Being able to offer real added-value to the
Mutual customer
approach: how industry
and trade are executing
collaborative customer
relationship
management
Alexander Kracklauer
Olaf Passenheim and
Dirk Seifert
The authors
Alexander Kracklauer is the Senior Account
Management of Procter & Gamble, Birkenwag, Germany.
Olaf Passenheim is a PhD Student at the Department of
Economics and Politics, at the University of Hamburg,
Hamburg, Germany.
Dirk Seifert is the Head of a collaborative planning,
forecasting and replenishment (CFPR) research project at
Harvard Business School, Boston, Massachusetts, USA.
For full authors details, please refer to the ``About the
authors'' section at the end of the paper.
Keywords
Relationship marketing, Distribution management
Abstract
Collaborative customer relationship management (CCRM) is
a new emerging strategic approach in the consumer goods
sector. In the past, collaboration between a supplier and a
retailer started with category management and soon proved
to generate a mutual benefit for both parties and for the
consumer as well (creating a win-win-win-situation). Now,
CCRM represents a quantum leap in the joint effort of both
partners to meet and actually exceed customer
expectations. First movers in implementing the new
strategic concept, like Procter & Gamble, report increased
sales and a significant higher customer retention rate.
Beside enhanced sales it also helps to exploit cost saving
potentials in the value chain. The concept supports target-
oriented-marketing-efforts and makes marketing
investments of suppliers and retailers more efficient.
Electronic access
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International Journal of Retail & Distribution Management
Volume 29 . Number 12 . 2001 . pp. 515±519
# MCB University Press . ISSN 0959-0552
515
consumer means closer co-operation between
industry and trade in the future. This is not an
easy mission, especially considering their past
relationship that was more often shaped by
confrontation than co-operation. Taking into
account the fast changing consumer shopping
habits, it becomes increasingly difficult to
adapt the product assortment to the
customer's ever changing needs. But
customers, frequently illustrated as ``bargain-
hunters'', are incessantly looking for the best
added-value. This does not necessarily have
to be the cheapest offer. Many studies have
proven the customer's willingness to pay
premium prices, but only if the product or the
service provides distinctively outstanding
value.
The research of customer needs and the
professional management of customer
relationship becomes less difficult if
knowledge about the customer is shared
between industry and trade. The millions
spent by industry for market research and
trade's excellent knowledge of the customer's
shopping behaviour at the point-of-sale
(POS) are combined to produce a mutually
beneficial tool.
In the past, co-operation between industry
and trade was primarily focused on the
helpful co-ordination of different store and
assortment categories (category
management). Just recently, it has been
observed that this co-operation has become
increasingly focused on a closer teamwork in
customer relationship management (CRM).
In that context, the authors of this paper have
introduced the phrase ``collaborative
customer relationship management
(CCRM)''. This strategic approach unleashes
the possibility to exhaust synergy potentials in
addressing the customer. Additionally, the
integration of Internet technology supports
the efficient use of CCRM for both parties.
Category management as origin for
collaborative marketing efforts
Even previous category management
practices were based on linking business
information between industry and trade. Data
exchange via electronic data interchange
(EDI) was an early structure of e-commerce ±
predominantly focused on attaining greater
efficiency in respect to order processing and
 Mutual customer approach
Alexander Kracklauer, Olaf Passenheim and Dirk Seifert
invoice rendering. E-commerce and
e-business are actually important tools for the
further development of category
management. The Internet enables industry
and trade to exchange information at an even
higher rate and to link industry and suppliers
along the value-chain. Internet technology
can now be used for process optimisation.
Furthermore, the Internet can be used to
improve the quality of CRM ± with the
positive effect of strongly integrated category
management focused on marketing activities.
The neglected side of category management ±
the marketing of categories to specific set
goals ± will be influenced by two
developments in the future:
(1) the importance of improving the quality
of the customer relationship; and
(2) the growing necessity of ``one-on-one''
marketing.
While customer relationship management by
Internet (e-CRM) is discussed intensely and
is partly already utilised by innovative leaders
in the trade sector (amazon.com), the
consideration of a common use of customer
data by industry and trade has yet to occur.
Tearing down the wall of suspicion
Considering all levels of collaborative
electronic customer relationship (ECR),
category management demands the highest
degree of mutual understanding and
co-operation between industry and trade.
Without information sharing, category
management is destined to fail. Mutual
openness and trust are necessary prerequisites
for success. Information about consumer
needs, customer habits (shopper data),
market and competitor data, marketing,
strategies and programs are readily available
to both industry and trade. Joint usage of this
information results in multiple returns in
efficiency.
Greater emphasis and importance will be
placed on the enactment of the outlined
potential. The Internet is not merely a tool to
secure consumers, but also offers the
opportunity to satisfy the customer's desire
for more flexibility. Temporal and physical
barriers between trade and customers vanish
with information being accessible by
experienced consumers, anywhere and at
anytime. The Internet raises shopper
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Volume 29 . Number 12 . 2001 . 515±519
expectations, intensifies competition,
decreases margins along the value-chain and
minimises consumer loyalty. Being the
location for differentiating between
traditional ``brick-and-mortar'' companies,
the POS will win and lose importance. It will
lose importance as shoppers continue to shop
more on-line and therefore use the traditional
off-line shops less often. It will gain
importance as shoppers expect ``shopping
events/experiences'' which cannot be offered
on-line.
The answer for traditional trade seems
obvious: they must focus on improving
consumer loyalty to ensure their business
success and secure their preferred target
group. The points of interest for both industry
and trade are identical. There is great
potential in the mutual implementation of this
task.
Conventional CRM as critical leverage
for increased turn-over in industry and
trade
Various studies have proven the enormous
increase in the value of customers over time ±
``customer lifetime value''. Depending on the
branch, a 5 per cent reduction in customer
drift leads to an increased contribution
margin of 25-80 per cent (retail trade: 25 per
cent). CRM verifies the attained knowledge
that committed existing customers can be
served cheaper and sold more. They require
less marketing effort and hence incur less
costs/marketing expenditure. Customer
satisfaction and loyalty is the focus of CRM.
CRM is a strategy to identify and attract
profitable customers, tying them to the
company or product by efficient relationship
marketing to guarantee profitable growth. For
the retail trade, as for the consumer goods
industry, CRM offers a great platform for the
acquisition of new customers in addition to
gaining customer satisfaction and loyalty.
Additionally, existing customer relationships
can be used to drive sales via up or cross-
selling. The most ``valuable'' customers
especially need to be identified, attracted and
retained.
A fundamental factor for successful CRM is
the efficient linking of customer data to fulfil
customer needs better. The proactive use of
customer data for improving customer
 Mutual customer approach
Alexander Kracklauer, Olaf Passenheim and Dirk Seifert
relationships is crucial, opposed to simply
collecting data for future retrieval.
At present there are numerous models of
CRM. Regarding CRM as a follow-on
development to category management, there
are basically three main steps important for
efficient CRM in retail trade:
(1) Acquire new and profitable customers. The
retail trade has to build-up product- and
service-leadership. In the context of
category management, leadership stands
for the consequent alignment of product
presentation (avoiding out-of-stocks,
presenting attractive product
assortments, etc.) with innovations
(stressing the competence of innovation,
being first with new products on the
market, etc.). It must be the focus to offer
the customer superior products with
outstanding service.
(2) Improve the profitability of existing
customers. All possibilities to increase the
customer's product selection/basket by
cross and up-selling should be used. The
goal must be one-stop-shopping for the
customer's specific needs. Category
management refers to optimal efficiency
of promotional/sales boosting activities
using all available customer data. The
presentation of the range of goods on
offer should also improve the likelihood
of related and premium selling.
(3) Retain the profitable customers. Data
collected from numerous category
management projects indicate that loyal
customers (defined as customers with a
requirement rate of > 25 per cent in a
particular outlet) comprise approximately
25-30 per cent of all customers. However,
these loyal customers are responsible for
65-75 per cent of the total turnover. This
target group must be reached with
specific and focused marketing. The
analysis of customer data, e.g. data
collected from customer cards, is
important in identifying these valuable
customers.
The case study of Procter & Gamble and the
trade company A&P (see the Appendix)
should enhance the comprehension of
CCRM.
This example of collaborative development
of a product category or business area can
easily be applied to innumerable other
categories or target groups. Additional bases
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for developing categories or attracting specific
target groups are e.g. ``Wine'' (target group:
high income households); or ``Ready-to-eat-
meals'' (target group: one-person
households). A prerequisite for undertaking a
CM-Project is the precise definition of the
target group ± only then can target-oriented
projects can be started.
Strategic areas of co-operation within
the field of CCRM
Future CRM will not be manageable within a
sole company, the on-line consumer of the
future being more demanding than ever
before. First, service and product providers
need to generate an ``added value'', prior to
offering that benefit to their customers for the
purpose of differentiating from the
competition. In order to reach this goal,
companies need to go into vertical and/or
horizontal partnerships. Whilst horizontal
partnerships ± affiliate relationship
management (ARM) ± are intended for
companies at the same level of the value chain
to expand their customer scope, to use
alternative distribution channels or simply to
convey ``added-value'' information to their
customer; vertical partnerships are aimed at
partnerships between companies at various
stages along the value chain. The achievement
of strategic advantages over the competitor
through co-operation in logistics and
marketing, via supply integration and
inter-organisational process optimisation are
important levers to attain rises in turn-over
and profit. Supplier relationship management
(SRM) of the future will acknowledge that
partnerships with parties at other stages of the
value chain will release substantial potential in
efficiency ± if the structures and the processes
of all parties involved are co-ordinated.
Why SRM? Next, a few questions
indicating guidelines for the application of
synergies and common strategic goal setting:
. Is the retailer capable of identifying the
most profitable customers by themselves
and can they determine their customers'
most important needs instore and online?
. Does the retailer know their customers'
needs and desires within different
product categories and their actual
behaviour instore or online?
. Does the retailer know how their
customers act as instore and online
 Mutual customer approach
Alexander Kracklauer, Olaf Passenheim and Dirk Seifert
shoppers? Do they recognise the major
opportunity gaps compared with the
best-in-class competitor in the various
product categories?
. Is the retailer able to offer personalised
products or services based on detailed
consumer and shopper knowledge?
. Is the retailer able to provide product
knowledge or on-call service for all
product categories, ensuring relevant
relationship marketing to their target
group?
. Even if the retailer is able to co-ordinate
all of these processes themselves, without
support from a supplier, would a
co-operation lead to cost savings? Where
can trade and industry build up
meaningful strategic partnerships?
Observing the core process of CRM and the
points of contact between consumers and
retailers, countless mutual opportunities for
added value are uncovered (Figure 1)
As consumer information is mainly
contributed by the supplier, the possibilities
to realise additional value-chain opportunities
in sales will increase dramatically through a
co-operative partnership. Quantitative and
qualitative market research by the
manufacturer can be important tools to
facilitate up or cross-selling. In combination
with trade's analytic options (e.g. docket
analysis), there are numerous possibilities for
business development. For example, market
research in the paper industry could uncover
the fact that women primarily use sanitary
pads after pregnancy. Knowing that, retailers
could analyse check-out dockets, determining
to what degree young mothers purchase pads
in addition to diapers in the stores, addressing
this additional business potential with specific
merchandising programs.
Figure 1 Core processes of CRM within (on-line) trade
y
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Industry can also heavily contribute added
value to retailers' instore-Web-presence. In
US retail businesses, it is common practice for
category captains to prepare the concepts for
shelf displays within the specific product
categories, implementing after verification
with the trade partner. It is conceivable for
product presentation on-line to use similar
models ± suppliers/manufacturers can
provide additional information for their
category or product range for on-line
shoppers.
In marketing and fulfilment, most existing
partnerships between industry and trade
already have successful co-operative business
models. Jointly prepared instore and on-line
promotions and direct mailings are good
models for the capabilities resulting from a
mutual marketing program. The Internet
provides new areas of co-operation. Industry
can provide information of the availability of
its products or brands in the retail outlets of
their trading partners. Industry can also use
the consumer data collected from the Internet
to do a geographical segmentation or send out
direct mailings within the catchment area of a
trading partner's outlet.
Customer relationship and customer loyalty
programs are further co-operation levels with
great efficiency potential. Consumer
databases of large trading companies can be
used to run loyalty programs, for example,
right down to the individual outlets. Further,
there are also possibilities to identify
profitable customer segments jointly and tie
them to the specific outlet or brand.
In the field of customer service, the
co-operation between industry and trade is
unavoidable. A large amount of product
information for customers can only be
provided by the supplier; detailed knowledge
about the instore presence of the product can
only be provided by the supplier. But also
additional product information can easily be
provided by the industry partner (e.g.
information about baby care).
In an environment with a constant
reduction in consumer loyalty, industry as
well as trade companies are encouraged to
co-ordinate their CRM efforts. Data collected
at the different points of contact with the
consumer should be analysed and used co-
operatively. CCRM offers a strategic
approach to take consequential advantage of
existing synergies between these two
market players.
 Mutual customer approach
Alexander Kracklauer, Olaf Passenheim and Dirk Seifert
Further reading
Seifert, D. (2001), Efficient Consumer Response ±
Strategic Success Factors for a Value-adding
Partnership between Supplier and Retailer, Hampp,
Munich.
Seifert, D. (2001), Efficient Consumer Response, Supply
Chain Management, Category Management and
Collaborative Planning Forecasting and
Replenishment as New Strategicc Approaches,
2nd ed., Hampp, Munich.
Appendix. CRM-case study:
Procter & Gamble and A&P
A good example of a successful category
management project as part of comprehensive
CRM is the co-operation between Procter &
Gamble (P&G) and the North-American
trading company A&P (a branch of the
German Tengelmann Group). Primarily, the
task of the co-operation was the identification
of high income households in order to attract
these households to shop in the outlets of
A&P using relevant concepts. A detailed
analysis of consumer and shopper data,
supported by data collected from A&P
distributed customer cards (``loyalty cards'')
and consumer/shopper data provided by
P&G, the target group ``young families with
baby/infants'' was identified as a lucrative
consumer segment with enormous potential.
To attract this target group, an extensive
category management and co-marketing-
project was launched. First, checkout
dockets, loyalty cards and focus groups
provided information for analysing the most
important customer demands. The most
important product categories for the target
group, e.g. ``diapers'';``baby-food'' or ``baby-
shampoo'' have been arranged to form a
``baby care centre'' and positioned to
enhance/complement each other. As a result,
avoidable time spent by the customer
searching for products has been eliminated,
one-stop-shopping has become possible and
impulse shopping promoted. At the same
time, shopping for young mothers has been
modified into event shopping by means of
eye-catching instore product presentation.
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The assembly of product assortments based
on purpose, offers the defined target group,
``young family'', a real additional benefit,
thereby building customer loyalty, which has
profound influence regarding their future
store/outlet choice. Simultaneously, an
extensive marketing program for the ``baby
club'' has been initiated, encompassing direct
mailing for the target group, TV, radio and
Internet advertising. This marketing
programme was aimed at the acquisition of
new and profitable young families. A good
illustration for a joint marketing co-operation
is the linking of the P&G Webpage, ``Pampers
Parenting Institute'', with the on-line
marketing campaign of A&P for the ``baby
club''. Following that link, visitors of the A&P
Web page receive additional information, tips
and tricks on babycare and baby health topics
± hence providing added value. To gather
additional information, an extra loyalty card
was handed out by A&P to this particular
target group. In the future, outlets will have a
specific data profile of the target group for
further POS activities, thereby binding and
retaining the profitable target group.
About the authors
Dr Alexander Kracklauer is currently
Senior Account Manager of Procter &
Gamble, Germany. Prior to this assignment
he held senior positions in the Marketing and
Sales field in the USA and Germany.
Olaf Passenheim is currently in the PhD
program of the University of Economics and
Politics of Hamburg. Before that he held
senior positions with Droege Consulting and
Procter & Gamble.
Dirk Seifert is the head of a CPFR
(Collaborative Planning, Forecasting and
Replenishment)-research project at Harvard
Business School. Prior to this he was Director
of the Bertelsmann e-Commerce Group. He
has also held senior positions with the
Category Management Division of Procter &
Gamble and with the International Marketing
Department of Bayer.