Creating Value Through

Customer
and Supplier
Relationships

Relationship Marketing (RM)

Customer Relationship Management (CR
Other RM Concepts – value webs and
lifetime value
 Factors Causing the Decline of the
Traditional Marketing Paradigm

 This perspective is no longer sufficient

 The powerful forces of industry
globalization
 The “value” movement
 Rapid advances in technology
 Shift in the balance of power toward
customers have coalesced to change the
rules for business success
 The Transition from the
Traditional Marketing Concept

 The traditional marketing paradigm (the

4 Ps) is losing some of its influence among
marketers.
 It focuses on the transaction and the core
product, taking a short-term perspective;
customer attraction (conquest marketing) is the
overriding goal.
 The 5th P is people – more important!
 Traditional vs.
Marketing

 With the cost of customer attraction escalating,

companies are paying more attention to holding on to
their existing customers
 Long-standing customers are less expensive to reach
and less expensive to serve
 Customer relationships are assets that should be
evaluated and managed as rigorously as any financial
or physical assets
 Relationship marketing not only focuses on customer
retention, but also takes a long-term perspective
Fig. 11.1 T
 Relationship Marketing Defined

“To establish, maintain, and enhance (usually

but not necessarily long-term) relationships
with customers and other partners, at a profit,
so that the objectives of the parties involved
are met. This is achieved by a mutual exchange
and fulfillment of promises.”

___Grönroos (Service Management and Marketing, 1990)

 What is Relationship Marketing?
 The cornerstone of marketing is getting close to
customers in order to better identify and satisfy their
needs

 Realize that marketing is responsible for more than

“just the sale”

 The focus is shifting from the transaction to the

relationship

 It is difficult to separate service operations and delivery

from relationship building

 Managing customer relationships continues to be

paramount, so is the growing importance of managing
relationships with suppliers and resellers
 Continuum of Relationships

Industry Relationship Bandwidth

Transactional

Collaborative
Exchange

Exchange
Pure

Core

Pure
Augmented
Product Product

Flaring - Out
Unbundling Added
Strategy Augmentation
Strategy
 Relationship Marketing -
Goals and Outcomes

 Whereas the goal of traditional marketing is customer

acquisition, under relationship marketing the focus shifts
to creating value
 The objective is to create more value through
interdependent, collaborative relationships with
customers, the outcome is customer retention
 Relationship marketing is ongoing, constantly looking for
opportunities to generate new value
 Retaining customers requires marketers to exhibit care
and concern after they have made a purchase
 The sale often represents only the beginning of the
relationship between the buyer and seller
Table 11.1 The Relationship Marketing Mix

MARKETING ELEMENT RANK

Customer Sensitivity -employee 1

attitude, customer treatment, and
response to customers

Product -quality, features and 2

reliability

Customer Convenience -availability to 3

the customer, customer convenience,
easy to do business with

Service -postsale and presale service 4

Price -price charged, pricing terms, 5

and pricing offers

Place -provider accessability, provider 6

facilities, and availability to customer

Promot ion-advertising, publicity, 7

selling
Adapted from Berry, D. Marketing News , Dec. 24, 1990, p.10
Building Lasting
Customer Relationships

 Sellers can resist the natural tendency toward decline and

complacency by developing what we refer to as “relationship
enablers”
 It is the seller’s responsibility to nurture the relationship
beyond its simple dollar value
 Using the relationship enablers sellers can minimize
relationship decay and strengthen the bonds that lead to
long-term, perhaps even lifetime associations
Figu
Supplier Rankings of Relationship
Enablers *
TRUST

COMMITMENT
COOPERATION

INFORMATION
EXCHANGE DEPENDENCE

Johnson, W. and Weinstein, A. (1999)

Based on a study of Motorola and Lucent Marketing Managers.
Figure 11.3 - Information Sustains a Relationship

Relationship
Selling Partnership
Relationship
that the Buyer is willing to invest in the relationship
Information, Time, or Trust Level

High
Transaction Account
Selling Penetration

Transaction-
Based Low Account
Relationship Penetration

Services that the seller is willing to provide the relationship

4 Levels of Relationship Marketing*

Primary Customized Competitive

Bond Service Advantage

FINANCIAL LOW LOW

SOCIAL MEDIUM MEDIUM

STRUCTURAL MEDIUM-HIGH HIGH

*Source: Berry, L. (1995)

Customer Relationship Management (CRM)

Definition of CRM
 CRM is a business strategy that involves
selecting and managing customer relationships
to optimize the long-term value of a company
Goal of CRM
 The goal of CRM is to acquire, grow, and retain
the right customer relationships -- those with the
best long-term profit potential
(Bob Thompson, founder of CRMGuru.com)
Customer Relationship Management (CRM)
as Collaboration
 CRM is about collaborating with customers and
partners so they receive superior value

 Interactions with customers regardless of the

sales channel should be constantly managed to
optimize the value of those relationships

 Effective CRM systems provide a “360 degree”

view of the customer, including the frequency,
response, and quality of customer interactions
 Characteristics of a Good CRM System
● A good CRM system is capable of describing
customer relationships in sufficient detail so that
management, salespeople, customer service and even
suppliers have direct and real-time access to customer
information

● The information gathered should help match customer

needs with product/service offerings, remind
customers of service requirements, predict future
purchases, and alert the company when a customer’s
purchase behavior has changed

● A key feature of CRM is sharing the customer

experience across the organization and supply chain
 CRM BUSINESS DRIVERS

33%
Automation/Productivity/Efficienc
y 22%
Competitive 15%
Advantage 14%
Customer Demands and 10%
Requirements
9%

Increased Revenue 7%
Cost or Price 7%
Reduction 6%
6%
Speed/Saving Time 6%
Keeping Track of All Aspects of
Business 6%
Customer 4%
Support 4%
Inventory Control/Resource
Management 0% 5% 10% 15% 20% 25% 30% 35%
Source: AMR Research, 2002
Better/Expanded
 Figure 11.5
Figure Customer
11.5 Relationship
Customer Model
Relationship Model

CUSTOMER STRATEGY MARKETING KNOWLEDGE

• Customer centric • BADI

strategy
• Competitors value proposition
Customer • Clear value proposition
focused • RFM Customer
• Channel bonding experience
strategies • Customer Lifetime Value
drive • Dominate the segment (DTS) is shared
• Acquisition costs across the
marketing • Dominate the cycle (DTC)
execution • Retention Rates organization
• Integrated marketing processes and supply
(internal)
chain
• Supply chain network
coordination

Planning
Relationship
Marketing • Direct Sales • Customer Service
activities are Analysis
• Web Site • Cross-Sell Implementation
coordinated
• Call Center • Up-Sell

Control
Adapted From Levine, S (1998)
“Selling Smart” America’s Network , Sept. 1, p. 3
 CRM & Critical Customer Data
Companies should continuously gather critical
customer data known as BADI

☛Behaviors (how often and where customers visit)

☛Attitudes (customers satisfaction, service
quality assessments)
☛Demographics
☛Insights (share of market,
share of wallet)
 Marketing Knowledge & CRM

Marketing knowledge forms the basis of a customer strategy

by analyzing, planning, implementing, and control – re:

 a customer-centric orientation
 a clearly defined value proposition
 alignment with key channel partners
 dominating the segment (focused on a particular market
segment) or cycle (dominate the evolving value
proposition aimed a group of customers)
 internal and supply chain process integration.
 the coordination and practice of relationship marketing
activities
Why CRM Efforts Fail

 Lack of focus
 No change management policies
 No buy-in
 Business unit silos
 Complicated procedures
 Poor training
 Avoiding CRM Failure

 Careful planning
 Appropriate use of people in the
organization
 Get supply chain members involved
 Using customer-driven processes
 Have a sound platform for introducing
CRM systems and activities
 The Customer Relationship
Philosophy and Techniques

● Customer relationships are improved by

responding to customer needs

● Companies who successfully practice relationship marketing

have mastered mass customization

● In many markets it is not only possible, but imperative to

mass customize for customers

● New technology enables efficient customization of products

and services, even when the customer base is quite large
 CRM Value Webs & Web Alliances
More and more companies are utilizing “web alliances” in
order to create superior customer value.

 These value webs now represent the

“new economy supply chains”
 The key to creating superior value in the new
economy resides in understanding and
leveraging the power of supply chain network
relationships
 Value is created (or captured) by a firm
moving upstream or downstream in the supply
chain
 The Value Web:
Definition and Relationships

 A value web can be described as an inchoate

network of customers, suppliers, complement-
ors, allies and competitors whose services either
enhance or drain a firm’s value
 These relationships can be vertical or horizontal
(or both) and are less enduring than in traditional
supply chains
 Unlike conventional supply chains, adding more
users to a value web actually creates more, not
less value
 The Value Web: Uses and Applications

■ Value webs are optimized to the extent a firm

understands its relationship with other actors in
the web, how its activities will affect the network
and how the other actors will respond

■ True value creation takes place when several

organizations in the value web share common
technologies and/or intellectual capital
 eBay Value Web

Complements

Allies
Customers

eBay
Suppliers

Competitors
eBay primarily competes for these flows
 Life Time Value (LTV) &
Relationship Marketing

 A final key to practicing relationship marketing is to track

each relationship
 LTV is simply a projection of what customers are worth
over a lifetime of doing business with them
 Calculating LTV is important because of the impact of
retention levels on profitability
 Companies successful at practicing relationship marketing
look for opportunities to add value through their
business relationships, offering new features, services or
customized offerings
 What is a Customer
Worth?
 GM Cadillac  $ 426,000
Gateway Computer  $ 25,000

Pizza Hut  $ 12,400

Proctor & Gamble  $ 10,000

Safeway  $ 4,800

Proof
∗ The top 6% of cellular phone users represent 69% of total usage

∗ The top 6% of the UK cola users represent 60% of all consumption

∗ 25% of cars are rented by the top 0.02% of clients

Source: Watt Solutions, Inc., 2002