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Are Megamergers Turning a Blind Eye to CRM?
New corporate pairings may have little to do with customer strategy.
For the rest of the April 2005 issue of CRM magazine please click here
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Lost in the latest wave of megabillion-dollar mergers between companies like AT&T and SBC, and Sears and Kmart, is the evidence that the moves were spurred by a customer-facing strategy. Sears and Kmart have traditionally provided a different class of goods in different retail environments, but sold the merger as a logical step for both the companies and their customers. Industry watchers have so far remained unconvinced. "Sears has a [strong] emphasis as a place to buy appliances. Kmart has the perception of a down-market, soft-goods operation," says Al Ries, chairman of marketing consultancy Ries & Ries. "They are two different brands, and by mixing them together--in my opinion you muddy the meaning of the brand." Sears and Kmart have lost market share to low-frill Wal-Mart, which has risen from regional curiosity to worldwide powerhouse through monstrous scale and a remorselessly effective supply chain operation that enables Wal-Mart, and not its suppliers, to call the shots. Sears and Kmart lacked comparable leverage on their own, and may have given up hope of improving their situation through demand-side strategies. "Sears and Kmart felt they had to join to make themselves more efficient, to be able to compete," says Jerald Murphy, senior vice president of technology research at META Group. Similarly, Ries says he suspects the recent Procter & Gamble merger with Gillette is a move to swing the pendulum away from the retailers and back in its favor--scale versus scale, with no clear interest in the customer. In the first half of the 1990s AT&T heavily publicized itself as a consumer technology innovator, promising to revolutionize everything from telecommunications to retail to education. Abruptly, the company in short order sold off the core of its research and development capabilities, as well as its telecommunications hardware division (now known as Lucent and Avaya, respectively), to finance the purchase of commodity wireless and cable assets. The promise was to improve customer service and loyalty by combining customer support and billing under a single umbrella for all communications services--but AT&T never came close to delivering on its promises, and the dream dissolved as AT&T sold both the broadband and wireless divisions in recent years to competitors. Citibank has similarly begun deconstructing the vaunted financial supermarket it tried to forge with insurance, brokerage, and banking services as the industry deregulated in the 1990s.
"One of the real keys is executing, and providing a unified voice to the customer. AT&T botched that royally," says Chris Selland, analyst with Covington Associates. The recent Bank of America acquisition of Fleet is an example of proper execution. "[Bank of America] gives off the aura that they have their act together. Within one week of that deal closing, [nearly] all vestiges of the Fleet name have disappeared from the city of Boston," the acquired bank's former stronghold. Murphy says AT&T and its progeny reacted too slowly to the shift in the telecommunications monopoly from a single national carrier to local monopolies and deregulated long-distance services--in short, that even with 20 years to formulate a nimble, appealing customer strategy, the company was ill-equipped to do so, and unlike the protected regional monopolies enjoyed by SBC and Verizon, AT&T no longer enjoyed a safe, steady fallback position. "They had a natural supply chain and were used to making decisions by committee and not needing innovation." Perhaps most telling of all is that the one element common to virtually all of the recent mergers is the promise of aggressive cost savings through reduced headcount, often thousands or more. For a consumer-facing business, employees tend to make excellent advocates and customers even when off duty, yet the merged companies are anxious to save money by putting these eager customers out of work. "That's where you make money--you make money on your customers." Ries says.
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