Guest blogger:
Robin Wensley, Professor of Strategic Marketing at The Open University Business School

From a Marketing Strategy perspective there are probably two main areas in which digital disruption is most severe; the changing nature of business models and the ways in which the relationship between customers and suppliers is changing.

In the case of business models, there was initially much emphasis on so-called disintermediation in which it was seen as inevitable that digital technology would allow producers to go more directly to their final customers and eliminate various intermediaries in the value or supply chain.  However, in an echo of much earlier developments in marketing, an opportunity for new intermediaries also arose. Just as in earlier stages in market development it had become clear that end-customers responded positively to branding of products and services which helped inspire trust and confidence, so the same has happened in the digital age. However, such intermediaries have had to configure their offerings in a different manner since, for instance, physical distribution of products is undertaken by independent suppliers (also of course an evolving market itself) whilst the intermediary can perform the traditional retailing role of “matching and sorting”, often with a particular emphasis on trustworthiness, quality and popularity.

Therefore not only have there been new opportunities for intermediaries but also critical strategic questions for existing suppliers such as how far they co-operate, collaborate or compete with such so-called comparison sites, and also whether their current business models with a portfolio of particular assets will be sustainable in the new market environment. On top of these issues is the new regulatory concern that in some cases too much market power may end-up with some of the new intermediary organisations. Perhaps not surprisingly one thoughtful article on this issue is to be found in a PC magazine under the headline “Are the Tech Giants crushing consumer choice?”[1]

Alongside such developments has been the evolving change in the series of activities which were previously encoded as CRM- Customer Relationship Management. In fact “Relationship Management” was always a misnomer since it implied a non-interactive data driven one-sided way of relating, or even less, engaging with customers. Along the way it spawned loyalty cards – loyalty to whom we might add – and in attempting to corral the rapidly developing domain of social networking – a notion of so-called viral marketing. In the latter case the development of the overall analogy was rather misguided itself: virus management in medical terms is hardly a simple activity.

Not very surprisingly Nicholas Webb recently commented:

“The Customer Relationship Management myth:

I know that I’m going to step on some toes here but Customer Relationship Management is a joke. Well, not completely a joke but highly overused and distracting to the heavy lifting required while trying to understand what customers really care about. Try coming home from work at the end of the day and reporting to your spouse that you decided to implement “Marital Relationship Management”, my guess is it wouldn’t have a very good outcome. Why? Relationships are not to be managed they are to be created, cherished and protected. Computers and spreadsheets do a lot of things extremely well. Understanding what customers really care about, I mean really care about isn’t one of them. One of the initial steps of the innovation process is what I call active observation. Active observation must be done by a human being not a computer or a spreadsheet. Some customer relationship management systems do a great job of identifying what customers care about. For example Amazon and iTunes grab data to identify various trends. So that when customers buy a book or music they can then recommend books and music during a transaction “Cross Selling”. This provides a benefit to the organization and to the customer, ah my favorite, a win-win scenario. But most people use CRM as a way to sit in a cubicle and look at customers one-dimensionally and that is a big mistake. The pitfall here is the over dependence of one-dimensional data that doesn’t speak to the belly of the customer. Yes, use customer relationship management but use it surgically and don’t allow it to create barriers between you and your valued customer.”[2]

Meanwhile digital technology has evolved to enable customers both singly and in groups to express their needs and frustrations with what they are offered rather than just being exposed to a rare market research exercise which even then was often very prescribed in terms of the questions asked.  Now they can speak directly, admittedly with a thousand often discordant and idiosyncratic comments but that is the nature of authentic customer feedback. Anyone who has trawled through TripAdvisor recognises the old adage that what is said often reveals more about the speaker than the object. However in marketing terms we need to recognise that the existence of such sites is likely to change the buying sequence for many customers.

Managing Market Risks

Partly related to the digital developments but also alongside it have been two other developments which suggest there needs to be more attention to particular areas of commercial and market risk. In many sectors there seems to be an increasing reliance on a limited or at least reducing number of brands. But bigger brands also mean a larger downside risk if brand reputation is diminished. Reputation takes a long time to build but can be “destroyed” by a minor incident. This therefore requires a continued emphasis on “right first time” and, particularly in the case of services “service recovery”. Both these principles have been widely appreciated in the Toyota Management System (TMS) approach but they don’t just apply to the manufacture of motor cars![3]

Linked to the trend to big brands is the still unresolved question as to how far markets are becoming global[4].  The trend towards global markets may still be under dispute but there seems little doubt that  supply chains are becoming more global and problems that might arise at an apparently remote organisation in the overall supply chain can quickly feedback to become major headaches for the brand itself.[5]

Hear Robin speak on this subject and add your perspective to the debate at the forthcoming Business Perspectives event.