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Four rules for courting the 21st-century customer

In the era of social media and big data, maintaining consumer relationships is a lot trickier than it used to be.

Bottom Line: In the era of social media and big data, maintaining consumer relationships is a lot trickier than it used to be.

In the old days, if you wanted to ask someone out on a date, you summoned up the nerve, tried to gauge their interest, and actually said the words, “Wanna go out?” Now you log in, swipe right, and send a couple of emojis, leaving the hard work to a dating app.

The situation is not so dissimilar for firms trying to develop and hone customer relationships, observes ESCP Europe’s Michael Haenlein. He’s the author of a new study about the challenges of managing those dynamics in the modern world.

The guiding precepts of customer relationship management (CRM) were set down in the 1980s and 1990s, when those interactions were generally viewed through a few lenses: stand-alone investments that paid off in the long run; marriages that were mutually beneficial if maintained; or the products of linear mathematical formulas that balanced customer retention and acquisition over time.

Decades later, Haenlein finds, organizations have taken steps to modernize how these relationships are formed and viewed, employing new CRM software packages, algorithms, and big data. But to a large extent, the traditional theories remain embedded in companies’ CRM practices, hindering the potential gains from technology and leaving large gaps in firms’ understanding of their customer base.

“This leads to outcomes wherein firms manage customers like they did 30 years ago without even realizing it,” Haenlein writes. “Try to date today using strategies employed by your grandparents and you get an idea of what implications this might have.”

Drawing on his analysis of research and best practices over the past decade, Haenlein underlines some of the failings of conventional wisdom. Investing in customers is all well and good, he notes, but people don’t behave as simply as stocks, and the marriage analogy doesn’t account for the painful truth that relationships can backfire, leading to unprofitable consequences — sometimes even divorce. Mathematical formulas, meanwhile, fail to grapple with the increasing difficulty of calculating the important metric of customer lifetime value in an environment that now prizes the social impact of doing business as well as the bottom line. Finally, some have suggested that as the life cycles of products and services become shorter and shorter, customer turnover becomes inevitable and can even be a profitable business model — as is the case in the mobile gaming and app categories, which revolve around short-term relationships.

With this in mind, Haenlein outlines four major areas firms must consider when reevaluating their CRM approach.

Think broadly about the social network. The prevalence of mobile apps and the increasingly large role played by digital marketing in introducing consumers to new products makes it tempting for companies to simply assume they can handle most CRM through their social media accounts.

“Firms manage customers like they did 30 years ago without even realizing it.”

But not all firms that access this kind of data use it to its full advantage, or sell products and services that lend themselves to interaction with customers. Also, as noted in earlier research, mapping social relationships doesn’t necessarily lead to revenue. For example, a potential customer might be swayed by a Facebook friend’s preferred brand of toothpaste, but may not be influenced by the friend’s choice in cars.

Rather than putting all their faith, and resources, in the social media approach, Haenlein advises firms to study the emerging evidence that high-revenue customers tend to associate with one another in a variety of ways. Identifying those clusters of consumers, both online and offline, could be far more profitable than going down the social media rabbit hole.

Take the professional influencer into account. ­­The people on Twitter, YouTube, and other social media platforms whose opinions can shape public opinion in a matter of hours have also fundamentally altered CRM. Carefully rolled out ad campaigns can unravel quickly, and budgets can be blown when an influencer pans a product or company. Conversely, building good relationships with these influencers can give a brand a boost, but doing so takes resources. Also, these types of relationships risk appearing inauthentic and losing customers.

Firms have to decide whether to engage with these prominent voices or ignore them, and how to handle negative word of mouth as well as how to spread positive reviews and recommendations.

Remember that data is a double-edged sword. A real priority for companies has been obtaining data on customers, but owning all that data comes with a responsibility to protect it. Researchers, governments, and industry groups that talk up the Internet of Things have only begun considering how much access to data companies should legally or morally be allowed to have, Haenlein points out, notwithstanding the danger of data breaches and cybersecurity risks.

The bottom line is still the driver. The whole point of CRM is to turn relationships into revenue and grow a firm’s market share. But, Haenlein writes, many companies are still on autopilot when it comes to CRM, relying on outmoded and relatively simple models despite evidence that more sophisticated formulas are both more accurate and easy to implement. Also, as we have reported before, marketing departments need to be vigilant, flexible, and opportunistic, which is in direct contrast to long-standing conventionalwisdom that promotes strict adherence to budgets based on long-term industry projections. Marketers must adjust their tactics using the real-time customer information they can now receive, and be able to pivot on that data to turn it into profit.

Of course, as with all relationships, sometimes people just don’t want to talk. The truth is that a lot of purchases are made out of habit or laziness, despite a firm’s best marketing efforts. Products and services, such as the Apple ecosystem or Amazon’s Dash Button, which make it easy for customers to make complimentary purchases, all but relegate CRM to the background. Sometimes boy meets company online, for instance, and boy doesn’t necessarily want to be overwhelmed with a marketing pitch. It’s all part of learning the rules of customer relationships in the 21st century.

Source: “How to Date Your Clients in the 21st Century: Challenges in Managing Customer Relationships in Today’s World,” by Michael Haenlein (ESCP Europe), Business Horizons, Sept./Oct. 2017, vol. 60, no. 5

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

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