Business Business Market Market Management Management 3 3 rd rd edition edition Managing Customers Managing Customers Chapter 10
Business Business Market Market
ManagementManagement
33rdrd edition edition
Managing CustomersManaging Customers
Chapter 10
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Business Market Management, 3rd edition Chapter 10-2
Section IV: Section IV: Delivering ValueDelivering Value
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Business Market Management, 3rd edition Chapter 10-3
Chapter 10: Managing CustomersChapter 10: Managing CustomersOverviewOverview
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
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Business Market Management, 3rd edition Chapter 10-4
OverviewOverview Differentiating between transaction and
collaborative customers
Growing a customer relationship profitably
over time Foot-in-the-doorFoot-in-the-door
All-at-once approachAll-at-once approach
Suppliers managing their portfolio of customer
relationships
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Business Market Management, 3rd edition Chapter 10-5
Managing CustomersManaging Customers
The process of:The process of: Differentiating transactional and Differentiating transactional and
collaborative customerscollaborative customers
Delivering offerings that fulfill the Delivering offerings that fulfill the requirements and preferences of a portfolio requirements and preferences of a portfolio of customers in a superior wayof customers in a superior way
• Delivering value
Getting a fair return on the value deliveredGetting a fair return on the value delivered
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Business Market Management, 3rd edition Chapter 10-6
I.I. Differentiating Transactional Differentiating Transactional and Collaborative Customersand Collaborative Customers
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Thinking Strategically about Thinking Strategically about RelationshipsRelationships
Transactional Transactional Relationships: Relationships: customers and supplier focus on the repeated and timely exchange of basic product at highly competitive prices
CollaborativeCollaborative
Relationships: Relationships: Partnering: Partnering: Customers Customers
and supplier firm form and supplier firm form strong and extensive strong and extensive social, economic, social, economic, service, and technical service, and technical ties over timeties over time
Goals: Goals: lower total cost lower total cost or increase valueor increase value
Business Market Management, 3rd edition Chapter 10-7
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The Working Relationship The Working Relationship Continuum and Industry BandwidthContinuum and Industry Bandwidth
Business Market Management, 3rd edition Chapter 10-8
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Industry BandwidthsIndustry 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, Span the bandwidth with a portfolio of relationships,
ororTreat all customers alikeTreat all customers alike
Business Market Management, 3rd edition Chapter 10-9
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Partnering as a Focused Partnering as a Focused Market StrategyMarket 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, Segmentation, Targeting, & Targeting, & PositioningPositioning
Business Market Management, 3rd edition Chapter 10-10
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Partnering as a Focused Market Partnering as a Focused Market StrategyStrategy
Segment MarketplaceCustomer applicationCustomer applicationCapabilities and business prioritiesCapabilities and business prioritiesUsage situationUsage situationEstimate the value of their offerings in these segmentsEstimate the value of their offerings in these segments
Target one or more segment for collaborative emphasis
Individual AccountsCustomer Selection: StrategicCustomer Selection: StrategicOrder Selection: TacticalOrder Selection: Tactical
Business Market Management, 3rd edition Chapter 10-11
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Business Market Management, 3rd edition Chapter 10-12
II. Pursuing Growth and II. Pursuing Growth and ContinuityContinuity
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Pursing Growth and ContinuityPursing Growth and Continuity
Growth: Growth: supplier firm works to increase its profitability share of the customer’s business and to become an irreplaceable partner
Continuity: Continuity: supplier firm strives to retain the working relationship as long as it enables both supplier and customer to each achieve their respective strategic objectives
Business Market Management, 3rd edition Chapter 10-13
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Pursuing Growth in a Pursuing Growth in a Customer AccountCustomer Account
Estimate share of customer’s businessUnderstand the total volume of business Understand the total volume of business
attainable attainable Understand the current share of the customer Understand the current share of the customer
businessbusiness
Business Market Management, 3rd edition Chapter 10-14
Which customer share growth prospects are
worth pursuing?
How should we growbusiness with a
customer over time?
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Different Paths to Building Different Paths to Building Customer ShareCustomer Share
Business Market Management, 3rd edition Chapter 10-15
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Foot-to-Door ApproachFoot-to-Door Approach
Business Market Management, 3rd edition Chapter 10-16
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Ideal FITD CandidateIdeal FITD Candidate It must mitigate customer risk
(inexpensive enough to be purchased without (inexpensive enough to be purchased without hesitation)hesitation)
Fit between product functionality and customer requirements must be exceedingly close
Product quality should be impeccable and chance of failure nil
Business Market Management, 3rd edition Chapter 10-17
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Customer Acquisition and Customer Acquisition and RetentionRetention
Business Market Management, 3rd edition Chapter 10-18
AcquireCustomer
Foot-in-The Door
Follow-onSales
OtherSales
Retain Customer
Time
Re
ven
ue
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Problems with FITD StrategyProblems with FITD Strategy
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
Business Market Management, 3rd edition Chapter 10-19
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All-at-Once ApproachAll-at-Once Approach
Useful in managing larger customers that can complicate the selling process through a combination of temporal changes in:Customer’s purchase decision making and Customer’s purchase decision making and
buying unitsbuying unitsNature of the products and services offeredNature of the products and services offeredSelling skills requiredSelling skills required
Business Market Management, 3rd edition Chapter 10-20
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HP’s Migration StrategyHP’s Migration Strategy
Business Market Management, 3rd edition Chapter 10-21
Develop trusted advisor Develop trusted advisor relationshiprelationship
Migrate up to IT Migrate up to IT Infrastructure and Infrastructure and
enterprise-wide solutions enterprise-wide solutions
Start where HP has Start where HP has a price/performance a price/performance
advantageadvantage
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Pursuing ContinuityPursuing Continuity Promote honest and open communication Build trust and commitment Implement coordination mechanisms Anticipate and resolve conflicts
Business Market Management, 3rd edition Chapter 10-22
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Promote Honest and Promote Honest and Open CommunicationOpen Communication
Communication: Communication: formal and informal sharing of meaningful and timely information between firmsMeet formally and informally with partner firms to Meet formally and informally with partner firms to
discuss market conditionsdiscuss market conditions
Bridging: Bridging: establishing multiple levels of communication between:FirmsFirmsAcross functionsAcross functionsManagement levelsManagement levelsBusiness strandsBusiness strands
Business Market Management, 3rd edition Chapter 10-23
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BridgingBridging Develop functional and interfirm teams Enables partner firms to minimize
detrimental effects of departure of a key employee
Ensuring ContinuityRotate staff and use teams to avoid Rotate staff and use teams to avoid
attachmentattachmentDevelop other steady performersDevelop other steady performersUrge early notification of personnel Urge early notification of personnel
departures; publicize transition plandepartures; publicize transition plan
Business Market Management, 3rd edition Chapter 10-24
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Build Trust and CommitmentBuild Trust and Commitment
Trust: 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 outcomesfor the firm
Business Market Management, 3rd edition Chapter 10-25
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Building TrustBuilding Trust
Business Market Management, 3rd edition Chapter 10-26
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Business Market Management, 3rd edition Chapter 10-27
Trust and CommitmentTrust and Commitment
PledgePledgeActions one firm takes that demonstrate good faith and binds it to the relationshipFirm typically invests nonredeployable assets
CommitmentCommitment
Captures the perceived continuity or growth in the relationshipDesire to develop a stable relationshipWillingness to make short-term sacrifices to maintain the relationshipConfidence in the stability of the relationship
GuaranteeGuaranteeOne firm promises through a legally binding contract or warranty to absorb the risk and costs associated with unfulfilled promises made to a partner firm
Service Service Recovery Recovery
SystemSystem
Entails the resources, procedures, and authority that empower and enable front-line personnel to resolve customer problems and compensate customers for unexpected lapses in service
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Business Market Management, 3rd edition Chapter 10-28
Courtesy of Cushman & Wakefield
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Business Market Management, 3rd edition Chapter 10-29
Implement Coordination MechanismImplement Coordination Mechanism
CoordinationCoordination
Customer and supplier firms synchronize activities, resources and capabilities to accomplish a collective set of tasks
•Mechanistic•Organic
Market-Market-ClearingClearing
PricePrice
Balances supply and demand for a given offeringManagement achieves coordination by allowing price of the market offering to float to the market-clearing level
•Transactional working relationships•Industries: Ex. Agricultural products, petroleum, fasteners
PowerPowerThe ability of one firm to get its partner to undertake activities that the partner firm would not do on its own
CooperationCooperation
Promote shared norms onHow to work togetherHow to jointly create value How to share benefitsBuilding mutual trust and commitment
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Anticipate and Resolve ConflictAnticipate and Resolve Conflict
Business Market Management, 3rd edition Chapter 10-30
Every working relationship will eventually experience some sort of conflict
Anticipate disputes and put mechanisms in place for immediate resolution
Functional conflict: Functional conflict: Productive discussions
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Three Primary Sources of DisagreementsThree Primary Sources of Disagreements
1. Goal incompatibility Mission, goals, and objectives of partner firm are Mission, goals, and objectives of partner firm are
disparatedisparate
2. Lack of agreement over responsibilities within the working relationship domain
Functions that each partner should performFunctions that each partner should perform How partners should accomplish tasksHow partners should accomplish tasks Timing of effortsTiming of efforts
3. Differing perceptions of reality Market trends, competitive threats, emerging Market trends, competitive threats, emerging
technologiestechnologies
Business Market Management, 3rd edition Chapter 10-31
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Conflict Resolution MechanismsConflict Resolution Mechanisms
Service recovery systemsBoundary-spanning personnelBoundary-spanning personnel
Intractable disputesMediationMediationArbitrationArbitration
Business Market Management, 3rd edition Chapter 10-32
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Business Market Management, 3rd edition Chapter 10-33
III. Delivering Superior III. Delivering Superior Value with Relationship-Value with Relationship-
Specific OfferingsSpecific Offerings
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Flaring Out from the Flaring Out from the Industry BandwidthIndustry Bandwidth
Business Market Management, 3rd edition Chapter 10-34
PurePureTransactionalTransactional
ExchangeExchangeFlaring Out
By Unbundling Focal Industry
Flaring out with
Augmentation
PurePureCollaborativeCollaborative
ExchangeExchange
a db c
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Business Market Management, 3rd edition Chapter 10-35
Construct Relationship-Specific Construct Relationship-Specific Market OfferingsMarket Offerings
Flare Out from Industry
Bandwidth
Supplier firm tries to gain a competitive advantage over other suppliers by better meeting customer requirements and 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
Flare Out with Augmentation
Draw on the practices of more collaborative industries and add new programs and systems that collaborative accounts will value to the standard offering or as options
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Price Relationship-Specific OfferingsPrice Relationship-Specific Offerings
TransactionalTransactionalLower the price for each Lower the price for each
service that is unbundledservice that is unbundledSupplier markets Supplier markets
optional programs and optional programs and services in a menu services in a menu fashion based on fashion based on incremental pricingincremental pricing
Defeature offerings and Defeature offerings and share the costs savingsshare the costs savings
Relax specifications in Relax specifications in return for lower pricereturn for lower price
CollaborativeCollaborativeSupplier seeks price Supplier seeks price
premiumpremiumSupplier may seek Supplier may seek
greater share of greater share of customer’s businesscustomer’s business
Often reduce margins on Often reduce margins on specialty products to specialty products to make money on make money on commodity products commodity products (servicing the product)(servicing the product)
Business Market Management, 3rd edition Chapter 10-36
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Focused Share BuildingFocused Share Building
Focused Single-Source Provider:Focused Single-Source Provider:Attempts to attain 100% of a customer’s Attempts to attain 100% of a customer’s
business in targeted offering categories business in targeted offering categories while not pursing other offering while not pursing other offering categories that it might supply to that categories that it might supply to that customercustomer
Business Market Management, 3rd edition Chapter 10-37
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Multiple Single-SourcingMultiple Single-Sourcing
Customers and suppliers reap the benefits of single source arrangements while minimizing the potential drawbacksEach plant in a customer’s manufacturing Each plant in a customer’s manufacturing
network is singled-sourcednetwork is singled-sourcedYet, the customer maintains at least two suppliersYet, the customer maintains at least two suppliers
Two-step process:Persuade customer of the value of being single Persuade customer of the value of being single
source at each location regardless of suppliersource at each location regardless of supplierPersuade customer that selecting them as single Persuade customer that selecting them as single
source will source will deliver added valuedeliver added value
Business Market Management, 3rd edition Chapter 10-38
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Building New Organizational Building New Organizational CapabilitiesCapabilities
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
Business Market Management, 3rd edition Chapter 10-39
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Adopt New Profit ModelsAdopt New Profit Models
Risk-Sharing:Risk-Sharing:Supplier assists its Supplier assists its
customers in customers in becoming more becoming more profitable and exposes profitable and exposes itself to potential or itself to potential or actual lossesactual losses
• Warranties, guarantees, joint investments
Gain-Sharing:Gain-Sharing:Aligning customer and Aligning customer and
supplier interests supplier interests Refer to arrangements Refer to arrangements
where a supplier where a supplier assists its customers assists its customers in becoming more in becoming more profitableprofitable
Shares in the extent to Shares in the extent to which it accomplishes which it accomplishes this goalthis goal
Business Market Management, 3rd edition Chapter 10-40
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Document the Profitability of Document the Profitability of Greater ShareGreater Share
Assess total cost to serve each customerSupplemental servicesSupplemental servicesPrograms, and Programs, and SystemsSystems
Formally document how a greater share of a customer’s business translated into greater profits
Business Market Management, 3rd edition Chapter 10-41
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Business Market Management, 3rd edition Chapter 10-42
IV. Managing a IV. Managing a Portfolio of CustomersPortfolio of Customers
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Customer Relationship Customer Relationship Management SystemsManagement Systems
CRM: CRM: bundling of customer strategy and processes for the purpose of improving customer loyalty and eventually, corporate profitability
Imperatives of CRM:Imperatives of CRM:Acquiring the right customersAcquiring the right customersCrafting the right value propositionCrafting the right value propositionInstituting the best processesInstituting the best processesMotivating employeesMotivating employeesLearning to retain customersLearning to retain customers
Business Market Management, 3rd edition Chapter 10-43
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Measuring Cost-to-Serve Measuring Cost-to-Serve Customers and Customer LoyaltyCustomers and Customer Loyalty
CRM Systems Track:CRM Systems Track:Cost-to-ServeCost-to-ServeTransaction pricesTransaction pricesContribution to Contribution to
profitability of each profitability of each customer firm customer firm
Information to Information to Assess:Assess:Result of relationship-Result of relationship-
building effortsbuilding effortsTake corrective action Take corrective action
• Redesigning account to different relational categories
• Redesigning relationship-specific offerings
Business Market Management, 3rd edition Chapter 10-44
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Loyal CustomersLoyal 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
Business Market Management, 3rd edition Chapter 10-45
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The Loyalty LadderThe Loyalty Ladder
Business Market Management, 3rd edition Chapter 10-46
Willing to paya premium
Actively seeks toexpand relationship
Buys a bundle ofproducts
Skeptic—Willing to be
convinced
Enthusiastic Advocate
Invests in therelationship
Switcher—will buy if theprice is right
Cynic—won’t buy
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The Loyalty-Customer Management The Loyalty-Customer Management Effort (Cost-to-Serve) FrameworkEffort (Cost-to-Serve) Framework
Most Valuable Customer
(MVC)Partner
SwitcherUndesirable Customers
Business Market Management, 3rd edition Chapter 10-47
Customer Management EffortCustomer Management Effort
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Business Market Management, 3rd edition Chapter 10-48
Organizing the Selling EffortOrganizing the Selling Effort
Undesirable Customers
•Created when suppliers mismanage switchers
• “Large, unprofitable customers”
•Relationship suffers from low prices and “scope creep”
•“Showcase Accounts” used to attract customers
Partners
•Customers that are expensive to serve, but the returns usually justify the effort
•Customers want turnkey solutions rather than develop in-house expertise
Most Valuable Customers
•Considered as loyal as partners
•Grateful customers that value their relationship with supplier
•Advocates and reference accounts
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Executing Migration StrategiesExecuting Migration Strategies
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
Business Market Management, 3rd edition Chapter 10-49
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Chapter 10-50 Business Market Management, 3rd edition 50
Objective IObjective I Objective IIObjective II
All partnership programs such as
codesign or joint development will
result in profits for both Motorola
and its partner firm.
Motorola’s sales to the partner firm will be substantial or exhibit significant growth potential.
Objective IIIObjective III Objective IVObjective IV
Motorola should have a significant, if not exclusive, share of the partner’s business.
The partnership should contribute to
the achievement of Motorola’s
technology roadmap goals.
Motorola’s Statement of Motorola’s Statement of Partnership GoalsPartnership Goals
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Emerging CRM ApplicationsEmerging CRM Applications
ConventionalConventional CRM: CRM:Account targetingAccount targetingSales force automationSales force automationOffering configuration Offering configuration
and pricingand pricingInformation exchangeInformation exchange
Evolving CRM:Evolving CRM: Allocating resourcesAllocating resources
• Customer acquisition
• Retention
• Growth/profit potential
Synchronizing marketing Synchronizing marketing effortsefforts
• “Touch the Customer”
• Managers working in unison
Updating delivered valueUpdating delivered value• “What have we not done
lately?”• Encourage voicing problems
Business Market Management, 3rd edition Chapter 10-51
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Business Market Management, 3rd edition Chapter 10-52
V. Sustaining Customer V. Sustaining Customer Relationships Through Relationships Through
Connected RelationshipsConnected Relationships
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Managing with a Business Network Managing with a Business Network ContextContext
Actors: Identify key actorsIdentify key actorsAssess the strength of their bondsAssess the strength of their bondsMap their interactionsMap their interactions
Activities:How activities are clusteredHow activities are clusteredHow activities between actors are linkedHow activities between actors are linkedHow they are assembled into processes or patternsHow they are assembled into processes or patterns
Resources:Catalog the resources of the networkCatalog the resources of the networkEvaluate links among themEvaluate links among themDetermine how they can use the constellation of networkDetermine how they can use the constellation of network
Business Market Management, 3rd edition Chapter 10-53
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Describe the networkStrategic situation the supplier faces; Strategic situation the supplier faces;
identifies the actors involvedidentifies the actors involved Evaluate the network
Create and evaluate an interdependence matrix that Create and evaluate an interdependence matrix that specifies the pattern of linkages among the actorsspecifies the pattern of linkages among the actors
Interpret the networkInterpret the portfolio of interdependencies assessing Interpret the portfolio of interdependencies assessing
the resources and activities each network actor the resources and activities each network actor contributescontributes
Craft network strategy to resolve strategic situation
Business Market Management, 3rd edition Chapter 10-54
Framework for Crafting StrategiesFramework for Crafting Strategies
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Adding Value through Adding Value through Business NetworksBusiness Networks
The total value of a solution is a function of the compatibility, accessibility, and quality of the networks withinUser networksUser networksComplements networkComplements networkProducer networksProducer networks
UNIX versus Windows XP
Business Market Management, 3rd edition Chapter 10-55
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Business Market Management, 3rd edition Chapter 10-56
VI. Looking Ahead—A VI. Looking Ahead—A Final Thought on Final Thought on
Managing CustomersManaging Customers
““Whom we serve affects what we are, andWhom we serve affects what we are, andwhat we are affects whom we can serve.”what we are affects whom we can serve.”
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Strategic Approach on Managing CustomersStrategic Approach on Managing Customers
Business Market Management, 3rd edition Chapter 10-57
Step 1Step 1Grow each customer relationship over timeAddress several ongoing behavioral issues including communication, trust and commitment, coordination, and conflict resolution
Step 2Step 2
Construct and implement appropriate relationship-specific offerings at every stage in each customer relationship
Step 3Step 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
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Business Market Management, 3rd edition Chapter 10-58
VII. SummaryVII. Summary
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Business Market Management, 3rd edition Chapter 10-59
SummarySummary 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
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Business Market Management, 3rd edition Chapter 10-60
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