Customer relationship management Essay Example for Free

Customer relationship management Essay Abstract Purpose – This paper aims to provide insights into the development and management of a customer community, informing product innovation and engaging customers in co-creation of a consumption experience. Design/methodology/approach – A review of the state of current knowledge about co-production, co-creation and customer communities is followed by discussion of the case study methodology. The case history of a leading player in the UK and international â€Å"sportkiting† market focuses on product innovation and customer-community development. Discussion re? ects in more detail on the lessons from the case for application of the principles in practice. Findings – The case company’s innovative product development strategy provides the catalyst for co-creation of a customer experience. Its marketing actions extend beyond product development and innovation to actively co-creating experiences with customers, fostering a sense of community among users, facilitating communication within that community, acting on the feedback, and continuously developing and maintaining the community relationship. Research limitations/implications – The company’s marketing strategy can be summed up as â€Å"customer community leadership†. This paradigm proposes a new role for businesses in sectors where there is a potential to develop and engage communities. It provides a context for the effective facilitation of customer knowledge management, within which marketing intelligence plays a signi? cant role. The ? ndings offer scope for further research into the nature of this phenomenon and its relevance to co-creation in other industry sectors, and into numerous aspects of the processes and impacts associated with customer communities. Originality/value – The case contributes to the literature of co-creation, demonstrating how it has been achieved through a marketing strategy and marketing mix in a particular customer community. Keywords Customer relations, Innovation, Relationship marketing, Leadership Paper type Case study Marketing Intelligence Planning Vol. 25 No. 2, 2007 pp. 136-146 q Emerald Group Publishing Limited 0263-4503 DOI 10. 1108/02634500710737924 Introduction. The increased complexity, globalization and knowledge-intensity of marketplaces require all businesses to make better use of their technological, organizational and marketing competences in order to survive. Contemporary organizations in highly competitive and highly innovative markets must be able to build market share quickly, by delivering fast, high quality, innovative solutions. The changing organisational environment has driven interest in organisational learning and knowledge management (Drucker, 1993; Prusak, 1997). Many studies have con? rmed customer knowledge as one of the most important knowledge bases for an organisation (Bennett and Gabriel, 1999; Chase, 1997), and there is a considerable interest in the potential of â€Å"co-production† and â€Å"co-creation† either individually or in community contexts, to enhance innovation and business performance (Gibbert et al. , 2002). Focus on the engagement of customers in organizational learning, innovation and knowledge processes heralds the dawn of a new paradigm of marketing intelligence in  which data and information are not simply gathered into databases and distilled to inform management decision making, but rather marketing intelligence is embedded in dynamic co-creation processes that involve customers as partners rather than subjects. Through a case study analysis and critique of a leading manufacturer of kiteboarding equipment, this paper seeks to provide insights into the engagement and management of a customer community, to inform product innovation and to engage customers in co-creation of a sporting experience. The case contributes to the literature of co-creation and speci?cally to the way in which communities can be enlisted in the co-creation of experiences. It begins with a literature review, outlining the state of current knowledge on co-production and co-creation and on customer communities, followed by a description of the case study methodology. A pro? le of the company, with particular reference to its product development and community development follows leads to re? ection in detail on the contribution from this case. Finally, conclusions and recommendations provide a summary of the issues. The concept of â€Å"customer community leadership† is proposed, and agendas for further research identi? ed. Literature review This section draws together current knowledge on two key themes: co-creation, or co-production, and customer communities. Research on both of these themes ? ts broadly within the paradigm or philosophy of relationship marketing. As the main plank of a marketing strategy, relationship marketing aims to build long term, mutually satisfying relations with customers, suppliers and distributors with the key objective of earning and retaining their long-term preference, loyalty and business (Foss and Stone, 2001; Peck et al., 1999; Buttle, 1996; Massey et al. , 2001). In discussing the absence of a consensus on the term relationship marketing, and on the appropriateness of the term, other authors have suggested that a focus on interactions and networks of interactions between businesses and their customers might be more meaningful (Healy et al. , 2001; Zoliewski, 2004). The concepts of co-production and customer communities both focus on interactions. Communities, in particular, involve networks of interactions. The theme of interaction between customers and organizations in product and service innovation is developed in the literature on co-production. Prahalad and Ramaswamy (2000) suggest that companies have to recognise that the customer is becoming a partner in creating value, and need to learn how to harness customer competences. One aspect of this will be the engagement of customers in co-creating personal experiences. The body of work on co-creation and co-production has grown in recent years. Kristensson et al. (2004) have examined the bene? Ts of involving users in suggesting new product ideas, ? nding that ordinary users created signi? cantly more original and valuable ideas than professional developers, whilst professional developers and advanced users created more easily reliable ideas. At a more modest level of customer engagement, Salomo et al. (2003) found that customer orientation in innovation projects (not necessarily, in this case, customer engagement) had a positive in? uence on NPD success and that the impact increased with the degree of product innovativeness. Similarly, Hsieh and Chen (2005) showed that new product development performance can be enhanced by interacting with users, and capitalising on user-knowledge management competences. Matthing et al. (2004) suggest that the Customer community and co-creation 137 MIP 25,2 138 value of customer involvement in new service development resides in the opportunity to facilitate proactive learning about the customer, and to understand and anticipate latent customer needs. Lilien et al. (2002) suggest that user contribution to the idea generation process is optimised through the careful selection of â€Å"lead users† to participate in the process. Dahlsten (2004) discusses customer involvement in the case of a product development project at Volvo Cars, which allowed the project management team to acquire an understanding of the customer through â€Å"customer presence†. A study comparing the sources of product and process innovation in large and small technology-based ? rms found that product developers in SMEs valued customers, co-workers, marketing and journals more highly, whilst suppliers were particularly valued by large ? rms (Bommer and Jalajas, 2004). Co-creation might be viewed as an aspect of customer-knowledge competence, the processes that generate knowledge about speci? c customers (Campbell, 2003). Gibbert et al. (2002, p. 460) describe customer knowledge management as a process in which organisations seek to â€Å"know what their customers know† and de? ne it as: . . . the strategic process by which cutting-edge companies emancipate their customers from passive recipients of products and services, to empowerment as knowledge partners. CKM is about gaining, sharing, and expanding the knowledge residing in customers, to both customer and corporate bene? It is thus concerned with an understanding of how to elicit and leverage knowledge from customers. Their emphasis on interacting with customers and co-production, extending to co-learning, lifts the focus from collecting data and information in order to learn about customers to learn with customers. They discuss ? ve different styles of customer knowledge management, including â€Å"prosumerism† where the customer acts as co-producer, and â€Å"communities of creation† in which groups of people work together, have shared interests, and want to jointly create and share knowledge. The focus of co-production research is often on product innovation and new product development, with some contributions relating to service development (Matthing et al. , 2004). However, Prahalad and Ramaswamy (2003), suggest a future in which the locus of innovation and co-production will shift from products and services to â€Å"experience environments†. This suggestion aligns with other proposals that the â€Å"experience marketing† era is on the horizon, and that it is becoming increasingly important for businesses to respond to the needs of the experience consumer (Li and Wei, 2004). Co-creation may take place in the context of customer communities. There is a considerable literature on customer clubs (Butscher, 2002; Gustafsson et al. , 2004; Stauss et al. , 2001) and loyalty schemes (Bolton et al. , 2000; Mauri, 2003; Passingham, 1998; Worthington, 2000). Only a small sub-group of such clubs and schemes can properly be described as customer communities, however, which should at the very least exhibit C2C interaction. To convincingly justify the use of â€Å"community† they should furthermore share a culture with norms, values and identity, and mutual interests and objectives. Fan clubs, interest clubs, and software user groups may constitute customer communities. Butscher (2002) identi? es the Kawasaki Riders Club, The Volkswagen Club, and Swatch The Club as examples which might be described as customer communities. On the other hand, loyalty schemes such as Tesco Clubcard, American Express, Airmiles, and Marriot Rewards are focussed on the B2C dimension of relationship marketing, and do little to cultivate or in? uence C2C interactions. Therefore, whilst they may be able to identify a relatively stable group of users, they have not created a community. One context in which there has been more discussion of customer communities is the virtual environment (Armstrong and Hagel, 1996). Some loyalty schemes use this channel to support C2C interaction. Virtual customer communities enable organizations to establish distributed innovation models that involve varied customer roles in new product development (Nambisan, 2002; Pitta and Fowler, 2005). Nambisan (2002) suggests that the design of virtual customer environments needs to consider interaction patterns, knowledge creation, customer motivation, and integration of the virtual customer community with the new product development team. Dholakia et al. (2004) explore the impact of group norms and social identity on participation in consumer communities. The wider literature on virtual communities and their role in learning and knowledge creation is also substantial, and may have perspectives to offer on the role of virtual communities in innovation (Hall and Graham, 2004; Davenport and Hall, 2002; Wenger, 2000). In conclusion, the themes of co-creation and customer communities have been identi? ed as important in the literature, but there remains a scope for considerable further work, speci?  cally relating to: . co-creation of experiences; Customer communities that exist in both physical and virtual space; and . the mechanisms and processes through which organizations can engage customer communities, as opposed to individual members of those communities, in co-creation. Methodology Case studies are a valuable way of looking at the world around us, and asking how or why questions (Yin, 1994). The case study design adopted in this paper may be described as a holistic single case design. Typically, single case designs are appropriate when the exercise has something special to reveal that might act as a point of departure for challenging received wisdom, prior theoretical perspectives and untested assumptions. A specialist in sporting kite technology was chosen as the basis for the case analysis in this paper for four reasons in particular, as follows: (1) The stated mission of Flexifoil International is to: â€Å"provide our customers with the ultimate Kitesports experience† (www.? exifoil. com/company). (2) Flexifoil has been consistently committed to product innovation. (3) Flexifoil works with customers and proactively builds customer communities to support customer engagement in co-creation of the kiting experience. (4) The active and extensive participation of one of the authors in the kiting community formed the basis for an in-depth understanding of the community building and co-creation processes observed. Company pro? le: Flexifoil International Through product innovation, the company seeks to design and develop the highest performance products, with new designs and products that support new kite-based Customer community and co-creation 139 MIP. 25,2 sporting experiences and events. Flexifoil build both their own customer community and the kite boarding community in general through customer service, distribution networks, sponsorship and promotion of the sports for which their products are used. They provide opportunities for the kite sporting community to interact, online and in other ways. Their community is thus built through B2B, C2B and C2C relationships and channels. 140 Product development Until the early 1970s, a kite had for hundreds of years been a piece of fabric controlled with one or two lines, designed to be hand-?own in windy conditions. What is now Flexifoil International started when two English university students effectively â€Å"invented† the two-line power kite by producing the ? rst to be sold commercially. Two larger kites with the evocative names â€Å"Pro Team 8† and â€Å"Super 10† established Flexifoil’s market position, and enabled the company to enter upon a period of innovation and experimentation that explored a range of different potential applications for power kites. Some of their innovations were successful, others less so, such as three-wheeled buggies designed to be pulled by a power kite or traction kite. The successful developments in materials and design technology by Flexifoil and its followers allowed this basic product to support today such diverse activities as kite boarding (water-based), snow kiting, kite land boarding, buggying, recreational power kiting, and sportkiting (â€Å"traditional† kiting). The company’s own product range now comprises: power kites, recreational kites, traction kites, and water re-launchable kites; buggies and boards; lines and control gear; and miscellaneous accessories such as clothing. Following the launch of a web site, with associated forums in which enthusiasts could meet and exchange ideas, Flexifoil’s sales increased by around 25 per cent each year between 1999 and 2004. Innovation continued, with the development of water-based kiting or kitesur? ng, and later kites for land boarding and snow kiting. Over the last thirty years, the company had thus effectively created a market, and maintained leadership in its particular niche, by means not only of product innovation but also engagement with and cultivation of a power-boarding community. Community development Distribution. The community development process begins with the company’s distribution network of authorised retail outlets. Initially, those were mainly windsur? ng and sur? ng shops, but more recently specialised kiting shops have entered the market. Signi? cantly for Flexifoil, some of those have developed into â€Å"kitesports centres† where customers can â€Å"? y before they buy†. At three Premier Kite Sports Centres, the most comprehensive Flexifoil range is available for trial in an environment characterised by knowledgeable staff and extensive facilities in a good location; activity training is also on offer. A smaller range of Flexifoil kites is sold through high street shops. The company also moves the product to market through training schools, academies and university kite clubs, to whom equipment is available at discounted rates or even free of charge if the outlet becomes an of? cial Flexifoil training centre. In addition to these bricks-and-mortar outlets, the company transacts a signi? cant proportion of its retail sales through internet distributors. It also sells spare parts,  branded clothing and a selection of promotional merchandise via Flexifoildirect. com, but restricts distribution of core products to distributors who can offer a full after-sales service. The objective of the company’s distribution strategy is to build, support and maintain an effective customer community. Promotion and marketing communication. The main platform of Flexifoil’s promotional programme is to communicate their commitment to after-sales support, and their ambition to maintain good relationships with both customers and dealer outlets. This strategy, in turn, generates positive word-of-mouth communication, and often act as a channel for customer feedback that can inform future product innovation and development. In pursuit of that objective, Flexifoil make extensive use of specialised advertising media, including every kite magazine in circulation, often running double-page spreads. A branded display stand for Flexifoil product catalogues is distributed to every dealer. To keep the brand at the centre of the kitesporting world, the company sponsors a team of kite boarders who compete around the world. The promotional mix thus embraces advertising, publicity, sales promotion and point-of-sale. Flexifoil furthermore use their web site and its forums proactively to develop the UK kiting community, especially pre-launch. Previews of new kites provoke discussion in the forums, and a level of interest that builds up over months of anticipation and typically generates high sales volumes immediately on the release of the product. This online communication channel brings customers together to exchange experiences, and sell equipment to each other. The company lays claim to the largest online kiting community, of nearly 7,000 members. The variety of forums available to its members specialise in the full range of sportkiting activities. The clear aim of the marketing communications strategy is, like the distribution strategy, to create a community of interest rather than one based simply on transaction. Discussion This discussion will draw out two themes from the case study analysis: co-creation, and customer communities. The study contributes a perspective on the co-creation of experiences, which  is a central element in the emerging paradigm of experience marketing. By continuing engagement with their customer community, the subject company has been able not only to gather feedback on the experiences associated with the use of its products, but also to add to them by offering opportunities, in both the real and virtual environments for customer to enjoy interactions with others who share their interests. It monitors and enhances the experience through the same channels. Whilst product innovation is stepwise, the dialogue and interaction with customers on which that innovation is based is continuous. This is not â€Å"co-production† in the sense that the term is used in new product development contexts, but rather in the service context, where the term refers to the fact that customers have a hand in the development of their own service experience. Nevertheless, experience â€Å"co-creation† in this case, embeds product innovation. The impact of this approach to co-creation is dif? cult to disentangle from the impact of other business and marketing actions. The signi? cant increase in sales in the years since the launch of the web site could be taken as one indicator, but it  Customer community and co-creation 141 MIP 25,2 142 is important to acknowledge the spiral nature of the community creation process. This increase in sales will have expanded the community, and probably also have intensi? ed customers’ engagement with the experiences that community members co-create with the company. The case also contributes some insights on the nature of customer communities. Though the company does ask customers to register their product and thereby collects personal contact details, it does not operate a customer community, club or loyalty scheme. Rather, the innovative and interesting products act as a catalyst for community creation through the medium of the â€Å"experiences† they deliver. The customer community comprises those who have participated in those experiences, enjoyed them, and wish to develop the interaction. Customers work in partnership with the company to build excitement and develop skill, and by sharing the experiences with others, add to the totality of the customer community. The company has taken a number of actions to facilitate this process, including working with distributors, sponsorship, engagement in events, training courses, and an interactive web site. Speci? cally, their approach to communication with their customers is sophisticated. The common view of marketing communications as a one-way transmission is replaced by a marketing communications strategy designed to build and reinforce the company’s position as a leader of a community. Traditional channels such as advertising, sponsorship, and even brand building are only elements in a complex web or network of marketing communications activities, involving C2C and B2B as well as B2C relationships. The company communicates directly with its customers, but also provides contexts which encourage them to â€Å"talk† among themselves. In addition, the marketing communications effort is â€Å"pushed† through distributors, not just in terms of the traditional advertising and branding, but also through the selection of distributors that can offer appropriate support and advice. These actors in the system have a role in welcoming new members into the community. They are supported in doing so by the existing on-line community, and various company-sponsored events at which members are encouraged to gather. The customer community has built gradually as the business has grown. As new products have been added to the product range to support new sports, new sub-communities have formed around them. The process of community development goes hand in hand with product development. Conclusions and recommendations The entrepreneurs behind Flexifoil International have simultaneously created a sport, and an associated sporting community. The company is clear that its mission as not simply to develop and distribute the best products but rather to deliver the most exciting kiting experience. This case study has demonstrates that the entire marketing mix is focussed not on transactions, or even relationship building, but rather on community creation. That community includes both consumers and dealers. Product innovation, distribution and promotion are tightly coupled with community creation. Community building is not just about increasing membership, or even about the engagement of members with the community, but focuses on the creation of a level of mutuality in which there is ongoing dialogue between community members and the company. Flexifoil has neither annexed an existing community, nor do they â€Å"own† one, although they do manage a virtual space through which the community can interact. Rather, their product innovation and the experiences that their product range provides have the potential to act as the catalyst for the community, whilst sponsorship, engagement in events, and the virtual space all facilitate the enhancement of the experience for community members. Other companies compete with Flexifoil for leadership of the power kiting community, both rival manufacturers and others keen to enhance the sportkiting experience. Many of these have web sites through which they seek to capture an online community. For example, one casts itself as â€Å"the kite ? yer’s portal to the internet† offering links to kite manufacturers and kite stores in the USA and Canada, to other power kiting web sites, to other kite ? yer sites, kite teams and clubs, and to magazines and newsgroups. Another claims to be â€Å"the online community that brings ? yers together† and a third promotes itself as â€Å"the internet magazine for kiters†. All offer different services and bene? ts to their customers, but for some, their engagement with the sport kiting community will be restricted to virtual space. Though Flexifoil has a strong brand presence as a manufacturer, it needs to encourage members to participate with it in â€Å"co-creation† if it is to deliver on its mission of providing customers with the ultimate kite sports experience. The approach to marketing strategy described in this case study can aptly be described as customer community leadership. By leading the sport kiting community, but not owning it, Flexifoil has created a community that will buy their products, co-create kiting experiences, provide insights that can inform innovation in the product, the experience and the community innovation, look forward to the next product release, and mutually enhance community members’ experiences of the company’s products and services. Embedded in this approach to community leadership are a number of more traditional marketing actions, such as new product development, advertising, and commitment to after-sales support. The distribution channels are designed to offer the support and training that is likely to enhance sport kiting experiences, but also to build relationships with dealers, and to bring sports kiters together. This is supplemented by opportunities for interaction in virtual space. Community development is achieved through a network of relationship-building actions, at the heart of which are enjoyable and shareable sports kiting experiences. Through community leadership, the company has created a context in which customers are thus from being passive recipients of products and services, and empowered as knowledge partners (Gibbert et al., 2002). In other words, it has thereby created a context that facilitates the processes of customer knowledge management. This is an approach to marketing intelligence and decision making embedded in dynamic co-creation processes that involve customers as partners. It is worth noting that the term â€Å"customer community leadership† can have two different meanings in practice. First, it may mean leadership of a community, in the sense of making it work, setting its direction, and participating in the shaping of experiences of community members. In this context, the focus is on factors such as member engagement, culture, norms, identity and community viability, in terms of the value delivered to all parties. Second, it can describe an avenue to market leadership, in which the business performance of an organisation over the longer term is de? ned and determined by the extent to which its leadership of a community of potential customers, or its power and capacity to lead, is greater than that of its competitors. Customer community and co-creation 143 MIP 25,2 144 In taking the development of the concept of customer community leadership forward, it will be important to explore the different styles and approaches that are and can be adopted by different ? rms and organizations. Given that another essential of successful leadership is followers, an important phenomenon for further study is the nature of â€Å"followership† in this context. This case study has focussed on the actions and strategies adopted by one business to build and bene? t from a customer community and to engage customers in the co-creation of an experience. In addition, it has demonstrated how both online and real-world communities can be enlisted to contribute to building the experience. There is a scope for considerable further study of the processes associated with the co-creation of the experience, and the details of how communities operate. Such research needs both to cover a wider range of organizations and business sectors, and to examine in more detail aspects of communities, co-creation and customer knowledge management. Some potential areas of investigation are: . Perceptions and views of different stakeholders as to the impact of the community and the contributions of different parties in the co-creation of the experience. . The pro? le of such customer communities in terms of loyalty, retention and customer lifetime value, including comparisons between online and real-world communities. . Community processes, including models of key processes of in? uence, knowledge and learning, identi? cation and role of â€Å"node† members, and the role of celebrity voices and endorsement. . The marketing actions that contribute to the cultivation of effective co-creation communities. References Armstrong, A. G. and Hagel, J. (1996), â€Å"The real value of online communities†, Harvard Business Review, Vol. 74, pp. 134-40. Bennett, R. and Gabriel, H. I. (1999), â€Å"Organisational factors and knowledge management within large marketing departments: an empirical study†, Journal of Knowledge Management, Vol. 3 No. 3, pp. 212-25. Bolton, R. N. , Kannan, P. K. and Bramlett, M. D. 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