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Chapter 11 Creating Value Through Customer and Supplier Relationships

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Title: Chapter 11 Creating Value Through Customer and Supplier Relationships


1
Chapter 11Creating Value Through Customer and
Supplier Relationships
  • Relationship Marketing (RM)
  • Customer Relationship Management (CR
  • Other RM Concepts value webs and
  • lifetime value

2
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

3
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!

4
Traditional vs.
Marketing
Relationship
  • 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

5
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6
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)
7
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

8
Continuum of Relationships
Industry Relationship Bandwidth
Pure Transactional Exchange
Pure Collaborative Exchange
Core Product
Augmented Product
Flaring - Out
Unbundling Strategy
Added Augmentation Strategy
9
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

10
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11
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 sellers 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

12
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13
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.
14
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15
4 Levels of Relationship Marketing
Source Berry, L. (1995)
16
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)

17
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

18
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
    customers purchase behavior has changed
  • ? A key feature of CRM is sharing the customer
    experience across the organization and supply
    chain

19
CRM BUSINESS DRIVERS
Automation/Productivity/Efficiency
Competitive Advantage
Customer Demands and Requirements
Increased Revenue
Cost or Price Reduction
Speed/Saving Time Keeping Track of All
Aspects of Business
Customer Support Inventory Control/Resource
Management Better/Expanded
Communication Integration
Customer Satisfaction
Accessibility ConformityStandardization
33
22
15
14
10
9
7
7
6
6
6
6
4
4
0 5 10 15
20 25 30 35
Source AMR Research, 2002
20
Figure 11.5 Customer Relationship Model
21
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)

22
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

23
Why CRM Efforts Fail
  • Lack of focus
  • No change management policies
  • No buy-in
  • Business unit silos
  • Complicated procedures
  • Poor training

24
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

25
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

26
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

27
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 firms 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

28
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

29
eBay Value Web
Complements
Allies
Customers
eBay
Suppliers
Competitors
eBay primarily competes for these flows
30
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

31
What is a Customer Worth?
  • GM Cadillac
  • Gateway Computer
  • Pizza Hut
  • Proctor Gamble
  • Safeway
  • 426,000
  • 25,000
  • 12,400
  • 10,000
  • 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
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