DESIGNING PROFITABLE CUSTOMER RELATIONSHIPS
Coordinating Relationship Communication
There are various ways a company organizes its sales force, depending on the nature of the product and the market in which the company is involved, the marketing organization’s strategy for dealing with customers and the type of communication necessary to enable satisfactory exchanges between both parties. The ways are divided into 3 broad categories;
- A geographically based sales force; the most basic form where one or more representatives are responsible for a certain area.
- A product-based sales force; one or more representatives are responsible for a certain product instead of a certain area.
- A customer-based sales force; this is more used in markets where the product is highly complex and thus extensive knowledge is required by the seller.
When a firm is dealing with high-priority customers, the use of key-account management is not uncommon, key account management is the practice in which a special team centers on the performance of tasks for a specific customer.
Customer Relationship Management (CRM), has a strategic focus and is concerned with identifying and investing in valued customer relationships, matching problem-solving abilities to customer requirements, and making relationship decisions based on the vendor’s performance with those customers.
Employees that interact with customers play key boundary-spanning roles: they operate as relationship promoters (Walter and Gemünden, 2000), linking the customer with the supplier company and working to coordinate activities inside the supplier organization to support the development of relationships with selected customers.
The principal objective of relationship promoters is to influence the attitudes, behavior and decisions of managers so that the customer relationship can be developed and maintained. Personal attributes that relationship promoters should possess include;
- Social competence, thus skilled in communication, conflict management and coordination
- Knowledge, being familiar with the resources, needs and strategies of buyer and supplier
- Portfolio of relationships, “they need to be well connected and have good personal relationships with managers in partner organizations who control resources that contribute to the development of the supplier-customer relationship” – (Walter and Gemünden, 2000).
Classification Criteria: More Easily Observed:
More easily observed criteria for classifying customers are a good starting point as they can be taken from sources like e.g. the accounting system (sales volume, etc.) and already differentiate between customers before further analyzing the relationship on softer and more subjective issues.
Sales: Amount of sales is a means of ranking customers (units sold, etc.) in comparison to proportion of total sales. Keep in mind that sales alone do not tell anything about profitability of the customer/account.
Profits: The point above is enriched by notions of profitability (breakeven point); Shapiro 1987 states both “net price achieved” and “cost-to-serve”, which need to be calculated over a fixed time span to be a reliable depiction. With the two principles above Shapiro established four different customer types: “Bargain basement customers” (low net price & low cost-to-serve); “Carriage trade customers” (high net price & high cost-to-serve); “Passive customers “ (pay high prices despite no big quality or service expectations) and last but not least “Aggressive customers” (want it all = lowest price for best quality), they are different to carriage trade customers in the way that they normally get what they want as they have relative power and use it “aggressively”.
Cost Savings: This is a very obvious point and compares customers on their specific potential of reducing costs. Krapfel (1991) argues that cost savings are essential in generating relationship value, which asks for using existing cost information, further analysis and judgment calls about the future.
Relationship Age: This is the only aspect that includes a temporal dimension, but appropriate time spans will differ per sector and what is to be seen as a “normal” relationship length. Several researchers discussed relationship live-cycle notions stating that relationships change over time and clustered breakdown of relationships depend on natural industry bandwidths in respect to propensity for relationships to be whether collaborative or more transactional.
Classification Criteria: Less Easily Observed:
This part will focus the objectively defined clusters, which need further subdivisions according to other criteria and variables that come from non-standard evaluations and rely on judgment calls of the analysts (or people who have sufficient strategic knowledge of the firm).
Replaceability of a customer: This sections is to be understood as the issue of to what extent a customer can be replaced. In how far are plant, people and procedures linked to a customer and how we can trade of any additional costs on acquiring an alternative customer.
Use of critically important products or processes: Krapfel (1991) suggested that critical products (relative dependence) demonstrate a suppliers specific technical/market competences and establishes a competitive position in the marketplace; keep in mind that critical products/processes may and will change over time.
Shared vision of the future: This part is linked to the idea of in how far customer and supplier view of the industry or sector is shared (which will enhance a relationship). A shared vision is a basis for distinguishing between relationships and is called “interest commonality”. Krapfel (1991) established four relationship types on the basis of “interest commonality (low or high)” and “relationship value (low or high)”: Acquaintance (low value, low commonality); Rival (high value, low commonality); Friend (low value, high commonality); Partner (high value, high commonality).
A source of learning for the company: this is about valuing relationships on the basis of in how far the partner has problem-solving abilities in technical requirements, commercially, etc. Additionally learning opportunities with very good partners may even provide compensation for direct financial loss.
The supplier´s share of customers´ purchases: At hand this seems as a very hard data but more specifically it is very subjective by e.g. deriving an average of weighted estimates (of purchases=based on an index of credibility of supporting evidence.
Short-term advantage taking: B2B relationships are not always about being nice and do not necessarily have to have mutual benefits. If there are no longer-term profits in the relationship a company might also take existing opportunities. Relationships with companies which enable achieving short-term sales volume or profit increases or gain technical/commercial knowledge are prime targets for poor treatment and are called by Fort (2002) as “fall guys”.