Business Marketing Management: B2B Chapter 3 PDF

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0 12e Chapter 3 Customer Relationship Management Strategies for Business Markets © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Learning Outcomes  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Collaborative Advantage  Created by demonstrating special skills in:  Managing relationships with key customers  Developing innovative strategies with alliance partners © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.1 - Buyer–Seller Relationships © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Types of Relationships  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Value-Adding Exchanges  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.2 - Characteristics of Relationships © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Switching Costs  Include investments and risk of exposure  Organizational buyers invest in their relationships with suppliers  Investments include:  Money  People  Training costs  Equipment  Procedures and processes © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Switching Costs (continued)  Customers perceive more risk when they:  Purchase products important to their operations  Buy from less established suppliers  Buy technically complex products © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Collaborative Customers  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Value Drivers in Collaborative Relationships  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Transaction Customers  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Differentiation Strategy  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Activity-Based Costing (ABC)  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.3 - Whale Curve © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Characteristics of High- versus Low-Cost-to-Serve Customers High-cost-to-serve Low-cost-to-serve customers customers Presale costs Extensive presales Limited presales support required (i.e., support (i.e., standard technical and sales pricing and ordering) resources) Production costs Order custom Order standard products products Large order Small order quantities quantities Predictable Unpredictable ordering cycle ordering Pattern Electronic processing manual processing Post-sale service costs Extensive post-sales Limited post-sales support required (i.e., support customer training, installation, technical support) © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Customer Profitability  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.4 - Profit Lens © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Managing Unprofitable Customers  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Firing the Customer  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Customer Relationship Management (CRM)  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  CRM Systems  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Steps in Successful Customer Strategy Acquiring the right customer Crafting the right value proposition Instituting the best processes Motivating employees Learning to retain customers © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Acquiring the Right Customer  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Crafting the Right Value Proposition  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.5 - Bandwidth of Strategies © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Creating Flexible Service Offerings  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Instituting Best Processes  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Performance Attributes that Influence Customer Satisfaction  Responsiveness of the supplier in meeting the firm’s needs  Product quality  Broad product line  Delivery reliability  Knowledgeable sales and service personnel © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Motivating Employees  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Learning to Retain Customers  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in  Help customers grow their business, if part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Pursuing Growth from Existing Customers  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Evaluating Relationships  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in relationship offering part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Drivers of Relationship Marketing Effectiveness  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Drivers of Relationship Marketing Effectiveness (continued) 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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. Figure 3.6 - Model of Interfirm Relationship Marketing © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Relationship Marketing (RM) Programs 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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.  Relationship Orientation (RO)  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 © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.