Managing customer relationships

Because relationships have costs associated with them, it is not possible for a company to provide a tailored level of service for each and every customer.

The ability to identify where service and relationship adds value and the form that tailored services need to be can be a source of additional profit requires a deep understanding of the needs of the customer base and an ability to segment and standardise different levels of service


Segmenting your customers

For the most part customers of all sorts want what they've bought delivered on time, to the required spec and with the minimum of hassle. Hassle costs the customer time and heartache. So good service makes good business sense (see our service quality self-test), it means doing things quickly and getting them correct, which for a supplier saves money and increases capacity.

But not every business works this smoothly. Things go astray, customers want things tailored to their needs, or delivered faster or change their mind or want to return something, or may not want to pay on time. And customers may not know what they need or what to choose.

Allowing a customer to stray from the simple do-it-quick, do-it-correct incurs cost to your business. So choosing who you provide extra service for free and who you charge for extra service is a core part of segmenting your customer base. The normal criteria companies use are the size of the account, but they may also choose "strategic value" of the customer or the potential for long-term value. What this often means is that new customers get better service than old customers because their future importance to your business is unknown, whereas you know the value of older customers and so what service you're prepared to give them.


Cost of service

Having segmented a market, it is then necessary to determine what level of service is appropriate for each segment and how much you want to invest in customer relationships.

As companies like EasyJet have shown, removing or reducing unnecessary levels of service and reducing the price as a result can be a very effective competitive weapon.

To understand what service is needed it is also necessary to know how much each service costs and who uses or has value from the service. A common cry from smaller retailers is that they are being squeezed out by bigger players who don't provide the same levels of service. Then in truth, perhaps the service a small retailer provides doesn't have the value to customers that they believe.

Identifying ways of reducing the cost of service and removing unnecessary relationship elements continually changes the way in which we buy. From tailored, to off the peg, to department stores, to discount stores, to catalogue sales to internet sales.

But that's not to say that service is not important. Minimising queues, deli-counters, home delivery are all areas where service has improved in supermarkets, but not for all customers and not all free of charge. Techniques such as conjoint analysis and qualitative techniques such as observed shopping help identify where real value lies.

Having looked at many businesses, we have developed a list of core services that customers look for. Using a quality of service review, businesses can assess how well they are meeting customer's needs and using conjoint analysis they can assess what really adds value.


Account management and customer knowledge

In business-to-business markets, negotiating the level of service and identifying the level that a company wants to invest in building a relationship with a customer is down to the account manager. Account management encompasses four disparate areas:

  • identifying new business opportunities,
  • sales/deal negotiation,
  • expediting problems
  • day-to-day query handling.

Thus the role extends from the global level of understanding the business and industry to the minutiae of product codes and technical specs. If you aren't able to solve the details then there's a good chance you won't get the opportunity to consider the bigger picture.

How you arrange and organising how sales and customer service is handled and who buy can make a tremendous difference to how a customer perceives the company. And it's important for the participants to realise that each role may require a different person. Weak communication and issues of "ownership" cause large numbers of internal political headaches and leave the customer with a sense of a disjointed company. Consequently how a company shares customer knowledge to allow different people to handle different relationship elements is a central organisational problem.

A simple example to illustrate is where customers won't go back to their financial advisor to sort out details and queries because "it's too minor" or they fear "he'll try to sell me something else".

Positive effects happen where customer knowledge is shared and the customer has multiple points of contact with the company. In many account managed situations, customers themselves will try and find "the horse's mouth" to solve their technical or day-to-day queries rather than bother the more strategically focused account manager.

It has to be remembered that account management is a core skill in developing relationships, but not everyone wants an account manager! So sharing customer knowledge effectively and in an open way is core to good service.


For help and advice on monitoring customer service and customer relationships contact info@dobney.com