Chapter10

Business Business Market Market

ManagementManagement

33rdrd edition edition

Managing CustomersManaging Customers

Chapter 10

Copyright © 2009 Pearson Education Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 10-2

Section IV: Section IV: Delivering ValueDelivering Value



Chapter 10: Managing CustomersChapter 10: Managing CustomersOverviewOverview

I. Differentiating Transactional and Collaborative Customers

II. Pursuing Growth and Continuity

III. Delivering Superior Value with Relationship-Specific

Offerings

IV. Managing a Portfolio of Customers

V. Sustaining Customer Relationships Through Connected

Relationships

VI. Looking Ahead—A Final Thought on Managing Customers

VII. Summary



OverviewOverview Differentiating between transaction and

collaborative customers

Growing a customer relationship profitably

over time Foot-in-the-doorFoot-in-the-door

All-at-once approachAll-at-once approach

Suppliers managing their portfolio of customer

relationships




The process of:The process of: Differentiating transactional and Differentiating transactional and

collaborative customerscollaborative customers

Delivering offerings that fulfill the Delivering offerings that fulfill the requirements and preferences of a portfolio requirements and preferences of a portfolio of customers in a superior wayof customers in a superior way

• Delivering value

Getting a fair return on the value deliveredGetting a fair return on the value delivered



I.I. Differentiating Transactional Differentiating Transactional and Collaborative Customersand Collaborative Customers


Thinking Strategically about Thinking Strategically about RelationshipsRelationships

Transactional Transactional Relationships: Relationships: customers and supplier focus on the repeated and timely exchange of basic product at highly competitive prices

CollaborativeCollaborative

Relationships: Relationships: Partnering: Partnering: Customers Customers

and supplier firm form and supplier firm form strong and extensive strong and extensive social, economic, social, economic, service, and technical service, and technical ties over timeties over time

Goals: Goals: lower total cost lower total cost or increase valueor increase value



The Working Relationship The Working Relationship Continuum and Industry BandwidthContinuum and Industry Bandwidth



Industry BandwidthsIndustry Bandwidths Range of customer relationships that are

more collaborative or more transactional in nature relative to that marketplace’s norms

Reflects explicit or implicit customer relationship strategies

Firms attempt to:Span the bandwidth with a portfolio of relationships, Span the bandwidth with a portfolio of relationships,

ororTreat all customers alikeTreat all customers alike



Partnering as a Focused Partnering as a Focused Market StrategyMarket Strategy

Not all customer firms want the same kind of relationship with a supplier

Nor can the same kind of relationship deliver the same value to all customers

STP Segmentation, Segmentation, Targeting, & Targeting, & PositioningPositioning



Partnering as a Focused Market Partnering as a Focused Market StrategyStrategy

Segment MarketplaceCustomer applicationCustomer applicationCapabilities and business prioritiesCapabilities and business prioritiesUsage situationUsage situationEstimate the value of their offerings in these segmentsEstimate the value of their offerings in these segments

Target one or more segment for collaborative emphasis

Individual AccountsCustomer Selection: StrategicCustomer Selection: StrategicOrder Selection: TacticalOrder Selection: Tactical




II. Pursuing Growth and II. Pursuing Growth and ContinuityContinuity


Pursing Growth and ContinuityPursing Growth and Continuity

Growth: Growth: supplier firm works to increase its profitability share of the customer’s business and to become an irreplaceable partner

Continuity: Continuity: supplier firm strives to retain the working relationship as long as it enables both supplier and customer to each achieve their respective strategic objectives



Pursuing Growth in a Pursuing Growth in a Customer AccountCustomer Account

Estimate share of customer’s businessUnderstand the total volume of business Understand the total volume of business

attainable attainable Understand the current share of the customer Understand the current share of the customer

businessbusiness


Which customer share growth prospects are

worth pursuing?

How should we growbusiness with a

customer over time?


Different Paths to Building Different Paths to Building Customer ShareCustomer Share



Foot-to-Door ApproachFoot-to-Door Approach



Ideal FITD CandidateIdeal FITD Candidate It must mitigate customer risk

(inexpensive enough to be purchased without (inexpensive enough to be purchased without hesitation)hesitation)

Fit between product functionality and customer requirements must be exceedingly close

Product quality should be impeccable and chance of failure nil



Customer Acquisition and Customer Acquisition and RetentionRetention


AcquireCustomer

Foot-in-The Door

Follow-onSales

OtherSales

Retain Customer

Time

Re

ven

ue


Problems with FITD StrategyProblems with FITD Strategy

Supplier’s vision of relationship trajectory is rendered meaningless

FITD product fails Supplier is identified as being good at just

the FITD product Competitors get customers

to switch by giving away the FITD product



All-at-Once ApproachAll-at-Once Approach

Useful in managing larger customers that can complicate the selling process through a combination of temporal changes in:Customer’s purchase decision making and Customer’s purchase decision making and

buying unitsbuying unitsNature of the products and services offeredNature of the products and services offeredSelling skills requiredSelling skills required



HP’s Migration StrategyHP’s Migration Strategy


Develop trusted advisor Develop trusted advisor relationshiprelationship

Migrate up to IT Migrate up to IT Infrastructure and Infrastructure and

enterprise-wide solutions enterprise-wide solutions

Start where HP has Start where HP has a price/performance a price/performance

advantageadvantage


Pursuing ContinuityPursuing Continuity Promote honest and open communication Build trust and commitment Implement coordination mechanisms Anticipate and resolve conflicts



Promote Honest and Promote Honest and Open CommunicationOpen Communication

Communication: Communication: formal and informal sharing of meaningful and timely information between firmsMeet formally and informally with partner firms to Meet formally and informally with partner firms to

discuss market conditionsdiscuss market conditions

Bridging: Bridging: establishing multiple levels of communication between:FirmsFirmsAcross functionsAcross functionsManagement levelsManagement levelsBusiness strandsBusiness strands



BridgingBridging Develop functional and interfirm teams Enables partner firms to minimize

detrimental effects of departure of a key employee

Ensuring ContinuityRotate staff and use teams to avoid Rotate staff and use teams to avoid

attachmentattachmentDevelop other steady performersDevelop other steady performersUrge early notification of personnel Urge early notification of personnel

departures; publicize transition plandepartures; publicize transition plan



Build Trust and CommitmentBuild Trust and Commitment

Trust: Trust: the firm’s belief that: another company will perform actions that will

result in positive outcomes for the firm

Will not take unexpected actions that would result in negative outcomesfor the firm



Building TrustBuilding Trust




Trust and CommitmentTrust and Commitment

PledgePledgeActions one firm takes that demonstrate good faith and binds it to the relationshipFirm typically invests nonredeployable assets

CommitmentCommitment

Captures the perceived continuity or growth in the relationshipDesire to develop a stable relationshipWillingness to make short-term sacrifices to maintain the relationshipConfidence in the stability of the relationship

GuaranteeGuaranteeOne firm promises through a legally binding contract or warranty to absorb the risk and costs associated with unfulfilled promises made to a partner firm

Service Service Recovery Recovery

SystemSystem

Entails the resources, procedures, and authority that empower and enable front-line personnel to resolve customer problems and compensate customers for unexpected lapses in service



Courtesy of Cushman & Wakefield



Implement Coordination MechanismImplement Coordination Mechanism

CoordinationCoordination

Customer and supplier firms synchronize activities, resources and capabilities to accomplish a collective set of tasks

•Mechanistic•Organic

Market-Market-ClearingClearing

PricePrice

Balances supply and demand for a given offeringManagement achieves coordination by allowing price of the market offering to float to the market-clearing level

•Transactional working relationships•Industries: Ex. Agricultural products, petroleum, fasteners

PowerPowerThe ability of one firm to get its partner to undertake activities that the partner firm would not do on its own

CooperationCooperation

Promote shared norms onHow to work togetherHow to jointly create value How to share benefitsBuilding mutual trust and commitment


Anticipate and Resolve ConflictAnticipate and Resolve Conflict


Every working relationship will eventually experience some sort of conflict

Anticipate disputes and put mechanisms in place for immediate resolution

Functional conflict: Functional conflict: Productive discussions


Three Primary Sources of DisagreementsThree Primary Sources of Disagreements

1. Goal incompatibility Mission, goals, and objectives of partner firm are Mission, goals, and objectives of partner firm are

disparatedisparate

2. Lack of agreement over responsibilities within the working relationship domain

Functions that each partner should performFunctions that each partner should perform How partners should accomplish tasksHow partners should accomplish tasks Timing of effortsTiming of efforts

3. Differing perceptions of reality Market trends, competitive threats, emerging Market trends, competitive threats, emerging

technologiestechnologies



Conflict Resolution MechanismsConflict Resolution Mechanisms

Service recovery systemsBoundary-spanning personnelBoundary-spanning personnel

Intractable disputesMediationMediationArbitrationArbitration




III. Delivering Superior III. Delivering Superior Value with Relationship-Value with Relationship-

Specific OfferingsSpecific Offerings


Flaring Out from the Flaring Out from the Industry BandwidthIndustry Bandwidth


PurePureTransactionalTransactional

ExchangeExchangeFlaring Out

By Unbundling Focal Industry

Flaring out with

Augmentation

PurePureCollaborativeCollaborative

ExchangeExchange

a db c



Construct Relationship-Specific Construct Relationship-Specific Market OfferingsMarket Offerings

Flare Out from Industry

Bandwidth

Supplier firm tries to gain a competitive advantage over other suppliers by better meeting customer requirements and preference sin both collaborative-emphasis and transaction- emphasis segment

Flare Out by Unbundling Eliminate certain standard elements from the market offering

entirely or transform them into options

Flare Out with Augmentation

Draw on the practices of more collaborative industries and add new programs and systems that collaborative accounts will value to the standard offering or as options


Price Relationship-Specific OfferingsPrice Relationship-Specific Offerings

TransactionalTransactionalLower the price for each Lower the price for each

service that is unbundledservice that is unbundledSupplier markets Supplier markets

optional programs and optional programs and services in a menu services in a menu fashion based on fashion based on incremental pricingincremental pricing

Defeature offerings and Defeature offerings and share the costs savingsshare the costs savings

Relax specifications in Relax specifications in return for lower pricereturn for lower price

CollaborativeCollaborativeSupplier seeks price Supplier seeks price

premiumpremiumSupplier may seek Supplier may seek

greater share of greater share of customer’s businesscustomer’s business

Often reduce margins on Often reduce margins on specialty products to specialty products to make money on make money on commodity products commodity products (servicing the product)(servicing the product)



Focused Share BuildingFocused Share Building

Focused Single-Source Provider:Focused Single-Source Provider:Attempts to attain 100% of a customer’s Attempts to attain 100% of a customer’s

business in targeted offering categories business in targeted offering categories while not pursing other offering while not pursing other offering categories that it might supply to that categories that it might supply to that customercustomer



Multiple Single-SourcingMultiple Single-Sourcing

Customers and suppliers reap the benefits of single source arrangements while minimizing the potential drawbacksEach plant in a customer’s manufacturing Each plant in a customer’s manufacturing

network is singled-sourcednetwork is singled-sourcedYet, the customer maintains at least two suppliersYet, the customer maintains at least two suppliers

Two-step process:Persuade customer of the value of being single Persuade customer of the value of being single

source at each location regardless of suppliersource at each location regardless of supplierPersuade customer that selecting them as single Persuade customer that selecting them as single

source will source will deliver added valuedeliver added value



Building New Organizational Building New Organizational CapabilitiesCapabilities

Add expertise or a capability that it knows customers would value

Supplier leverages that expertise or capability to provide a better solution to each of those customers



Adopt New Profit ModelsAdopt New Profit Models

Risk-Sharing:Risk-Sharing:Supplier assists its Supplier assists its

customers in customers in becoming more becoming more profitable and exposes profitable and exposes itself to potential or itself to potential or actual lossesactual losses

• Warranties, guarantees, joint investments

Gain-Sharing:Gain-Sharing:Aligning customer and Aligning customer and

supplier interests supplier interests Refer to arrangements Refer to arrangements

where a supplier where a supplier assists its customers assists its customers in becoming more in becoming more profitableprofitable

Shares in the extent to Shares in the extent to which it accomplishes which it accomplishes this goalthis goal



Document the Profitability of Document the Profitability of Greater ShareGreater Share

Assess total cost to serve each customerSupplemental servicesSupplemental servicesPrograms, and Programs, and SystemsSystems

Formally document how a greater share of a customer’s business translated into greater profits




IV. Managing a IV. Managing a Portfolio of CustomersPortfolio of Customers


Customer Relationship Customer Relationship Management SystemsManagement Systems

CRM: CRM: bundling of customer strategy and processes for the purpose of improving customer loyalty and eventually, corporate profitability

Imperatives of CRM:Imperatives of CRM:Acquiring the right customersAcquiring the right customersCrafting the right value propositionCrafting the right value propositionInstituting the best processesInstituting the best processesMotivating employeesMotivating employeesLearning to retain customersLearning to retain customers



Measuring Cost-to-Serve Measuring Cost-to-Serve Customers and Customer LoyaltyCustomers and Customer Loyalty

CRM Systems Track:CRM Systems Track:Cost-to-ServeCost-to-ServeTransaction pricesTransaction pricesContribution to Contribution to

profitability of each profitability of each customer firm customer firm

Information to Information to Assess:Assess:Result of relationship-Result of relationship-

building effortsbuilding effortsTake corrective action Take corrective action

• Redesigning account to different relational categories

• Redesigning relationship-specific offerings



Loyal CustomersLoyal Customers

Greater propensity to repurchase World-of-mouth effect Resistance to competitors’

blandishments Pay a price premium Collaborate with supplier to

improve performance and develop new products

Invest in a relationship



The Loyalty LadderThe Loyalty Ladder


Willing to paya premium

Actively seeks toexpand relationship

Buys a bundle ofproducts

Skeptic—Willing to be

convinced

Enthusiastic Advocate

Invests in therelationship

Switcher—will buy if theprice is right

Cynic—won’t buy


The Loyalty-Customer Management The Loyalty-Customer Management Effort (Cost-to-Serve) FrameworkEffort (Cost-to-Serve) Framework

Most Valuable Customer

(MVC)Partner

SwitcherUndesirable Customers


Customer Management EffortCustomer Management Effort

Po

siti

on

on

th

eP

osi

tio

n o

n t

he

Lo

yalt

y L

add

erL

oya

lty

Lad

der

Lo Hi



Organizing the Selling EffortOrganizing the Selling Effort

Undesirable Customers

•Created when suppliers mismanage switchers

• “Large, unprofitable customers”

•Relationship suffers from low prices and “scope creep”

•“Showcase Accounts” used to attract customers

Partners

•Customers that are expensive to serve, but the returns usually justify the effort

•Customers want turnkey solutions rather than develop in-house expertise

Most Valuable Customers

•Considered as loyal as partners

•Grateful customers that value their relationship with supplier

•Advocates and reference accounts


Executing Migration StrategiesExecuting Migration Strategies

Identify the customer management activities

Quantify the benefits that are associated with each rung of the ladder relative to the adjacent rungs

Calculate the costs incurred in moving a customer from one rung to another



Chapter 10-50 Business Market Management, 3rd edition 50

Objective IObjective I Objective IIObjective II

All partnership programs such as

codesign or joint development will

result in profits for both Motorola

and its partner firm.

Motorola’s sales to the partner firm will be substantial or exhibit significant growth potential.

Objective IIIObjective III Objective IVObjective IV

Motorola should have a significant, if not exclusive, share of the partner’s business.

The partnership should contribute to

the achievement of Motorola’s

technology roadmap goals.

Motorola’s Statement of Motorola’s Statement of Partnership GoalsPartnership Goals


Emerging CRM ApplicationsEmerging CRM Applications

ConventionalConventional CRM: CRM:Account targetingAccount targetingSales force automationSales force automationOffering configuration Offering configuration

and pricingand pricingInformation exchangeInformation exchange

Evolving CRM:Evolving CRM: Allocating resourcesAllocating resources

• Customer acquisition

• Retention

• Growth/profit potential

Synchronizing marketing Synchronizing marketing effortsefforts

• “Touch the Customer”

• Managers working in unison

Updating delivered valueUpdating delivered value• “What have we not done

lately?”• Encourage voicing problems




V. Sustaining Customer V. Sustaining Customer Relationships Through Relationships Through

Connected RelationshipsConnected Relationships


Managing with a Business Network Managing with a Business Network ContextContext

Actors: Identify key actorsIdentify key actorsAssess the strength of their bondsAssess the strength of their bondsMap their interactionsMap their interactions

Activities:How activities are clusteredHow activities are clusteredHow activities between actors are linkedHow activities between actors are linkedHow they are assembled into processes or patternsHow they are assembled into processes or patterns

Resources:Catalog the resources of the networkCatalog the resources of the networkEvaluate links among themEvaluate links among themDetermine how they can use the constellation of networkDetermine how they can use the constellation of network



Describe the networkStrategic situation the supplier faces; Strategic situation the supplier faces;

identifies the actors involvedidentifies the actors involved Evaluate the network

Create and evaluate an interdependence matrix that Create and evaluate an interdependence matrix that specifies the pattern of linkages among the actorsspecifies the pattern of linkages among the actors

Interpret the networkInterpret the portfolio of interdependencies assessing Interpret the portfolio of interdependencies assessing

the resources and activities each network actor the resources and activities each network actor contributescontributes

Craft network strategy to resolve strategic situation


Framework for Crafting StrategiesFramework for Crafting Strategies


Adding Value through Adding Value through Business NetworksBusiness Networks

The total value of a solution is a function of the compatibility, accessibility, and quality of the networks withinUser networksUser networksComplements networkComplements networkProducer networksProducer networks

UNIX versus Windows XP




VI. Looking Ahead—A VI. Looking Ahead—A Final Thought on Final Thought on


““Whom we serve affects what we are, andWhom we serve affects what we are, andwhat we are affects whom we can serve.”what we are affects whom we can serve.”


Strategic Approach on Managing CustomersStrategic Approach on Managing Customers


Step 1Step 1Grow each customer relationship over timeAddress several ongoing behavioral issues including communication, trust and commitment, coordination, and conflict resolution

Step 2Step 2

Construct and implement appropriate relationship-specific offerings at every stage in each customer relationship

Step 3Step 3

Use a customer portfolio approach that:

a)Optimizes customer value in each individual customer relationship and adopts the basic premise that not all customers want the same working relationship – or value it the same

b)Enables the managers to recognize the impact of their various decisions on their firms’ capacities and capabilities over time



VII. SummaryVII. Summary



SummarySummary Managing customers is the process of:

differentiating different customer types delivering appropriate offerings that fulfill the respective requirements and

preferences of the portfolio of customers in a superior way getting a fair return in exchange

Business market managers strive to cultivate a portfolio of working relationships Business market managers need to deliver value in the form of relationship-

specific offerings Methods for retaining a portfolio of profitable customer-relationship were

discussed, including tools such as: FITD, all-at-once approaches, single- and multiple-sourcing

Managers must be prepared to address behavioral issues when working together with customer firms

CRM is a comprehensive set of systems and procedures that firms use to differentially and profitably relate to customer firms

Suppliers can potentially keep customer relationships vibrant by using business networks



All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall

Chapter10

Business

Transcript of Chapter10