Customer retention is not enough
Coyles, Stephanie and Gokey, Timothy C., The McKinsey
Quarterly, 2002 Number 2
Every company knows that it costs far less to hold on
to a customer than to acquire a new one. That's why
customer retention has become the Holy Grail in industries
from airlines to wireless. Yet, according to this article,
defecting customers are far less of a problem than customers
who change their buying patterns. Today's typical metrics
of customer satisfaction and defection do not tell a
company how susceptible its customers are to changing
their spending patterns. Companies spend millions trying
to understand and influence customers - to hold on to
them and to encourage them to spend more. But to increase
the customers' loyalty, companies must do more than
track today's typical metrics: satisfaction and defection.
For, despite all the money invested to promote loyalty
among high-value customers, it is increasingly elusive
in almost every industry. The authors here describes
how new ways of understanding these changes can unlock
the power of loyalty.
Open-Market Innovation
Rigby, Darrell and Zook, Chris, Harvard Business Review,
October 1, 2002
This article tells us how many companies in many industries
are feeling immense pressure to improve their ability
to innovate. But executives know that the best ideas
are not always coming out of their own R&D labs.
That is the reason why a growing number of companies
are exploring the idea of open-market innovation,
an approach that uses tools such as licensing, joint
ventures, and strategic alliances to bring the benefits
of free trade to the flow of new ideas. For instance,
when faced with the unanticipated anthrax scare last
fall, Pitney Bowes had nothing in its R&D pipeline
to help its customers combat the deadly spores. So
it sought help from outside innovators to come up
with scanning and imaging technologies that could
alert its customers to tainted letters and packages.
In this paper, the authors describe the advantages
and disadvantages of open-market innovation and the
ways some companies are using it to gain competitive
advantage. Creative people within a company will stick
around longer if they know their ideas will eventually
find a home as internal R&D projects or as concepts
licensed to outside buyers. However, the authors warn
against entering into open-market innovation without
properly structuring deals.
Marketing and Operations:Can this marriage be saved?
Lasetar, Tim, Kandybin, Alex and Houston, Pat, Strategy
+ Business, First quarter, 2002
Ongoing battles between marketing and operations provide
fodder for everyone from humorists to organisational
behavior specialists. However, the stark truth is
that marketing and operations do have fundamentally
different perspectives - and for very good reason,
says this article. While marketing focuses on top-line
revenue and, accordingly, seeks product variety (available
on short notice) from well-stocked inventory pools,
operations worries about cost, looking for efficiencies
in manufacturing and the supply chain. Seldom does
either function seriously examine value as perceived
by the customer. This being the case, conflict is
inherent, and organisational incentives alone cannot
solve the problem, assert the authors. Rather than
debating binary options from functional points of
view, companies must seek to balance the trade-offs
between costs of different service options and their
value to customers, they plead. This article refers
to the decisions resulting from these explicit trade-offs
as Differentiated Service Policies that allow both
to exist.
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