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Engaging suppliers in CRM: empirical insights from Tesco
Thursday 1 March 2012, 16:00
LT5, Management School
Professor Andrew Fearne
Kent Business School
Bio: Andrew Fearne is professor of food marketing and supply chain management and the director of the Centre for Value Chain Research (www.kent.ac.uk/cvcr) at Kent Business School, University of Kent. His research is focussed on consumer behaviour and the co-ordination of value chains, from field to fork. He is the founding editor of the International Journal of Supply Chain Management, author of over 100 articles and the 14th Adelaide Thinker in Residence (www.thinkers.sa.gov.au).
Customer Relationship Management (CRM) emerged in the mid 1990s promising to facilitate the management of profitable and long-term customer relationships (Osarenkhoe & Bennani, 2007). In the retail industry, CRM is manifested in loyalty programs designed to intensify relationships and stimulate customer loyalty (Leenheer & Bijmolt, 2007). Grocery retailers, in particular, utilise customer loyalty card data to tailor product categories according to customer wants and needs.
One of the key criticisms of CRM centers upon the failure of organisations to exploit the full potential of the operational data, more often used as a sophisticated mass marketing tool (Kelly, 2000). Such latent weaknesses in CRM implementation are particularly relevant in the context of supermarkets, where loyalty card use is particularly high and supermarkets rely on their own brand offering to build and maintain the loyalty of increasingly promiscuous shoppers.
Linking CRM and SRM
SRM is defined as “the mirror image of customer relationship management” (Croxton, Garcia-Dastugue, Lambert & Rogers, 2001: 24); whereby CRM involves the structure for how the relationship with the customer is developed and maintained, and SRM defines how a company interacts with its suppliers.
In the context of this study, the theory of organisational justice is adapted to inter-organisational relationships (Hornibrook, Fearne & Lazzarin, 2009). It is proposed that the concept of fairness, or justice, will influence the strength of buyer-supplier relationships and in particular, supplier engagement with a CRM strategy. In particular, we posit that engagement of suppliers in the process of CRM implementation is contingent upon the nature of the relationship between the custodian of the CRM strategy, in this case, Tesco and their suppliers. The rationale is that suppliers who feel fairly treated by Tesco are more likely to engage in their CRM strategy and invest in the acquisition and use of their loyalty card and other data than those who perceive their relationship with Tesco to be unfair.
A conceptual model (Figure 1) is used to test the role that SRM plays in the engagement of suppliers with the use of data critical for the sustainable development of CRM amongst retailers of fast moving consumer goods, of which supermarkets are an example. In summary, it is proposed that perceptions of justice capture the nature of supplier relationship management in practice and thus we hypothesise that supplier’s perceptions of fairness will positively influence supplier engagement with CRM initiatives as demonstrated through the use and perceived usefulness of customer data.
Data was collected during the summer of 2011 via a survey of Tesco suppliers and analysed using a multiple regression model.
The results of this study indicate that suppliers are more engaged with accessing operational data and focusing on day to day activities, rather than using loyalty card data to support the successful implementation of Tesco’s CRM strategy. This is cause for concern for a market leading supermarket such as Tesco who operates in a mature and fiercely competitive market, in which incremental growth is dependent on operational improvements at the margin. Moreover, given that the buying teams do not have direct access to Clubcard data, its use, in support of a CRM activity that has been so influential Tesco’s growth over the last fifteen years, is fundamentally dependent on the willingness and ability of suppliers to access and exploit the consumer insight that the Clubcard data provides.
Given the crucial role of suppliers in collaborative supply chains, it is surprising that little attention has been paid to the nature and management of supplier relationships in the implementation of a CRM strategy, particularly in the retail industry. Theoretically, suppliers who perceive they are treated fairly are more likely to commit to the relationship in the long term, and to engage with the activities and investments that are over and above those mandated within contractual arrangements, but are essential to achieve long term success. Indeed, the results of this study demonstrate that suppliers who perceive they are being treated fairly are more likely to become engaged with their customer’s CRM strategy, through their use and attitudes towards retailer data.
In particular, the results show that suppliers who feel they are being adequately and fairly rewarded in terms of their input into the relationship (distributive justice) are more likely to use data essential to the Implementation of Tesco’s CRM strategy. This indicates that suppliers who are fairly treated in terms of distribution of benefits are more likely to invest in the relationship, reinforcing the view that successful implementation of a CRM strategy depends upon the nature of the relationship with suppliers. On the other hand, suppliers who feel they have not been adequately rewarded appear less likely to invest resources in using retailer data and may be more likely to engage in retaliatory or negative behaviours, such as taking technology innovations, enhanced service models, or new product designs, to other competing retailers. This reinforces the view that suppliers need to be rewarded if they are to engage with loyalty card data, and contribute towards the successful implementation of CRM strategy.
Croxton, K. L., Garcia-Dastugue, S. J., Lambert, D. M. & Rogers, D. S. (2001). The supply chain management processes. The International Journal of Logistics Management, 12 2, pp 13-36.
Hornibrook, S., Fearne, A. & Lazzarin, M. (2009). Exploring the association between fairness and organisational outcomes in supply chain relationships. International Journal of Retail & Distribution Management, 37 6, pp 790-803.
Kelly, S. (2000). Analytical CRM: the fusion of data and intelligence. Interactive Marketing, 1 3, pp 262-7.
Leenheer, J. & Bijmolt, T. H. A. (2007). Which retailers adopt a loyalty program? An empirical study. Journal of Retailing and Consumer Services, 14 1, January, pp 35- 44.
Osarenkhoe, A. & Bennani, A. E. (2007). An exploratory study of implementation of customer relationship management strategy. Business Process Management Journal, 13 1, pp 139-164.