Managing Customers

Business Market
Management
MANAGING
3rd edition CUSTOMERS
DBA. NGUYEN THIEN HUNG

Section IV:
Delivering Value
Copyright © 2009 Pearson Education

Business Market Management, 3rd edition Chapter 10-2
Publishing as Prentice Hall
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
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

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

I. Differentiating Transactional
and Collaborative Customers

Thinking Strategically about
Relationships
 Transactional  Collaborative
Relationships: Relationships:
customers and  Partnering: Customers
supplier focus on the and supplier firm form
repeated and timely strong and extensive
social, economic,
exchange of basic
service, and technical
product at highly ties over time
competitive prices  Goals: lower total cost
or increase value

The Working Relationship
Continuum and Industry Bandwidth

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

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

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
II. Pursuing Growth and
Continuity

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

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

Different Paths to Building
Customer Share (ko)

Foot-to-Door Approach

Ideal FITD Candidate (ko)
 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

Customer Acquisition and
Retention
Other
Sales
Revenue
Acquire
Customer Follow-on
Sales er
o m
st
Foot-in- Cu
ain
The Door et
R
Time
Problems with FITD Strategy (ko)
 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

All-at-Once Approach (ko)
 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

HP’s Migration Strategy
Develop trusted advisor
relationship
Migrate up to IT
Infrastructure and
enterprise-wide solutions
Start where HP has

a price/performance
advantage

Pursuing Continuity
 Promote honest and open communication
 Build trust and commitment
 Implement coordination mechanisms
 Anticipate and resolve conflicts

Promote Honest 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
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
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

Building Trust

Trust and Commitment
Actions one firm takes that demonstrate good faith and binds it
Pledge to the relationship
Firm typically invests nonredeployable assets
Captures the perceived continuity or growth in the relationship

Desire to develop a stable relationship
Commitment
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 warranty

Guarantee 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

Courtesy of Cushman & Wakefield

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

Power
that 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
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

Three Primary Sources of Disagreements
1. Goal incompatibility
 Mission, goals, and objectives of 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
Conflict Resolution Mechanisms
 Service recovery systems
Boundary-spanning personnel
 Intractable disputes
Mediation
Arbitration

III. Delivering Superior
Value with Relationship-
Specific Offerings (ko)

Flaring Out from the
Industry Bandwidth
Pure Pure
Transactional Flaring Out Flaring out Collaborative
Exchange By with Exchange
Unbundling Focal Industry Augmentation
a b c d
Construct Relationship-Specific Market
Offerings (ko)
Xây dựng các đề xuất thị trường dành riêng cho mối quan hệ
Flare Out from Supplier firm tries to gain a competitive advantage over other
Industry suppliers by better meeting customer requirements and
Bandwidth 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 and

Flare Out with
add new programs and systems that collaborative accounts
Augmentation will value to the standard offering or as options

Price Relationship-Specific Offerings
Ưu đãi cụ thể theo mối quan hệ giá
 Transactional  Collaborative
 Lower the price for each  Supplier seeks price
service that is unbundled premium
 Supplier markets  Supplier may seek
optional programs and greater share of
services in a menu customer’s business
fashion based on  Often reduce margins on
incremental pricing specialty products to
 Defeature offerings and make money on
share the costs savings commodity products
 Relax specifications in (servicing the product)
return for lower price

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

Multiple Single-Sourcing
Nhiều nguồn đơn
 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 customer of the value of being single
source at each location regardless of supplier
Persuade customer that selecting them as single
source will deliver added value
Building New Organizational Capabilities
Xây dựng năng lực tổ chức mới
 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

Adopt New Profit Models
Áp dụng các mô hình lợi nhuận mới
 Risk-Sharing:  Gain-Sharing:
 Supplier assists its  Aligning customer and
customers in supplier interests
becoming more  Refer to arrangements
profitable and exposes where a supplier
itself to potential or assists its customers
actual losses in becoming more
• Warranties, profitable
guarantees, joint
investments  Shares in the extent to
which it accomplishes
this goal

Document the Profitability of Greater
Share Tài liệu về khả năng sinh lời của cổ phần lớn hơn
 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
IV. Managing a
Portfolio of Customers

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

Measuring Cost-to-Serve Customers
and Customer Loyalty Đo lường chi phí để phục vụ
khách hàng và lòng trung thành của khách hàng
 CRM Systems Track:  Information to

 Cost-to-Serve Assess:
 Transaction prices  Result of relationship-
 Contribution to building efforts
profitability of each  Take corrective action
customer firm • Redesigning account to
different relational
categories
• Redesigning
relationship-specific
offerings

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
The Loyalty Ladder (ko)
Willing to pay
a premium 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
The Loyalty-Customer Management
Effort (Cost-to-Serve) Framework (ko)
Most Valuable
Position on the
Loyalty Ladder
Customer Partner
(MVC)
Undesirable
Switcher
Customers
Lo Customer Management Effort Hi

Organizing the Selling Effort (ko)
•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

Executing Migration Strategies (ko)
Thực hiện các chiến lược di chuyển
 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

Motorola’s Statement of
Partnership Goals (ko)
Objective I Objective II
All partnership programs such as
Motorola’s sales to the partner firm will
codesign or joint development will
be substantial or exhibit significant
result in profits for both Motorola growth potential.
and its partner firm.
Objective III Objective IV
Motorola should have a significant, The partnership should contribute to

if not exclusive, share of the the achievement of Motorola’s
partner’s business.
technology roadmap goals.

50
Emerging CRM Applications
 Conventional CRM:  Evolving CRM:
 Account targeting  Allocating resources
• Customer acquisition
 Sales force automation • Retention
 Offering configuration • Growth/profit potential
and pricing  Synchronizing marketing
efforts
 Information exchange
• “Touch the Customer”
• Managers working in unison
 Updating delivered value
• “What have we not done
lately?”
• Encourage voicing problems

V. Sustaining Customer
Relationships Through
Connected Relationships
(ko)

Managing with a Business Network
Context (ko)
 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

Framework for Crafting Strategies (ko)
 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 strategic
situation
Adding Value through
Business Networks (ko)
 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

VI. Looking Ahead—A
Final Thought on
Managing Customers
“Whom we serve affects what we are, and

what we are affects whom we can serve.”

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
VII. Summary

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

All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.



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Business Market

DBA. NGUYEN THIEN HUNG

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Start where HP has

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 Bridging: establishing multiple

 Trust: the firm’s belief that:

 Will not take unexpected

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Captures the perceived continuity or growth in the relationship

One firm promises through a legally binding contract or warranty

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

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Market- Balances supply and demand for a given offering

The ability of one firm to get its partner to undertake activities

Promote shared norms on

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Draw on the practices of more collaborative industries and

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 Customers and suppliers reap the benefits of

 Add expertise or a capability that it knows

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 Formally document how a

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

 CRM Systems Track:  Information to

Copyright © 2009 Pearson Education

Lo Customer Management Effort Hi

•Customers that are expensive to serve, but the returns

•Considered as loyal as partners

Copyright © 2009 Pearson Education

 Identify the customer

 Quantify the benefits that are

 Calculate the costs incurred in

Copyright © 2009 Pearson Education

Motorola should have a significant, The partnership should contribute to

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education

Copyright © 2009 Pearson Education