Relationship Marketing centers on:
Establishing, developing, and maintaining successful exchanges with customers
…are more valuable than price-sensitive customers
Brown’s Definition – CRM in B2B:
A well-developed ability to create a sustainable mutually-beneficial relationship with customers
Exchange is …
…Central to every relationship is an exchange process where each side gives something in return for a payoff of greater value.
The “take $” side of the transaction must offer a perceived payoff of greater value to the buying side for the transaction to occur.
Demonstrating special skills with “key” customers or
Developing innovative strategies with alliance partners
Types of Relationships:
– Transactional Exchanges
– Value-Added Exchanges
– Collaborate Exchanges
a Transactional Exchange (Arms-Length Relationship)
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
A 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 customerts
Fall between transactional and collaborative exchanges on the continuum of buyer-seller relationships; 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
– and Providing continuing incentives that promote repeat business
Since customer situations – i.e., requirements, expectations, people, preferences – change, there is always opportunity for customers to change from transactional to relationship with new suppliers.
The marketer needs to understand [_______________] to determine which strategy to employ with various markets.
Buyers and sellers craft various relationships in response to:
Market conditions and the characteristics of the purchase situation
A major consideration before changing from one supplier to another; buyers hesitate to switch suppliers because it can cause costly disruptions.
(Switching) What do organizational buyers invest heavily in their relationships with suppliers?
– Training Costs
– Procedures and Processes
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.
To improve transactional customer loyalty and satisfaction…
…many companies have developed specialized services and customized products.
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.
Activity Based Costing (ABC):
Illuminates exactly what activities are associated with serving a particular customer and how these activities are linked to revenues and consumption of resources (Customer-specific costing).
By employing ABC:
One can accurately assess the cost and profitability of each customer.
companies yield customer profitability…
…By linking financial information with transactional data created in CRM programs, companies are able to accurately calculate “cost-to-service” components.
Whale Curve of Cumulative Profitability
– 20% of customers generate 80% of total profits
– 70% of customers break even
– and the remaining 10% of customers are not profitable
– Leaving company with 100% of total profits
20/80 Rule – Whale Curve:
“20% of customers provide 80% of sales”
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
Low margin / high-cost customers:
Offer the most challenge for marketing mangers
Managing Unprofitable Customers
Start with ways to reduce costs
Next, work with customers to possibly change their actions resulting in lowering costs or increasing profitability
Firing the customer:
If after trying, and the customer continues to be reluctant to change, and the relationship remains unprofitable, we can say outright, “YOUR FIRED!”
Better approaches to “Firing” the customer:
Let customers ‘fire themselves’ by raising our prices, reducing or charging more for services, eliminating discounts, etc., until they become profitable or find another distributor.
This is crucial to business; 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 (Technology)
CRM – or Customer Relationship Management
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
CRM Programs (Technology):
Software systems that capture information and integrate sales, marketing and customer service information. They are used to gather information from many sources including email, call centers, service and sales reps. The information is available to the right people in the organization in real time.
A CRM program cannot help unless
a company employs the proper strategy to secure and retain profitable customers
CRM Strategy – Priorities are the following
1. Acquire the right customer.
2. Craft the right value proposition.
3. Institute the best processes.
4. Motivate employees.
5. Learn to retain customers.
#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, and how customers define value and how to meet those expectations
#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. (Generic or customized)
Represents the products, services, ideas, amd solutions that a business marketer offers to advance the performance goals of the customer organization.
Best Practice Suppliers base their value proposition on:
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
#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.
#4 – Motivating Employees
– 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.
#5 – Retaining Customers
– Providing superior value (more than expected) to ensure high satisfaction.
– Nurturing trust.
– Developing mutual commitment.
– If possible, helping customers grow their business.
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
value added exchanges Fall between transactional and collaborative exchanges on the continuum of buyer-seller relationships; 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, and Providing continuing incentives that promote repeat business