Session 3 - CRM Strategies for Business Markets.pdf

ch 3 b2b

1. Customer Relationship Management Strategies
for Business Markets

2. The Strategic Importance of Relationship Marketing
The Benefits of Nurturing and Maintaining Customer Relationships
1Retaining current customers is less expensive than obtaining new customers
2Loyal customers tend to be more profitable
3Satisfied customers generate more positive word-of-mouth referrals
4Loyal customers are likely to provide more feedback
5Existing customers are more receptive to relationship building efforts pertaining to other marketing efforts
6Loyal customers are less likely to be lost to competitors
7Satisfied customers are more insulated from price competition
8Loyal customers are more likely to provide an opportunity for recovery efforts when things go awry
9Positive work environments for employees often go hand-in-hand with satisfied and loyal customers

3. The Relationship Continuum
Transactional Exchange
Centers on timely exchange of basic
products for competitive market
prices with minimal personal
interaction.
Value-Adding Exchange
Focus shifts from attracting
customers to keeping customers
through enhanced service and
moderate operational integration.
Collaborative Exchange
Features close information, social,
and operational linkages with mutual
commitments made for long-run
benefits.
Business relationships exist on a spectrum from purely transactional to deeply collaborative, with each type offering distinct
advantages and requiring different management approaches.

4. Foundations of Strong Business
Relationships
Relationship Commitment
A partner's belief that an ongoing relationship is so
important that it deserves maximum effort to maintain it.
Commitment manifests as:
•Willingness to make short-term sacrifices
•Investment in relationship-specific assets
•Long-term strategic orientation
Trust
Confidence in a partner's reliability and integrity. Trust
develops through:
•Consistent delivery on promises
•Transparent communication
•Fair treatment in negotiations
•Ethical behavior in all interactions
These foundational elements create the psychological infrastructure that supports sustainable business relationships.

5. Collaborative vs. Transactional Relationships
1
Market Structure Factors
Customers prefer transactional
relationships when many
alternatives exist in a stable
market.
Collaborative relationships are
favored when alternatives are few
and market technology is rapidly
changing.
2
Purchase Characteristics
Simple, low-importance purchases
tend toward transactional
relationships, while complex, high-
importance purchases drive
collaborative partnerships.
3
Switching Costs
Buyers consider two primary
switching costs when evaluating
relationship changes:
investments required and
risk of exposure to new suppliers.

6. The Spectrum of Buyer-Seller Relationships
Relationship Factors Transactional Exchange Collaborative Exchange
Availability of Alternatives Many Alternatives Few Alternatives
Supply Market Dynamism Stable Volatile
Importance of Purchase Low High
Complexity of Purchase Low High
Information Exchange Low High
Operational Linkages Limited Extensive
Understanding where a relationship falls on this spectrum helps determine appropriate management strategies and resource
allocation.

7. Managing Collaborative and Transactional Buyer –
Seller Relationships

8. Strategy Guidelines
Collaborative Customers
Relationship-building strategies, targeted on strong and lasting
commitments, are especially appropriate for these customers.
Transactional Customers
These customers display less loyalty or commitment to a particular
supplier and can easily switch part or all of the purchases from one
vendor to another.
•Assign dedicated account managers.
•Involve them in product co-creation or design input.
•Ensure open communication and joint performance reviews.
•Focus on service, innovation, and continuous improvement—not just price.
•.
•Offer lowest competitive price.
•Ensure product availability.
•Provide easy online ordering and fast delivery.
•Avoid customization or heavy service investment
Efficiency & Convenience StrategyRelationship-Building Strategy

9. Key Value Drivers
Value Drivers in Collaborative Relationships
Core Differentiators
Service Support
•Personal Interaction
•Supplier Know-How
•Improve Time to Market
Moderate Differentiators
Product Quality
•Delivery Performance
•Reduced Acquisition Costs
•Reduce Operational Costs
Weakest Differentiator
Price to Seller

10. Measuring Customer Profitability

11. Measuring Customer Profitability
Activity-based Costing
Activity-based Costing (ABC)
illuminates exactly what activities are
associated with serving a particular
customer and how these activities are
linked to revenues and the consumption
of resources.
Unlocking Customer
Profitability
By accurately tracing costs to individual
customers, managers are better
equipped to diagnose problems and
take appropriate action.
The Whale Curve
Once a firm implements an ABC
approach and plots cumulative
profitability against customers, a
striking portrait emerges that is often
referred to as the whale curve.

12. The Whale Curve of Customer Profitability
When firms implement Activity-Based Costing and plot
cumulative profitability against customers, a striking portrait
emerges known as the "whale curve."
This visualization typically reveals that:
•The most profitable 20% of customers generate
approximately 175% of total profits
•The middle 60% of customers approximately break even
•The least profitable 20% of customers erode about 75%
of total profits

13. Managing High and Low Cost to Serve Customers

14. Customer Profitability Matrix
The customer profitability matrix provides a sharper profit
lens by plotting:
•Net margin (vertical axis): Net price after all discounts,
minus manufacturing costs
•Cost-to-serve (horizontal axis): Order-related costs plus
customer-specific marketing, technical, and
administrative expenses
This visualization enables strategic classification of
customers and development of targeted relationship
strategies for each quadrant.

15. Measuring Customer Profitability
Managing Unprofitable Customers
The most challenging set of customers for marketing managers is
found in the lower right-hand corner: low margins and high cost-to-
serve.
Firing Customers
Answer this question: What should we do with those unprofitable
customers that remain in the high-cost-to-serve quadrant

16. Customer Relationship Types
True Friends
High loyalty and high profitability. The
firm's most valuable customer assets.
Extremely satisfied with offerings, buy
consistently, and offer highest profit
potential.
Butterflies
Low loyalty and high profitability.
Profitable but flit around to find best
prices and avoid building stable
relationships with any seller.
Barnacles
High loyalty and low profitability.
Long-term customers who don't
purchase enough to generate
satisfactory ROI. Can become profitable
if properly managed.
Strangers
Low loyalty and low profitability.
Represent poor fit with company's
products and services. Identify early and
refrain from making marketing
investments.

17. Customer Relationship Management

18. Customer Relationship Management (CRM)
Customer Relationship Management is a cross-functional process for achieving:
Continuous Dialogue
Maintaining ongoing, meaningful communication with
customers across all touchpoints and channels
Personalized Treatment
Delivering customized experiences to the most valuable
customers based on their unique needs and
preferences
Retention Enhancement
Ensuring customer loyalty and maximizing customer
lifetime value through relationship-building initiatives
Marketing Effectiveness
Improving the ROI of marketing activities through
targeted, data-driven approaches

19. Acquiring the Right Customers
Customer portfolio management
The process of creating value across a firm's customer
relationships—from transactional to collaborative—with an
emphasis on balancing the customer's desired level of
relationship against the profitability of doing so
Value
Represents a tradeoff in the customer's mind between total
customer value (i.e., product value, service value, personnel
value, and image value) and total customer cost (i.e., monetary
cost, time cost, energy cost, and psychic cost)

20. Crafting the Right Value Proposition
Value proposition represents the products, services, ideas, and solutions that a
business marketer offers to advance the performance goals of the customer
organization
Strategic Approaches
•The Bandwidth of Strategies
•Flaring Out by Unbundling
•Flaring Out with Augmentation
•Creating Flexible Service Offerings

21. Instituting the Best Processes
Best Practices at IBM
To ensure consistent strategy execution, IBM identifies three
customer-contact roles for each of its accounts, specifies desired
measurable actions for each role, and monitors the customer's
degree of satisfaction with each role.
Customer Satisfaction Attributes
Research suggests that the performance attributes that influence
the customer satisfaction of business buyers include
•The responsiveness of the supplier in meeting the firm's needs
•Product quality
•A broad product line
•Delivery reliability
•Knowledgeable sales and service personnel

22. Motivating Employees
The Service-Profit Chain

23. Learning to Retain Customers
Business marketers earn customer loyalty by providing superior value that ensures high satisfaction and by nurturing trust and mutual
commitments.
Developing a Customer
Reference Program
Create a system where satisfied
customers can serve as references for
potential new clients.
Pursuing Growth from
Existing Customers
Focus on expanding relationships with
current customers through cross-selling
and upselling.
Evaluating Relationships
Regularly assess the health and value of
customer relationships to identify
improvement opportunities.

24. Relationship Marketing
Success
Relationship marketing activities represent dedicated programs
developed and implemented to build strong relational bonds between
organizations. These initiatives go beyond traditional marketing tactics to
create mutual value and sustainable competitive advantage.

25. Drivers of Relationship Marketing Effectiveness
Relationship Quality
High-caliber relational bonds capturing interaction characteristics such as commitment and trust
Relationship Breadth
Number of interpersonal ties between organizations
Relationship Composition
Decision-making capability of relational contacts
Relationship Strength
Ability to withstand stress and conflict
Relationship Efficacy
Ability to achieve desired objectives

26. Relationship Marketing (RM) Programs
1
Social RM programs
Social RM programs use social
engagements or frequent, customized
communication to personalize the
relationship and highlight the customer's
special status.
2
Structural RM programs
Structural RM programs are designed
to increase productivity and/or efficiency
for customers through targeted
investments that customers would not
likely make themselves.
3
Financial RM programs
Financial RM programs provide
economic benefits, such as special
discounts, free shipping, or extended
payment terms, to increase customer
loyalty. Because competitors can readily
match the economic incentives, the
advantages tend to be unsustainable.

27. Targeting RM Programs
Relationship
orientation (RO)
Represents the customer's desire to
engage in strong relationships with a
current or potential supplier
Allocating RM
Resources
Research demonstrates that the
returns on RM investments improve if
business marketers are able to target
customers on the basis of their RO
rather than on size.

28. Customer Relationship Lifecycle
Acquisition
Identifying and attracting the right
customers
Development
Building initial relationship and trust
Growth
Expanding relationship scope and value
Retention
Maintaining and strengthening
relationships
Recovery
Addressing issues and rebuilding trust