B2B

Business Market Management, 3rd edition

 BOOKS
• James C. Anderson (2009).
Business Market management:
Understanding, Creating and
Delivering Value, 3rd edition.
Prentice Hall.
• Ten Deadly Marketing Sins:
Signs and Solutions. John Wiley
& Sons.
• Philip Kotler (2003). Marketing
insights from A to Z: 80
concepts every manager needs
to know. John Wiley & Sons,
Inc.

Business Market Management, 3rd edition

Chapter 10

Managing Customers

Business Market Management, 3rd edition

 CHAPTER 10: MANAGING CUSTOMERS
Overview
I. Differentiating Transactional and Collaborative Customers
II. Pursuing Growth and Continuity
III. Delivering Superior Value with Relationship-Specific Offerings
IV. Managing a Portfolio of Customers
V. Sustaining Customer Relationships Through Connected
Relationships
VI. Looking Ahead—A Final Thought on Managing Customers
VII. Summary

Business Market Management,

Chapter 10-4
3rd edition
 OVERVIEW
• Differentiating between transaction and
collaborative customers
• Growing a customer relationship profitably
over time
• Foot-in-the-door
• All-at-once approach

• Suppliers managing their portfolio of customer

relationships

Business Market Management,

Chapter 10-5
3rd edition
 MANAGING CUSTOMERS
The process of:
• Differentiating transactional and
collaborative customers
• Delivering offerings that fulfill the
requirements and preferences of a
portfolio of customers in a superior
way
• Delivering value
• Getting a fair return on the value
delivered
Chapter 10-6
Business Market Management,
3rd edition
 I. DIFFERENTIATING
TRANSACTIONAL AND
COLLABORATIVE CUSTOMERS

Business Market Management,

Chapter 10-7
3rd edition
 THINKING STRATEGICALLY ABOUT
RELATIONSHIPS
• Transactional • Collaborative
Relationships: Relationships:
customers and • Partnering: Customers
supplier focus on and supplier firms
form strong and
the repeated and extensive social,
timely exchange of economic, service,
basic product at and technical ties
over time
highly competitive • Goals: lower total
prices cost or increase value

Business Market Management,

Chapter 10-8
3rd edition
 THE WORKING RELATIONSHIP
CONTINUUM AND INDUSTRY BANDWIDTH

Business Market Management,

Chapter 10-9
3rd edition
 INDUSTRY BANDWIDTHS
• Range of customer relationships that are more
collaborative or more transactional in
nature relative to that marketplace’s
norms
• Reflects explicit or implicit customer
relationship strategies
• Firms attempt to:
• Span the bandwidth with a portfolio of
relationships, or
• Treat all customers alike
Business Market Management,
Chapter 10-10
3rd edition
 PARTNERING AS A FOCUSED
MARKET STRATEGY
• Not all customer firms want the same kind of
relationship with a supplier
• Nor can the same kind of relationship deliver
the same value to all customers
• STP
• Segmentation,
• Targeting, &
• Positioning

Business Market Management,

Chapter 10-11
3rd edition
 PARTNERING AS A FOCUSED MARKET STRATEGY

• Segment Marketplace
• Customer application
• Capabilities and business priorities
• Usage situation
• Estimate the value of their offerings in these
segments
• Target one or more segment for collaborative
emphasis
• Individual Accounts
• Customer Selection: Strategic
• Order Selection: Tactical
Business Market Management,
Chapter 10-12
3rd edition
 II. PURSUING
GROWTH AND
CONTINUITY

Business Market Management,

Chapter 10-13
3rd edition
 PURSUING GROWTH AND CONTINUITY

• Growth: • Continuity:
• supplier firm works to
increase its profitability
share of the customer’s
business and to
become an
irreplaceable partner
supplier firm strives to
retain the working
relationship as long
as it enables both
supplier and
customer to each
achieve their
respective strategic
objectives

Business Market Management,

Chapter 10-14
3rd edition
 PURSUING GROWTH IN A
CUSTOMER ACCOUNT
• Estimate share of customer’s business
• Understand the total volume of business
attainable
• Understand the current share of the
customer business

Which customer How should we grow

share growth
prospects are
business with a
worth pursuing? customer over time?

Business Market Management,

Chapter 10-15
3rd edition
 DIFFERENT PATHS TO BUILDING
CUSTOMER SHARE

Business Market Management,

Chapter 10-16
3rd edition
 FOOT-TO-DOOR APPROACH

Business Market Management,

Chapter 10-17
3rd edition
 IDEAL FITD CANDIDATE
• It must mitigate customer risk
(inexpensive enough to be purchased
without hesitation)
• Fit between product functionality and
customer requirements must be exceedingly
close
• Product quality should be impeccable and
chance of failure nil

Business Market Management,

Chapter 10-18
3rd edition
 CUSTOMER ACQUISITION AND
RETENTION

Other
Sales

Acquire
Revenue

Follow-on
Customer Sales

Foot-in-
The Door

Time

Business Market Management,

Chapter 10-19
3rd edition
 PROBLEMS WITH FITD STRATEGY
• Supplier’s vision of relationship trajectory is
rendered meaningless
• FITD product fails
• Supplier is identified as being good at just
the FITD product
• Competitors get customers
to switch by giving away
the FITD product

Business Market Management,

Chapter 10-20
3rd edition
 ALL-AT-ONCE APPROACH
• Useful in managing larger customers that can
complicate the selling process through a
combination of temporal changes in:
• Customer’s purchase decision-making and
buying units
• Nature of the products and services
offered
• Selling skills required

Business Market Management,

Chapter 10-21
3rd edition
 HP’S MIGRATION STRATEGY

Develop trusted advisor

relationship Strategic
Partner
Migrate up to IT
Infrastructure and
enterprise-wide solutions Value-Added
Supplier

Start where HP has a

price/performance
advantage Product Vendor

Business Market Management,

Chapter 10-22
3rd edition
 PURSUING CONTINUITY
• Promote honest and open communication
• Build trust and commitment
• Implement coordination mechanisms
• Anticipate and resolve conflicts

Business Market Management,

Chapter 10-23
3rd edition
 PROMOTE HONESTLY AND
OPEN COMMUNICATION
• Communication: formal and informal
sharing of meaningful and timely information
between firms
• Meet formally and informally with partner firms to
discuss market conditions

• Bridging: establishing multiple

levels of communication between:
• Firms
• Across functions
• Management levels
• Business strands

Business Market Management,

Chapter 10-24
3rd edition
 BRIDGING
• Develop functional and interfirm teams
• Enables partner firms to minimize
detrimental effects of departure
of a key employee
• Ensuring Continuity
• Rotate staff and use teams to avoid
attachment
• Develop other steady performers
• Urge early notification of personnel
departures; publicize transition plan

Business Market Management,

Chapter 10-25
3rd edition
 BUILD TRUST AND COMMITMENT

• Trust: the firm’s belief that:

• another company will perform actions that
will result in positive outcomes for the firm

• Will not take unexpected

actions that would result in
negative outcomes
for the firm

Business Market Management,

Chapter 10-26
3rd edition
 BUILDING TRUST

Dependable,
reliable,
honorable

Trust
Cultivate a Act in best
reputation for interest of
fairness partner firm

Business Market Management,

Chapter 10-27
3rd edition
 TRUST AND COMMITMENT
❖Actions one firm takes that demonstrate good faith and
Pledge bind it to the relationship
❖Firm typically invests nonredeployable assets

❖Captures the perceived continuity or growth in the

relationship
Commitment ❖Desire to develop a stable relationship
❖Willingness to make short-term sacrifices to maintain the
relationship
❖Confidence in the stability of the relationship

❖One firm promises through a legally binding contract or

Guarantee warranty to absorb the risk and costs associated with
unfulfilled promises made to a partner firm

Service ❖Entails the resources, procedures, and authority that empower

Recovery and enable front-line personnel to resolve customer problems and
System compensate customers for unexpected lapses in service

Business Market Management,

Chapter 10-28
3rd edition
 Courtesy of Cushman & Wakefield

Business Market Management,

Chapter 10-29
3rd edition
 IMPLEMENT COORDINATION
MECHANISM
❖Customer and supplier firms synchronize activities, resources
and capabilities to accomplish a collective set of tasks
Coordination
•Mechanistic
•Organic
Market- ❖Balances supply and demand for a given offering
Clearing ❖Management achieves coordination by allowing price of the
market offering to float to the market-clearing level
Price
•Transactional working relationships
•Industries: Ex. Agricultural products, petroleum, fasteners

❖The ability of one firm to get its partner to undertake activities that
Power
the partner firm would not do on its own

❖Promote shared norms on

▪How to work together
Cooperation ▪How to jointly create value
▪How to share benefits
▪Building mutual trust and commitment
Business Market Management,
Chapter 10-30
3rd edition
ANTICIPATE AND RESOLVE CONFLICT
• Every working relationship will
eventually experience some sort of
conflict
• Anticipate disputes and put
mechanisms in place for immediate
resolution
•Functional conflict:
Productive discussions

Business Market Management,

Chapter 10-31
3rd edition
 THREE PRIMARY SOURCES OF
DISAGREEMENTS
1. Goal incompatibility
• Mission, goals, and objectives of the partner firm
are disparate
2. Lack of agreement over responsibilities within
the working relationship domain
• Functions that each partner should perform
• How partners should accomplish tasks
• Timing of efforts
3. Differing perceptions of reality
• Market trends, competitive threats, emerging
technologies

Business Market Management,

Chapter 10-32
3rd edition
 CONFLICT RESOLUTION
MECHANISMS

• Service recovery systems

• Boundary-spanning
personnel
• Intractable disputes
• Mediation
• Arbitration
Business Market Management,
Chapter 10-33
3rd edition
 III. DELIVERING SUPERIOR
VALUE WITH RELATIONSHIP-
SPECIFIC OFFERINGS

Business Market Management,

Chapter 10-34
3rd edition
 FLARING OUT FROM THE
INDUSTRY BANDWIDTH
Pure Pure
Transactional Flaring out Collaborativ
Exchange Flaring Out with e
By Unbundling Focal Industry Augmentation Exchange

a b c d

Business Market Management,

Chapter 10-35
3rd edition
 CONSTRUCT RELATIONSHIP-SPECIFIC
MARKET OFFERINGS

Flare Out from Supplier firm tries to gain a competitive advantage over
Industry other suppliers by better meeting customer
Bandwidth requirements and preference sin both collaborative-
emphasis and transaction- emphasis segment

Flare Out by
Unbundling Eliminate certain standard elements from the market
offering entirely or transform them into options

Draw on the practices of more collaborative industries

Flare Out with and add new programs and systems that collaborative
Augmentation accounts will value to the standard offering or as
options
Business Market Management,
Chapter 10-36
3rd edition
PRICE RELATIONSHIP-SPECIFIC OFFERINGS
• Transactional • Collaborative
• Lower the price for • Supplier seeks price
each service that is premium
unbundled • Supplier may seek
• Supplier markets greater share of
optional programs customer’s business
and services in a • Often reduce margins
menu fashion based on specialty products to
on incremental make money on
pricing commodity products
• Defeature offerings (servicing the product)
and share the costs
savings
• Relax specifications
in return for lower
price
Chapter 10-37
Business Market Management,
3rd edition
 FOCUSED SHARE BUILDING
• Focused Single-Source Provider:
• Attempts to attain 100% of a
customer’s business in
targeted offering categories
while not pursing other
offering categories that it
might supply to that customer

Business Market Management,

Chapter 10-38
3rd edition
 MULTIPLE SINGLE-SOURCING
• Customers and suppliers reap the benefits
of single-source arrangements while
minimizing the potential drawbacks
• Each plant in a customer’s manufacturing
network is singled-sourced
• Yet, the customer maintains at least two
suppliers
• Two-step process:
• Persuade customers of the value of being a
single source at each location regardless of
supplier
• Persuade customers that selecting them as a
single source will deliver added value
Business Market Management,
Chapter 10-39
3rd edition
BUILDING NEW ORGANIZATIONAL
CAPABILITIES
• Add expertise or a capability
that it knows customers would
value
• Supplier leverages that expertise
or capability to provide a better
solution to each of those
customers
Business Market Management,
Chapter 10-40
3rd edition
 ADOPT NEW PROFIT MODELS
• Risk-Sharing: • Gain-Sharing:
• Supplier assists its • Aligning customer
customers in and supplier interests
becoming more • Refer to
profitable and arrangements where
a supplier assists its
exposes itself to customers in
potential or becoming more
actual losses profitable
• Warranties, • Shares in the extent
guarantees, joint to which it
investments accomplishes this
goal

Business Market Management,

Chapter 10-41
3rd edition
 DOCUMENT THE PROFITABILITY OF
GREATER SHARE
• Assess total cost to serve each customer
• Supplemental services
• Programs, and
• Systems

• Formally document how a

greater share of a customer’s business translated into
greater profits

Business Market Management,

Chapter 10-42
3rd edition
 IV. MANAGING A
PORTFOLIO OF CUSTOMERS

Business Market Management,

Chapter 10-43
3rd edition
 CUSTOMER RELATIONSHIP
MANAGEMENT SYSTEMS
• CRM: bundling of customer strategy and
processes for the purpose of improving
customer loyalty and eventually, corporate
profitability
• Imperatives of CRM:
• Acquiring the right customers
• Crafting the right value proposition
• Instituting the best processes
• Motivating employees
• Learning to retain customers
Business Market Management,
Chapter 10-44
3rd edition
 MEASURING COST-TO-SERVE CUSTOMERS
AND CUSTOMER LOYALTY
• CRM Systems Track: • Information to Assess:
• Cost-to-Serve • Result of
• Transaction prices relationship-building
• Contribution to the efforts
profitability of each • Take corrective
customer firm action
• Redesigning
account to different
relational categories
• Redesigning
relationship-specific
offerings
Business Market Management,
Chapter 10-45
3rd edition
 LOYAL CUSTOMERS
• Greater propensity to
repurchase
• World-of-mouth effect
• Resistance to competitors’
blandishments
• Pay a price premium
• Collaborate with supplier to
improve performance and
develop new products
• Invest in a relationship
Business Market Management,
Chapter 10-46
3rd edition
 Willing to pay
a premium

THE LOYALTY LADDER

Enthusiastic
Advocate
Actively seeks to
expand relationship
Invests in the
relationship

Buys a bundle of
products
Switcher—will buy if the
price is right
Skeptic—
Willing to be Cynic—won’t buy
convinced

Business Market Management,

Chapter 10-47
3rd edition
 THE LOYALTY-CUSTOMER MANAGEMENT
EFFORT (COST-TO-SERVE) FRAMEWORK

Most Valuable
Loyalty Ladder
Position on the

Customer Partner
(MVC)

Undesirable
Switcher
Customers

Lo Customer Management Effort Hi

Business Market Management,

Chapter 10-48
3rd edition
 ORGANIZING THE SELLING EFFORT
•Created when suppliers mismanage switchers
Undesirable • “Large, unprofitable customers”
Customers •Relationship suffers from low prices and “scope creep”
•“Showcase Accounts” used to attract customers

•Customers that are expensive to serve, but the returns usually

justify the effort
Partners
•Customers want turnkey solutions rather than develop in-
house expertise

•Considered as loyal as partners

Most Valuable
•Grateful customers that value their relationship with supplier
Customers
•Advocates and reference accounts

Business Market Management,

Chapter 10-49
3rd edition
 EXECUTING MIGRATION STRATEGIES

• Identify the customer

management activities

• Quantify the benefits that are

associated with each rung of
the ladder relative to the
adjacent rungs

• Calculate the costs incurred

in moving a customer from
one rung to another
Business Market Management,
Chapter 10-50
3rd edition
 MOTOROLA’S STATEMENT OF Chapter 10-51

PARTNERSHIP GOALS
Objective I
All partnership programs such
as codesign or joint
development will result in
profits for both Motorola and
Objective II
Motorola’s sales to the partner
firm will be substantial or exhibit
significant growth potential.

its partner firm.

Objective III Objective IV
Motorola should have a The partnership should
significant, if not exclusive, contribute to the achievement of
share of the partner’s Motorola’s technology roadmap
business. rd
Business Market Management, 3 edition 51
goals.
 EMERGING CRM APPLICATIONS
CRM:
• Conventional • Evolving CRM:
• Allocating resources
• Account • Customer acquisition
targeting • Retention
• Growth/profit potential
• Sales force • Synchronizing marketing
automation efforts
• “Touch the Customer”
• Offering • Managers working in
configuration unison
• Updating delivered value
and pricing • “What have we not done
lately?”
• Information • Encourage voicing problems

exchange
Business Market Management,
Chapter 10-52
3rd edition
 V. SUSTAINING CUSTOMER
RELATIONSHIPS THROUGH
CONNECTED RELATIONSHIPS

Business Market Management,

Chapter 10-53
3rd edition
 MANAGING WITH A BUSINESS
NETWORK CONTEXT
• Actors:
• Identify key actors
• Assess the strength of their bonds
• Map their interactions
• Activities:
• How activities are clustered
• How activities between actors are linked
• How they are assembled into processes or patterns
• Resources:
• Catalog the resources of the network
• Evaluate links among them
• Determine how they can use the constellation of network

Business Market Management,

Chapter 10-54
3rd edition
FRAMEWORK FOR CRAFTING STRATEGIES
• Describe the network
• Strategic situation the supplier faces;
identifies the actors involved
• Evaluate the network
• Create and evaluate an interdependence matrix
that specifies the pattern of linkages among the
actors
• Interpret the network
• Interpret the portfolio of interdependencies
assessing the resources and activities each
network actor contributes
• Craft network strategy to resolve the strategic
situation
Business Market Management,
Chapter 10-55
3rd edition
 ADDING VALUE THROUGH
BUSINESS NETWORKS
• The total value of a solution is a
function of the compatibility,
accessibility, and quality of the
networks within
• User networks
• Complements network
• Producer networks
• UNIX versus Windows XP

Business Market Management,

Chapter 10-56
3rd edition
VI. LOOKING AHEAD - A FINAL
THOUGHT ON MANAGING
CUSTOMERS

“Whom we serve affects what we are, and

what we are affected whom we can serve.”

Business Market Management,

Chapter 10-57
3rd edition
STRATEGIC APPROACH ON MANAGING CUSTOMERS
Step 1
▪Grow each customer relationship over time
▪Address several ongoing behavioral issues including communication, trust
and commitment, coordination, and conflict resolution

Step 2
Construct and implement appropriate relationship-specific offerings at every
stage in each customer relationship

Step 3
Use a customer portfolio approach that:
a)Optimizes customer value in each individual customer relationship and
adopts the basic premise that not all customers want the same working
relationship – or value it the same
b)Enables the managers to recognize the impact of their various decisions
on their firms’ capacities and capabilities over time
Business Market Management,
Chapter 10-58
3rd edition
 VII. SUMMARY

Business Market Management,

Chapter 10-59
3rd edition
 SUMMARY
• Managing customers is the process of:
• differentiating different customer types
• delivering appropriate offerings that fulfill the respective requirements
and preferences of the portfolio of customers in a superior way
• getting a fair return in exchange
• Business market managers strive to cultivate a portfolio of working
relationships
• Business market managers need to deliver value in the form of relationship-
specific offerings
• Methods for retaining a portfolio of profitable customer-relationship were
discussed, including tools such as: FITD, all-at-once approaches, single- and
multiple-sourcing
• Managers must be prepared to address behavioral issues when working
together with customer firms
• CRM is a comprehensive set of systems and procedures that firms use to
differentially and profitably relate to customer firms
• Suppliers can potentially keep customer relationships vibrant by using
business networks
Business Market Management,
Chapter 10-60
3rd edition
 EXERCISES

Business Market Management, 3rd edition