Customer relationships: share the value or suffer the consequences

Companies are developing customer relationships but keeping all the value for themselves. With this CRM mindset becoming unsustainable in light of growing customer disquiet, it's time for firms to share the value.

By Neil Davey, editor

More often than not, relationships are based on mutual benefit. If a partnership is a one-sided affair then it’s likely to flounder over time. So why is it that companies roll out customer relationship management strategies to get more ‘value’ from the client-business relationship, and then keep all the extra margin for themselves? It seems downright unfair.

But that’s what many firms are doing. They want more personal information on their clientele to ‘develop the relationship’, but all they actually do is use this data to sell them more products and services. Isn’t it about time that companies coughed up and shared the value?

"There is a mindset in CRM whereby firms have been developing relationships with their customers because their margins are falling, costs are going up and they are not experiencing the profitability that they had in the past," explains Jennifer Kirkby, director of Mutual Marketing.

"Firms collect data so that they can understand their customers better and then sell them more. There is nothing in that mindset that focuses on developing relationships so that firms can understand their customers to provide a better experience. You do need the data, because you don’t want to write to customers about the same things several times. And you need that corporate memory to understand the relationship. But what businesses haven’t considered is that the other end of that is the whole engagement process."

Banks have traditionally been some of the biggest culprits. Investing heavily in CRM to counteract dips in profitability and margins, banks placed themselves at the forefront of customer relationship management in the mid-90s. A decade later, and these firms remain stuck in the mindset of collecting data on their customers and then trying to sell them more of their products – mortgages, loans, insurance and so on. "Why do banks want to know what my middle child’s data of birth is?" questions Kirkby. "Where do they understand me in all of this?"

Stung and chastened

Tim Ambler of the London Business School’s Department of Marketing believes that the situation is unintended. "Nobody is doing this consciously," he stresses. "It is more likely to happen in large organisations like banks than it is in small outfits like a retail store because if you are in immediate day to day contact with a customer then you won’t think like that. There is a huge gap between the marketing person – locked up in an office somewhere – and the customer. And they frankly make no effort to empathise with customers."

But there’s a problem – stung by the one-way nature of the relationship and chastened by rising data privacy concerns, consumers aren’t as forthcoming with their personal data as businesses would like. With customers refusing to commit to the business-customer relationship by sharing information, and businesses failing to provide the kind of experiences that would encourage such disclosure, things are reaching an impasse.

"It is a one-sided experience at the moment," agrees Michael Starkey of De Montfort University’s Department of Marketing. "Banks want to build information on customers, but they are not willing to share the benefits. It is not customer-focused at all. They claim to be marketing driven but they are sales or product driven. The question is: why should I give the bank any information if they are not going to give me back anything in exchange?"

This puts the development of customer relationships in a perilous position for the future. "It isn’t sustainable if people aren’t giving the data that companies want to use to understand," says Kirkby. "Customers are questioning why they should provide it if they don’t have a ‘relationship’ with the company. When I have to fill out a form on my birth date, I won’t do it unless there is a very good reason. You question why they are asking you it – are they going to use this information on my behalf or just misuse it? People are getting very sceptical about filling out forms and the general climate will have a detrimental effect on companies as they look to try and collect data for relationships."

A different economic view

The situation calls for customer relationship management to adopt a different economic view on the ‘value’ created by a customer relationship. Relationships need investment in the experience and value delivered to the customer that is ever increasing. Kirkby emphasises that if data is used for mutual value, customers will be more forthcoming in the future.

“The important thing is that you use my data to deliver something of value to me – you are not just using it to try and sell me more stuff and inundate me with telephone calls and junk mail while not actually improving the basic services. You could look at my profile and my data and then phone me up to say that I’m not getting the best rate of interest where I presently am, and recommend I move to another account. If you are being more valuable to me then we can build the relationship up.”

Starkey agrees that customers would be prepared to share more personal data if they had more return – but doesn’t anticipate the situation changing in the near future. "The emphasis is on the banks – I don’t see anything changing unless it changes first on their behalf," he suggests. "If they want to make a better relationship with their customers, they have to start treating them like customers. Whilst banks continue to keep all the extra value, it is a non-starter. Why should we give them anything if they are going to keep the whole slice of the cake?"

Ambler delivers a damning verdict on the way some banks approach this area. "These organisations don’t really think what marketing is – it is not the sort of subject that they talk about over lunch in the boardroom," he says. "The job of a marketing manager is to create value for both parties. That is the fundamental job of marketing – you create value for the customer and value for the firm at the same time. The relationship should benefit both, not just one. But they are so locked in their silos in these vast offices that they have simply lost sight of it."

Whilst companies continue to view customer relationship management as a way of improving profitability, the problem will remain. But it is a common misconception – a great many firms talk about it in terms of improving their profitability; rather less talk about it in terms of improving their profitability by providing better services to customers. And in the meantime, customer relationships will suffer as a result. Tearing down this traditional yet erroneous view will take a sea change in thinking. But ultimately at the heart of this change is a very simple message: "It goes back to understanding that you have to invest to get a return," concludes Kirkby.

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