Thursday, February 08, 2007

Customer Relationships: Fulfilling the Customer's Needs in a Medical Company

Introduction
Customer Relationship Management is one of the most popular issues in business nowadays. It is almost like a mantra. Unfortunately not everybody understands what this term means and what philosophy is hidden behind. It is important to realize and understand what is meant by relating with business organizations, especially from the customer’s perspective. The question is if every client wants to tie him/her with companies they purchase from. Companies should try to understand how the clients wish to relate to the firm. Some clients just purchase products/services but do not want to have stronger relations with those companies. The client is the one who decides what relationship should be established, if any at all. It is the client who controls the relationship. The company can only create a friendly environment for building, developing and retaining such relationship.

From a company perspective it is pretty logical that it wants to establish long term, positive relations with its clients, because it leads to a greater profitability . On the other hand the client wants a good service or product and may even will to interact and cooperate with a company to obtain what he/she wants. This may lead to a relationship with a company if it means better product or service; but firstly the clients must need something a company can deliver. I understand that in this perspective a relationship means facilitating the fulfillment of clients’ needs. The more the products / services are important for the client the greater possibility the client may want to establish a positive relationship with a company.

In this article I want to create the strategy of building the customer relationships for “Dent” Company.

General Information about “Dent” Company

Company „Dent” is a distributor of dental implantologic systems manufactured by the American Company „S” (exclusivity for Poland). „Dent” is tied also with the Swedish distributor of company „S”. The Swedish and the Polish distributors have their own production of prosthetic components that can be used together with the implants produced by competitors. It means that those companies have not only their own clients for implants but sell a lot of products to competitors' clients. The main competitors of „Dent” are global companies: „N”, „S”, „I”. They have been operating in Poland for at least 10 years. It means that „Dent”, with its own dental implant system, is very „young” on the Polish market.

Positioning: “Dent” in the eyes of the clients

We are seen exactly as we want to be seen: as market follower. Our company is considered as a dynamic organization that sales dental implants and prosthetic components compatible with other systems. Customers think of our products as of cheaper, but of good quality substitutes to expensive products of our competitors. They appreciate a few factors: lower prices, availability of many products in one company, fast delivery, and consignment offered to the biggest clinics, educated employees who are familiar with almost all dental implantologic products available in the market and can serve with advice; the staff never depreciates the products of competitors; the organization offers also educational programs addressed to dental professionals (dentists and dental technicians) known as ImplaDent Academy.

Summing up, our main strength lay mainly in a competent staff, vast range of products offered and prices. Our main weakness: we do not introduce too vast range of new innovative products. We prefer to check thoroughly all innovations before marketing them. Thus we are far behind the market leaders but we sell only safe products.

Market Segments

“Dent” company operates in three different segments: General Dentists, Specialized Dentists and Dental Technicians.

Segment
Total
(people)
A. General Dentists
20374
B. Professionals
Dental and maxillofacial surgeons
6112
Prosthodontists
2037
Periodontists
1000
Other
2234
C. Dental Technicians
45000

Each segment requires different approach and “treatment”

Problem Defined

I relate here to the theory called The Customer Relationship Pyramid[1], (see the appendices) proposed by professors of marketing at INSEAD, France. This theory relates to the way customer relations are handled by “Dent” company, though the company does it more intuitively and partly based on sociological psychology. The Customer Relationship Pyramid Theory may be compared to the Maslow’s Hierarchy of Needs (see the appendices).

Theory Operationalized

Due to limited length for this assignment I will present methods of building and retaining customer relationships only in one segment, Segment C (Dental Technicians and Dental Laboratories).

Segment C: Dental Technicians, shifting from level 1 to higher levels of relationship

Step 1: Utility

Customers’ portfolio of “Dent” shows that segment C (Dental Technicians) fall into the first level of the Customer Relationship Pyramid (Utility), when they start purchasing from that company. They simply want to purchase the products that are cheaper than originals, fit different implantologic systems and are always available. The customers are satisfied when they can buy what they want; when they want it for the price they would like to pay (we have no price competition in this segment). Those purchases are mainly rational; it is a simple exchange of goods and money.

The company can respond to the clients’ needs at this level but do not push any relationship. When this very simple “relationship” stabilizes at the basic, utilitarian level, there is a chance for deeper relationship (especially if they get additional service when in trouble; in such a specialized medical devices industry it is pretty common that medical professionals need help and assistance; in such a case we always help; it is only 10 minutes' conversation with the client during which Dent’s medical consultants can help to choose the right product).
Anyway, it is still a simple utilitarian relationship, when a client has no investment into the relationship. Such clients can be easily tempted by competitors.

“Dent” company can strengthen such relations in 2 different ways:
· By establishing shifts (technicians in Poland usually work almost round the clock, so the
company established a special customer 24h phone land line; they can call any time and
order the goods they need and get the delivery within 24 h since the order has been
placed).
· By providing customer help; the clients can call and ask for possible solutions when they
encounter a very difficult medical case.

Step 2: Convenience Need

When the process is successful the relationship moves to the next level, the Convenience Need. When the clients have easy access to the products desired, they want to make their purchases more convenient. In such a case, when a certain client purchased goods for at least 10 000 PLN within the last 6 months, the company can offer more. It is important to realize what the costs of acquiring a new client are. In the medical industry those are really high and can account even to 2000 PLN. The longer the company keeps the client, the more revenue the client brings. It is worth noting that: “(…) another economic boon from long – time customers is the free advertising they provide. Loyal customers do a lot of talking over the years and drum up a lot of business”.[2]
The special offer addressed to clients should be appropriate, meet the client’s expectations and be economically reasonable. This requires a really deep understanding of the market, dental industry, the style of work of dental technicians and the problems they encounter in everyday professional life. In other words: deep understanding of the purchase and consumption process is essential. Dental Labs always work under time pressure. They prepare the dental crowns and bridges for dentists who always want them “for yesterday”. In such a case, “Dent” can send more products than really needed by the dental lab, especially in a situation when the technician does not know which products should be used. When they use what they needed they can always return the surplus products or pay for the used ones.

Step 3: Feeling at Ease

It was observed that when clients had the ability to purchase products easily and got additional service when needed, they very often started to seek for another experience. Such an experience can be called “feeling at ease and comfort”. Such a customer expects a purchase ambience that is relaxing but still his experience is impersonal. “It is important to note the (…) difference between convenience-oriented relationships and feeling-at-ease relationships: there is a transition from rationality to affectivity. Both convenience and feeling at ease relationships are impersonal, but whereas convenience relationships offer to reduce problems and stress, feeling at ease relationships offer comfort by providing a welcoming interaction environment.”[3]
All CRM efforts on this stage focus on identifying and delivering comfort (as opposed to stage 2-convenience, where company identifies the inconveniences and tries to reduce them). “Dent” company should identify such clients mainly thanks to interpersonal contacts on the line salespeople-clients. The key indicator is also a value of a customer, counted on a 6 months interval. When a client spends more than 25 000 PLN within a 6 months interval and purchases quite regularly (places at least one order every 2 weeks) the company can offer more. In such a case, the client does not have to pay for the delivery; moreover the company can even guarantee express special delivery (time differs according to transportation possibilities: it takes 3 hours to deliver a parcel from Krakow to Warsaw, 4 hours from Krakow to Lodz, 7 – 9 hours from Krakow to Gdansk). Such clients really appreciate this service, especially when the need for the products is really urgent (e.g. they have to prepare dental prosthesis within 24 hours; it happens very often because Polish dentists and dental labs have many patients from abroad who come to Poland for only a couple of days).

Step 4: Personal Recognition Need

Long term clients who place their purchases regularly (the value of their purchases accounts to 50 000 PLN within 6 months interval), expect a special treatment for loyal customers. At this level they have proved that they are quite loyal to the company. They are seeking for reassurance that it is worth working with the company. For both sides it means personalised service and rewards. At this level the company may offer them two incentives:
· Special consignation that includes the products they order most often.
· Special discounts (15%).

Professor Malaviya and Spargo compare such a transition from level 3 to level 4 to a first kiss. The relationship is now personal. Anyway, in this industry it is easy for a company, because so specialized medical devices must be sold to a dental professional personally, so the company has the personal details of each clients and it is easy to gather and analyze additional data, such as buying behavior, etc. Moreover, the company is legally obliged to trace all the products sold to dentists and dental laboratories. Then it is even possible to track products that have been implanted to patients (because dentists have to keep records).

All the clients who belong to this group receive a special membership in ImplaDent Academy. This is a special training department specialized in organizing events for clients. The Academy organizes conferences and lectures for them. The customers receive invitations for different events according to their specialization and interest. For example when a certain dental technician makes mainly bridges based on at least 6 implants, he/she will be invited to a lecture or conference that covers such problems. Clients belonging to group 4 are not charged for participation in such events.

Step 5: Self – Expression Need

At this level the clients want to be rewarded for who they are. Those clients are very demanding and expect that the sales people know them personally, and can even recognize clients’ voices over the phone. The company considers them as very valuable. They give the company 30% of revenue. The analysis has shown that they are with the company since its establishing in Poland (around 3 years) and order for at least 500 000 PLN a year.

One might think that there is not much more to offer them. We have to keep in mind that they expect an environment that allows the discovery and expression of self-identity; their experience with the company is mostly personal and affective, but also some rational.

The company can offer them another special service: provide them with special educational materials and dental models which they can present to dentists when discussing different solutions for a dental case. They may also get a highly specialized scanner that enables them to scan the dental impression without any charge. Such scans are then e-mailed to a company’s dental laboratory located in Sweden, where prosthesis is being cut out of one piece of titanium by CAD CAM machines. In such a case they do not have to cast the titanium themselves. It saves them a considerable amount of time. They get charged for the cutting process, but the price is similar to the price of using similar techniques, yet the quality and accuracy is superior. They do not need to improve the dental prosthesis which is almost always the case when using traditional casting techniques.

Step 6: Co-Creation Need

Analysis shows that the company has a few clients who could be shifted from level 5 to the level 6. They seek to interact as partners. They want to participate in something bigger, beyond the self. For the company it is the most fertile collaboration. The customer’s experience is personal, and both rational and affective (rather balanced). Loyalty and trust are very high. Such clients do not expect more rewards from the company. They have a rather philanthropic attitude and want to create something big. They do it with a company they trust because it is easier than on their own. Such clients are usually scholars. They share their ideas and projects for new products’ developments or existing products’ improvements with the company. In such a way the company has great projects, while clients get the products they really wanted to have. When a product based on a clients’ idea or project is being produced, the client gets financial reward.

Conclusions

The Customer Relationship Pyramid Theory relates to the Reciprocity Rule by Professor Robert Cialdini. The rule says that one person tries to repay what another person has provided.
“By obligating the recipient of an act to repayment in the future, the rule for reciprocation allows one individual to give something to another with confidence that it is not being lost. This sense of future obligation within the rule makes possible the development of various kinds of continuing relationships, transactions, and exchanges that are beneficial to the society. Consequently, all members of the society are trained from childhood to abide by the rule or suffer serious social disapproval. The decision to comply with another's request is frequently influenced by the reciprocity rule. One favorite and profitable tactic of certain compliance professionals is to give something to another before asking for a return favor.”[4]
We might say that the customer relationship management is based on this rule. The company offers to the clients more without asking for their consent and, when the offer is being accepted, the client should repay the company by different means. Such means of repayment are mainly increased purchases. It is perfect and very beneficial for the company when the customer starts talking positively about the company and its offer. The word of mouth is very powerful. Now, we can mention, that when a client starts to ramble positively about the company, it means that his/her esteem need has been fulfilled.

Building a customer relationship strategy is not an easy task. It requires a deep understanding of the industry the company is in, thorough observation of the external environment and analysis of company’s resources and potential.

The most difficult task is to estimate lifetime value of the clients. Computing these values is not an easy task however the exercise is worth it. The “Dent” company is looking for the best formula to calculate these values. The ones available do not include such a value like a word of mouth. There is a very interesting formula developed by professors Reinartz W.J. and Kumar V[5] who invented 4 step method of measuring profitable customer lifetime duration.
They propose to base the calculations on Net Present Value of expected contribution margin (ECM). Yet this formula and method should be adjusted to the special requirements of medical industry. This is the task for “Dent” company.

What is the lesson I have learned by preparing this strategy? Treat your clients with care but have also costs in mind. Yet, the company should develop the proposed strategy of handling, developing and retaining relations with its clients in more detail. More thorough analysis is required, as well as defining the details of economical background for this strategy. The “Dent” needs a formula for evaluating value of the clients.



[5] Reinartz W.J., Kumar V., “The Impact of Customer Relationship Characteristics on Profitable Lifetime Duration”, INSEAD, Fointainebleau, France, 2001/108/MKT

[4] Cialdini R., “Wywieranie wplywu na innych”, Gdanskie Wydawnictwo Psychologiczne, Gdansk 1997

[3] Reichheld F.F. and Sasser W.E. Jr., “Zero Defections: Quality Comes to Services”, Harvard Business Review September-October 1990

[2] Reichheld F.F. and Sasser W.E. Jr., “Zero Defections: Quality Comes to Services”, Harvard Business Review September-October 1990, p. 107
[1] Malaviya P. Spargo S., “Relating to Customers: How and When to Strengthen your Customer Relationships”, Working Papers R& D of INSEAD, Fontainebleau, France, 2002/41/MKT

Monday, January 29, 2007

Still in London

I am still in London. What a wonderful city!

Wednesday, December 13, 2006

What a suprise. I've been writing about digital business enhancement for a few months. Today I also work in that area... on an Oracle project in London. We never know what the future will bring.

Sunday, September 24, 2006

Time is over

Today is the 24th Sept. The time when our blogging activities are to be evaluated. I just want to say, that thanks to this assignment I managed to see my work from a different dimension. Thank you all, Rille and MBA mates. It was a really great experience.

Thursday, September 21, 2006

Technology Enabled Innovation-a presentation by Jack Shaw, Vice President of Commercial Systems for Applied Systems Intelligence

Now, something more serious. Jack Shaw discusses examples of how technology-enabled innovation has dramatically impacted several major industries. At first sight it seems so trivial, but it is not, in fact.

Cybermen Call Centre - sometimes it is true, isn't it?

Wednesday, September 20, 2006

Great source of knowledge for MBA students

Today I have discovered a nice site for MBA's:

http://www.netmba.com

Enjoy:-)

Tuesday, September 19, 2006

Voice Self-Service Offloading Calls Before They Reach Your Agents

In most organizations 60 to 90 percent of all customer service inquiries occur via phone. What if you could reduce these incoming phone calls and still deliver exceptional customer support?

Cost Per Customer Interaction




Source: Gartner Research