Plan RICE: Using CRM Strategies to Enhance UP s Partnerships with Customers. Richard J. Cantril. Makenzie Carlson. Nathan Feather.

Transcription

1 Plan RICE 1 Running head: PLAN RICE Plan RICE: Using CRM Strategies to Enhance UP s Partnerships with Customers Richard J. Cantril Makenzie Carlson Nathan Feather Tami Kaschke Kelsey Maynard Jason Plouzek Marketing Project for Union Pacific MRKT 480 University of Nebraska-Lincoln September 16, 2009

2 Plan RICE 2 TABLE OF CONTENTS EXECUTIVE SUMMARY... 3 Introduction... 4 Currently Changing Demand Drivers... 4 Recommendation: Underutilized Strategic Marketing Opportunity... 4 Plan RICE... 5 Rewards... 5 Innovative Interactions... 5 Consulting... 6 Extranet Development... 6 Conclusion... 7 References... 8 Appendix... A1 Figure 1... A1 Figure 2... A1 Figure 3... A1

3 Plan RICE 3 EXECUTIVE SUMMARY Recommendation This proposal recommends augmenting Union Pacific s customer relationship management (CRM) program in order to both expand and reinforce strategic partnerships with customers in the rice market. Furthermore, this plan aims to evolve Union Pacific s role in the marketing channel from providing only ancillary services to contributing critical logistics expertise throughout the channel. The components of this plan, Plan RICE, develop a conceptual framework for expanding the company s existing CRM program. Plan RICE identifies five major areas rewards, innovative interactions, consulting, and extranet development where additional relational activities will significantly increase customer equity by improving share of customer in the rice market. Plan RICE Rewards The rewards program will balance hard benefits (coupons, discounts, etc.) with soft benefits (usually intangible reinforcements). Rewards will be personalized to meet the needs of individual customers. Personalization will require additional customer research, but the insights gained will prove invaluable in maintaining long-term relationships with both current and new customers. Innovative Interactions Through the use of satisfaction surveys, instant feedback systems, and personal contact, customer trust and (subsequently) loyalty will increase. Additionally, knowledge gained from customers will identify operational areas for improvement. Consulting By providing consulting services, the company will demonstrate competence as well as play a decision-making role in the marketing channel (thus moving beyond ancillary tasks). Also, channel functions should see greater efficiencies as customers implement logistical advice. Union Pacific will generate both expert and referent power which directly affect loyalty. Extranet Development Integrating company extranets with CRM systems will incalculably increase extranet capabilities. Particularly, the new system will autonomously uncover both trends in customer behavior and opportunities in the rice market as a whole. Rationale UP has historically supported innovation and creativity, and subsequently, the company has successfully competed in the railroad industry for more than a century. Furthermore, UP knows how to focus on major company strengths. With the overwhelming uncertainty in the current economy, large capital investments seem unattractive. Plan RICE gives Union Pacific a rare opportunity to focus on an area of traditional strength in order to emerge from the recession with a unique and sustainable competitive advantage.

4 Plan RICE 4 Introduction Rice production has a long history in the United States. Farming methods and the type of rice grown may have changed, but rice has remained as a staple food product through the years. The United States currently produces many different high-quality varieties of rice including short, medium, and long grain rice, jasmine, basmati, della, aromatic red, black japonica, sweet, arborio, and others (Specialty Varieties, 2009). Rice is grown in only six U.S. States: Arkansas, California, Louisiana, Texas, Mississippi, and Missouri (Figure 1). Of the rice consumed in the U.S., 85% originates from domestic producers. While the U.S. produces only around 2% of the world s annual rice supply (Figure 2), domestic producers export about half of the rice grown in the U.S. Domestic rice has many different uses including direct food use (56%), processed food use (18%), beer and sake (12.2%), pet food (12%), and other minor uses (1%) (U.S. Rice Domestic Usage Report, 2009). Currently Changing Demand Drivers The export market has significant potential for future growth. An increasing foreign demand for U.S. rice would alter the transportation paths rice follows from harvest to the final consumer. More rice would require transportation to U.S. port locations. Cuba represents one market that could increase significantly with some legislative changes. Cuba imports 6,000,000 MT of rice annually. On September 3, 2009, the U.S. Treasury Department agreed to a new general license for travel-related transactions in Cuba involving agriculture. The previous license procedures restricted transactions. If this market re-opens, American rice producers could see greater opportunities abroad (U.S. Department of the Treasury, 2009). Additionally, Ethanol production could soon develop a major dependency on rice. U.S. ethanol production has exploded in the last ten years (Figure 3). Although ethanol-producing techniques have developed somewhat slowly, the technology does exist to convert rice hulls into ethanol. As research in this area begins to lower the cost of rice conversion, the demand for rice in the energy industry could spike sharply (American Coalition for Ethanol, 2009). Recommendation: Underutilized Strategic Marketing Opportunity The Union Pacific Railroad (UP) defines the tariff system as a listing of rates used when moving regulated traffic by rail. Of UP s current rice customers, 95% use the public tariff system, and the tariff system is widely used and accepted throughout the railroad industry (The Rice Team, 2009). However, the tariff system creates high price elasticity; therefore, most customers base buying decisions heavily on price. Interviews with several current and former UP customers confirm this logic (Stark, 2009; Oliver, 2009). Due to the nature of the tariff system, no one railroad can create a sustainable competitive advantage because competitors can easily copy pricing strategies. In order to establish a sustainable competitive advantage, this proposal recommends augmenting UP s customer

5 Plan RICE 5 relationship management (CRM) program in order to expand and reinforce strategic partnerships. Furthermore, UP s goal should be to move from being an ancillary player in the marketing channel to being a key contributor with expertise in logistics. The remainder of this proposal aims to provide UP with a conceptual framework for augmenting the company s existing CRM program. This proposal presents five major areas where additional CRM activities will significantly increase UP s customer equity by improving UP s share of customer. The five components of this plan, Plan RICE, include rewards, innovative interactions, consulting, and extranet development. Rewards Plan RICE A rewards program remains integral to an effective customer relationship management plan. Rewards should not consist solely of hard benefits such as coupons, price cuts, or discounts off future shipments. Instead, rewards should balance the hard benefits with creative soft benefits often intangible forms of reinforcement. All benefits would be personalized to meet specific customer needs. Bundling sufficient soft benefits together will create additional value for each customer and increase the likelihood of retention. Developing packages of soft benefits will require additional research to determine each customer s specific wants and needs, but this insight will prove vital in maintaining long-term partnerships with both current and new customers. Innovative Interactions Customer satisfaction rarely reaches 100%. What sets apart an average company from an exceptional company is the firm s desire to always seek improvement in their services. Innovative interactions are crucial to building and maintaining new and existing client relationships. Innovative interactions can be implemented in a number of ways: from basic concepts such as customer satisfaction surveys and more availability of contact information to complex ideas such as enhancing the interface and interaction component of the company Web site. Active Listening makes or breaks the customer s perceived trust. According to a survey done by Harvard Business School, 60% of clients interviewed (in consumer surveys) in person will give a firm new business within 60 days of the survey (Sasser, 2009). Clients want to have the opportunity to voice opinions. Often customers provide knowledge that adds significant financial value. The Rice Team at UP has multiple options of implementing innovative interactions. The first would be to establish automatic feedback to customers upon delivery of shipments. Other companies, like Nebraska Furniture Mart, call random customers daily to ensure the satisfaction of the delivery and give customers an opportunity to provide instant feedback (Ozuna, 2009). UP could develop a similar approach.

6 Plan RICE 6 The rice team should also make themselves available to assist, talk, or listen to clients. Whether through message boards, blogs, , phone, or even Skype, all clients should feel able to get any assistance they may need from UP. According to a survey done by Walker Information, More than 75 percent of the respondents indicate using customer feedback has led to a positive improvement in the top or bottom-line financial performance for their organization (Pagel, 2009). UP will gain loyal customers and additional profits by implementing innovative interactions. Consulting The purpose of implementing consulting into your supply chain and logistical management is to save on costs, generate revenue, and improve the overall value of the client company. An example of successful channel management can be seen through UPS, which developed the demand responsive model for customers. This system provides for more flexibility and avoids much of the uncertainty when dealing with the demand of a product. The demand responsive model provides the ability to plan on what items should be shipped, delivered, or bought in a real-time atmosphere (You & Grossmann, 2007). Another important concept dealing with consulting is the overall goal of customer relationship management. UPS has expressed that "Too many organizations fail to see that the customer management supply chain process is an opportunity for brand recognition and differentiation, market penetration, and customer retention" (UPS Supply Chain Solutions, 2009). Through a successful implementation of consulting services, customer satisfaction would increase, providing a higher quality of service to the customers. Additionally, UP would increase brand recognition, gain customer equity, reduce customer inefficiencies (by providing customers with logistical expertise), and create a unique competitive advantage over other firms. Extranet Development Extranet development represents the final component of the RICE CRM program. Extranets utilize the internet to provide businesses with an electronic location for collaborating with strategic business partners (clientele, marketing channel members, ancillary firms, etc.). One should not view a firm s extranets as a tangible asset; instead, extranets represent a service that enables effective ways of both communicating and sharing information with others external to the firm (Tamminga, 2004). UP s extranets for customers already provide several useful services including applications for dealing, shipping, reporting, tracing, and paying (Application Demos, 2009). By further developing the current UP extranets through integration with a CRM system, UP would gain a much greater understanding of strategic partners in the rice market. Upgraded extranets would improve communication turnaround, eliminate data redundancies, analyze customer behavior, and store key analytics in data warehouses (Microsoft Customer Videos, 2009). Of these new capabilities, the storing of information in data warehouses becomes crucial because the CRM

7 Plan RICE 7 system can data mine the stored data in order to identify both customer behavior trends as well as market opportunities (Armstrong & Kotler, 2009). Conclusion UP has historically supported innovation and creativity, and subsequently, the company has successfully competed in the railroad industry for more than a century. Furthermore, UP knows how to focus on the company s major strengths. For example, UP quickly decided owning a trucking division in order to gain more control over intermodal transportation adversely affected efficiency and effectiveness. As a result, UP sold the trucking stake and learned to develop better partnerships with trucking companies (The Rice Team, 2009). Plan RICE conforms with UP s culture of creativity and strengths development. Bolstering UP s CRM program represents both creative new approaches to CRM as well as reinforcement of existing company core competencies (rather than finding new ones). In this uncertain economic environment, significant capital investments do not seem reasonable or prudent. However, returning to the fundamentals of CRM, especially in a market with known loyalty challenges, will allow UP to emerge from the recession with strong strategic partnerships that have the potential to become a sustainable competitive advantage well into the future.

8 Plan RICE 8 References American Coalition for Ethanol. (2009). U.S. ethanol production. Retreived Septermber 6, 2009, from Armstrong, G., & Kotler, P. (2009). Marketing: An introduction, Ninth Edition. New Jersey: Pearson Education, Inc., pp ; FoodMarketExchange.Com. (2003). Extended use of rice. Retrieved September 6, 2009, from dc_pi_gr_rice0604_01.htm Microsoft Dynamics CRM. (2009). Customer videos. Retrieved September 10, 2009 from Microsoft Web site: Oliver, D. (2009, September 11). Telephone interview. Sales Representative at Louisianna Rice Mill, LLC. Ozuna, M. (2009, September 13) Telephone interview. Sales Representative at Nebraska Furniture Mart. Pagel, L. (2009). The powerful message of customer feedback. Retrieved September 13, 2009, from Creating Loyalty Library Web site: article_id=938 The Rice Team. (2009, September 9). Question and answer session. Union Pacific s rice project group. SageVFoods. (2009). Rice production in the world and in the U.S. Retrieved September 6, 2009, from Sasser, E. (2009). Customer satisfaction. Retrieved September 13, 2009, from Harvard Business School Web site: Stark, L. (2009, September 11). Telephone Interview. Sales Representative at Cormiera Rice Milling, Inc. Tamminga, M. (2004, November). Extranets. Retrieved September 10, 2009, from Law Practice Today Web site: U.S. Department of the Treasury. (2009, September 3). Fact sheet: Treasury amends Cuban assets control regulations to implement the president s initiative on family visits, remittances, and telecommunications. Retrieved September 7, 2009, from

9 Plan RICE 9 Union Pacific Railroad. (2009). Application demos. Retrieved September 10, 2009, from Union Pacific Web site: UPS Supply Chain Solutions. (2009). Customer management. Retrieved September 6, 2009, from USA Rice Federation. (2009). Facts. Retrieved September 7, 2009, from USA Rice Federation. (2009). Specialty varieties. Retrieved September 7, 2009, from 85 USA Rice Federation. (2009, July). U.S. Rice Domestic Usage Report. Retrieved September 10, 2009, from You, F., & Grossmann, I.E. (2007). Design of responsive supply chains under demand uncertainty. Retrieved September 6, 2009, from preliminaryprogram/abstract_87597.htm

10 Plan RICE A1 Appendix Figure 1: Average Rice Production Over Last 4 years by State (SageVFoods, 2009) Figure 2: Top Rice Producing Countries in the World (SageVFoods, 2009) Figure 3: U.S. Ethanol Production (American Coalition for Ethanol, 2009)