Problems at Graybar Case Study

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Graybar: Case Study

What was the problem at Graybar described in this case? How did this problem affect Graybar's business performance?

Graybar is a wholesale distributing company that deals solely with organizations, not personal retail customers. Still, customer service is an important component of the success of any entity, and Graybar is currently lacking in this particular area. Graybar is failing to adequately segment its customers, a critical component of organizational success. Core customers are defined as customers that place high-volume orders on a regular basis, versus opportunistic customers who only do so when their current distributor has failed to deliver and is experiencing a problem (marginal customers only place orders sporadically) ("Graybar goes for customer analytics," 317). However, opportunistic customers are not necessarily 'bad' customers, rather they are customers that need to be cultivated in a different fashion. Opportunistic customers tend to pay well even though they are not high-volume customers. "Oftentimes, these are your competitors' best customers, the core customers for your competitors, and they're people that you would like to establish relationships with" (Lawrence 2012).

The challenge of any company is to cultivate these core customers and turn the other types of customers into core customers. This requires research and market analysis, and currently Graybar is simply focusing on companies that spend the most money without trying to understand how to encourage other types of customers to become part of its 'core.' The result is squandering precious organizational resources, which for any organization are finite. For example, some companies might spend a great deal of money on orders but be opportunistic in their profile because they only do so sporadically: before implementing CRM software, Graybar was not differentiating between these types of customers and more frequent users. Different categories of customers require different approaches: for example, it might be necessary to woo an opportunistic customer with quality, while a core customer might require a discount to incentivize him or her to stay vs. switching to a cheaper competitor.

CRM software encourages organizations to take an objective look at customers (Lawrence 2012). All too often, customer relationships can be unduly influenced by bias and even sentimentality on the part of the organization. As a large, national organization, Graybar cannot afford to fall behind its competitors. Understanding a 'best practices' approach is essential to stay ahead of its competition.

Q2. How did analytical CRM change the way Graybar ran its business? Compare the way Graybar handled its customer relationships before and after it implemented analytical CRM.

After implementing CRM, Graybar was able to segment its customers more effectively. The first group was high-volume profitable core customers; the company's financial base. The second group was opportunistic customers who were often driven to the organization because of a short-term need. For single orders, "these customers tend to pay well…but they're not loyal to you and they don't do much volume and they're aware of that. And since they're aware of that, that means that they don't get demanding on pricing or cost to serve" (Lawrence 2012). However, since these customers are often loyal to competitors, it makes sense to try to cultivate them to some degree. Finally, there are marginal customers who are infrequent, low-volume customers who often are unprofitable because they demand low prices and/or high levels of service and service-drain customers who buy at high volume but are very high maintenance in terms of services. All of this is very easy to see using CRM: for example, an opportunistic customer may have recently made a large order, but if the company examines its buying patterns over time, it will see that this was merely a single order placed after a long period not ordering. Service-drain customers might buy at volume but return a great deal of the merchandise as unacceptable.

Sales approaches must be tailored to segments based upon this knowledge, allowing the company to identify most profitable customers; potentially profitable customers; and unprofitable customers. It could also emphasize cultivating loyalty with potential core customers that are currently opportunistic customers, versus wasting time on marginal and service-drain customers whose buying habits are unlikely to change.

Q3. Research SAP Customer Value Intelligence further. What other benefits could Graybar obtain from this software?

Using SAP takes a tremendous investment of time and money so it is important for the company that it yield impressive dividends in terms of the value it is able to accrue for the organization. As well as understanding the buying patterns of the customer base, it is vital that Graybar use the information to its advantage in a creative and productive fashion.

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The software allows for an agile response to changing market conditions. "Markets can be divided strategically into segments to create scorecards, identify white spaces, and analyze customer behavior. This enables sales departments to make suitable offers and steer resources toward promising customers, channels, and products" (Peterson 2014). A core customer may be phasing into an opportunistic customer and Graybar must be aware of this and change its pricing and service strategies accordingly. The one thing constant is change.

An ideal organization can anticipate customer understand, anticipate and serve customer needs even before the customers are fully aware of them themselves. Social CRM is one way to do this, allowing companies to track customer behavior on social media as well as via more conventional channels. By understanding Facebook and Twitter postings and traffic in terms of what they indicate about future behaviors, new customers can be cultivated as well as old customers (Cawood and Bailey 2006: 280).

Q1: Should "service drain" customers be ignored? Some companies feel that such customers should be "fired" as they are costing more than they are worth. What do you think?

In some instances, it may be advised to 'fire' service drain customers. Cultivating each and every customer with the same degree of intensity does not make financial sense for the sales department because it takes both time and money to cultivate and serve customers. The resources of a company are not infinite and every hour and every dollar spent on a customer in one capacity means a diversion of resources that could be better spent in another area. Graybar's experience highlights how "traditional geographic or product-line strategy for dividing customers between salespeople may be outdated because it could give some salespeople many more profitable customers while another is stuck with marginal, less-profitable ones. And if too many core customers are managed by a single sales rep, some are likely to be neglected" (Hannon 2012). Portioning off the core customers to different reps is both more equitable and also more sensible from a profit-making perspective. Quite simply, spending too much time with marginal and service-drain customers unlikely to change their buying behaviors in the near future is a waste of organizational resources and may ultimately result in the loss of the more loyal core customers that Graybar needs.

On the other than, the consumer landscape is always changing. Simply firing service drain customers may mean a loss of potential revenue in the future, given that their needs may change. There is no guarantee that core customers will remain that way forever and firing a customer means a loss of potential business in the future. Ideally, the company should work with service drain customers to ensure that their needs are more effective met during their first requests, and to avoid the financial drain they enact upon the company as much as possible. Even if these customers are not immediately changed in terms of their relationship with the company in the here and now, they may be changed in terms of their relationship in the future. It is also possible that they can be used as leads to connect with new customers.

Creating a bad business relationship with any customer is problematic, which is inevitably the result when one is 'fired.' Although these customers may not demand the same level of attention and focus as a core customer, the company must still engage in a relationship with creates a positive image for Graybar and maximizes the potential profitability for the organization.

Q2: In your response to Question #3, you quote Peterson as saying "identify white spaces." What does this mean, exactly?

Identifying white spaces means identifying areas which can be cultivated by the organization to generate a profit that are currently being ignored. White spaces are blank areas which the organization can potentially mine to generate more revenue. The specific SAP application Graybar is using can be broken down into three distinct categories. SAP Customer Analytics provides the following modes of analysis: SAP Customer Value Intelligence "provides recommendations on improving customer value," including stratification recommendations and which segments to target and grow based upon both revenue, profit margin, and behavioral patterns (Hannon 2012). The SAP Account Intelligence provides sales representatives "with a focused interface to execute on the insight and recommendations for their accounts, all on a mobile device" to make SAP recommendations more easily actionable by reps (Hannon 2012). SAP Audience Discovery….....

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