powerpoint by ray a. decormier, ph.d. central connecticut state university chapter 4: customer...
TRANSCRIPT
PowerPoint byRay A. DeCormier, Ph.D.Central Connecticut State University
Chapter 4:
Customer Relationship Management Strategies for Business Markets
Chapter Topics
Well developed relationships give business marketers a significant competitive advantage. Topics include:1.Patterns of buyer-seller relationships2.Factors that influence customer profitability3.Strategies for designing effective customer relationships4.How successful firms excel at customer relationship management5.Critical determinants for managing strategic alliances
Collaborative Advantage• Relationship Marketing centers on establishing,
Developing, and maintaining successful exchanges with customers
• New era of business marketing is dependent upon managing relationships.
• Collaborative advantage is:– Demonstrating special skills with “key” customers or – Developing innovative strategies with alliance partners
Types of Relationships• Continuum of buyer-seller relationships• Transactional, Value-added & Collaborative exchanges
The Relationship Spectrum
Transactional Exchange• Centers on timely exchange of basic products at highly competitive
market prices
• These types of transactions are autonomous, meaning that there is little or no concern as to the needs of buyer or seller
• Example: A person comes into a store and buys a hammer. The buyer wants a hammer and the seller sells him one. That’s all there is to it!
• The business market includes items like:– Packaging, – Cleaning products or – Commodity-type products or service activity where bidding is employed.
Transactional exchanges employ an Arms-Length relationship.
Collaborative Exchange Occurs when alternatives are few, market is dynamic, the
purchase is complex and the price is high
Features close information, social, and operational linkages, as well as mutual commitments
Switching costs are extremely important to collaborative customers
Trust is the key and it exists when one party has complete confidence in their partner’s ability and integrity
This strategy emphasizes joint-problem solving and multiple linkages such as R&D and manufacturing.
Value-Added Exchanges• Value-Added Exchanges fall between
Transactional and Collaborative Exchanges
• The selling firms shifts from just attracting customers to keeping them by:
1. Adding additional services2. Developing services that are customized to meet
the buyer’s needs3. Providing continuing incentives that promote
repeat business
Buyers and sellers craft various relationships in response to: a) Market conditionsb) Characteristics of the purchase situation
Spectrum of Buyer-Seller Relationships
Switching Costs• A major consideration before changing suppliers• Buyers invest heavily in supplier relationships
– Training, documentation, integration, process modifications– hiring specialized skill sets– contracting, publicity
• Switching can cause costly disruptions.• Moving to less-established suppliers can be risky• The prospect’s PROBLEM must exceed the BENEFITS
experiencing with current supplier before considering switching.
Good marketers seek to establish high switching costs through value-added services
Table 4.1 Value Drivers in Key Supplier Relationships
Sources of Value Creation Relationship Value Dimensions
Costs Benefits__________________________________________________________________Core offering Product quality Direct cost Delivery performance Sourcing process Service support Acquisition costs
Personal interaction Customer operations Supplier know-how Operation costs
Time to market _________________________________________________________________________ SOURCE: Wolfgang Ulaga and Andreas Eggert, “Value-Based Differentiation in Business Relationships: Gaining and Sustaining Key
Supplier Status,” Journal of Marketing 70 (January 2006): p. 122.
Characteristics of Business Market Customers
Furthering Collaborative Relationships
Obtain ‘key supplier’ status by…
• Target the right customer.• Match with their purchasing situation.• Develop strategies that are appropriate for each
type of buyer– Offer specialized services and customized
products• Competence and commitment are vital to
reducing buyer’s initial perceived riskGood marketers know their key customers’ business
model intimately
Measuring Customer Profitability• Activity-based costing (ABC) - allocates cost of performing
various services to each customer (customer-specific costing).
• Through Customer Relations Management (CRM) programs, one can relate revenues and costs to each and every activity.
• By linking financial information with transactional data created in CRM programs, companies are able to accurately calculate “cost-to-service” components to yield customer profitability.
Differentiation & customization are costly – must always revisit ROI assumptions
Figure 4.3 The Whale Curve of Cumulative Profitability
Whale Curve & Profitability• 20/80 Rule says “20% of customer provide 80%
of sales
• Whale Curve reveals:– 20% of customers generate 150–300% of total profits– 70% of customers break even– 10% of customers lose from 50-200% of total profits– Leaving company with 100% of total profits
Order custom products
Order small quantities
Unpredictable order arrivals
Customized delivery
Frequent changes in delivery requirements
Manual processing
Large amounts of support –• Pre-sales - marketing, technical, and sales resources)
• Post sales - installation, training, warranty, field service)
Require company to hold inventory
Pay slowly (i.e., high accounts receivable)
Source: Robert S. Kaplan and V.G. Narayanan, “p. 8. Measuring and Managing Customer Profitability,” Journal of Cost Management 15, No. 5 (September/October 2001):
Characteristics of High Cost-to-Serve Customers
Customer Profitably
As mentioned previously, some customers are profitable and some aren’t. To determine this, we look at the cost/profitability structure with the plan to:
1. Keep profitable customers w/proactive retention strategies2. Convert unprofitable ones to profitability3. Fire those who are not profitable
High
Low
Net
Mar
gin
Rea
lized
Cost-to-Serve
PassiveProduct is crucialGood supplier match
Costly to service,but pay topdollar
Price-sensitive butfew specialdemands
AggressiveLeverage their buying powerLow price and lots of customization Most challenging
Profits
Losses
Low High
SOURCE: From “Manage Customers for Profits (Not Just Sales)” by B.P. Shapiro et al., September-October 1987, p. 104, Harvard Business Review.
Customer Profitability
Customer Relationship Management
Customer Relationship Management (CRM) is a cross-functional process for achieving…
a. Continuing dialog with customers across all contact and access points
b. Personalized service to the most valuable customers
c. Increased customer retention through continuous feedback
d. Improved marketing effectiveness through superior customer insight
CRM Technology • CRM programs are software systems that capture information
and integrate sales, marketing and customer service information.
• CRM programs can gather information from many sources including email, call centers, service and sales reps.
• The information is available to the right people in the organization in real time.– Everyone has the same 360 degree view of a customer
CRM Strategy - Priorities
1. Acquire the right customer
2. Craft the right value proposition
3. Institute the best processes
4. Motivate employees
5. Learn to retain customers
(a) Industry Relationship Bandwidths
(b) “Flaring Out” from the Industry Bandwidth
SOURCE: Adapted from James C. Anderson and James A. Narus, “Partnering as a Focused Marketing Strategy,” California Management Review 33 (spring 1991)’ p. 97. Copyright © by the Regents of the University of California. Reprinted by permission of the Regents.
PureTransactionalExchange
PureCollaborativeExchange
Hospital Supplies
(e.g. surgical gloves, syringes)
Medical Equipment(e.g. imaging systems)
PureTransactionalExchange
PureCollaborativeExchange
Hospital Supplies
A B C D
Figure 4.5 - Transactional & Collaborative Working Relationships
Flaring Out Strategy
• ‘Flaring out’ strategy (Fig 4.5b) states that the seller can either unbundle (point A), that is, reduce the service associated with a lower price (transactional in nature), or
• Augment by adding more services to the core offerings (point D) which adds cost to the services. This is collaborative in nature.
Creating Customized Products
The seller starts with a core service (“naked solutions”) and adds customized services to it (“custom wrapped”) that create more value.
#3 - Institute Best Practices• The sales force plays a key role in establishing and
growing a customer from a transactional account to a collaborative partnership.
• They can do this by aligning and deploying technical and service support units to match with their customers’ units.
• Technical groups can consist of research, logistics and customer service units.
• Through careful management and screening, transactional accounts can progress to partnerships.
Best Practices Follow-Up• In addition to using best practices, successful
organizations (like IBM) employ follow-up techniques such as:
1. Assigning a client representative to take ownership of the relationship.
2. Assigning a Project Owner who completes the project or solves project problems.
3. Developing an in-process feedback and measurement system.
#4 - Motivating EmployeesDedicated employees are the key to a successful customer relationship strategy.
The best approach is to:
1.Hire good people.2.Invest in them to increase their value to the company and its customers.3.Develop challenging careers and align incentives to performance measures.
Why Retain Loyal Customers?
Less expensive than acquiring new customers.Less expensive than acquiring new customers.
Established customers buy more.Established customers buy more.
Cost of serving loyal customers declines.Cost of serving loyal customers declines.
How to Pursue Growth from Existing CustomersIdentify and cultivate customers that offer the most growth potential by:
1.Estimating current percent “share of wallet”2.Pursuing opportunities to increase share3.Projecting and enhancing customer profitability
Strategic Alliances vs. Joint Ventures• Strategic alliances involve a “formal long-run
linkage, funded with direct co-investments by two or more companies, that pool complementary capabilities and resources to achieve generally agreed objectives.”
• Joint Ventures involve the formation of a separate independent organization by venture partners.
Benefits of a Strategic Alliance
1. Access to new markets2. Access to new technologies3. Economies of scale4. Faster entry of new products into markets
due to established distribution channels5. Sharing costs and risks
Elements of Successful Alliances
Start with a strategy map detailing each partners goals and contributions.
1. What does JV offer the customer?2. Aligned around common goals?3. Are unique customer benefits jointly agreed to?
• Agree on each partner’s contribution to alliance• Select good communicators to convey alliance’s
strategic role and create its “identity”• Establish direct ties at top levels to engender
organizational commitment.– Combats inevitable post-honeymoon cynicism
Figure 4.7 Social Connections in an Alliance
Strong Linkages Across FirmsStrong Linkages Within FirmsMost Senior ExecutiveProject Manager
Alpha Omega
1722
3
Peripheral Participants
Peripheral Participants
Core Participants
Boundary Spanners
15
9
42
11
7
5
25
2
32
40
30
28
14
16
4
39
12
8
27
29
2034
31
36
19
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1
41
10
6
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1833
3538
1323
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Social Connections in an Alliance
Strategic Senior executives continuously define and communicate broad goals or changes in each company
Tactical Middle managers plan joint ventures, transfer knowledge and work to improve inter-firm connections
Operational Concerned with providing information, resources and personnel to carry out daily work
Interpersonal Facilitate an environment for people to know each other, learn together and create new value
Cultural Managers are required to have communications skills and be culturally aware to bridge differences
Five Levels of Integration