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Customer Relationship Management Strategies for Business Markets

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Relationship Marketing
Centers On: Establishing, Developing, and Maintaining Successful exchanges with customers.

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Transactional Exchange
Centers on timely exchange of basic products for highly competitive market prices. Taxi /bus from the airport Value to customer? Focus of selling shift from attracting customers to keeping customers Dell provides a customized webpage to each of its premier corporate customer Understanding the customers business- the key to success
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Collaborative Exchange
Features close information, social, and operational linkages, as well as mutual commitments. Switching cost Investment Risk of exposure- with a less established supplier or technically complex products

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Types of Relationships
Buyer-seller relationships positioned on a continuum with transactional exchange and collaborative exchange serving as end points. The Relationship Spectrum

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Buyers and sellers craft different types of relationships in response to: a) market conditions and b) characteristics of the purchase situation.

Spectrum of Buyer-Seller Relationships

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Strategy Guidelines
1. Determine which type of relationship matches purchasing situation and supply-market conditions for particular customer.

2. Develop appropriate strategy for each type of purchasing situation

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Managing Relationship Portfolio


Mix of relationships based on customers. Collaborative Customers build relationships with trust and commitment. Transactional Customers focus efforts on purchasing staff and offer attractive benefits.

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Why?
Why many a times organizations fail to examine how the cost of specialized products and services vary among individual customers? Profitability is focused at an aggregate level of product and territory To capture customer specific cost- activity based costing is useful. It provides a clear picture of gross margins and cost to serve components. Ex: Kanthal ( a heating wire manufacturer) and the largest supplier to GE( appliance division) found that GE is the most unprofitable customer for them. A normal order processing cost to normal customer was approx. $150 to $600 but it was much more for GE.

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Reason
Frequent order change Expedited ( quick) deliveries Scheduling adjustment

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The whale curve of cumulative profitability


20/80 rule Robert Kaplan and V. S. Narayan crafted a relationship between the profitability and customer mix

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The Characteristics of High- versus Low-Cost-to-Serve Customers


High-Cost-to-Serve Customers
Order custom products Order small quantities Unpredictable order arrivals Customized delivery Frequent changes in delivery requirements Manual processing Large amounts of presales support (i.e., marketing, technical, and sales resources) Large amounts of postsales support (i.e., installation, training, warranty, field service) Require company to hold inventory Pay slowly (i.e., high accounts receivable)

Low-Cost-to-Serve Customers
Order standard products Order large quantities Predictable order arrivals Standard delivery No changes in delivery requirements Electronic processing (EDI) (i.e., zero defects) Little to no presales support (i.e., standard pricing and ordering) No postsales support

Replenish as produced Pay on time

Source: Robert S. Kaplan and V.G. Narayanan, Measuring and Managing Customer Profitability, Journal of Cost Management 15, No. 5 (September/October 2001): p. 8. Developed by Cool Pictures and MultiMedia Presentations
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Customer Profitability
High
Passive Product is Crucial Good Supplier Match Costly to Service, but Pay Top Rupee

Net Margin Realized

Price Sensitive but Few Special Demands

Aggressive Leverage Their Buying Power Low Price and Lots of Customized Features

Low Low 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.

High

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Managing unprofitable customers


Post sales support could be shifted to internet Unpredictable ordering pattern or high technical support improve it Firing customers How?

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Customer Relationship Management


A Continuing Dialogue with Customers, Across all their Contact and Access Points, with personalized Treatment of the Most Valuable Customers, To Ensure Customer Retention and Effectiveness of Marketing Initiatives. Example of Cisco VP- used to listen 15-20 minutes the most important customers on voice mail.

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5 points to be considered while crafting CRM strategies


Acquire the right customer Craft the right value proposition Instituting the best processes Motivating employees Learning to retain customers

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Transactional and Collaborative Working Relationships

Pure Transactional Exchange

(a) Industry Relationship Bandwidths

Pure Collaborative Exchange Medical Equipment (e.g. imaging systems)

Hospital Supplies (e.g. surgical gloves, syringes)

(b) Flaring Out from the Industry Bandwidth


Pure Transactional Exchange Hospital Supplies Pure Collaborative Exchange

SOURCE: Adapted from James C. Anderson and James A. Narus, Partnering as a Focused Marketing Strategy, California Management Review 33 (spring 1991) p. 97. Copyright by the Regents of the University of California. Reprinted by permission of the Regents.
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Learning to Retain Customers


Provide superior value to ensure high satisfaction. Nurture trust and mutual commitment.

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Xerox serves a diverse set of customers in the business market.


Customer group A demands a wide variety of services in addition to a perfectly functioning copier. These customers value the relationship with Xerox and are willing to pay a premium for product and service quality. Customer group B wants a quality copier but, most of all, they want a rock bottom price and choose suppliers on that basis. Customer group C demands a quality product and extensive service support but wants all of this for a rock bottom price. These customers will freely switch from one supplier to the next. As competition intensifies for Xerox, more customers are moving into this group each month.

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First, describe how Xerox might develop a portfolio of relationship strategies to meet the needs of such diverse customer groups. Second, some customers in each group are more costly to serve than others. How should such cost differences be reflected in the particular relationship strategies that Xerox follows? Third, what strategies can Xerox follow to increase the switching costs of customers in Group B or Group C?
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Quiz-2
Transactional exchange features very close: a. information linkages. b. social linkages. c. operational linkages. d. all of the above. e. none of the above. On-going transactions in the business market where the customer and the supplier focus only on the timely exchange of standard products at competitive prices could be described as: a. transactional exchange. b. a partnership. c. collaborative exchange. d. a strategic alliance. e. a joint venture.
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Buying firms prefer a transactional relationship when: a. the complexity of the purchase is high. b. there is a competitive supply market featuring many alternatives. c. the supply market is stable. d. all of the above e. (b) and (c) only
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Collaborative relationships: a. are emphasized by buying firms when the purchase is deemed important to the organization. b. are emphasized by buyers when the complexity is high. c. are more likely to involve operational linkages. d. all of the above e. (a) and (b) only

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____ occur in between the two extremes on the relationship continuum, where the focus of the selling firm shifts from attracting customers to keeping customers. a. Transactional exchanges b. Value-added exchanges c. Competitive exchanges d. Collaborative exchanges

Which of the following are goals of customer relationship management (CRM)? a. A continuing dialogue with customers. b. Personalized treatment of the most valuable customers. c. Achieving customer retention. d. All of the above. e. a and c only.
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The problem solving approach followed by an organizational buyer in a new task buying situation is: a. selective. b. extensive. c. cerebral. d. systematic. e. none of the above

When buying influential and decision makers lack welldefined criteria for comparing alternative products and suppliers and they also lack strong predispositions toward a particular solution, they are operating in a stage of ____ problem solving. a. cerebral b. limited c. selective d. Routine e. extensive
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Individuals who control the flow of information into the buying center are performing the role of: a. a user. b. a gatekeeper. c. an implementer. d. a decider. e. a buyer.

When organizational buyers modify a salesperson's message to make it more consistent with their predispositions toward the company, this provides an illustration of: a. selective exposure. b. selective attention. c. selective perception. d. selective retention. e. selective memory.
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In choosing a new piece of manufacturing equipment, the buying organization is uncertain of the model or brand to choose, the suitable level of quality, and the appropriate price to pay. This represents which type of buying situation? a. complex modified rebuy decision b. strategic modified rebuy decision c. judgmental new task decision d. strategic new task decision e. lost-for-good decision

Upon meeting with a General Electric buyer, a salesperson learned that the G.E. purchasing function is unhappy with the supplier's performance and is openly considering new options. This provides an illustration of: a. a new task buying situation. b. a straight rebuy. c. a modified rebuy. d. extended problem solving. e. value analysis.

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Strike the statements true or false


1:Buyers seek a close relationship for strategic purchases and employ a more distant armslength approach in procuring non- strategic items. 2:Buying firms prefer a transactional relationship when there are few alternatives and the complexity of purchase is high.

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3:Buying firms prefer a more collaborative relationship when the supply market is dynamic 4:While loyal customers are likely to be satisfied, all satisfied customers will not remain loyal. 5:The whale curve of cumulative probability demonstrates that the most profitable 20 percent of customers generate between 150 and 300 percent of total profits.
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