Marketing business to business
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MAR5409_PPT_ch03.pptx0
Chapter 3 Customer Relationship Management Strategies for Business Markets
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The patterns of buyer–seller relationships in the business market
The factors that influence the profitability of individual customers
A procedure for designing effective customer relationship management programs
The critical determinants of relationship marketing effectiveness
Chapter Outline
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Created by demonstrating special skills in:
Managing relationships with key customers
Developing innovative strategies with alliance partners
Collaborative Advantage
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Figure 3.1 - Buyer–Seller Relationships
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Transactional exchange: Centers on timely exchange of basic products at highly competitive market prices
These transactions are autonomous
Collaborative exchange: Features close information, social, operational linkages, and mutual commitments
Operational linkages: Reflect how much the systems, procedures, and routines of the buying and selling firms have been connected to facilitate operations
Types of Relationships
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Fall between transactional and collaborative exchanges
Selling firms shift from attracting customers to keeping them by:
Understanding customer’s needs and changing requirements
Tailoring the firm’s offerings to those needs
Providing continuing incentives that promote repeat business
Value-Adding Exchanges
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Figure 3.2 - Characteristics of Relationships
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Include investments and risk of exposure
Organizational buyers invest in their relationships with suppliers
Investments include:
Money
People
Training costs
Equipment
Procedures and processes
Switching Costs
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Customers perceive more risk when they:
Purchase products important to their operations
Buy from less established suppliers
Buy technically complex products
Switching Costs (continued)
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Strong and lasting commitments are recommended
Marketers can invest resources to secure commitments and directly assist customers with planning
Regular visits to the customer by executives and technical personnel strengthen the relationship
Operational linkages and information-sharing mechanisms should be designed to keep product and service offerings aligned with customer needs
Collaborative Customers
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Service support and personal interaction
Supplier’s know-how and its ability to improve a customer’s time to market
Product quality and delivery performance
Cost savings associated with the acquisition process and from operations
Value Drivers in Collaborative Relationships
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Display less commitment to a particular supplier and can easily switch part or all of the purchases from one vendor to another
Marketer needs to offer an immediate, attractive combination of product, price, technical support, and other benefits
Transaction Customers
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Value created has to exceed the cost of creating and delivering the customized features and services
Measured by higher margins and higher sales volumes
Marketer needs to understand the drivers of customer profitability
Can allocate marketing resources and take action to convert unprofitable relationships into profitable ones
Differentiation Strategy
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Illuminates activities associated with serving a particular customer and how these activities are linked to revenues and the consumption of resources
Link customer transaction data from customer relationship management (CRM) systems with financial information
Provides marketing managers with an accurate picture of the gross margins and cost-to-serve components
Activity-Based Costing (ABC)
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Figure 3.3 - Whale Curve
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| High-cost-to-serve customers | Low-cost-to-serve customers | |
| Presale costs | Extensive presales support required (i.e., technical and sales resources) | Limited presales support (i.e., standard pricing and ordering) |
| Production costs | Order custom products Small order quantities Unpredictable ordering Pattern manual processing | Order standard products Large order quantities Predictable ordering cycle Electronic processing |
| Post-sale service costs | Extensive post-sales support required (i.e., customer training, installation, technical support) | Limited post-sales support |
Characteristics of High- versus Low-Cost-to-Serve Customers
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Determined by looking at the cost/profitability structure with the plan to:
Keep profitable customers
Convert unprofitable ones to profitability
Fire those who are not profitable
Customer Profitability
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Figure 3.4 - Profit Lens
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Marketing manager should:
Explore possible ways to reduce the cost of activities associated with serving these customers
Direct attention to the customer actions that contribute to higher selling costs
Managing Unprofitable Customers
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Should occur only when the customer resists all attempts to convert the unprofitable relationship into a profitable one
Let customers fire themselves
Refuse to grant discounts and reduce or eliminate marketing and technical support
Customer divestment
Must be exercised sparingly
Firing the Customer
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Cross-functional process for achieving:
Continuing dialogue with customers across all contact and access points
Personalized service to the most valuable customers
Increased customer retention
Continued marketing effectiveness
Customer Relationship Management (CRM)
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Enterprise software systems that integrate sales, marketing, and customer service information
Synthesize information from all of a company’s contact points to:
Support later customer interactions
Inform market forecasts, product design, and supply chain management
Yields positive returns when a firm has a customer strategy
CRM Systems
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Steps in Successful Customer Strategy
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Acquiring the right customer
Crafting the right value proposition
Instituting the best processes
Motivating employees
Learning to retain customers
Customer relationship management places importance on:
Stock of current and potential customer relationships
Collective knowledge of how to select, initiate, develop, and maintain profitable relationships with these customers
Customer portfolio management - Process of creating value across a firm’s customer relationships
Acquiring the Right Customer
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Value proposition: Encompasses the products, services, ideas, and solutions that a business marketer presents
To advance the performance goals of the customer organization
Marketer can gain an advantage over rivals by adding a justifier to the value proposition
Best-practice suppliers base their value proposition on their target market’s needs
Crafting the Right Value Proposition
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Figure 3.5 - Bandwidth of Strategies
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Offering should include the bare-bones-minimum number of services valued by all customers in a particular market segment
Optional services need to be created that add value by reducing costs or improving the performance of a customer’s operations
Creating Flexible Service Offerings
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Sales force plays a key role in relationship-management
Technical service and customer service personnel assume implementation roles
Requires effective organization and deployment of personal selling effort and close coordination with supporting units
Through careful management and screening, transactional accounts can progress to partnerships
Instituting Best Processes
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Responsiveness of the supplier in meeting the firm’s needs
Product quality
Broad product line
Delivery reliability
Knowledgeable sales and service personnel
Performance Attributes that Influence Customer Satisfaction
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Dedicated employees are the key to a successful customer relationship strategy
Employee loyalty is earned by:
Investing in training and development
Providing challenging career paths to facilitate professional development
Aligning employee incentives to performance measures
Motivating Employees
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Reasons to retain loyal customers
Established customers buy more
Cost of serving loyal customers declines
Less expensive than acquiring new customers
Ways to retain customers
Provide superior value to ensure high satisfaction
Nurture trust and developing mutual commitment
Help customers grow their business, if possible
Learning to Retain Customers
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Identifying and cultivating customers that offer the most growth potential by:
Estimating current percent share of wallet the firm has attained
Pursuing opportunities to increase share
Projecting and enhancing customer profitability
Pursuing Growth from Existing Customers
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Some relationship-building efforts fail as expectations of the parties do not weave together
By isolating customer needs and the costs of augmented service features, marketer is equipped to match their product offerings to the needs
Goal of a relationship is to enable the buyer and seller to maximize joint value
Business marketers should continually update the value of their product and relationship offering
Evaluating Relationships
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Relationship quality: High-caliber relational bond characterized by commitment and trust
Relationship breadth: Number of interpersonal ties that connect the relationship
Relationship composition: Decision-making capability of relational contacts at the customer firm
Drivers of Relationship Marketing Effectiveness
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Relationship strength: Ability of the buyer–seller relationship to withstand stress and/or conflict
Relationship efficacy: Ability of an interfirm relationship to achieve desired objectives
Drivers of Relationship Marketing Effectiveness (continued)
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Figure 3.6 - Model of Interfirm Relationship Marketing
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Relationship Marketing (RM) Programs
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Social RM programs
Use social engagements, personalized communication that develop bond and highlight the customer’s special status
Structural RM programs
Designed to increase productivity and/or efficiency for customers through targeted investments
Financial RM programs
Provide economic benefits to increase customer loyalty
Represents the customer’s desire to engage in strong relationships with a current or potential supplier
RM investments improve if business marketers are able to target customers on the basis of their RO rather than size
Relationship Orientation (RO)
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