The importance of customer relationship management in the automotive supply industry

TABLE OF CONTENTS

Acknowledgement

About the author

Abstract

1. Introduction

2. Literature review and industrial background
2.1 Overview of CRM theories
2.2 Limitation to CRM
2.3 Theories beyond CRM
2.4 The automotive industry
2.5 Company background
2.6 B-2-b versus b-2-c markets
2.7 Reflections

3. Research methods
3.1 Defining the topic
3.2 Areas of research
3.3 Epistemological debate
3.4 The questionnaire
3.5 Conjoint-analysis
3.6 Reflections

4. Data description and presentation of findings
4.1 The research population
4.2 Receiving the responses
4.3 Presentation of results from the questionnaire
4.4 Conjoint analysis
4.4.1 The price issue
4.4.2 Availability of service staff
4.4.3 Response time
4.5 Reflections

5. Analysis and interpretation of findings
5.1 Customer Satisfaction
5.2 Supplier loyalty
5.3 Response to customers
5.4 Frequency of contact
5.5 Product knowledge
5.6 Ability to solve a problem
5.7 Professionalism
5.8 Trade-offs

6. Conclusions
6.1 CRM is valid
6.2 Price matters, but is not everything
6.3 Loyalty is rare
6.4 Professionalism still counts for something
6.5 Lines of communication are important

7. Limitations
7.1 Human Error
7.2 Population limitations
7.3 Limits of research
7.4 Limits of literature

8. Recommendations
8.1 Development of CRM standards
8.2 Learn to solve problems
8.3 Embrace technology
8.4 Become professionals
8.5 Monitor satisfaction of customers
8.6 Play by the rules
8.7 Closing thought

9. Bibliography

Appendix A: Survey covering letter, Questionnaire

Appendix B: Company Data

Appendix C: Automotive industry background material

ACKNOWLEDGEMENTS

First of all I would like to express my greatest thanks to my partner in life Charlotte and my two children Katharina and Caroline for their motivation, understanding and unbelievable patience during the course of the MBA program. It is appropriate in this place to acknowledge the support of my employer, Company Y, who sponsored the MBA program . I would like to take this opportunity to thank Company Y for giving me the opportunity to enlarge my academic horizon. I am also very grateful to Susanne and Paul from the Business Academy for their commitment, encouragement and valuable assistance during the studies. Finally I wish to thank my American friend Richard for proofreading this text.

ABOUT THE AUTHOR

The author is 40 years old and holds a university degree in automotive engineering. Being born and educated in Germany the author lived for several years in France and in the UK working in different positions in the automotive industry. In 1998 the author moved to Germany and worked since then for Company Y, first as Key Account Manager and for the last 2 years as Sales Manager being responsible for sales to automotive customers.

ABSTRACT

‘’Customer Relationship Marketing is an old idea practiced by mom and pop stores and salespeople’’ ( Philip Kotler, 2002)

The purpose of this dissertation is to investigate the importance of customer relationship management (CRM) in a specific industry for a specific company. More precisely, this work will explore the automotive supplier industry; and within that industry, the company Y will be analysed, discussed and explored. Y is a supplier of aluminium tubes and aluminium profiles to the global automotive industry with production base in Germany. The author has worked in the sales department of Y for 8 years and his professional experience will be inevitably reflected in this work. The research will encompass several key areas in an effort to present a multi-perspective work, including best practices, an overview of CRM, and key factors of success as well as an automotive industry survey that the author administered, documented and integrated into this dissertation to add an element from the real business world to the research.

First, a broad overview of relevant CRM theories and their meaning will be presented in order to set the stage for a discussion of Y as a specific competitor in the automotive supplier industry and to facilitate realistic and effective comparison and contrast between industry trends and the chosen company in particular.

Following the CRM theory overview, differences between business-to-business and business-to-consumer markets will be differentiated for a complete understanding of these two distinct segments of the industry. Success factors within CRM will be presented, together with the limitations and problems associated with the application of CRM. After that supplementing theories beyond CRM will be identified and discussed.

A literature review will be included to add substance and relevance to the research.

In the second part of this dissertation, a survey will be presented that the author composed and administered towards Y’s business-to-business automotive customers. After the survey and methodology is discussed, an analysis of the results of the survey will be discussed and graphically represented, bringing the paper full circle and representing real-world, current and relevant experiences, attitudes and comments. Based upon the results, interpretation will evolve into fact-based conclusions, and recommendations, all within the scope of the limitations that the author also will identify and reveal in order to give the readers of the research an accurate representation of possible limits in the research. In brief, the author aims to blend relevant literature, real-life industry experiences and a survey of current industry attitudes and opinions to provide a full-bodied, comprehensive work of effective research. Moreover, the author hopes to make a meaningful contribution to the body of research on the topic and inspire additional exploration of this fascinating topic.

1. INTRODUCTION

The advances that society in general has made since the dawn of the Industrial Revolution have been nothing short of miraculous. Technologies and inventions that were once seen as little more than the stuff of science fiction stories- space travel, the automobile, computers, telephones and much more- have become integral parts of everyday life and especially the world of business. Innovation and invention has led to intense demand for millions of different products, and modern communication and transportation methods have both made these goods readily available and created a mega marketplace where items from anywhere in the world can be had at the push of a button, or more precisely, the click of a computer mouse. Businesses and individuals can compare prices, availability and quality in Germany as easily as in India.

An industry that has seen tremendous growth in the 20th century, innovation and competition is the automotive industry. Because of the afore mentioned advances in communications and logistics, automobiles can be assembled of components from every corner of the world in one centralized location due to sophisticated purchasing and logistical systems that facilitate rapid purchase and delivery of goods at precisely the moment needed . Ever increasing competition in the automotive industry, combined with the advances in manufacturing techniques has led to a highly volatile market for automotive suppliers. First, the precise nature of car manufacturing requires strict adherence to the specifications for a given supply item, as well as the demand that supplies be in the hands of the customer as quickly as possible. Along with the requirements for perfect quality and rapid delivery, because of the intense pressure that carmakers feel to stay ahead of the competition and make every Euro count, suppliers are subject to tremendous pressure to keep pricing low. The globalisation of automobile manufacturing has compounded this pressure considerably.

Automotive suppliers have additional obstacles to overcome beyond the pressures of pricing, quality and delivery. Due to the dynamic and evolutionary nature of the automotive industry, which is further complicated by globalisation, the products that the suppliers output are held to extremely high standards of continuous quality, virtually immediate delivery, and a short product life style due to the continuous developments in technology and the customers demand for new car models. In the past, many industries operated on the unwritten rule that “people don’t buy products; people buy people”. In other words, business in the past was conducted through interpersonal relationships, business deals on a handshake, and a familiar business atmosphere. In the present day, the international flavour of the automotive industry, the fast pace of the industry that has a great deal of new entries and quick exits, and a great deal of business being conducted online, has removed a lot of the interpersonal elements from the industry, making other criteria more important.

The Internet has changed the way that original equipment manufacturers, or OEMs, in the automobile industry purchase parts and components. Because pricing, availability and product specifications are accessible instantly, it is extremely easier for buyers to change suppliers without having to engage in any direct communication with either the former or the new supplier. Conducting online transactions has also lent itself to the development of a way of doing business that has very little to do with interaction between people. Through the use of the latest computerized technology, borders between languages, cultures and physical geography are vanished with the click of a few computer keys. Therefore, OEMs are not forced to do business strictly with domestic suppliers because of a common language and the ability to deliver product quickly. Logistics and communication advances have made buying from across the globe as easy as buying locally. All of this leads to an erosion of customer loyalty and the ability to seek lower priced options obviously without much consequence for the buyer.

With the removal of customer loyalty, ties to country or a certain supplier from the automotive supply industry, OEMs find themselves in an enviable position. They can choose from a wide variety of suppliers instantaneously, demand low prices, high quality and rapid delivery, and be accommodated, so that the supplier who is fortunate enough to have a given customer could lose that customer in an instant. This applies both to the business-to-business customer as well as the business-to-consumer customer. Individuals, as well as companies, can choose their automotive supplies from a source literally anywhere on earth and eventually find the level of quality and price that they desire to the letter. Business-to-business, the common availability of pricing information for automotive supplies makes it virtually impossible for a given supplier to justify a price that is higher than other suppliers. Again, the element of human relationships is removed from the equation by the impersonal nature of e-commerce, which is the most effective way for dynamic organizations to purchase what is in many cases a high quantity item that does not allow for extensive decision making and vendor evaluation. Therefore, suppliers must find ways to be able to survive long term, such as effective management of customer relationships, giving birth to the concepts of CRM.

Especially because of the new way that OEMs are doing business with suppliers, the concepts, and effective implementation of CRM are relevant and vitally important for the extended success of suppliers. Both in the case of businesses buying from businesses and individual consumers buying from companies, those companies need to come to terms with the fact that the “old way” of doing business is no longer acceptable and is ineffective if any kind of viable strategy is to be developed. In order to do this, best practices can be researched and analysed within CRM for the automotive supply industry, as well as the specific history and actions of an individual company. This is not to say that CRM will be the only customer strategy to be considered or discussed. The important elements of customer service strategy that lie beyond CRM are significant, valuable, and will also be evaluated, discussed and presented as noteworthy and useful business strategy.

While the rules of the game of automotive manufacturing certainly have changed, and the game has become more complex does not mean that there are not opportunities present for a wide range of players. With the careful evaluation of CRM and beyond, The seemingly insurmountable obstacles of price pressure, intense quality demands, tight delivery schedules within an impersonal, automated service and sales process and foreign competition are still formidable, but realistic to overcome with the use of prudent CRM and other actions. Again, through the examples of previous strategy, the strategy of current industry leaders, and best practices within the industry as a whole, meaningful research can be constructed that will serve as a template for future research and implementation by other organizations to their benefit in the hopes of adding better options to an extremely intense business environment.

To round off this introduction, taking into account the information that was presented within the introduction; the author will now lay the groundwork for the subsequent sections of this work. Following this introduction, a review of relevant literature and valid theory will be presented to set the stage for the presentation of the customized survey, which was prepared, administered and the results interpreted for this work. The interpretation will be enhanced by graphic representation of the results of the survey, and from these results, conclusions based on actual inquiries will be derived.

The goals that the author hopes to accomplish are multi-dimensional, yet based in common sense. First, the author hopes to inform even the casual reader on the past, present, and future of CRM and beyond. Additionally, the author hopes to lend some order and ground rules to what is largely a chaotic industry with little loyalty, virtually no tolerance for error, and the omnipresent pressure to offer everything at a lower price, higher quality and faster delivery. If the successes of the past and present can be evaluated so that a solid roadmap for the future can be drawn, this research will take on additional relevance. The author also has another consideration within the goals of this research. The Western European automotive industry enjoyed technological dominance in the global automotive world for many decades; however, as other nations emerged and developed industrial infrastructure, in particular South Korea, China and India , they began to offer lower priced alternatives to European OEM’s. In an industry as price sensitive as the automotive supply industry, European suppliers are increasingly ignored in favour of lower priced foreign options. When the Internet became a buying tool for individuals as well as businesses, the problem compounded. The ensuing loss of revenues and in particular the loss of jobs, e.g. in Germany where more than 10% of all jobs are linked directly or indirectly to the automotive industry, are very disconcerting to the author. Therefore every effort will be made to incorporate into the research useful advice that automotive suppliers can use to regain some of the market share that has slowly but surely eroded at the hands of foreign sources for the recent years. In this sense, the research can change business strategies and even save jobs. With these objectives in mind, a thorough review of relevant literature follows this introduction.

2. LITERATURE REVIEW AND BACKGROUND

2.1. Overview of CRM theories

‘CRM’ is a popular catchword in marketing literature as well as in companies’ discussions regarding marketing strategies. However, the abbreviation can stand for different wordings, i.e. Customer Relationship Management or Customer Relations Marketing or Customer Resource Marketing, The author has decided to refer to the first named designation, since it appears to be best matching to the business-to-business industry and furthermore it is the most used designation in the literature referred to herein. The theory of Customer Relationship Management, or CRM, is liberally passed about in business discussion, marketing plans and the like, but it is the authors impression that only few organizations in the automotive supply industry have taken the time to accurately define the term and decide where it fits into their customer service and sales strategy. Obviously some companies regard CRM simply as a marketing tool to increase their revenues and profits.

One accurate definition of CRM is the process of building mutually beneficial relationships with customers by developing an understanding of the customers needs and offering products/services to surpass their expectations¹. Simply stated, this definition incorporates the two important elements of customer relations and marketing by learning what customers are willing to pay for and providing it to them. In theory, this definition could be expanded to include the “value adds” of a given product such as excellent customer service, rapid delivery, flexible payment terms and so forth. Although customers are typically not willing to pay extra for value adds, their availability often drives the customer to choose one alternative over another of equal price because of the perception of the increased value. Something certainly needs to be said about real value versus perceived value and utility. Real value is universally understood to be the price that a given good or service can attain on the open market, while perceived value is additional value that is added to the good or service through value adds, clever marketing, etc².

Utility also adds value through the positive attributes that come through a given product or service. Although perceived value is intangible and utility is frequently so as well, these are important elements that aid in effective CRM. By being able to appeal to the needs of the customer based upon what they value or need, the firm creates demand for what they are offering and move ahead of the competition, which is CRM personified. Many industries, hampered by unending pressure to lower prices, increased domestic and foreign competition, and increasing operating costs, have realized the value of effective CRM to ensure the long term success of their given firm. This is an especially valid point when considering the specific industry of automotive supplies, which has its own unique requirements and standard operating procedures that are interesting to examine within the scope of the theory and practice of CRM.

Philip Kotler spans a bridge from brand value to the customer relationship dimension. He phrases his view on CRM as follows³: Relationship equity is the customer’s tendency to stick with the brand, above and beyond objective and subjective assessments of its worth. Kotler herewith equates the customer relationship with customer loyalty and underlines at the same time the irrational side in the customers buying decision B. Donaldson incorporates the practical element in his approach to the subject of CRM. Although he argues that the most important assert a company has is its relationship with its customers, are the buyer -seller interactions somewhat unique and unpredictable. He explains that building relationships with customers can provide significant competitive advantage for a supplier. This is easy to say but difficult to practice. Long-term relationships need, among other things, close and direct contact between the supplier and the customers. The contrasting of relational forms based on trust and commitment is displayed in the following table⁴:

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.1.a: Relational forms based on trust and commitment

This model is quite relevant in this context because automotive suppliers typically experience the dominant or hierarchical relationship. The weaker partner faces a situation of low trust and high commitment, due to the dominant buying power of the OEM. The target is the high trust/ high commitment situation, which is characterised by a bilateral relationship. With reference to Donaldson the author will in the course of this project try to proof in which quadrant Y is currently situated.

D.Jobber has provided another in the context of the chosen company relevant definition of CRM. He argues that the basic principle behind CRM is that company staff has a single-customer point of view of each client⁵. However, he continues, CRM is much more than simply the technology. The QCI customer management model which is shown in figure 2.1.b below provides a comprehensive model of the CRM process. Companies to understand how well they are managing their customers can use this model.

In this approach technology forms the foundation for the model. However the success rate of CRM programs has been mixed. On problem has been the focus on technology without equal or more attention being given to the softer factors like people and organization. Some observers estimate that technology contributes only with 20% to the success.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.1.b: The QCI customer management model

M.Bruhn worked out the importance of CRM for the company’s strategic direction: He argues that the fundamental role of relationship management is to identify the primary thrust for the initiation, build-up, and intensification of customer relationships. In doing this, it is necessary to establish the company’s general strategic direction and to assess the options for any special focus for relationship management⁶.

The following general requirements must be put into effect when developing the CRM strategies, such that they fulfil their function as a global action plan.

- Ability to depict the directions for achieving the scheduled targets
- Ability to simultaneously identify the market and customers segments to be processed and those not to be processed based on the success chain
- Setting up a channelled application of the methods as well as targeted control of the application of instruments in various phases of the CRM life cycle
- High lightening the consequences resulting from the strategies laid down in terms of the methods used, the oprganisation, and the personnel
- Ability to verify target achievement over time on the basis of appropriate indicators within relationship marketing’s success chain Bruhn herewith provides an extensive layout for companies customer strategies, however based on from the author’s own experience and knowledge about automotive suppliers it is doubted at this point that many companies apply such extensive strategic measures nor have a detailed CRM strategy formulated in their overall business strategy.

2.2. Limitations to CRM

D.Peppers and M.Rogers argue that organisations will rise and fall on the basis of their abilities to cultivate one-to-one relationships with their customers⁷. On the other side it must be verified what the risks or dangers of implementing CRM systems are, since failures of CRM initiatives and implementations have been reported. A study by CRM-Forum has investigated the reasons for failures⁸.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.2.a: Reason of failures for CRM initiatives

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¹ Gronroos, Christian (1983), “Strategic Management and Marketing in the Service Sector”, Cambridge, MA: Marketing Science Institute.

² Cooper, Philip D. and Ralph W. Jackson (1988), "Applying a Services Marketing Orientation to the Industrial Services Sector," Journal of Services Marketing, 2 (4), 67-70.

³ Philip Kotler ( 2002), “Bauer sro Seminars”, Prague CZ, 25.03.2002

⁴ Bill Donaldson (1998) , “Sales Management, Theory and Practice”, 2nd Edition, PalgraveMcMillan

⁵ David Jobber (2004), “Principle and Practice of Marketing”, 4th Edition, McGraw Hill

⁶ Manfred Bruhn (2003) “Relationship marketing, Management of Customer Relationships”, Prentice Hall

⁷ D.Peppers&M.Rogers(2001), “CRM strategies for the real economy”, Double Day,

⁸ Frederick Newell(2003) , “Why CRM doesn’t work”, Kogan Page