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Customer Management

Strategy in Business Markets


Presented by:
Rahul Medhi - 131245
Rushabh Gosar - 131248
Saurabh Sane - 131249
Shreyans Jain - 131250
Shreyans Nahata - 131251

Customer Management Strategy in


Business Markets
Impact of Order
Streams and
Customers
Relationships on
Firms Skills and
Capabilities

4.
1.

Differentiate
Between and
Select
Opportunities
to Serve

2.

Understand the
Impact of
Selection
Decisions on the
Firm

3.

Impact of Orders
and Transactional
Customers on Firms
Resources and
Capacity

Build and
Manage the
Buyer Benefit
Stack and Set
Price

Locate Order
Stream or
Customer on
the Loyalty
Ladder and
Manage
Relationship

Differentiating Between and Selecting


Among Order and Customer
Opportunities
Orders

Customers
-

Managing Single Transactions

Managing Continuing Relationships

Volume Customers

Margin Customers

Strategic Consideration Customers

The Divergent Effects of Orders and


Customers
In most business markets there is a disconnect between
Customer Choice and Order Selection
If not managed properly, it can create problems between
Marketing and Manufacturing department

Typology of Buyer Benefits


Hi
Economic Benefits

Economic,
Tangible
Benefits

Economic,
Intangible
Benefits

Non-economic
Benefits

Noneconomic,
Tangible
Benefits

Noneconomic
Benefits

Lo

Hi
Lo
Vendors Ability to Communicate the
Benefit to the Customer

Economic, Tangible Benefits


Both buyer and seller can easily measure and financially quantify
these benefits
The ease of communicating and buyers willingness to accept make
these benefits attractive.
These benefits are easy to offer and equally easy for competitors to
also offer
These benefits are differentiators only when the product or service is
truly unique.

Non-economic, Tangible Benefits


These are benefits that are readily perceived by buyers, but vendors
have difficulty in quantifying them
For example, market reputation, brand name etc.
Buyers reward the vendor for these benefits by
Specifying there product in RFQs
Pay a price premium

Economic, Intangible Benefits


These benefits are quantifiable by vendors but difficult for the buyer
to verify.
Vendors use three approaches to prove their claim
Benchmark Studies
Pilot Test
Money-back guarantees

These benefits are key to achieving differentiation from competitors

Non-economic, Intangible Benefits


These benefits are difficult for both seller and buyers alike to measure
and quantify
Buyers need to experience such benefits to appreciate them
Eg. Claims like trust us
These benefits help in establishing

Buyer Benefit Stack


It helps vendors mobilize and communicate buyer benefits by
stacking the benefit elements one in top of the other
This facilitates the vendors understanding of the level and
importance of buyer benefits being offered.
To successfully communicate buyer benefits the vendor must
identify the motivation and power bases of all the DMU
members

Buyer Benefit Stack


a)

b)
X

c)
X

Using the buyer benefit stack to Set


Price
Money left on
the table

Price

Vendors Profit
Costs incurred by the
vendor

Customer Loyalty
Loyalty has been defined as a buyers commitment to
consistently rebuy or re-patronize a preferred product or
service despite situational influences and competitive
marketing efforts.
Favorable behaviors that is shown by loyal customers

Greater Propensity to repurchase


Word of Mouth effect
Resistance to customers blandishments
Pay a price premium
Collaborate with vendor to improve performance and develop new
products.
Invest in relationship

The Loyalty Ladder


Loyalty behaviors are inter-dependent and customers display different behaviors in an
order defined by their underlying loyalty level.

Willing to pay Premium


Enthusiastic Advocate
Actively seeks to expand relationship
Invests in relationship

Buys a bundle of products


Switcher will buy if the price is right
Skeptic- willing to be convinced
Cynic- wont buy

Managing Customer Relationships Using


the Loyalty Ladder
Sellers need to figure out whether it makes sense for them to invest, maintain or
Divest in customer relationships and order streams.

MVC

Partner

Switcher

Underperforming Customer
Relationship

Position on the
Loyalty Ladder

Low

High

Cost of Customer Management Effort

Switchers
Customers who only wants basic unbundled product offering (no VAS)
from the vendor.
This reduces vendors Customer Management Effort Cost so such
customers expects lower prices.
These customers view the product as commodity and so are likely to
switch vendors if they are not able to get lower price.
Primary focus in these relationships is in the management of costs.
So company can have a long term contract in return for lower prices or
alternatively, migrating these customers to new products and
technologies by de-commoditizing the relationship

Underperforming Customer
Relationships
When vendors mis-manage switchers, they become underperforming
customers.
Vendors due to some factors accept extremely low margins from large
customers.
Example Large Volume customers, Showcase Accounts

These customers can be migrated to Switchers identifying vendors services


and efforts which customer does not require.
These can also be migrated to partner quadrant by first communicating the
true benefit stack to them. The best time for this is when vendor is able to
offer other sources of value addition as well.
A vendor can even fire a customer- If vendor is providing unique value and
not getting paid for it, and customer is unlikely to get this value free from
anyone else and is likely to come back after having realized this.

Partners
Expensive to serve , but returns are also high
Customers expects long term commitment
Demands latest and best products ,and are ready to pay a price
premium

Customers in this quadrant can quickly move to underperforming


quadrant, hence vendors should be proactive in terms of rapid
commoditization cycles.

Most Valuable Customers (MVC)


More inexpensive to serve than partners
Vendor is more efficient reduces CME without reducing the buyer
benefits
Grateful customers Value relationship with the vendor and ready
to pay a price premium
Advocates and reference accounts to the vendors.

Moving customers in the loyalty &


CME Framework
Identify the customer management activities required to support a
relationship at each rung
Quantify the buyer benefits at each rung relative to adjacent rungs.
Calculate the cost of moving the customer from one rung to another
Analysis of customers current position by identifying the problem
competitive effort , ineffective account management by vendor
personnel, or individualistic customer factors
Using the loyalty ladder and buyer benefit stack , vendor can plan
customer migration along the ladder.

Caselet
WESCO Turning switchers to MVC
Industrial customers followed a transactional approach to deal with
suppliers and distributors-bid for the lowest price - switchers
WESCOs National Accounts ProgramObjective: migrate switchers to collaborators with a long term relationship
orientation.

The WESCO Story (Contd)


Wesco offered lowest prices initially to sign up to the NA program.
Cost to serve was higher initially and prices offered was low.
Key NA customers: Low Cost & Low Price

CMR- Migrating from profits to losses to


Relationship Termination
CMR Enterprises- Cabinet and Furniture manufacturer
Served both commercial and residential customers
Commercial business is based on past performance getting vendors
to bid for customers next projects

Example: Blackstone Homes


Blackstone: Regional residential
contractor
Offered CMR to become the exclusive
cabinet supplier
Point A: Both firms felt Blackstone
would become the partner customer
for CMR (Point B)
Due to customization and on-time
delivery regardless of changes, CMR
incurred cost (absorbed it).

Example: Blackstone Homes


(Contd)
CMR asked for a cover of its
additional cost which
Blackstone didnt appreciated
and agreed to a nominal
increase
Relationship is not profitable
and eventually it was
terminated.
Later, Blackstone tried alternate
suppliers unsuccessfully and
came back to CMR.

Conclusions
Survival of every business depends on customer satisfaction relative
to the competition.
Revenues received must exceed Customer Management effort.
Monitoring customer health is a pre-requisite for managing
customers for profits.

Thank You