CASE STUDY: UTILISING E-BUSINESS TECHNOLOGIES FOR MARKETING SUPPORT IN THE CE INDUSTRY

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1 e-business European Commission, DG Enterprise & Industry This document is based on sector studies, special reports or other publications and resources prepared by e-business The European Commission, Enterprise & Industry Directorate General, launched e-business in late 2001 to monitor the growing maturity of electronic business across different sectors of the economy in the enlarged European Union, EEA and Accession countries. All publications are available in full length on the internet at the e-business website ( CASE STUDY: UTILISING E-BUSINESS TECHNOLOGIES FOR MARKETING SUPPORT IN THE CE INDUSTRY Abstract A large electronics manufacturer is challenged to answer increasing price pressure in the CE market 1. Therefore, the company puts many efforts in marketing and sales in order to strengthen its consumer brand and to ensure customers brand loyalty. ICT and e- business tools play an important role in supporting this strategy. The company has launched web-shops and implemented a new Customer Relationship Management (CRM) system. The case study illustrates the impact of these ICT tools on the corporate marketing and CRM strategy. Case study fact sheet Sector (main business activity): Primary customers: Most significant market areas: Main e-business applications studied: Key words Electronics Private, corporate and public customers, retailers Electronics devices on a worldwide scale CRM system and web shops Online sales, CRM system, integration, web shops Background and objectives Challenges in the CE market The electronics company interviewed for this case study operates on a worldwide scale. While being active in a number of electronics industry segments, its CE division accounts for a significant part of the company s turnover with Europe being one of its most important markets. However, the global market for CE devices is becoming increasingly competitive. A main driver of the competition is the increasing technology maturity, which does not leave much room for differentiation. Due to technology maturity, CE devices are becoming a commodity shortly after they have entered the market. These technological developments have led to an aggressive battle for customers and an erosion of price levels. Price 1 The company and persons interviewed do not want to be named. 1

2 competition is even more aggravated by increased market entry of companies from lowwage countries entering the international market. According to a business manager interviewed, this general market trend has also consequences the company. In single categories, price erosion is around 45%. The price level is decreasing at a rate of 30% per year on average across all devices. Strategy to overcome market challenges and the role of ICT An increasing fragmentation of the supply chain is a consequence of these developments. In order to overcome the increasing cost pressure, many CE companies have outsourced production processes to manufacturing services, while they concentrate on design and marketing. The same holds true for the company described in this case study: In order to maintain our leading role in this challenging market environment, the business manager explains, we focus our resources on innovative engineering and marketing in order to leverage our globally recognised consumer brand. As a result, large portions the CE segment s manufacturing have been outsourced to manufacturing service providers. In fact, suppliers, sub-contractors, and electronics manufacturing service providers currently produce 90% of CE appliances, according to information provided by the company. Efficient marketing and customer relationship management is a central element of the company s strategy, the business manager emphasises. First, strengthening customer loyalty and leveraging the brand s mindshare with customers is essential in order to differentiate from competitors. Second, marketing budgets have decreased as a result of slimmer profit margins. Thus, he summarises, focussed marketing campaigns with high response rates are crucial. ICT and e-business technologies have an important role in supporting marketing and sales activities for OEMs like the company interviewed. First of all, conclusive information about customers becomes a key asset for marketers. ICT is used to collect and analyse data generated by business interactions with customers. Second, consumers shopping behaviour is changing: They are increasingly using the internet to gather information about products and eventually make an informed purchase online. As a reaction to these developments, the company needed to develop an appropriate e-commerce strategy. The business manager summarises: ICT tools should enable targeted marketing campaigns and the adaptation to consumers lifestyles. Additionally, with decreasing profit margins, ICT should also help to increase direct sales. ICT to support marketing-oriented CE strategy Online shops worldwide Several years ago, the company started to build online shops on a worldwide scale, launching online Direct-to-Customer (D2C) shops in the USA first. To date, online shops are accessible in all major European countries via the company s national websites. National websites typically offer extensive Information about new products. If customers want to buy a product directly, they are offered multiple alternatives. They can search for a specialised dealer near their homes or purchase products directly at the company s online shop. Visitors of the online shops have the opportunity to register as users. In return, they receive individualised offers, are provided order status information, and software updates for devices. 2

3 An IT manager of the company s CE division lists several advantages of its D2C web strategy: Image support: Although consumer-facing web shops are not the main sales channel of CE companies, it is a channel to attract consumers that are familiar with the internet and expect to find product information on suppliers websites. Particularly the company interviewed, which targets consumers in the higher-price segment, has to meet these expectations. Our brand projects an innovative and approachable image by offering its products directly to consumers, the IT manager confirms. Input for marketing campaigns: Online transactions allow the company to collect and analyse information about user behaviour (e.g. purchasing histories) and generate profiles of individual users. This information is shared globally via the company s Customer Relationship Management (CRM) system. Cross selling: When consumers buy our products online, we can also suggest products that they probably were not aware of before. We can offer, for instance, peripheral products or services such as extended warranties, the IT manager explains. Indeed, the company offers a large variety of products on the web, ranging from household appliances over CE peripherals to personal care products. CRM to focus on marketing A further step of the company s efforts to increase marketing efficiency was the implementation of a new CRM system four years ago. The rationale behind this move was that information about consumers is gathered at multiple contact points worldwide, but should be made centrally available within the organisation. The compiled information was primarily needed to carry out more targeted marketing campaigns. The IT manager interviewed explains this in further detail: We follow a general marketing strategy and message that covers the whole range of our products. But our CE products must also appeal to specific consumer groups, for example with regard to age or income. Targeting increases response rates, which is particularly relevant given the ratio of marketing costs and the profit margins in the CE industry. By using a single CRM system, the company is able to process and analyse customer information according to the marketing department s needs. The CE division already used CRM applications before. But, as the IT manager explains, we were looking for a single solution that could be applied throughout the company. One initial alternative was to integrate and grow legacy IT systems. But the effort proved to be too expensive and difficult: One must keep in mind that we used almost 200 different applications in Europe alone during that time. In fact, many large companies are confronted with a growing number of non-integrated legacy applications. Integrating them in order to exploit the full benefit of such solutions requires huge integration efforts. The installation of a new system often is the preferred alternative in these cases. In this respect, similar motivations for installing a new CRM system are also illustrated by other case studies conducted by the e-business W@tch See e.g. case studies on the implementation of new CRM systems by Brutele and Swisscom in thee-business W@tch Sector Study on ICT and e-business in the Telecommunications Industry, SR 09 (2006). Available at (cf. Resources). 3

4 Also, total cost of ownership could be reduced due to consolidated licensing and lower maintenance cost. Before, we had to pay licenses to all the different software providers. Implementing a single system also resulted in a greater amount of transparency with regard to the applications used, the IT manager further elaborates. Reducing total costs of ownership was an important reason why the company decided to install mysap CRM. The primary reason why we chose SAP s CRM system was that it could be integrated with SAP s R/3 ERP system that was already deployed for enterprise resource planning. The need for an integrated system might explain to some extent the ongoing consolidation in the enterprise software market, where specialised CRM vendors increasingly disappear. Instead, large enterprise software vendors like SAP or Oracle that offer integrated systems, are gaining market shares. The implementation of new CRM systems is often regarded as a complex task. Winning user acceptance and overcoming technical complexity are often named as major challenges. 3 Asked about challenges during the implementation of the CRM system, however, the IT manager replies: With hindsight, the implementation of the CRM solution was no particular challenges for us. It was a usual IT project and our employees were also able to handle the migration process this includes our IT personnel as well as the people eventually using the systems during daily operations. Remote access to CRM applications for sales force and resellers The company s e-business activities are not limited to direct-to-consumer sales, according to the business manager interviewed, who adds. We are also offering our sales force as well as selected traders and retailers the opportunity to retrieve information provided by the system online, including availability of products and order status. All they need is a laptop to log into our Virtual Private Network. Today, remote access is widespread in the European CE industry: About one third of all CE companies offer remote access, according to survey results by the e-business W@tch However, many companies are offering remote access opportunities only to managers, e.g. to check calendar or on the road. At the company interviewed, in contrast, remote access is an integrated part of the sales system. In fact, it was one of the first CE companies to support sales people in this way, according to the business manager. A reduction of working and travel times and of associated costs are typical outcomes of remote access systems: Many sales people can now work in their home office and no longer have to be physically present at the company s premises all the time. This obviously helped us to save on real estate cost, explains the business manager interviewed. In addition, if remote access solutions are combined with the sales system, customer care can be improved. He points out: It gives our sales force the time to concentrate on our business customers actual needs and thus increase their long-term loyalty. Finally, the online service provided for resellers and traders is likely to strengthen the relationship with this important customer group. 3 Ibid. 4

5 Outcome Lessons learned All in all, the IT manager considers the implementation of the online shops and the CRM system a success: Their contribution to our bottom line turned out to be even higher than we initially expected. Based on the information gathered and provided by the CRM system, the company has improved its customer targeting and response rates. We were also able to generate additional sales from cross-selling, up-selling as well as extended service packaging and warranties. According to a consultancy, which analysed the project from a financial perspective and published this analysis for marketing reasons, the CRM system s internal rate of return (IRR) on investment can be estimated to be about 25% through The initial technology investment, is comprised of costs for consulting; hardware, software, and maintenance; as well as of training and travel. Gains are derived from the following sources: Increased revenue by D2C sales via the online shops, Reduced costs from B2B order desk automation by enabling customer self service (e.g. order tracking and product availability check) for resellers and dealers, Increased marketing campaign response rates by collection of information about customer needs and preferences and Cost elimination from legacy systems by shifting to a central system. Although the IT manager did not feel in the position to pinpoint a percentage with regard to the IRR, he estimates that the figure might even have been higher than that. This case study illustrated the increasing importance of marketing and sales activities in the CE industry in light of current challenges for companies in this sector. In fact, a lot of manufacturers have to deal with increasingly fierce price competition due to commoditisation of CE products. As a result, marketing and customer relationship management becomes even more important to increase brand awareness and ensure customer loyalty in order to avoid fierce price competition. The example provided in this case study shows the potential of e-business tools to support CE manufacturers in these tasks. The CRM system is used as a basis for analysing customer data collected worldwide as well as to provide resellers and the sales force with information, including order status and product availability. To conclude, the business manager emphasised that our company was one of the first CE manufacturers to offer such information. The use of web shops is also important. They are not only additional sales channels but also a major source for profiling customers and track purchasing histories. The CRM approach portrayed is appropriate for large and global CE companies that focus on design and marketing of CE devices. Relationships to retailers and established consumer brands are important competitive factors in this group. 4 Due to anonymisation requirements, the name of the consultancy as well as detailed results of the analysis cannot be revealed. 5

6 References Research for this case study was conducted by Philipp Bohn (Berlecon Research), on behalf of e-business Sources and references used: Interviews with a business and an IT manager of the company s Consumer Electronics division. 6