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Business Market Management 3 rd edition Managing Customers Chapter 10

Section IV: Delivering Value Business Market Management, 3 rd edition Chapter 10-

Chapter 10: Managing Customers Overview Differentiating Transactional and Collaborative Customers Pursuing Growth and Continuity Delivering Superior Value with Relationship-Specific Offerings Managing a Portfolio of Customers Sustaining Customer Relationships Through Connected Relationships Looking Ahead—A Final Thought on Managing Customers Summary Business Market Management, 3 rd edition Chapter 10-

Overview Differentiating between transaction and collaborative customers Growing a customer relationship profitably over time Foot-in-the-door All-at-once approach Suppliers managing their portfolio of customer relationships Business Market Management, 3 rd edition Chapter 10-

Managing Customers The process of: Differentiating transactional and collaborative customers Delivering offerings that fulfill the requirements and preferences of a portfolio of customers in a superior way Delivering value Getting a fair return on the value delivered Business Market Management, 3 rd edition Chapter 10-

I. Differentiating Transactional and Collaborative Customers Business Market Management, 3 rd edition Chapter 10-

Thinking Strategically about Relationships Transactional Relationships: customers and supplier focus on the repeated and timely exchange of basic product at highly competitive prices Collaborative Relationships: Partnering: Customers and supplier firm form strong and extensive social, economic, service, and technical ties over time Goals: lower total cost or increase value Business Market Management, 3 rd edition Chapter 10-

The Working Relationship Continuum and Industry Bandwidth Business Market Management, 3 rd edition Chapter 10-

Industry 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, or Treat all customers alike Business Market Management, 3 rd edition Chapter 10-

Partnering as a Focused Market 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, Targeting, & Positioning Business Market Management, 3 rd edition Chapter 10-

Partnering as a Focused Market Strategy Segment Marketplace Customer application Capabilities and business priorities Usage situation Estimate the value of their offerings in these segments Target one or more segment for collaborative emphasis Individual Accounts Customer Selection: Strategic Order Selection: Tactical Business Market Management, 3 rd edition Chapter 10-

II. Pursuing Growth and Continuity Business Market Management, 3 rd edition Chapter 10-

Pursing Growth and Continuity Growth: supplier firm works to increase its profitability share of the customer’s business and to become an irreplaceable partner 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 Business Market Management, 3 rd edition Chapter 10-

Pursuing Growth in a Customer Account Estimate share of customer’s business Understand the total volume of business attainable Understand the current share of the customer business Business Market Management, 3 rd edition Chapter 10- Which customer share growth prospects are worth pursuing? How should we grow business with a customer over time?

Different Paths to Building Customer Share Business Market Management, 3 rd edition Chapter 10-

Foot-to-Door Approach Business Market Management, 3 rd edition Chapter 10-

Ideal FITD Candidate It must mitigate customer risk (inexpensive enough to be purchased without hesitation) Fit between product functionality and customer requirements must be exceedingly close Product quality should be impeccable and chance of failure nil Business Market Management, 3 rd edition Chapter 10-

Customer Acquisition and Retention Business Market Management, 3 rd edition Chapter 10- Acquire Customer Foot-in- The Door Follow-on Sales Other Sales Retain Customer Time Revenue

Problems 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 Business Market Management, 3 rd edition Chapter 10-

All-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 buying units Nature of the products and services offered Selling skills required Business Market Management, 3 rd edition Chapter 10-

HP’s Migration Strategy Business Market Management, 3 rd edition Chapter 10- Develop trusted advisor relationship Migrate up to IT Infrastructure and enterprise-wide solutions Start where HP has a price/performance advantage

Pursuing Continuity Promote honest and open communication Build trust and commitment Implement coordination mechanisms Anticipate and resolve conflicts Business Market Management, 3 rd edition Chapter 10-

Promote Honest and Open Communication Communication: formal and informal sharing of meaningful and timely information between firms Meet formally and informally with partner firms to discuss market conditions Bridging: establishing multiple levels of communication between: Firms Across functions Management levels Business strands Business Market Management, 3 rd edition Chapter 10-

Bridging Develop functional and interfirm teams Enables partner firms to minimize detrimental effects of departure of a key employee Ensuring Continuity Rotate staff and use teams to avoid attachment Develop other steady performers Urge early notification of personnel departures; publicize transition plan Business Market Management, 3 rd edition Chapter 10-

Build Trust and Commitment 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 outcomes for the firm Business Market Management, 3 rd edition Chapter 10-

Building Trust Business Market Management, 3 rd edition Chapter 10-

Trust and Commitment Business Market Management, 3 rd edition Chapter 10- Pledge Actions one firm takes that demonstrate good faith and binds it to the relationship Firm typically invests nonredeployable assets Commitment Captures the perceived continuity or growth in the relationship Desire to develop a stable relationship Willingness to make short-term sacrifices to maintain the relationship Confidence in the stability of the relationship Guarantee One 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 Recovery System 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

Business Market Management, 3 rd edition Chapter 10- Courtesy of Cushman & Wakefield

Implement Coordination Mechanism Business Market Management, 3 rd edition Chapter 10- Coordination Customer and supplier firms synchronize activities, resources and capabilities to accomplish a collective set of tasks Mechanistic Organic Market-Clearing Price Balances supply and demand for a given offering Management 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 Power The ability of one firm to get its partner to undertake activities that the partner firm would not do on its own Cooperation Promote shared norms on How to work together How to jointly create value How to share benefits Building mutual trust and commitment

Anticipate 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: Productive discussions Business Market Management, 3 rd edition Chapter 10-

Three Primary Sources of Disagreements Goal incompatibility Mission, goals, and objectives of partner firm are disparate Lack of agreement over responsibilities within the working relationship domain Functions that each partner should perform How partners should accomplish tasks Timing of efforts Differing perceptions of reality Market trends, competitive threats, emerging technologies Business Market Management, 3 rd edition Chapter 10-

Conflict Resolution Mechanisms Service recovery systems Boundary-spanning personnel Intractable disputes Mediation Arbitration Business Market Management, 3 rd edition Chapter 10-

III. Delivering Superior Value with Relationship-Specific Offerings Business Market Management, 3 rd edition Chapter 10-

Flaring Out from the Industry Bandwidth Business Market Management, 3 rd edition Chapter 10- a d b c Pure Transactional Exchange Flaring Out By Unbundling Focal Industry Flaring out with Augmentation Pure Collaborative Exchange

Construct Relationship-Specific Market Offerings Business Market Management, 3 rd edition Chapter 10- 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 Offerings Transactional Lower the price for each service that is unbundled Supplier markets optional programs and services in a menu fashion based on incremental pricing Defeature offerings and share the costs savings Relax specifications in return for lower price Collaborative Supplier seeks price premium Supplier may seek greater share of customer’s business Often reduce margins on specialty products to make money on commodity products (servicing the product) Business Market Management, 3 rd edition Chapter 10-

Focused Share Building Focused Single-Source Provider: Attempts to attain 100% of a customer’s business in targeted offering categories while not pursing other offering categories that it might supply to that customer Business Market Management, 3 rd edition Chapter 10-

Multiple Single-Sourcing Customers and suppliers reap the benefits of single source arrangements while minimizing the potential drawbacks Each plant in a customer’s manufacturing network is singled-sourced Yet, the customer maintains at least two suppliers Two-step process: Persuade customer of the value of being single source at each location regardless of supplier Persuade customer that selecting them as single source will deliver added value Business Market Management, 3 rd edition Chapter 10-

Building New Organizational Capabilities 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 Business Market Management, 3 rd edition Chapter 10-

Adopt New Profit Models Risk-Sharing: Supplier assists its customers in becoming more profitable and exposes itself to potential or actual losses Warranties, guarantees, joint investments Gain-Sharing: Aligning customer and supplier interests Refer to arrangements where a supplier assists its customers in becoming more profitable Shares in the extent to which it accomplishes this goal Business Market Management, 3 rd edition Chapter 10-

Document the Profitability of Greater Share Assess total cost to serve each customer Supplemental services Programs, and Systems Formally document how a greater share of a customer’s business translated into greater profits Business Market Management, 3 rd edition Chapter 10-

IV. Managing a Portfolio of Customers Business Market Management, 3 rd edition Chapter 10-

Customer Relationship Management Systems CRM: bundling of customer strategy and processes for the purpose of improving customer loyalty and eventually, corporate profitability Imperatives of CRM: Acquiring the right customers Crafting the right value proposition Instituting the best processes Motivating employees Learning to retain customers Business Market Management, 3 rd edition Chapter 10-

Measuring Cost-to-Serve Customers and Customer Loyalty CRM Systems Track: Cost-to-Serve Transaction prices Contribution to profitability of each customer firm Information to Assess: Result of relationship-building efforts Take corrective action Redesigning account to different relational categories Redesigning relationship-specific offerings Business Market Management, 3 rd edition Chapter 10-

Loyal 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 Business Market Management, 3 rd edition Chapter 10-

The Loyalty Ladder Business Market Management, 3 rd edition Chapter 10- Willing to pay a premium Actively seeks to expand relationship Buys a bundle of products Skeptic— Willing to be convinced Enthusiastic Advocate Invests in the relationship Switcher—will buy if the price is right Cynic—won’t buy

The Loyalty-Customer Management Effort (Cost-to-Serve) Framework Business Market Management, 3 rd edition Chapter 10- Most Valuable Customer (MVC) Partner Switcher Undesirable Customers Customer Management Effort Position on the Loyalty Ladder Lo Hi

Organizing the Selling Effort Business Market Management, 3 rd edition Chapter 10- 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 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 Business Market Management, 3 rd edition Chapter 10-

Motorola’s Statement of Partnership Goals Chapter 10- Business Market Management, 3 rd edition Objective I Objective 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 III Objective 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.

Emerging CRM Applications Conventional CRM: Account targeting Sales force automation Offering configuration and pricing Information exchange Evolving CRM: Allocating resources Customer acquisition Retention Growth/profit potential Synchronizing marketing efforts “ Touch the Customer” Managers working in unison Updating delivered value “ What have we not done lately?” Encourage voicing problems Business Market Management, 3 rd edition Chapter 10-

V. Sustaining Customer Relationships Through Connected Relationships Business Market Management, 3 rd edition Chapter 10-

Managing with a Business Network Context Actors: Identify key actors Assess the strength of their bonds Map their interactions Activities: How activities are clustered How activities between actors are linked How they are assembled into processes or patterns Resources: Catalog the resources of the network Evaluate links among them Determine how they can use the constellation of network Business Market Management, 3 rd edition Chapter 10-

Describe the network Strategic situation the supplier faces; identifies the actors involved Evaluate the network Create and evaluate an interdependence matrix that specifies the pattern of linkages among the actors Interpret the network Interpret the portfolio of interdependencies assessing the resources and activities each network actor contributes Craft network strategy to resolve strategic situation Framework for Crafting Strategies Business Market Management, 3 rd edition Chapter 10-

Adding Value through Business Networks The total value of a solution is a function of the compatibility, accessibility, and quality of the networks within User networks Complements network Producer networks UNIX versus Windows XP Business Market Management, 3 rd edition Chapter 10-

VI. Looking Ahead—A Final Thought on Managing Customers Business Market Management, 3 rd edition Chapter 10- “ Whom we serve affects what we are, and what we are affects whom we can serve.”

Strategic Approach on Managing Customers Business Market Management, 3 rd edition Chapter 10- Step 1 Grow each customer relationship over time Address several ongoing behavioral issues including communication, trust and commitment, coordination, and conflict resolution Step 2 Construct and implement appropriate relationship-specific offerings at every stage in each customer relationship Step 3 Use a customer portfolio approach that: 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 Enables the managers to recognize the impact of their various decisions on their firms’ capacities and capabilities over time

VII. Summary Business Market Management, 3 rd edition Chapter 10-

Summary 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 Business Market Management, 3 rd edition Chapter 10-

Business Market Management, 3 rd edition Chapter 10- 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. Publishing as Prentice Hall

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