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 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

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. Relationship Continuum� - Industry relationship �bandwidth� Core Product - basic quality, price , availability Augmented Product - customized in terms of physical and service attributes to meet more demanding customer needs Flaring Out� - becoming more transactional or collaborative with existing customers by innovating to provide relationships more closely aligned with customer (I.e., use competitive benchmarking to learn of collaborative or transactional practices that might be adopted or modified. FLARING OUT BY: PURE COLLABORATIVE EXCHANGE -- use �ADDED AUGMENTATION�(Texas Instruments selling calculators to schools - including videos, room posters, newsletters, and 800-line service; Merrill Lynch is offering �core relationship account� - offer unlimited free trading(online, broker, phone) in return for annual account fee equaling approx .02 - 1 percent of account�s assets);Prudential is offering its �Prudential Advisor�, Borders offers �printing books on demand inside store�, esp. hard to find or out-of-print books PURE TRANSACTIONAL EXCHANGE -- use UNBUNDLING� strategy - (Morrison�s Cafeteria; IBM might unbundle there service from the product itself) Relationship Continuum� - Industry relationship �bandwidth� Core Product - basic quality, price , availability Augmented Product - customized in terms of physical and service attributes to meet more demanding customer needs Flaring Out� - becoming more transactional or collaborative with existing customers by innovating to provide relationships more closely aligned with customer (I.e., use competitive benchmarking to learn of collaborative or transactional practices that might be adopted or modified. FLARING OUT BY: PURE COLLABORATIVE EXCHANGE -- use �ADDED AUGMENTATION�(Texas Instruments selling calculators to schools - including videos, room posters, newsletters, and 800-line service; Merrill Lynch is offering �core relationship account� - offer unlimited free trading(online, broker, phone) in return for annual account fee equaling approx .02 - 1 percent of account�s assets);Prudential is offering its �Prudential Advisor�, Borders offers �printing books on demand inside store�, esp. hard to find or out-of-print books PURE TRANSACTIONAL EXCHANGE -- use UNBUNDLING� strategy - (Morrison�s Cafeteria; IBM might unbundle there service from the product itself)

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

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 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

13. Supplier Rankings of Relationship Enablers * Research with Lucent Technologies and Motorola purchasing folksResearch with Lucent Technologies and Motorola purchasing folks

15. 4 Levels of Relationship Marketing* Financial -- coupons social - between people in both organization structural - org invests in client (McKesson investing software)Financial -- coupons social - between people in both organization structural - org invests in client (McKesson investing software)

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

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 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

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

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