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CHAPTER 19

Integrating customerrelationship management and

supply chain managementMARTIN CHRISTOPHER and ADRIAN PAYNE

Introduction

Traditionally, the routes to competitive advan-tage have typically been based upon strong

brands, corporate image, effective advertisingand, in some cases, price. These are the classiccomponents of conventional marketing strate-gies. More recently, however, there have been anumber of signs that suggest that the power of

the brand in both consumer and industrialmarkets is in decline (Brady and Davis, 1993).For whatever reason, the customer seeks morethan brand value, as it is sometimes called,and is looking increasingly for value in a muchwider sense.

In the new paradigm of marketing, theemphasis changes from brand value to cus-tomer value. Essentially this means that thesupplying organization must focus its effortsupon developing an offer or package thatwill impact customers perception of the valuethey derive through ownership of that offer.This value might either be derived through thedelivery of benefits in performance terms and/or in the form of a reduction in the customerscosts. Increasingly, customer relationship man-

agement (CRM) is being viewed as a strategicapproach that can help realize improvedcustomer value.

In this chapter we examine CRM with aspecial focus on its critical linkage with supplychain management (SCM). First, we discuss thedecline of the brand. Second, we examine theconcept of competing through capabilities andthe interlinking roles of CRM and SCM. Third,we outline a strategic framework for under-

standing the key components of CRM. Fourth,we review the changing nature of customersupplier relationships and the impact of supe-rior SCM. Next, we examine the role that CRMand SCM have in improving customer service.Finally, we consider the development of mar-ket-driven CRM and SCM strategies.

The decline of the brand: theneed for integrated CRM and

SCM strategies

There is strong evidence from many marketsthat brand loyalty amongst customers is not

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Consumer franchise

Brand values

Corporate image

Benefit focused

Customer value

Costs of ownership

Value-adding relationship

Service quality

Marketing advantage

Supply chain effectiveness

Low cost supplier

Reduced asset base

Quick response

486 The Marketing Book

what it was. Perhaps because of growing buyersophistication, or because of a growing sim-ilarity in the composition and functionality ofcompeting products, or because of the empha-sis on price competition and frequent discount-

ing activity, the power of the brand seems to bein decline (Brady and Davis, 1993). This phe-nomenon seems to be widespread fromcomputers to cars.

It is important to distinguish betweenbrand loyalty and brand preference. Many cus-tomers have a preference for a brand or asupplier and will typically express that prefer-ence through their purchasing behaviour. How-ever, when the preferred brand is not available,those same customers will quite readily choosean acceptable substitute. This is equally true inindustrial markets or consumer markets, forexample the choice of suppliers to a just-in-timemanufacturer is very much influenced by deliv-ery reliability. Similarly, a retailer in makingshelf space allocation decisions will look verycarefully at vendors logistics performance.

The traditional means through which mar-keters have differentiated their offer from those

of competitors, such as advertising and claimedproduct superiority, need to be augmented by agreater emphasis upon building customer rela-tionships and customer value through service.Todays customer is far more sensitive to

service than was previously the case. Surveyafter survey suggests that perceived qualityand service outstrip price as the determiningfactor in choice of supplier in many markets.

The revised model of marketing effective-ness that is increasingly being recognized isshown as Figure 19.1, which emphasizes thatrelationships with customers are of equalimportance as the relationships we have withconsumers, and that both of these need to beunderpinned by superior supply chainmanagement.

What is being suggested is that it is nolonger sufficient to have a strong franchise withthe consumer meaning that because of supe-rior brand values or corporate image thesupplier can expect continuing market success.Strong consumer franchises need to be aug-mented by equally strong relationships withchannel intermediaries the customer franchise.

Figure 19.1 The convergence of marketing and supply chain management

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Integrating customer relationship management and supply chain management 487

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

Competing through capabilitiesAs the power of the brand declines, organiza-tions are having to reappraise their traditionaldefinitions of strengths and weaknesses. Theview now gathering ground is that the realopportunities for differential advantage comefrom capabilities or the things we excel at, ourdistinctive competencies.

Thus, in a market characterized by short-ening life cycles, for example, the ability to getnew products to market in ever-shorter timeframes becomes a source of competitive advan-tage. Likewise, information systems that cancapture demand as it happens and productionsystems that can respond rapidly are a majorstrength in a volatile market. Similar advan-tages accrue to organizations with order fulfil-ment and logistics systems that enable superiorlevels of customer service to be achieved.

None of this is to deny the importance ofstrong brands supported by motivated employ-ees, but they are no longer enough by them-selves. Conversely, strong brands andmotivated employees supported by best-in-

class capabilities will be difficult for com-petitors to attack. Indeed, wherever enduringleadership in any market is encountered ittends to support this contention names suchas McDonalds, Sony and Disney come tomind.

The more that organizations come to rec-ognize the importance of competing throughcapabilities, the more they will be forced toaccept the need to switch the focus in the

business away from managing functions tomanaging the key activities or processes thatcreate those capabilities. A major change thathas taken place in the way in which we thinkabout organizations has been the realization ofthe importance of processes. Processes are theways in which firms create value for their

customers; they are fundamental and, to a largeextent, generic across business types.

Processes are horizontal in that they cutacross traditional vertical functions, and bydefinition they are interdisciplinary and cross-

functional. The four high-level business pro-cesses that are common to most firms are:

The market understanding process.

The innovation management process.

The supply chain management process.

The customer relationship management

process.

Figure 19.2 illustrates these four high-level business processes. Within these genericprocesses there will be further processes (orsub-processes) which again will need to be

managed across functions. Let us now examineeach in turn.

The market understanding process

Successful marketing strategies are builtaround a deep understanding of the market-place. In particular, the motivations of buyersand the things they value must be the founda-tion of any marketing strategy. Being in closecontact with customers is a prerequisite in fast-changing markets. It is not only the responsibil-ity of the marketing department to have close

contact with customers, it is actually importantthat all parts of the business are informed bycustomers. It is just as critical that humanresources, production management and pro-curement, to take three examples, are as closelyconnected to needs of customers as the market-ing or sales staff.

Being customer-focused has always been,and always will be, a fundamental foundationof a market-oriented business. However, therequirement today is to be idea-driven andcustomer-informed, and for the organization toextend its knowledge and to leverage thatknowledge in ways which create value forcustomers. In todays marketplace, knowledgemanagement is a critical element of marketunderstanding.

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