Product Development and Customer Relationship Management

Gerald Tellis, USC

There was an interesting program on NPR radio today discussing whether companies purposely create products knowing they will break so that consumers have to re-purchase the product. Obviously, from a marketing perspective, customer relationship management is damaged by unreliable products.

This perspective was echoed when they contacted Gerry Tellis from USC’s Marshall School of Business  (who is a good colleague of mine) and an expert in Product Innovation and the related topic of New Product Growth.  Dr. Tellis made the statement that, despite consumer notions that products are planned to fail (often called planned obsolescence) he cited research showing products are instead becoming more reliable all the time.

This was echoed by a representative from Cuisinart, whose products were illustrated in the report.  She argued that they take quality very seriously and products are tested extensively to ensure they perform at the high quality expected by the company.

Product quality and customer relationship management

Companies have a profit motive and increasingly they realize that their profits are tied to the quality and consistency of their products (and services).  There are several reasons for this.  First, negative word of mouth can sink your company faster than the Titanic.  People who don’t like your product are quick to tell their friends about their negative attitudes and, with the spread of social networks, people now have hundreds of friends.

Courtesy of CES

When you add the power of Twitter and new negative emotion tools on Facebook, along with online news that spreads information on product recalls almost instantaneously to millions of mobile devices, you have a recipe for disaster when a company produces an inferior product.  Witness what has happened to Toyota with recalls of its popular automobiles which, by February 2010 had cost the company $2 Billion.

Second, companies increasingly recognize the importance of customer relationship management to their bottom lines.  Rather than selling to an endless list of new customers, companies are counting on doing repeat business with satisfied customers.  Producing poor quality products reduces the likelihood customers will buy from your company again.  Being reliable, providing good service, and consistently producing highly innovative products becomes a cornerstone of your companies customer relationship strategy.

Death of CRM

Last week I tweeted an article entitled “CRM will be dead in 10 years.  What do you think?”.  Well, I’ll tell you what I think — its about time.  Now, this statement might seem odd or surprising coming from a marketing professor, but let me explain.  The concept behind CRM is flawed and should die — sooner rather than later — because its an oxymoron.  CRM, as implemented by most firms, is anything but about the customer, doesn’t build relationships, and manages nothing.

To qualify for the name customer relationship management, the name should be about customers.  Unfortunately, CRM is often about is raping the customer, not serving them.  And customers who get raped by a company rarely ask to have it happen again, thus they are unwilling to develop a relationship with the firm.  To this, you might ask, “Why do I care whether I have a relationship with a customer or not?”  Let see:

The value of customer relationship management

• Loyal customers cost less than acquiring new customers – by some estimates, they are up to 5 times cheaper

• Loyal customers also are cheaper to serve since you already have their accounts set up and know how to please them

• Loyal customers are more likely to recommend you to other (prospective) customers

• Loyal customers are willing to overlook small failures by the firm and even defend them against attacks (at least as long as they are not too frequent or too offensive)

• Loyal customers are willing to give you honest feedback that helps improve your product and service offerings

• Loyal customers may act as partial employees to help neophytes and prospective customers learn how to get the most from your products and services which eases the transition for these customers (thus encouraging switching) and reduces your costs since you don’t have to hire true employees to do that
• Loyal customers evince proper behavior (such as busing their own table) and encourage other customers to do the same

And there are lots of other benefits to having a relationship with your customers.  Certainly, you don’t want to develop relationships with all your customers and some customers you may even want to fire (see my blog post on customers you don’t want).
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Why should customer relationship management die?

So, if customer relationships are so important, why do I applaud the death of CRM?  As I mentioned, its because customer relationship management fails to appreciate or develop customer relationships.  Commonly, what is referred to as CRM is a software program that tracks customer behavior relative to your product or service so you can recommend new products or services to them?

But, CRM is really a combination of this knowledge about customer behavior with a strategy that uses this knowledge to serve them better.  For instance, you find their pain then offer a solution for it.  It also means treating them as individuals and recognizing their uniqueness rather than treating them like cattle.  These are tasks that can be facilitated by CRM software, but go beyond what a computer can accomplish.  This type of customer relationship management also implies a willingness of the firm to go beyond simply serving the customer to providing those extras that delight the customer.

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