Information technology as key factor of competitive strategies
Information technology (IT) has become the key factor of competitiveness strategies according to its innovative power as an enabler of managing marketing knowledge. In the age of digital communication, IT presents pre-built integrated information systems to help organizations achieve and make the outstanding use of knowledge. Current economic records have shown that, as countries come close to the technological frontier, managing knowledge is essential for them to continue innovating in their services and products. Therefore, the success becomes dependent on the successful creation, sharing and deployment of its own and its customer knowledge.
The aim of this study is to give an understanding of how organizations can utilize customer knowledge to form collaborative innovation. Thus, the research objective concentrates on sharing customer data. Accordingly, by means of qualitative approach the outline of CKM (customer knowledge management) strategies in two British retailers (Tesco and Sainsbury's) are examined. The result illustrates that the role of CKM in collaborative innovation is highly depend on the attention paid to customers as knowledge collaborators. Customer Collaboration is the only way of success if organizations and customers want to pursue innovation. Indeed, the collaborative innovation is in the co-creation experience that exists in the interaction between customers and organizations.
Key Words: Customer Data - Customer Knowledge Management - Collaborative Innovation
Information Technology presents influential systems to help organizations achieve and make the superlative use of knowledge. Organizations need to decide on appropriate systems consistent with the area of their businesses. In the current business environment, knowledge has a key role in the information systems. As long as collaborative innovation has become important, it puts organizations under pressure. These challenges of innovativeness and the rising pressure to reduce cost require companies to redesign their business process (Dous, 2005).
Where the concept of knowledge belongs to the time of the Greeks, its key role in current knowledge economy and global competition is the basis for the increasing emphasis placed on knowledge in the uncertain business behaviours. Since the early 90s, knowledge has gained a great deal of consideration in the literature as a strategic organizational resource which is non-deplete to create sustainable competitive advantage (SCA) (Al-shammari, 2009). Since then, knowledge has been recognized as an organizational distinctive core competency (DCC) (Drucker, 1999; Davenport and Prusak, 1998) in a changing global marketplace where many scholars such as Drucker (1993, 1995), Hamel (2002), Leonard-Barton (1998), Michalisin, Smith & Kline (1997), Nonaka (1991) and Pemberton & Stonehouse (2000) believed the development of innovative services and products is required to compete in the market place (quoted in Gehani 2002 and James, 2004).
Capturing employees’ knowledge about customers, competitors, products and services produced in an organization are the number of the significant subjects in recent years which can be covered by knowledge management (KM) topics (Gibbert, Leibold, Probst, 2002). Generally, KM is about encouraging people to distribute information, knowledge and ideas, with the purpose of value creation (Chase, 1997).
However, with emphasis on knowledge as a key competitive factor in the overall economy, organizations may be overlooking out of their boundaries of the firm (Gibbert, Leibold, Probst, 2002) to achieve customer knowledge (CK) as it is the origin of most improvements in customer value (Novo, 2001) and the company's capability to satisfy customers. The importance of customers to the organizations in the global market has created competitive rivalry over acquiring new customers and/or retaining/increasing relationship with current ones. Customer driven companies need to direct their competences to manage the knowledge of those who purchase their products/services (Baker, 2000; Davenport and klahr, 1998). Thus, they use their power of communications, with the aim of developing CK from information flow via advanced information technologies. CK has been gradually more recognized within marketing as a key strategic source in any organization's success to improve innovation (Darroch, 2003) and, therefore, serve each customer in his/her ideal way to achieve customer satisfaction.
The aim of this study is to understand the process, in which two selected retail companies managing customer knowledge. This study, also, explores how selected firms collaborate with customers in order to acquire the right data and how they process these data in order to generate and deploy customer knowledge. The result will be used to show how innovation can be formed collaboratively between these companies and their customers.
Derived from the above research aim, it is initiated that the following question can be considered within the scale of this study. Therefore, the research question will be:
'How is customer knowledge managed to help innovation to be processed collaboratively?'
However, a review of existing question has shown that the current theories and strategies that are available for organizations to adopt and improve their CKM in the world of business are insufficient to deal with this research problem.
2. Literature Review
In order to review the literature, three issues have to be considered. Firstly, the way that customer data is collected. Customer data has been needed to bring competitive advantage for the organization following the renovation from ‘product-centric’ to ‘customer-centric’. As Minwir Al-Shammari defines, data acquisition is “the process to capture, integrate, cleanse, and load customer data, from various customer touch points, into the operational data store in order to create customer information and knowledge”. He also explains that the data must be collected due to following objectives (Al-shammari, 2009):
Target customers & core market have to be discovered
Expectation of customers has to be identified
Develop product or services that meet the expectations
Therefore, identification of the right data that require to be captured from the right customers is extremely essential for firms. According to this fact, Davenport et al. proposed a number of rules for acquiring and sharing data from interaction with customers (Davenport, Harris, Kohil, 2001):
Using an exclusive identifier to share knowledge about a customer efficiently
Spending adequate time talking to customers to make a clear vision about the target customer value
Managing what customers find useful by using filtering technologies to minimize what has been requested
Centralize workforce in the same place and serve the same customer
The most usual techniques of acquiring customer data are transactions, online surveys, server log file and cookies (Lee, 2006).
Secondly, translation of data into knowledge happens if CKM act effectively. Rowley emphasis on the knowledge culture between people in an organization, so that the culture is conductive to more successful knowledge creation, transfer and use. Thus, Rowley concludes the KM infrastructure can well contribute to the booming completion of CKM actions (Rowley, 2005).
In order to processing of customer data, KM framework is needed (Bose, Sugumaran, 2003). KM infrastructure can lead the firm to create knowledge repositories. The following infrastructure can generate knowledge from sources which come from outside of any firm.
Figure (1): KM Framework (Bose, Sugumaran, 2003)
Thirdly, So as to implement CKM concepts, organizations need to deploy some mechanisms through the progress of available web technologies. Many organizations find CKM not an easy concept to implement and only some are doing it fine (Gibbert, Leibold, Probst, 2002; Desouza , Awazu, 2004). Successful deployment of customer knowledge highly depends on the efficiency of CKM models are used in the companies. Davenport et al. showed a number of examples that can be used as the vision of CKM models (Davenport, Harris, Kohil, 2001):
Create customer loyalty
Innovate on hand products
Extended products or services
Develop achievement in cross selling
Segment the customer base
Recognize customer's internet behaviours
3. Conceptual Framework
As far as first part of the question goes, the wide variety of theories is provided to cover the fact that, organizations and customers have to be key participants in the creation of knowledge. Therefore, the different methods for Customer data acquisition mostly based on studies by Rowley and Lee et al. are presented below:
Web based survey
Server log file
The second part of the research question will focus how customer data aimed to generate customer knowledge. As a result, a conceptualization was made based on a series of data processing and knowledge management stages. The concentration to answer this question is on Bose & Sugumaran’s (2003) findings which classified the necessary steps to reach knowledge culture for the organizations:
Knowledge identification & generation
Knowledge codification & storage
Finally, the last part of the question can be answered if the focus has been set on the Rowley’s theories where the co-creating and improving products or services lead to deployment of customer knowledge, which is the most important part of customer knowledge management studies. Rowley’s (2005) study provides four particular topics through which organizations can achieve innovative advantages:
New product development
Marketing communication & promotion
Here the framework is summarized in the following figure based on three steps of the question:
Figure 2: CKM Framework (Bose, Sugumaran, 2003)
There are four components of the research methodology and design; research paradigm, method, methodology approach and data collection. Based on an in depth analysis it has been determined that interpretivism is the most appropriate research paradigm for this study. It can assist in resolving the main research problem and achieving the objectives of the study. The qualitative research method, also, has been selected for conducting this research. Dawson (2002) describes qualitative research as “a research that explores attitudes, behaviour and experiences. It attempts to get in-depth opinions from participants.” To address the research problem studying knowledge and organisations’ behaviour and experiences are essential. The research methodology approach for this research is case study methodology, since it can facilitate addressing ‘How’ and ‘Why’ questions (Yin, 1994). The data were mainly collected by observation at the companies' websites as well as observation at the content-providers websites.
5. Data Collection
This chapter aims to show an overview of two Retailer’s perspective. This part will begin with introduction, which will be followed by an explanation of the organization’s approach to the acquiring methods of customer data and processing of customer data to customer knowledge generation.
Nowadays, grocery with 92,796 stores in the UK is becoming one of the main areas within the UK retail industry since dominant grocers put up a growing variety of non-food products to sale such as retail financial services, clothing and entertainment products including CDs, newspapers and toys. Hence, in every £1 of retail costs Food expenditure accounts for 52p only (IGD, 2010).
While American Walmart, French Carrefour, German Metro and British Tesco rank as the main grocery retailers in the world, the most famous names in the UK food retail industry are Tesco, Asda, Sainsbury's and Morrison's (UK Grocery Retailers, 2008). Their rivalry is based on precise management on customer knowledge to bring more customers’ interests involved (IGD, 2007). IGD (2010) supported the key role of customer knowledge and discussed that customer service is the winning characteristic of the UK leading retailers. In current volatile economy, one and all identifies that knowledge can be the key factor for each retailers to have deep insight into the customers. The Business Week ‘Best Performers 2008’ survey shows the value of having customer knowledge for the companies where it concludes that the key distinctive reason of many firms in the top 50 was a profound understanding of their customers (Business Week Best Performer, 2008). Managing customer knowledge gave them the indispensable competitive advantage to put on the market more goods and services than their main competitors. With that said, nobody would disagree that the companies like Google and Amazon, which are on the top of the list of best performers, are signs in using customer knowledge to increase their market share by using their customers as their innovation partners.
5.2 Customer Knowledge Management at Tesco
Tesco began life in 1919 by Jack Cohen who sold groceries in the East End of London; by 1932, Sir Cohen instituted Tesco Stores with authorization. The name of Tesco was rooted in the name of a tea that Cohen purchased from a merchant which used T.E. Stockwell and initiate the first two letters of his name (Tesco official website, 2009). Tesco has 4331 stores in 14 countries, equipped by over 470,000 employees and almost half of them are positioned outside England (Tesco PLC annual report, 2009). These days, Tesco presents a real retail firm based on what its customers want, it has time after time surpassed competitors and improved market share. The authority and diversity of Tesco’s brand is indubitably remarkable (Tesco official website, 2009). Tesco’s approach regarding to managing customer knowledge is to gather as much information as possible about its consumers to bring back what its customers desire.
Tesco has been exceedingly successful in customer data acquisition as a competitive advantage in UK-based retail industry. Tesco takes information to recognize highly loyal customers and grow up the benefit of the possible transactions, For example, by monitoring client’s shopping basket.
Also, Tesco can verifies a customer’s “life stage” and plan its policies for the future promotions consequently. Consumers who buy shampoo, for example, certainly will be principally interested to have discounts on hair conditioner accessible at the checkout sales point.
This retailer utilizes the information to find out if a buyer is about to shortcoming too. By scrutinizing a combination of questions such as ‘when was the client’s most recent visit?’ or ‘is the client coming here less repeatedly over time?’, the management team can offer customers who are at risk with gradually more tempting products or services to not let them leave the existing relationship.
The organization’s Clubcard programme has supplied Tesco with a rich collection of information on individual client experiences, preferences and behaviours. Since the first client comes to use the Clubcard it has offered power to Tesco to be at the top of the UK retailing sector. It is not an accident that since Tesco uses the scheme it has surpassed Sainsbury’s to become the UK’s best retailer in 1995 and the world’s most unbeaten Internet superstore where according to IGD (2010) the value of the UK online grocery market have grown from £2bn in 2006 to £3.7bn in 2009. The Tesco’s Clubcard is the best kind of customer knowledge Programme presently running in the UK. It has been used by 33% of UK families. Based on published statistics, there are 25 million registered Clubcards in the market, of which 10 million are used weekly. Accordingly, 82% of Tesco’s turnover going through the Clubcard (Clive, 2004). Although Clubcard is not the only reason for the success of the company, but it is apparent that the payback of the Clubcard is too much (Clive, 2004). Clubcard modifies the needs of all the varieties of consumers with all tastes and incomes and ages. Therefore, there is the knowledge of what Tesco’s customers select and what the preference they have.
The other most frequently used methods of collecting customer data are Surveys and questionnaires (online or by email). The strategy of multiple methods to capture data leads to gather as much data about the customers as the company wants. Tesco’s customers can get in touch with it via local branches, the internet and the telephone 24/7. In order to acquire more customer data, the company’s website is host many kinds of online communities like discussion forums or bulletin boards. Tesco advertises its communities “We recognize that running our business responsibly is important to our customers and increasingly crucial to our growth. We are working within communities to develop our own plans as well as involve customers in the journey.” For example “Baby and Toddler club” is one of the most viewed communities by internet viewers. All communities have their own special worries and precedence and so each of their countries has its individual Community policy. Their accomplishment depends on paying attention to their clients and replying to its customers’ feedback by given the customers what they would like. The most considerable assistance Tesco prepares to communities is appointing over 250 Community Champions in stores and depots across six countries (Tesco, 2009).
Aside from the above methods, UK is a country where law allows everyone to access to the all information about the individual. By choosing the information about individuals and combine them with company’s updated data like web site visits, Tesco’s employees’ knowledge from face to face communications and daily emails or customer service call centre, the customers have been understood by the management team.
An additional way to obtain information regarding to new product development points is to acquire information openly from external sources like suppliers, business partners and franchisees to establish the necessary ideas and make sure that the new ideas are gathered on customer-focused bases that not only have value to the customer but also meeting PESTEL (Political, Economical, Sociological, Technological, Ecological and Legal) criteria. However the use of transaction data is a responsive issue as far as the company is not allowed to use in depth information about the customers for promotion intentions according to the security reasons. Therefore, Tesco segments the customer base, observes the segment’s pattern and aims to estimate its future desires.
Furthermore, Tesco’s website has highly standard setting that accepts cookies. Tesco bring cookies into play for several reasons. For example to permit registered users to make the logging on process simpler. It helps to guarantee the security of registered users, to grant the methods for online shopping and to allow traffic monitoring. Non-registered visitors (guests) are sent nameless cookies to follow their browsing activities and make a demographic profile. Additionally, clients who get to Tesco.com advertisement on other website that has a link to Tesco.com will be sent unnamed (Anonymous) cookies that prove us to analyze advertising efficiency and supervise Tesco’s correlation with partner websites.
On the subject of the processing of customer information, Tesco processes information to provide knowledge which is supportive when customers are served. Moreover, Tesco tries to capture usual manners for a collection of customers. As a general rule, the company tries to find what sort of business its customers are concerned about. Also, Tesco used dunnhumby to assist with processing data from a clubcard. Dunnhumby helps Tesco to analyze till data and transferring suitable feedback to the customers.
The new concept which produced the feedback is called ‘relevance marketing’ by dunnhumby. Traditional way was data capture according to market segmentation. It was founded on what the basic customers information such as sex, age, educational achievement, job and so on. Dunnhumby as an alternative works on the idea that customers should be categorized by what they pay money for and memorizing him/her buying behaviour as well. Dunnhumby shapes as a time series starts from when the buyer became a member of Clubcard. The dunnhumby database controls 40 terabytes of data.
Clive Humby, the organizer of dunnhumby, explained data mining as an art in addition to a science. Normal database effort is derived from queries, built by a user in a language like SQL. But it tells the user which questions to rise. Also Zodiac, dunnhumby’s software to discover external resources of data which increase the till acquisition data and customer patterns come out to process them. The dunnhumby database processes data from the supermarket roll, the Land Registry, the Office of National Statistics (Tesco website, 2010)
Improvement of the processed knowledge is considered from Tesco. Specifically, the supermarket considers its employee’s feedback regarding the value of the information accumulated in the databases. Tesco also takes into consideration the employee’s knowledge about the customers. The processing activities are not stationary but are constantly being developed through the information the firm catches from its customers.
By utilizing customer knowledge Tesco tries to comprehend its customers by monitoring their needs and modify the products. Moreover, Tesco takes benefit of customer patterns by observing the pattern of customers and try to gain knowledge of those patterns.
The use of customer knowledge is for product promotion on the corporate level and describes the chain. Also, Tesco uses the data to promote its products in an attentive way. Tesco is segmenting the customer base according to the different types of data and Tesco is demanding for promote the products to the related groups of customers.
Lastly, one of the company’s major goals relating customer knowledge deployment is the new product development. Tesco policy is learning from its customers and their typical behaviour. If it manages to capture that knowledge then it goes to the other force which is the formation of a new product.
5.3 Customer Knowledge Management at Sainsbury's
Sainsbury’s supermarkets is the UK’s longest position food retailing chain began life in 1869 by John James and his wife Mary Sainsbury’s who sold high quality products at near to the low price in the one of London’s region. By 1882, the first own brand product was bacon which had many lovers in UK (Sainsbury’s official website, 2009). Where Tesco attempts to magnetize people from all classes of society, Sainsbury’s looking for the middle class customers with the middle class prices.
At the present time Sainsbury’s is a chain of 502 supermarkets, 290 convenience stores as well as Sainsbury's Bank (Sainsbury’s annual report, 2008). It is the third largest British retailer in the United Kingdom with revenue about £19 billion while for the many years of the 20th century it was the market leader. According to the Sainsbury’s annual report 2008, Sainsbury’s has the second position in the market right after Tesco apart from non-food products. Sainsbury’s has the overall market share by 14.8% which can be divided by different regions.
Sainsbury’s is using CKM to move toward increasing customer focus. Customers can easily join in the least time and be given different acquisition material. Additionally, the word “Club” has been down from the name to correspond that the loyalty programme is free for everyone to use. Sainsbury’s now has the prospect to take in its relevant customers without keep standing by them to come and signing up. Their permission has been issued in the course of membership of the Nectar programme. The management team can use the database to classify right customers and mail them a trial pack to make them involved. Therefore, the team uses the Cardholders database to acquisition customer data. The database controls customers’ information. The programme can be automatically updated by the Campaign Analysis team.
The supermarket’s main strategy for collecting customer data is using a new data analytics tool which help Sainsbury’s to get knowledge into its customers. Loyalty management group presents a tool to analyze Sainsbury’s till information covered with Nectar customer data direct by the use of an online portal. It offers the most widespread size of shopping data offered to the retail industry. On the contrary to presented tools, users of this tool will have right of entry to study drawn from all of Nectar customer data, authorizing users to investigate the 360 million transactions completed by 50% of UK households each year.
The other method to acquire data applied by Sainsbury’s is the internet that offers services 24 hours a day. Regarding the online gathering with its customers, as one of most reliable way of obtaining customer data, the online communication service can take place during the one to one online discussions which run by emails or in chat rooms. There are many forums for online discussions provided in Sainsbury’s official website.
Sainsbury’s utilizes the customer knowledge gained by cookies for market research and statistical investigation and to provide opportunity to send its customers information about services that may be interesting for its customers. The web site has this information to show visitors products that are illustrated according to its customer’s requirements. It helps them to extend the website to formulate shopping habit more delightful in the near future (Sainsbury’s official website, 2009).
In terms of the transaction data, the Sainsbury’s objective is to develop higher transaction volumes in the Internet. Transaction data is the most feasible way to comprehend the past of the customers’ behaviours. The online division of transaction data composed of considerable amount of data. It is used by great quantities of the customers that are consuming the online shopping services. Sainsbury’s uses surveys as data acquisition channel. There is a third party that is employed to conduct the surveys on behalf of Sainsbury’s.
Apart from the methods of customer data collection, Sainsbury’s also use the demographic data accessible by law in UK. The information is stored in the warehouses and then is united with the previously obtained customer data.
Customer data processes are according to the law restrictions. Regarding the processing data Sainsbury’s pursue the set of laws at the same time as processing the customer data. Customer information is secured according to user-friendliness, precision and traceability in accordance with Sainsbury’s IT administration. On the whole, controlling security of information is greater than before from Sainsbury’s in the past years caused by the supermarket’s broad range of online products and services.
Sainsbury’s infrastructure offers a range of channels for its employees to be in touch with the related recipients. The communication with suppliers is taking position under the regulations of the organization that present guidelines with the supermarkets employee.
The customer data are accumulated in every customer’s interface that the system affords. Within the interfaces documents has been hold, where the members of staff load in the necessary information about each person. Those documents provide Sainsbury’s with possibility and profitability that the system determines from the gathered data concerning each character. The interface also provides us with the products that the customer is actually using and the products he/she might be interested in.
Sainsbury’s workforces are persuaded to offer the company with their ideas about the effectiveness of the information accumulated to the client’s interface. Sainsbury’s really cares about the employees’ feels about the value of that information as far as they are the only ones who in reality developing the produced knowledge. Furthermore, Sainsbury’s demands the participation of its employees to originate the knowledge have to be gained from the customers.
As a part of knowledge generation, Sainsbury’s processes the helpful customer data. Principally, the supermarket has a way in to vast amount of information. The Analyzers of the company address the plans with the aim of ensure the consistency of the actions in the company to process the company’s duty.
Sainsbury’s knowledge about customers is deployed for the formation of customer segments portfolios. Specifically, Sainsbury’s uses the gathered customer data to divide the customer base in keeping with diverse factors and from diverse phases. For example, one customer might not be a profit maker at the moment, but extremely likely to be profitable one in the next month. Sainsbury’s always revise its customers regarding to their knowledge value and the management team looks at the formed segments from all possible viewpoints. Additionally, customer knowledge is deployed for developing a new product. Sainsbury’s marketing team is employed to look for the customers’ future requirements and the production of new goods. They are combining the data from Sainsbury’s stores and they develop them to acquire the knowledge accurately.
As a final point, regarding the customer knowledge deployment for promotional activities, all branches work in partnership with the head marketing department.
6. Findings and Conclusion
In the last chapter the answers to the research question articulated in the early chapter will be given derived from the investigation of the data in the preceding chapter. To begin with results, all parts of research question are pursued with particular conclusion.
The credit crunch and the recession associated with inflation have had a deep effect on consumer behaviour in the retail industry. People want to spend less and customers are tending to buy value products. At the same time, rivalry is increasing as price saving customers change supermarkets to catch the lowest prices and dealing down to the Discounters. Therefore, customers’ preferences and requirements are changed and only updated organizations which have customer knowledge can predict future trends regarding to changing customers patterns.
As it can be seen below, findings of the research have been categorised and discussed:
Customer Data Acquisition
It can be identified that the involvement of the e-business to customer data acquisition is extensive. Although Tesco and Sainsbury's were not found to entirely utilize the chances for acquiring data customer that the Internet presents and companies like Google is using but it was undeniable that the management teams' activities are on the way to this direction. The fact is a main proportion of the meetings with the customers are being held via their official websites. It stimulates their effort to boost the deployment of the online opportunities. Moreover, the study exposed the corresponding role that the online data contain in the company’s effort for knowledge creation. As a matter of fact, both companies have already firmed that customer data taken from website, adds to its existing incorporated view of the client.
Customer Data Processing
In terms of processing customer data, companies use the knowledge culture either verified from the similarity of infrastructures or from the set of laws that regulate the systems. In reality, these retailers were considered to have developed laws which were controlling the stream of knowledge within the companies. Relationship with external parties, regarding to knowledge utilization, was completely observed. This knowledge utilization insures the organizations' competitive advantage such as increasing flexibility and trust.
Customer Knowledge Deployment
In this study, Tesco and Sainsbury's make use of their knowledge about their customers to find out their value for the supermarkets. As a result, customer knowledge deployment is for segmenting customer base, because supplying an effective customer service. The declared of customer knowledge uses bring a great worth generation for both retailers.
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