strengths and weaknesses. The The supply chain management process. view now gathering ground is that the real The customer relationship management opportunities for differential advantage come process. from capabilities or the things we excel at, our distinctive competencies. Figure 19.2 illustrates these four high-level Thus, in a market characterized by shortbusiness processes. Within these generic ening life cycles, for example, the ability to get processes there will be further processes (or new products to market in ever-shorter time sub-processes) which again will need to be Buy this file from http://www.download-it.org/learning-resources.php?promoCode=&partnerID=&content=story&storyID=1377 frames becomes a source of competitive advanmanaged across functions. Let us now examine tage. Likewise, information systems that can each in turn. capture demand as it happens and production systems that can respond rapidly are a major The market understanding process strength in a volatile market. Similar advanSuccessful marketing strategies are built tages accrue to organizations with order fulfilaround a deep understanding of the marketment and logistics systems that enable superior place. In particular, the motivations of buyers levels of customer service to be achieved. and the things they value must be the foundaNone of this is to deny the importance of tion of any marketing strategy. Being in close strong brands supported by motivated employcontact with customers is a prerequisite in fastees, but they are no longer enough by themchanging markets. It is not only the responsibilselves. Conversely, strong brands and ity of the marketing department to have close motivated employees supported by best-incontact with customers, it is actually important class capabilities will be difficult for comthat all parts of the business are informed by petitors to attack. Indeed, wherever enduring customers. It is just as critical that human leadership in any market is encountered it resources, production management and protends to support this contention names such curement, to take three examples, are as closely as McDonalds, Sony and Disney come to connected to needs of customers as the marketmind. ing or sales staff. The more that organizations come to recBeing customer-focused has always been, ognize the importance of competing through and always will be, a fundamental foundation capabilities, the more they will be forced to of a market-oriented business. However, the accept the need to switch the focus in the requirement today is to be idea-driven and business away from managing functions to customer-informed, and for the organization to managing the key activities or processes that extend its knowledge and to leverage that create those capabilities. A major change that knowledge in ways which create value for has taken place in the way in which we think customers. In todays marketplace, knowledge about organizations has been the realization of management is a critical element of market the importance of processes. Processes are the understanding. ways in which firms create value for their

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