1. Chapter 3:
Customer Relationship Management Strategies for Business Markets

2. Relationship Marketing
Relationship Marketing
Relationship Marketing centers on
Establishing,
Developing, and
Maintaining
successful exchanges with customers.

3. History of CRM B&S RM CIMS CRM e-CRM B&S – Buying & Selling
Time line
Late 80’s
Early 90’s
Mid 90’s
Future
B&S – Buying & Selling
RM – Relationship Marketing
CIMS – Customer Information Management Systems
CRM – Customer Relationship Management
e-CRM- A subset of CRM that focuses on enabling customer interactions via e-channels (The web, and wireless)

4. Definitions “is a business strategy with outcomes
that optimise profitability, revenue and customer satisfaction
by organizing around customer segments,
fostering customer-satisfying behaviors and
implementing customer-centric processes.”
“is a strategy
used to learn more about customers' needs and behaviors
in order to develop stronger relationships with them.”

5. Underpinning Theory
Customers have many points of contact with an organisation
Retaining customers is far most cost effective than recruiting new ones
Some customers are more profitable than others
The “80/20” rule
For most firms, 80 percent of profit comes from 20 percent of customers
Use of Technology

6. Potential Benefits Of CRM
Customer retention
Share of customer or share of wallet
Cross-selling
Up-selling

7. Potential Costs Of CRM
IT infrastructure
Process change

8. Three phases of CRM Acquiring New Relationships
You acquire new customers by promoting your company’s product and service leadership.
Enhancing Existing Relationships
You enhance the relationship by encouraging excellence in cross-selling and up-selling, thereby deepening and broadening the relationship.
Retaining Customer Relationships
Retention focuses on service adaptability – delivering not what the market wants but what customers want.

9. Customer Types
Platinum Heavy, reliable users, not price-sensitive, try new products, loyal
Gold Large users who push for price breaks, shop around and not so loyal
Iron Low volume or intermittent users; cost to serve them is quite high
Lead Demanding, want special attention but don’t buy much and show no loyalty

10. Types of Relationships
Continuum of buyer-seller relationships
Transactional, Value-added & Collaborative exchanges
The Relationship Spectrum

11. Transactional Exchange
Transactional Exchange
Centers on timely exchange of basic products at highly competitive market prices
These types of transactions are autonomous, meaning that there is little or no concern as to the needs of buyer or seller
Example: A person comes into a store and buys a hammer. The buyer wants a hammer and the seller sells him one. That’s all there is to it!

12. Transactional Exchanges
The business market includes items like:
Packaging,
Cleaning products or
Commodity-type products or service activity where bidding is employed.
Transactional exchanges employ an Arms-Length relationship.

13. Collaborative Exchange
Occurs when alternatives are few, market is dynamic, the purchase is complex and the price is high
Features close information, social, and operational linkages, as well as mutual commitments
Switching costs are extremely important to collaborative customers
Trust is the key and it exists when one party has complete confidence in their partner’s ability and integrity

14. Value-Added Exchanges
Value-Added Exchanges
Value-Added Exchanges fall between Transactional and Collaborative Exchanges
Value-Added Exchanges are those where the selling firms shifts from just attracting customers to keeping them by:
Adding additional services
Developing services that are customized to meet the buyer’s needs
Providing continuing incentives that promote repeat business

15. The Element of Competition
The Element of Competition
Competition forces a war-like environment whereby competitors are always trying to lure customers from competitors.
Since customer situations (i.e., requirements, expectations, people, preferences) change, there is always opportunity for customers to change from relationship to transactional to relationship with new suppliers.

16. Effects of Market Conditions
Effects of Market Conditions
Market conditions force different types of relationships.
The marketer needs to understand this aspect of business to determine which strategy to employ with various markets.
What is the best strategy: transactional or collaborative?

17. 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.
Investments include:
Money
People
Training Costs
Equipment
Procedures and processes

18. Switching Costs
Buyers hesitate to switch because it can cause costly disruptions.
Risk of making a wrong choice of less-established suppliers can be costly.
From a marketing perspective, the prospect’s PROBLEM must exceed the BENEFITS that they are presently experiencing with their current supplier before they will consider switching.

19. Value Drivers in Collaborative Relationships
Value Drivers in Collaborative Relationships
Suppliers of routinely purchased products offer three sources of value:
Value creation through core offerings
Value creation within the sourcing process
Value creation at the customers level of operations

20. Furthering Collaborative Relationships
Furthering Collaborative Relationships
To develop ‘key supplier’ status, sellers need to:
Target the right customer.
Match with their purchasing situation.
Develop strategies that are appropriate for each type of buyer . Collaborative buyers seek long, strong and lasting relationships.
Buyers perceive significant risks with suppliers, so competence and commitment are vital when starting the relationship.

21. Improving Transactional Customer Loyalty
Improving Transactional Customer Loyalty
To improve customer loyalty and satisfaction, many companies have developed specialized services and customized products.
Question: Is this really profitable?

22. Differentiation Strategy
For a differentiation strategy to work:
“The value created, measured by higher margins and higher sales volumes, has to exceed the cost of creating and delivering the customized features and services.”
To determine this, the marketer needs to understand the drivers of profitability.

23. High- vs. 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 post-sales 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 post-sales support
Replenish as produced
Pay on time
Source: Robert S. Kaplan and V.G. Narayanan, “p. 8. Measuring and Managing Customer Profitability,” Journal of Cost Management 15, No. 5 (September/October 2001):

24. Customer Profitably
As mentioned previously, some customers are profitable and some aren’t. To determine this, we look at the cost/profitability structure with the plan to:
Keep profitable customers
Convert unprofitable ones to profitability
Fire those who are not profitable

25. Figure 3.4 Customer Profitability
Figure Customer Profitability
High
Passive
Product is crucial
Good supplier match
Costly to service,
but pay top
dollar
Profits
Net Margin Realized
Losses
Price-sensitive but
few special
demands
Aggressive
Leverage their buying power
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.

26. Managing Unprofitable Customers
Managing Unprofitable Customers
Low margin / high cost customers offer the most challenge for marketing mangers.
Start with ways to reduce costs
Next, work with customers to possibly change their actions resulting in lowering costs or increasing profitability

27. Customer Retention
Retention of profitable customers is crucial to business. However, due to competition and internal / external environmental factors, achieving this goal is difficult.
One method that is proving successful for customer retention is the use of CRM programs.

28. Customer Relationship Management
Customer Relationship Management
Customer Relationship Management (CRM) is a cross-functional process for achieving:
Continuing dialog with customers across all contact and access points
Personalized service to the most valuable customers
Increased customer retention
Continued marketing effectiveness

29. 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 , call centers, service and sales reps.
The information is available to the right people in the organization in real time.

30. CRM Software Programs There are many types of CRM programs:
CRM Software Programs
There are many types of CRM programs:
Some companies develop their own proprietary programs.
Some companies purchase off-the-shelf programs.

31. Responsive Strategies
A CRM program cannot help unless a company employs the proper strategy to secure and retain profitable customers.
Special attention must be given to five areas.

32. CRM Strategy - Priorities
Acquire the right customer.
Craft the right value proposition.
Institute the best processes.
Motivate employees.
Learn to retain customers.

33. #1 - Acquiring the Right Customer
Account selection demands a clear understanding of:
Seller’s resources
Customer’s needs
Cost of serving various groups of customers
Potential profit opportunities
How customers define value and how to meet those expectations

34. What do customers value?
What do customers value?
Some demand low price
Some demand customer service
Some demand quick delivery
The question is: “Can the seller deliver it profitably?”
Many sellers try to meet all their customer’s needs, and may do so, but fail to do it profitably.

35. #2 – Crafting the Right Value Proposition
A value proposition encompasses the products, services, ideas and solutions that a business marketer presents to the prospect/customer that is designed to solve the customers’ problems.
They can be generic or customized.

36. Value Proposition A value proposition may include:
A value proposition may include:
Points of parity to a competitive option
Points of difference
Best practice suppliers base their value proposition on their target market’s needs by communicating their offering of superior performance in a way that conveys they understand their customer’s business priorities.

37. Value Proposition Strategies
Strategies that competitors employ fall into a range referred to as:
“Industry Bandwidth of Working Relationships”
It ranges from pure transactional to pure collaborative exchanges (see Fig. 4.5 on the next slide).

38. Flaring Out Strategy
‘Flaring out’ strategy (Fig 4.5b) states that the seller can either unbundle (point A), that is, reduce the service associated with a lower price (transactional in nature), or
Augment by adding more services to the core offerings (point D) which adds cost to the services. This is collaborative in nature.

39. Creating Customized Products
The seller starts with a core service (“naked solutions”) and adds customized services to it (“custom wrapped”) that create more value.

40. #3 - Institute Best Practices
The sales force plays a key role in establishing and growing a customer from a transactional account to a collaborative partnership.
They can do this by aligning and deploying technical and service support units to match with their customers’ units.
Technical groups can consist of research, logistics and customer service units.
Through careful management and screening, transactional accounts can progress to partnerships.

41. Best Practices Follow-Up
In addition to using best practices, successful organizations (like IBM) employ follow-up techniques such as:
Assigning a client representative to take ownership of the relationship.
Assigning a Project Owner who completes the project or solves project problems.
Developing an in-process feedback and measurement system.

42. #4 - Motivating Employees
Dedicated employees are the key to a successful customer relationship strategy.
The best approach is to:
Hire good people.
Invest in them to increase their value to the company and its customers.
Develop challenging careers and align incentives to performance measures.

43. Why Retain Loyal Customers?
Less expensive than acquiring new customers.
Established customers buy more.
Cost of serving loyal customers declines.

44. #5 - Retaining Customers
Retain customers by:
Providing superior value (more than expected) to ensure high satisfaction.
Nurturing trust.
Developing mutual commitment.
If possible, helping customers grow their business.

45. How to Pursue Growth from Existing Customers
Identify and cultivate customers that offer the most growth potential by:
Estimating current percent “share of wallet”
Pursuing opportunities to increase share
Projecting and enhancing customer profitability

46. Evaluating Relationships
Some relationship-building efforts fail because expectations of the parties don’t mesh.
Example: Seller wants a business relationship whereas the customer responds in a transactional mode.
By understanding and isolating customer needs, the marketer is better equipped to match their product offerings to a particular customer’s needs.

47. Drivers of RM Effectiveness: Definitions
Relationship Quality: High-caliber relational bond characterized by commitment and trust
Relationship Breadth: Number of interpersonal ties that connect the relationship
Relationship Composition: Portfolio of contacts ranging from low-level influencers to high-level decision makers
Relationship Strength: The ability of the buyer-seller relationship to withstand stress and/or conflict
Relationship Efficacy: The ability of an inter-firm relationship to achieve desired objectives