Customer Relationship Management in Volkswagen

A Critical Evaluation of Customer Relationship Management in the Volkswagen Group

Introduction

Regardless of what industry or business one would elect to select, the one key as well as critical component that is present as well as common to all is the ‘customer’. Peter Drucker (1954, p. 64) expressed the foregoing when he stated that “… the purpose of a firm is to create and serve customers…” The preceding might seem all too obvious, yet it is a concept that repeatedly seems to become lost in terms of a company’s marketing focus. The resources spent in terms of advertising budgets to create consumer awareness, trial and to win them over represents the beginning rather than the objective of marketing. Initially, marketing might not seemingly represent a consideration with regard the management of a customer relationship at Volkswagen, until one views it in context. Referring back to Peter Drucker’s (1954) statement, the process starts at the very beginning, and this entails the marketing of the product, goods or service to the prospective customer. This is in terms of whether the customer is presently with the company or not as competing brands are consistently on the hunt for customers outside of their existing base and this represents those that are presently within your company’s fold.

Thus, the examination of the management of a customer relationship in the context of Volkswagen shall look at the entire environment in which the preceding occurs, and refer to an example within this genre. The process shall endeavor to critically evaluate the example from an historical context and then make recommendations as to how that process might have been improved or enhanced utilizing the contemporary understandings of customer relationship management practice and theory.

In order to understand the process of managing a customer relationship, it is imperative that one has a grasp of the environment in which that context lives. Marketing is defined as a process which entails the “… planning and executing the conception, pricing, promotion and distribution…” (Marketing on the Internet, 2006) of products, goods and or services, and via which a company seeks “… events to create and maintain relationships that … satisfy individual and organizational objectives” (Marketing on the Internet, 2006). The preceding provides an understanding of the broader conceptual ramifications that entail the marketing process. (Morris et al (2001, P. 98) have upgraded this definition in consort with contemporary views and applications whereby the function has been defined and equated as a set of activities that create value. They indicate that today’s understanding and application of the marketing process is more complex as well as complicated, and state that “ Organizations must make fundamental decisions regarding how to approach different market segments and individual customers” Morris et al (2001, P. 98). Their expanded definition goes on to add “The conventional wisdom is that the marketer is no longer interested in making a sale or achieving a transaction, but instead must focus on relationship marketing” Morris et al (2001, P. 98). Buttle’s (1996) overall view is that relationship marketing is yet to prove itself, but that vision was almost a decade ago.

According to Professor Adrian Payne of Cranfield University, (2003) there has been research that has been conducted that indicates that just a five percent (5%) increase with regard to the retaining of customers represents a net profit yield in the range of twenty percent (20%) to one hundred and twenty-five percent (125%) (Payne, 2003). The foregoing is slightly more conservatively calculated by Reichheld et al (1990, Pp 105-111) who indicate that a five percent (5%) improvement with respect to customer retention yields a profitability increase of between twenty-five percent (25%) and eighty-five percent (85%), which they state depends upon the particular industry. The value of customer retention, and thus efforts directed at maintaining such, customer relationship management, has been equated by Buchanan et al (1990) who indicated that the foregoing results in an increase in profitability as a result of:

1. The fact that the cost to acquire a customer occurs at the inception of the relationship, therefore the longer said relationship remains in force, the initial cost becomes amortized.
2. The costs of maintaining the customer declines in terms of a percentage of total revenue.
3. Research has indicated that the longer a relationship is maintained with a customer, the less inclined they become to switch. In addition to the foregoing, they also tend to become less sensitive to price. The foregoing translates into a more stable base of unit sales volume as well as an increase in terms of revenue sales volume.
4. Longer-term customers are more likely to engage in word-of-mouth discussions regarding the product or company, thus potentially resulting in referrals.
5. Longer term customers are also more likely to wind up making purchases of other products, services or goods offered, as well as trading up or purchasing higher profit products, goods or services.
6. Longer-term customers, on average, tend to be more satisfied with the company and as a result are less inclined to switch to competing brands. The foregoing makes it increasingly difficult for competitors to make inroads in a company’s customer base the longer the relationship lasts.
7. Longer-term customers are usually less expensive in terms of servicing as they are familiar with the processes within the company and thus require less indoctrination and or education.
8. The benefits of a longer-term customer relationship results in easier job related tasks for employees and higher degrees of satisfaction in dealing with customers who have a long relationship with the firm.

The foregoing view is also shared by Chye et al (20002, Pp 1-27) who state that Customer Relationship Management is the method via which to develop customer relationships. They define Customer Relationship Management as “… the process of predicting customer behavior and selecting actions to influence that behavior to benefit the company…” Chye et al (20002, Pp. 18). They further state that the Internet has greatly increased the performance and enhancement aspects of Customer Relationship Management as it provides database information and is available as an additional avenue via which to provide further service to customers in an unobtrusive manner. The Internet also permits the customer relationship manager, and company, to maximize the performance of Customer Relationship Management tools and processes through more precise data collection and segmentation methodologies which results in being able to target customer needs, preferences and predict probabilities for a more proactive approach based upon the foregoing, rather than the traditional reactive mode.

Through the preceding, the Customer Relationship Department as well as employees can strategize the appropriate courses of action to be in advance of customer needs, or have the appropriate solutions or responses prepared and waiting. The preceding also increases the relative performance of individual employees within the function thus making its overall effectiveness in terms of customer satisfaction enhanced, thus further aiding bottom line performance. Storbacka et al (2001, P 8) sum up the Customer Relationship Management practice in the following statement “The aim of CRM is to develop a common process, the idea being that when the relationship is developed, both sides win.” The relative similarities between competing products in the automotive industry provide a perfect example of the importance of effective and well-planned Customer Relationship process. With the right strategies in place an automotive company can create an effective differentiation with respect to competitors through providing extraordinary service. The preceding is made possible through new technologies, such as the Internet, whereby personalized service can be provided as well as anticipated as a result of the warehousing of customer information, prior contacts and original order data (Jackson, 2003, P 71).

And with information technology as well as the Internet are providing new dimensions to the Customer Relationship Management practice, the importance of personal contact as well as personal service are and remain the critical components in achieving and maintaining customer satisfaction. “… the increasing availability of modern technology …(makes)…it relatively easy to compete on product. What they find more difficult to do is compete on service…” states Freemantle (1992, P 15). He adds that “… service not only depends on modern technology, but also the attitude of its people, and therefore the capability of its managers.” (Freemantle, 1992, P 15).

The Value of Customer Relationship Management

Drawing on a consultancy relationship that existed between the advertising agency for the Volkswagen company, the opportunity to see as well as be involved in the first hand observation as well as participation of the importance of Customer Relationship Management was provided as a result of research being conducted to gather the views and opinions of customers with regard to the service aspect of the company’s business. In so doing the task was assigned of managing a small base of customers who had just purchased vehicles in consort with the company’s policies at the time. The objective was to equate the reactions as well as attitudes of customers and their viewpoints along with positive and negative reactions to the company, its policies and the product. The period of time that the preceding was undertaken, which can be commented upon from an historical perspective, was when Volkswagen was experiencing problems in integrating a new model into its line up. The year that the preceding customer relationship consulting arrangement occurred was in 2000.

The customer relationship example shall be referred to as Mr. Smith. He was a 52-year-old schoolteacher, married with two children who had graduated college. He lived in a modest one family home in the suburbs and represented the average VW customer profile. The 2000 Volkswagen Jetta was his first experience with any foreign vehicle, having previously owned Ford and General Motors products. Mr. Smith represented one of the portfolio of customers assigned as part of the afore indicated marketing analysis observation. Mr. Smith’s first contact came within the first month of his Volkswagen Jetta purchase as he called to schedule a service appointment to fix the air conditioning system that was not working. He also indicated that there was a problem with the driver’s side rear door latch. Mr. Smith’s appointment was scheduled for free warranty service for the following day, as a result of the air conditioning emergency. Mr. Smith was called the next day after the service appointment as asked about his rating of the visit in terms of his issues being resolved, promptness in handling, his rating of the service done and satisfaction. Mr. Smith indicated that all the areas asked were satisfactory and that the car was working perfectly.

The next contact with Mr. Smith came approximately three (3) weeks after the initial call. The contact was to express his dissatisfaction with the air conditioning system as the cooling level since the repair was average on warm days and barely adequate on hot days. He indicated that he did not pay much attention to the foregoing as he primarily drove the car to work in the mornings and by the afternoon the temperatures were cooler. His compliant came about as a result of a weekend trip where he was subject to 95-degree temperatures and stated he was perspiring the entire time. Mr. Smith also stated that the car exhibited severe hesitation during the hot drive and stopped functioning entirely on two occasions whereby he pulled over and after the car cooled down, it restarted. He was particularly unhappy that a local Volkswagen dealership could not assist him as he was on the road and asked that we schedule a service appointment. Mr. Smith’s extreme displeasure was a result of being under a new car warranty and unable to get any assistance which he claimed was never a problem with his former Buick LeSabre. He requested an immediate service appointment and a loaner vehicle so that he could get back to work. Under the terms of his Volkswagen warranty, Mr. Smith had not purchased the Road Side Assistance option and his warranty also did not have a provision for a loaner vehicle. I informed Mr. Smith of the foregoing, which was not received well and asked if I could make some inquiries regarding getting his vehicle scheduled for an emergency service appointment as well as what I might be able to do concerning the loaner vehicle, which temporarily calmed him down.

In conferring with personnel at Mr. Smith’s dealership, I was informed that as a result of his warranty coverage that did not include roadside assistance, future problems could not be handled any differently unless he took the option. After considerable discussion with the dealership management and service department we arranged an immediate service appointment and under the circumstances I was able to secure a dealer vehicle for Mr. Smith to utilize. Mr. Smith was called back and advised of the preceding points, he was pleased to hear of the loaner vehicle and immediate service appointment request, but indicated that road side assistance for a new car should be an included item and not one subject to additional purchase. Mr. Smith’s visit went according to plan and when he was called the next day after picking up his vehicle, I was thanked for resolving issues he came to find out were not a part of his service contract. He indicated that despite the problems, getting him service for non-covered items was changing his mind about a car company that he thought he had made a mistake on.

Subsequent investigation into the problems encountered by Mr. Smith uncovered that Volkswagen was having quality control problems resulting from the new facility located in Puebla, Mexico. Globalisation, as well as newer technological aspects included in their vehicle had upped the manufacturing degree of difficulties with respect to including features such as cruise control, automatic windows with multiple settings, variable speed air conditioning and automatic temperature control settings, fuel injected engines and other features that are commonplace fixtures in the American vehicle market. It was subsequently uncovered that Volkswagen’s J.D. Power and Associates quality rating for that model year reflected the problems associated with incorporating this new plant into the production line, as well as the fact that the model was a new design. In that year, the average number of problems that were reported in the J.D. Power survey per one hundred vehicles averaged 158 (The Car Connection, 2000). The survey was conducted among a sampling of 47,000 owners representing 2000 model year cars and light trucks showed that the Volkswagen Jetta scored 238, compared to the average of 158, with the largest Passat ranging in at 162, and the new Beetle hitting 170. Only the Jetta was being manufactured at the Mexican facility during that period (The Car Connection, 2000).

Inquiries into the company’s warranty and roadside assistance program indicated that the requirement for this aspect had not been an issue in prior models as reliability had always been a model strong point. Historically, Volkswagen had manufactured vehicles in Germany and the reliability factor was insignificant in terms of assuming the internal costs for such warranty features as road side assistance, which at the time was a feature generally reserved for higher priced vehicles such a GM Buick, Oldsmobile and Cadillac models, as well as Mercury, BMW, Mercedes and similar vehicles. The company’s service department was converting to a nationalized computerized program whereby service request projections could be correlated against last visits, new car purchases and scheduled appointments. The lack of a finished system left the service department vulnerable to service request overloads owing to unforeseen events or occurrences.

The Aftermath

The customer relationship example indicated represents a situation in which Volkswagen was apparently unprepared for the ramifications of quality control issues at its new Mexican assembly plant which was possibly further exacerbated by the initial shake out problems traditionally associated with new model introductions. The resulting spike in quality complaints and the lack of traditionally expected resolution procedures and remedies expected in the American market, as suggested by the example utilized, pointed to an instance whereby Customer Relationship Management offered the solution that was outside of company policy and procedures. It clearly indicates the importance of a personalized relationship with the customer and working with them to resolve issues. The focus in modern day business enterprises is the understanding that Customer Relationship Management is an important tool in understanding what customers want (Lin et al, 2003, Pp 715-732). The preceding manifested itself in the example utilized.

The relationship described with Mr. Smith represents a summary look into the fundamental internal changes and external customer ramifications that increased competitive levels have created. Christopher et al (1991) overall view is that relationship marketing can help to forge a synthesis with quality management, marketing and customer service management, that the processes are basically inseparable, and that the concept is becoming a trend in terms of modern business practice. The six forces model they proposed has gained wide acceptance, and it includes customer markets, internal markets, which are the individuals and departments inside the company, referral markets, supplier markets, potential employee markets and influence markets as within the grand scope of the practice (Christopher et al, 1991, Pp 21-31). The indicated example called upon the Customer Relationship Department to engage assistance from other quarters of the operation which included no marketing individuals to see to fulfilling the customer’s concerns, the foregoing has been pointed out by Barnes (1989, Pp 11-21). Jain et al (2003, Pp 17-22) support the foregoing analysis and add that the popular as well as more important utilizations of Customer Relationship Management can be found among;

1. Sales
2. Market Share
3. Profit generation
4. New customers
5. Customer turnover
6. Cost Reduction
7. Service time
8. Customer Complaints

Of the preceding list, new customers, customer turnover, service time and customer complaints were the issues addressed as a result of Mr. Smith, clearly 50% of the list. The aspect of the important to achieving operational efficiencies as well as improved bottom line performance and increased customer satisfaction has also been addressed by Bruhn (2003, Pp 178-197). He further stated that the development of these relationships over time represent the foundation for customer loyalty as well as retention (Bruhn et al, 2004).

Jain et al (2003, Pp 17-22) study of Customer Relationship Management identified ten behavioural dimensions that help to identify the effectiveness of the process, and which serve as a model as well as basis for evaluating as well as recommending an approach for implementation and utilization :

1. Attitude geared to serve:

The aspect of Customer Relationship Management refers to the importance of employees having the right attitude with regard to the handling and listening to customer concerns, calls and requests. The foregoing provides clear signals to the customer that the company is interested in resolution.

2. An understanding of expectations:

Customers have certain expectations regarding the company they have purchased a product from as gathered either from acquaintances, reputation, advertising or sales personnel. Meeting or better still exceeding these expectations is an importance variable in winning them over.

3. Perceptions of quality:

The company’s marketing, advertising, word of mouth and other claims provide customers with a certain level of expectation with regard to quality.

4. Reliability:

The performance of the product must be equal to or exceed other like products in terms of reliability, and when this fails, superior service and Customer Relationship Management can balance the perception.

5. Communication:

The better the representatives of the company listen as well as communicate with the customer, the higher the level of esteem they achieve in terms of the important aspect of interaction. The content, style, manner, timing, effectiveness and rapidity of response as well as anticipation of needs are all aspects of this category.

6. Customisation:

The delivering of either products or services to meet the needs and expectations of customers is a critical component in Customer Relationship Management.

7. Recognition:

The customer represents the reason why any company is in business and thus providing them with the proper respect is an important aspect in building a successful customer relationship foundation.

8. Keeping promises:

The advertised, written or stated claims of a company represent its public face of trust. The keeping of those commitments and promises immediately is a factor in building and maintaining a successful customer relationship.

9. Satisfaction audit:

A key aspect in gauging the performance the company is having in terms of customer satisfaction is obtaining direct feedback in the form of follow up calls surveys and questionnaires. These areas are critical in determining the after effects of actions taken as well as serving as guides to further policy and behavioural processes.

10. Retention:

Retaining customers is the cornerstone of the purpose of Customer Relationship Management.

The preceding aspects clearly point to the importance of ‘relationships’ (Ford, 1999, Pp 137-148) in the process of CRM as well as interpersonal interaction, reaction and anticipation in listening to, seeing to and expecting customer needs. The foregoing would have served Volkswagen well of it had utilized the proper forecasting models with regard to the incidents of problems in bringing a new model on line at a new assembly facility as well as tracking initial customer complaints and heading these off through advance communications such as letters and customer relationship telephone calls to alert customers of potential trouble spots. Gronroos (1997, P 327) refers to the foregoing as one of the prime objectives of relationship management, which he stated is “To establish, maintain and enhance relationships with customers… by mutual exchange and fulfilment of promises.”

Suggestions to Volkswagen, in addition to those already indicated, included the understanding that Customer Relationship Management is a proactive tool that focuses on customer retention (Little et al, 2003, P 26). The heart of the process is what Peppers et al (1995, P 48) refer to as a “…one-to-one…” marketing process whereby customers are treated as individuals which thus provides the company the opportunity to develop a relationship with them.

The example of Mr. Smith is a singular, yet potentially universal customer encounter in that the aspects of the complaints or service requests will change, but certainly not the underlying principles. Volkswagen’s poor quality showing in 2000 as reported by J.D. Power’s ratings should have been forecast through advance vehicle testing sessions as well as having the appropriate customer relationship contact reviews and correlations in place to see a pattern developing. In making recommendations to the company, attention was called to the following:

1. Model Forecasting

This aspect entails correlating the potential for part problems based upon the newness of introduction, as well as results encountered in vehicles test sessions. Where a part indicates the propensity for a higher than acceptable norm, it should be brought to the attention of the engineering as well as Customer Relationship Department and procedures developed to either head off the problem or have set procedures in place for calls and complaints

2. Alternative Strategies

While there are set procedures as well as warranty and other guidelines in place, there will be instances whereby some customers will take exception to aspects they should have known, or that were clearly stated in literature and other materials. In these instances exception resolution could be employed to make allowances for those customers while the stated points are gently pointed out for future reference and knowledge. The foregoing can apply to warranty and other coverage’s

3. Advance Resolution

The Internet provides a perfect means to inform as well as advise customers regarding aspects of their vehicle maintenance as well as warranty coverage’s. The tool can also be utilized to interface with an interactive web site that permits them to click on or scroll across areas rather than the traditional F&Q format that few people read or engage in. The utilization of an interactive tool will be more entertaining as well as informative and useful

4. Road Side Assistance

If economically feasible, this feature should be clearly pointed out as an option or made an integral part of the vehicle warranty, with the terms of loaner and other aspects clearly presented. It should be noted that this provision presently exists in Volkswagen warranty coverage’s included as standard, with the loaner provision based upon customer inconvenience.

The preceding suggestions are a result of the example utilized and are borne out of the theories represented by varied authorities on Customer Relationship Management. Taylor (2002, Pp 9-10) supports the preceding as he states that there are seven key skill categories that are a part of the successful implementation of a Customer Relationship Management process:

1. It should seek to be in harmony with the overall business plan
2. It should be seen as a strategic business process
3. Its purposes as well as objectives should be defined clearly and be communicated to all departments
4. It needs to be measurable
5. Realistic goals and objectives need to be set
6. It needs to be adapted to specific requirements
7. If needed, the culture of the company might need changing to comport to the Customer Relationship Management initiative

The preceding demonstrates that the implementation and utilization of a well planned, thought out and fluid Customer Relationship Management process that redefines itself on a consistent basis can aid a company in an enhanced reputation, bottom line profitability and customer retention. Ahmed et al (2002, Pp 29-45) stated that it is important that the internal staff also be treated as groups with their own needs as well as demands in crafting a Customer Relationship Management process. This enables their views, goals and objectives to be considered and where feasible, incorporated. The example utilized was before the prevalence of Internet based Customer Relationship Strategies and thus this technology represents a means to provide further service to customers in an unobtrusive manner. The Internet also permits the customer relationship manager, and company, to maximize the performance of Customer Relationship Management tools and processes through more precise data collection and segmentation methodologies which results in being able to target customer needs, preferences and predict probabilities for a more proactive approach based upon the foregoing, rather than the traditional reactive mode.

Conclusion

Given the period of time since the pronouncement by Peter Drucker (1954, p. 64) that “… the purpose of a firm is to create and serve customers…” his vision has proved to be true. Morris et al (2001, p 98), Professor Adrian Payne of Cranfield University (2003), Chye et al (20002, Pp 1-27) Storbacka et al (2001, P 8) and a litany of others have concluded the importance of Customer Relationship Management in having an integral part in the achievement or enhancement of

1. Sales
2. Market Share
3. Profit generation
4. New customers
5. Customer turnover
6. Cost Reduction
7. Service time
8. Customer Complaints (Jain et al, 2003, Pp 17-22)

Jain et al (2003, Pp 17-22) observations synthesized the foregoing into ten behavioural dimensions to identify the process effectiveness that clearly illustrates the organization wide dimensions involved:

1. Attitude geared to serve:
2. An understanding of expectations:
3. Perceptions of quality:
4. Reliability:
5. Communication:
6. Customisation:
7. Recognition:
8. Keeping promises:
9. Satisfaction audit:
10. Retention:

The customer has, is and remains as ‘king’ and in order to keep him in the realm a company’s overall strategy must be in consort with doing all that is possible inconsideration of bottom line objectives. The foregoing illustration that utilized the Volkswagen company provided an example that incorporated a goodly percentage of the aspects as indicated by Jain et al (2003, Pp 17-22), Morris et al (2001, p 98), Professor Adrian Payne (2003), Chye et al (20002, Pp 1-27) and Storbacka et al (2001, P 8), among others. With the understanding that the customer is the purpose as well as reason for being of any enterprise, then the application of Customer Relationship Management strategies no longer is a problem, it represents an opportunity to enhance the effectiveness of the company. Little et al (2003, P 21) sums up the foregoing by stating states that relationship marketing represents “… an alternative strategy to the traditional marketing mix approach … (as) … a means of obtaining sustainable competitive advantage and the best way to retain customers in the long run”.

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