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Customer Relationship

Management Strategies
for
Business Markets

CRM Strategies for Business Markets


The basic requirement of Customer Relationship

Management is providing exceptional performance in


quality, delivery and over time, cost competitiveness.
Responsiveness and open, accurate and fast
communication and cooperation.
Careful attention to detail, meeting promises, and
swiftly responding to new requirements.
Help the Customer provide more value to the
Customers demanding customers.
Special skills in developing innovative strategies with
alliance partners in product development, supplies
operations and marketing.

The Relationship
Spectrum
Transactional
Exchange
Anonymous
transaction /
Automated
purchasing
Timely exchange of
standard products
at competitive
prices

Value Added
Exchange
Focus shifts from
attracting
customers to
keeping customers.
Develop
comprehensive
understanding of
Customers needs
Tailoring firms offer to
those needs.
Commitment

Collaborative
Exchange
Complete
collaboration and
integration of
supplier with
customer or
channel partner.
Open exchange of
information
Systems ,
procedures and
routines of the
Buyer and Seller
are connected to
facilitate
operations.
Trust.

The Spectrum of Buyer-Seller


Relationships
Features

Transaction Collaborativ
al Exchange e Exchange

Availability of Alternatives

Several

Few

Supply Market Dynamism

Stable

Volatile

Importance of Purchase

Low

High

Complexity of Purchase

Low

High

Information Exchange

Low

High

Operational Linkages

Limited

Extended

Switching Cost:
For the Buyer two major costs involved in change of supplier are as
under:
1. Cost of acquiring new equipment, inventory, training, business
procedures etc
2. Risk involved in selection of an inappropriate supplier.

Value Drivers for Suppliers Strategy


Sources of

Relationship
Value

Value Dimensions

Creation

Core Offering

COSTS

BENEFITS

Product Quality

Direct Costs

Deliver
Performance
Sourcing Process

Service Support

Acquisition Costs

Personal Interaction
Customer
Operations

Supplier Know-how
Time to Market

Operation Costs

Measuring Customer Profitability


For a differentiation strategy to succeed, the

value created by the differentiation


measured by higher margins and higher sales
volumes- has to exceed the cost of creating
and delivering customized features and
services
Activity Based Costing [ABC]. It
illuminates exactly what activities are
associated with serving a particular customer
and how these activities are linked to revenue
and consumption of resources.

Measuring Customer Profitability


Unlocking Customer Profitability: While servicing

several customers simultaneously, by accurately tracing


costs to individual customers, managers at Suppliers
end are better equipped to diagnose problems and take
appropriate action.
The Profitable Few The Whale Curve: Whereas
cumulative sales usually follow the typical 20/80 rule
(that is, 20% of the customers provide 80% of the
sales),the Whale Curve for cumulative profitability
usually reveals that the most profitable 20% of
customers generate between 150% to 300% of total
profits.
The middle 70% just break even and the least profitable
10% customers lose from 50% to 200% of total profits.

The High Vs Low-cost-to-serve


Customers
High-Cost-to-Serve
Customers

Low-Cost-to-Serve
Customers

Presale
Costs

Extensive presale support


required (i.e., technical &
sales resources)

Limited presale support


(i.e., standard pricing and
ordering)

Production
Costs

Order custom made


products, Small order
quantities, Unpredictable
ordering pattern, Manual
processing

1. Order standard
products
2. Large order quantities
3. Predictable ordering
cycle
4. Electronic processing

Delivery
Costs

Fast delivery

Standard delivery

Postsale
service
cost

Extensive postsales support Limited postsales support


required (i.e., customer
training/ installation,
technical support)

Managing Customer Profitability


Managing High- and Low-Cost to-Serve
Customers
Look Inside First: Before pruning the customer
base, supply side Managers should first examine
their companys own internal processes to
ensure that it can accommodate customer
preferences for reduced order sizes or special
services at the lowest cost.

A Sharper Profit Lens:


Net Margin
Realized

HIGH
Passive
Product is crucial
Good Supplier Match
Price Sensitive
But few Special
Demands

FI
O
PR
T

Costly to serve
but pay top
dollar

ES Aggressive
S
S
Leverage their
LO
Buying Power
Low Price & Lot of
Customized Features

LOW

HIGH
COST TO SERVE

Managing Customer Profitability

Managing High- and Low-Cost to-Serve Customers


Identify Profitable Customers: Marketing Manager
should forge close relationship with them, anticipate
their changing needs, and have protective measures in
place in case competitors attempt to win them away.
Managing Unprofitable Customers:
1. Explore possible ways to reduce cost of activities
associated with serving these customers.
2. By detailing the costs of unpredictable ordering
patterns or by the large demands it places, the
Business Manager can encourage the customer to
work with the supplier more efficiently.

Managing Customer Profitability

Managing High- and Low-Cost to-Serve Customers


Firing Customers: What should be with those
unprofitable customers? One has to dig deeper into
customer relationship and assess the other benefits
that certain customers is providing or may provide in
future.
If the customer resists all attempts to convert the
unprofitable relationship into profitable one, then let
the customer fire itself by refusing to grant discounts
and reducing or eliminating marketing and technical
support.

Customer Relationship Management


Customer relationship management [CRM] is a
cross-functional process for achieving:
a continuing dialogue with customers
across all their and access points, with
personalized treatment of the most valuable customers
to ensure customer retention and the effectiveness of marketing

initiatives.

To develop responsive and profitable customers


strategies, special attention must be given to following 5
areas:
1.
2.
3.
4.
5.

Acquiring the right customers


Crafting the Right Value Proposition
Instituting the Best Practices
Motivating Employees
Learning to Retain Customers

CRM Acquiring the Right Customers


CRM directs attention to 2 critical assets of the
B-2-B firm: its stock of current / potential
relationships & its collective knowledge of
how to select, initiate, develop and maintain
profitable relationships with customers.
Identify your most profitable customers.
Calculate your share of their purchases (wallet) for

your goods and services.


TECHNIQUES
Analyze customer revenue and cost data to identify
current and future high-value customers
Target marketing communications to high-value
customers.

CRM Crafting the Right Value


Proposition
A value proposition represents the products, services,
ideas, and solutions that a business marketer offers
to advance the performance goals of the
customer organization.
The Bandwidth of Strategies: The strategies
competing firms in an industry pursue fall into a range
referred to as the industry bandwidth of working
relationship.
1. Flaring Out by Unbundling: Related offering is
unbundled, and the price of each component is
lowered than going market price, in isolation.
However, the total price of the entire set of
unbundled services should be greater than the price
sought for the collaborative offering.

CRM Crafting the Right Value


Proposition
2. Flaring Out with Augmentation: The collaborative
offering becomes the augmented product enriched
with features which the customer values. Because
collaborative efforts are designed to add value or
reduce the costs of exchange between partnering
firms, a price premium should be received for the
collaborative offer.
3. Creating Flexible Service Offerings: First, an offer
should be created that includes the bare-bonesminimum number of services valued by all customers
in a particular market segment. Second, optional
services are created that add value by reducing costs
or improving the performance of a customers
operations.

CRM Crafting the Right Value


Proposition
Determine the products or services your

customers need today and will need tomorrow.


Assess the products or services that your
competitors offer today and tomorrow.
Identify new products or services that you
should be offering.
TECHNIQUES
Capture relevant product & services behavior
data from customer transactions.
Create new distribution channels.
Develop new pricing model.

CRM Instituting the Best Practices


Successful relationship strategies are shaped by an
effective organization and deployment of the personal
selling efforts and close coordination with supporting
units, such as logistics and technical services.
Research suggests that the performance attributes
that influence the customer satisfaction of business
buyer include:
the responsiveness of the supplier in meeting the

customers needs
product quality
a broad product line
delivery reliability
knowledgeable sales and service personnel

CRM Instituting the Best Practices


Research the best ways to deliver your

products or services to customers.


Determine the service capabilities that must be
developed and the technology investments that
are required to implement customer strategy.
TECHNIQUES
Process transaction faster.
Provide better information to customer contact
employees.
Manage logistics and the supply chain more
efficiently.

CRM Motivating Employees


Motivating Employees: Dedicated employees
are the cornerstone of successful customer
relationship strategy. Providing excellent service
and value generates pride and sense of purpose
and achievement among employees.

CRM Motivating Employees


Identify the tools your employees need
to foster customer relationship.
Earn employee loyalty by investing in
training and development and
constructing appropriate career paths for
the employees.
TECHNIQUES
Align employee incentives and
performance measures.
Distribute customer knowledge to
employees throughout the organization.

CRM Learning to Retain Customers


Learning to Retain Customers: The cost of serving
a long-standing customer is often far less the cost
of acquiring a new customer. Established
customers often buy more products and services
from a trusted supplier. The Supplier learns how to
serve more efficiently and also spots opportunities
for expanding the relationship.
Although loyal customers are likely to be satisfied,
all satisfied customers do not remain loyal.
Business marketers can earn customer loyalty by
providing superior value that ensures high
satisfaction and nurturing trust and mutual
commitments.

CRM Learning to Retain Customers


Pursuing Growth from Existing Customers: In
targeting individual customers, particular attention
should be given to:
1.
2.
3.

Firm the current share of wallet supplier has attained,


Pursuing opportunities to increase that share; and
Carefully projecting the enhanced customer profitability
that will result.

Evaluating Relationship: Some relationship


building efforts fail because the mutual
expectations do not mesh. Suppliers should also
continuously update the value of their product and
relationship offering to look for new / enhanced
offerings or to unbundle these, if so required.

CRM Learning to Retain Customers


Understand why customers defect and
how to win them back.
Identify the strategies your competitors
are using to win your high-value
customers.
Techniques
Track customer defection and retention
levels.
Track customer service satisfaction level.

Strategic Alliances
Strategic Alliances involve a formal long-run
linkage, funded with direct co-investments by
two or more companies, that pool
complementary capabilities and resources to
achieve generally agreed objectives.
In contrast, a joint venture involves the
formation of a separate, independent
organization by the venture partners.

A Strategic Alliance-Before Handshake


Will the alliance create value for our
customers?
Will this alliance generate growth in our core
business?
Some Tough
Questions Before
Entering on
Alliance

What are the strengths and weaknesses of


each potential alliance partner?
Does this alliance present risk to our business?
How compatible are we, both culturally and
technically?
Are we committed to a long term relationship?

Benefits of Strategic Alliance


Access to markets or technology

Partners to an
alliance seek
benefits such as:

Economies of scale that night be gained by


combining manufacturing, R&D, or marketing
activities
Faster entry of new products to markets
Sharing of risk

Determinants of Alliance Success


Building a Dedicated Alliance Function:
Creating a dedicated strategic alliance
function headed by a VP or Director- with his
/ her own staff and budget is imperative for
the success of an alliance.
The dedicated function coordinates all
alliance-related activity within an organization
and is charged with institutionalizing
processes and systems to teach, share, and
leverage prior alliance management
experience and know-how throughout the
company.

Determinants of Alliance Success


Developing a Joint Venture Proposition: Even
before the negotiations begin, the partners
should develop a strategy map that details
the shared strategy and the specific Value
Proposition that the partners will deliver to
the customers.
Developing Close Working Relationship:
Alliances require a dense web of interpersonal
connections and internal infrastructures that
enhances learning.

Determinants of Alliance Success


Boundary-Spanning Connections: Fundamental
to the success of the alliance are the working
relationships that span organizational
boundaries and unite the partnering firms.
Frequent interactions, the timely exchange of
information, and accurate feedback on each
partners actions will minimize misperceptions
and strengthen cooperation in an alliance
Developing Close Working Relationship:
Alliances require a dense web of interpersonal
connections and internal infrastructures that
enhances learning.

Determinants of Alliance Success


1. Strategic integration: which entails
continuing contact among senior
executives to define broad goals or
discuss changes in each company
Partners to an
alliance integrate
the organizations
so that
appropriate
points of contact
and
communication
are managed.
Successful
alliances achieve
5 levels of
integration

2. Tactical integration: It brings middle


managers together to plan joint activities, to
transfer knowledge, or to isolate organizational
or system changes that will improve inter-firm
connections.
3. Operational integration: It provides the
information, resources, or personnel that
managers require to carry out the day-t0-day
work of the alliance.
4. Interpersonal integration: It builds a
necessary foundation for personnel in both
organizations to know one another personally,
learn together, and create new value; and
5. Cultural integration: it requires managers
involved in the alliance to have the

Social Ingredients of Alliance Success


Strong interpersonal ties must be forged to unite
managers in the partnering organizations and
continuing boundary spanning activity is
required at multiple managerial level as the
relationship evolves.
Laying the Foundation: Alliance negotiations set
the tone for the relationship. Smooth alliance
negotiations rest on finding the proper balance
between the formal, legal procedures that
establish detailed contractual safeguards for the
parties and the informal, that are crucial in the
successful execution of alliance strategy.
interpersonal processes

Social Ingredients of Alliance Success


Isolating Top-Management Role: Executive
leadership assumes a critical role in
communicating the strategic role of the alliance
and in creating an identity for the alliance
within the organization. A senior executives
personal involvement galvanizes support for
the alliance throughout the organization.
Cultivating a Network of Relationships: To
achieve alliance goals, well-integrated
communication and work-flow networks
among managers is required within and across
firms.