CRM Strategies for Business

Markets
 Introduction
— Why business marketers need to develop and
maintain relationships with their key customers?
— Business marketers invest more resources at the
individual customer level.
— To retain the customers or make them loyal because:
◦ 1. Established customers buy more
◦ 2. Costs of serving loyal customers decline overtime
◦ 3. Less expensive than acquiring new customers
— To create competitive advantage – relationships are
difficult to imitate.
 Types of Relationships
— What are the different types of relationships?
— A business marketer may begin the relationships as
a supplier with a customer e.g. Minda Industries to
Tata Motors.
— Relationships may unfold in the following manner:
◦ 1. Minda is one of the supplier to Tata Motors.
◦ 2.Minda becomes a preferred (one of a few) suppliers to
Tata Motors.
◦ 3. Minad becomes a sole supplier for a particular product
(e.g.Air filtration system) to Tata Motors.
— Relationships are developed overtime and
considered as continuum.
Types of Relationships
The Relationship Spectrum
 Transactional Exchanges
— Focuses on timely exchange of standard products at
highly competitive market prices. e.g. Packaging,
Cleaning or Commodity-type products.
— These types of transactions are autonomous,
meaning that there is little or no customization of
products.
— Business marketer’s objective is to attract
customers.
— The customer’s focus is on short term benefits e.g.
low price.
— Example: A person comes into a store and buys a
hammer. The buyer wants a hammer and the seller
sells him one.
 Collaborative Exchanges
} Occurs when alternatives are few, the purchase is
complex, customer required higher level of
customization and the price is high. E.g. ERP
software purchase.
} Features close relationships (e.g. trust &
commitment), high level of information sharing and
strong operational linkages (e.g. sharing production
plan, JIT). E.g. Honda & Suppliers
} It is long-term in nature, focus on mutual benefits
and joint problem solving.
} Switching costs are extremely important to
collaborative customers.
 Value-Added Exchanges
— Value-Added Exchanges fall between Transactional
and Collaborative Exchanges.
— Feature moderate level of customization, and
information sharing. e.g. Financial services
— Value-Added Exchanges are those where the selling
firms shifts from just attracting customers to
keeping them by:
◦ Adding additional services
◦ Developing services/products that are customized to meet
the buyer’s needs
◦ Providing continuing incentives that promote repeat
business
— E.g. Asset management firms offer financial service
to corporate clients.
 Relationships Strategies
— How business marketer should select the
appropriate relationship strategies for various
customers?
— It depends on several factors:
◦ Customer’s orientation
◦ Market conditions
◦ Characteristics of the purchase situation
◦ Importance of purchase
◦ Nature of the product
Spectrum of Buyer-Seller Relationships
 Switching costs
— A major consideration before changing from one
supplier to another is the switching costs.
— Organizational buyers invest heavily in their
relationships with suppliers. e.g. software – money,
training, equipment etc.
— Buyers hesitate to switch because it can cause
costly disruptions.
— Collaborative exchange – switching costs are high.
— Buyer can switch the supplier when the benefits
exceed the switching costs.
— Transaction exchange – switching costs are low.
 Relationships Strategies
— Why selection of appropriate relationships
strategies are important?
— A specific strategy affects resource allocation
decision and consequently costs to serve the
customer.
— For example, resource requirement and costs to
serve customers are high in collaborative
relationships than transaction exchanges.
— What to do?
— In addition to previous marketed related factors,
business firm should carryout profitability analysis.
 Profitability Analysis
— How to measure customers’ profitability?
— Activity based costing
— Measure profitability at customer level rather than
product/territory level.
— Identify all the activities associated with customers
and its linkage with costs and revenues.
— Classify the customers in to ‘High Versus Low-
Cost-to-Serve Customers’
— ABC analysis usually coincide with 80/20 rule.
 Profitability Analysis
High Cost to serve
Customers
Presale Costs Extensive presale support
required (i.e. technical,
marketing and sales support)
Production Costs Order custom products
Order small quantities
Unpredictable order arrivals
Manual processing
Require company to hold
inventory
Delivery Costs Customized/Fast delivery
Post Service Extensive post-sales support
Costs (i.e., installation, training,
warranty, field service)
Low Cost to serve
Customers
Limited presale support
required
(i.e. standard pricing and
ordering)
Order standard products
Order large quantities
Predictable ordering cycle
Electronic processing (EDI)
Replenish as produced
Standard delivery
Limited post-sales support
 Customer Profitability

High

Passive Costly to service,

Product is crucial but pay top
Net Margin Realized

Good supplier match money

ro fits
P s
Price-sensitive but o sse Aggressive
L
few special Leverage their buying power
demands Low price and lots of
customization
Most challenging
Low
Low High

Cost-to-Serve

SOURCE: From “Manage Customers for Profits (Not Just Sales)” by B.P. Shapiro et al., September-October 1987, p. 104, Harvard Business Review.
Profitability Analysis
 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
 Managing Customers
— Profitable customers
— Develop collaborative relationships with most
profitable customers.
— Break-even customers
— Reduce the cost of pre and post sales activities
— Improve process e.g. make delivery process
standardize.
— Convert them value added to collaborative
relationships if possible.
— Look for long-term profits
 Managing Customers
— Unprofitable customers
— Low margin / high cost customers offer the most
challenges for marketing mangers.
— Start with ways to reduce costs e.g. minimize
errors in ordering
— Maintain transactional relationships with such
customers e.g. online purchase and post sales
support.
— Explore opportunities for cross selling
— Charge for extra services e.g. urgent delivery.
— Fire them – raise prices, withdraw all supports, and
eliminate discounts.
 Customer Relationship Management
— CRM is a cross-functional process for achieving:
◦ Continuing dialog with customers across all contact
points
◦ Personalized service to the most valuable customers
◦ Increased customer retention
◦ Enhanced marketing effectiveness
 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.
— Based on the information from CRM program,
identify the activities, its costs, revenues, and
profitability for all the customers.
— Categorize the customers into profitable, break
even, and unprofitable and select appropriate type
of relationships.
 CRM and Relationships
Types of Customer Type of Relationships

Profitable Collaborative
Break-Even Transactional or Value added
Unprofitable Transactional
 Type of relationships and Offering
— Firm should customized its offering based on types
of relationships and customers requirements.
— 1. Flaring out by Unbundling
— Product and services are unbundled.
— E.g. software (core product) + Installation
(chargeable) + training + upgrading
— Offer basic price, quality, and availability for core
product.
— Each additional service is offered on menu or a la
carte basis with incremental price.
— Suitable for transaction relationships/unprofitable
customers.
 Type of relationships and Offering
— 2. Flaring out by Augmentation
— Products are offered in portfolio of enrich features
and services.
— E.g. software + Installation + training + upgrading +
technical assistance etc.
— Premium price is charged.
— Overall price should be lower than the price
charged to transactional customers (menu based)
— Suitable for collaborative relationships/highly
profitable customers.
 Type of relationships and Offering
— 2. Flexible services
— Products are offered in customized portfolios with
flexible services.
— Minimum requirements for the segment:
— P1: (software + Installation)
— P2 : (software + Installation + training)
— P3: (software + Installation + upgrading)
— Overall price should be higher than the
collaborative relationships but lower than the
transactional relationships.
— Suitable for value added relationships/break-even
customers.
 Type of relationships and Offering
— In b2c market, D2H service providers use the
similar strategies.
— 1. Basic package : Rs. 153 + taxes + A- la carte
channels (menu based)
— 2. Flexible services:
◦ basic package + sports channels
◦ basic package + Hindi movies
— 3. Airtel package for Gujarat (basic + sports +
movies)
 Relationships Marketing Programs
— Social RM Programs
— Structural RM Programs
— Financial RM Programs
 Social RM Programs
— Social RM programs:
◦ Social engagements (sporting events, meals, etc.)
◦ Frequent and personalized communications that
develop personal bonds
◦ Make the relationship special like friends.
— Results:
◦ Customers reciprocate with repeat business and
referrals
◦ Difficult for competitors to duplicate
— Affect:
◦ Has a direct affect on profits & is long lasting
 Structural RM Programs
— Structural RM programs:
◦ Provide a service/product to increase productivity
and/or efficiency for customers through targeted
investment that customers would not make for
themselves.
For example they provide:
– Order-processing interfaces
– Free analysis of operations
— Results:
◦ Creating a structural bond makes it difficult for
companies to switch to competitors
 Financial RM Programs
— Financial RM programs provide economic
benefits such as:
– Discounts
– Free shipping
– Extended payment terms

— Results:
Companies respond financially to protect customer
relationships, but they do not necessarily enhance the
relationship because all companies do it.
 Targeting RM Programs
— Some companies are Relationship Oriented
(RO), and some are not.
◦ RO companies seek to develop relationships with
current or potential supplier.

— RO buyers look for companies that:

◦ Offer expertise
◦ Are able to be flexible (i.e., payment terms, R&D,
etc.)
◦ Help reduce risk for both parties benefit
◦ Help both parties benefit from the relationship
 Strategy for customers
— HIGH RO: Target those with high RO goals since they
are looking for and are open to developing
relationships

— LOW RO: For these companies, the strategy is to

create high switching cost:
◦ Tie them into electronic ordering interfaces
◦ Align RM resources as closely as possible to the
customer’s needs
— Thanks