DIFFERENCES BETWEEN B2B AND B2C CUSTOMER RELATIONSHIP MANAGEMENT. FINDINGS FROM THE CZECH REPUBLIC 1

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1 DIFFERENCES BETWEEN BB AND BC CUSTOMER RELATIONSHIP MANAGEMENT. FINDINGS FROM THE CZECH REPUBLIC Karel Kolis, Ing. Katerina Jirinova, Ing. et Ing. University of Economics in Prague, Czech Republic Abstract The purpose of this article is a comparison between Customer relationship management (CRM) in the BB environment and BC Environment. Literature shows significant differences; therefore the motivation of the research and hence the article was the verification of theoretical statements. Based on the literature review of CRM, an online questionnaire was sent. This research used 6 questions from the questionnaire. On a large number of respondents the differential analysis was made. Results prove the theoretical expectations: CRM in BB and BB environment are partially similar, but the mostly differs. Keywords: BB, BC, CRM, difference Introduction Customer relationship management (CRM) is well-known term during past decade. Brought by academics and implemented into the business by practitioners, it is nowadays well-used in many companies from different industries. The purpose of this article is to compare the CRM approach between Business-tobusiness (BB) and Business-to-consumer (BC) relationships. The study was made on small and medium companies in service industry in the Czech Republic. Literature review Relationships between the company and customer are usually categorized by types of subjects on the customer side of the relationship. Therefore the categories could be distinguished into Business-to-business (BB), Business-to-customer (BC), or Business-togovernment (BG). (Payne & Frow 03, s.56) This article will mainly focus on differences between the BB and BC environment. BB and BC BB is described as the form of relationship with the company on the side of supplier and another business company on the customer side. This business company could be represented by sole trader, company, or institution 3. (Kumar & Reinartz 0, s.6) BB market includes big number of transactions, and is usually more complex (Davis et al. 0; Saini et al. 00; Hutt & Speh 0, s.38). The complexity leans on number of This paper has been published as a part of the research with financial support of IGA VŠE 33/03 For the purpose of this study we will omit the cases where the supplier is not a business company, but individual as the consumer. 3 According to some sources the BB environment includes government institution (Kotler & Armstrong 00)

2 people responsible for the transaction and number of steps in these transactions. (Payne & Frow 03, s.56) Johnston and Bonoma (8) define the group of people responsible for the transaction on customer side in BB market as buying center. The complexity is higher also because of number of people involved seller has to identify and understand their needs and motivation. According to Davis, Golicic and Marquardt (0, s.00) the number of people in the buying center varies depending on the importance of the transaction, its stage and character. The process is called decision making (Webster & Wind 7, s.). The trend in last decades in BB environment according to Ulaga and Eggert (006) are closer relationships and also decreasing number of relationships overall. Business-to-consumer (BC) relationships could be described as a relationship with businesses on the side of supplier and consumers on the other side. The differences to BB are described in following part. CRM Building a relationship with customers is an important issue both for BB and BC. Mousavy et al. defines CRM as a wealthy popular strategy having hypotheses on the belief that collecting data and expanding the relationship with customers can be the best way to serve customer s loyalty and subsequent profits (Mousavy et al. 0) Campbell et al. (00, s.0) see customer relationship consisting from two perspectives: relationship breadth and relationship depths. Breadth represents phases or evolution of the relationship. Organizations develop strategies for moving relationships to a desired phase. By strategies Campbell et al. mean for example loyalty programs, etc. Reichheld presents CRM as a process of developing a relationship with customers which makes them more loyal. He also states that loyal customers are more profitable than nonloyal. (Reichheld 6) Customer relationship depth focuses on the factors that strengthen or weaken a relationship within a particular stage e.g. trust, satisfaction, etc (Campbell et al. 00, s.0). Javalgi et al. (006) describe the four main components of service CRM: customer satisfaction, customer loyalty programs, customer retention programs and customer lifetime profitability. According to Reinartz et al. (004), major CRM activities are customer interaction management (customer identification, acquisition, retention), customer relationship upgrading (cross-selling and up-selling) and customer relationship win-back. Customer relationship management is often seen as technology-only approach. Many studies confirmed this assumption is based on false expectations and CRM cannot serve without other components (Kale 004). Woodburn (00, s.) confirms this statement by warning that relying on the technology only could inhibit or destroy the relationships with customers. Chen and Popvitch (003), supported by other authors (Coltman et al. 0) include technology among the two other main CRM components people and processes. Differences between BB and BC environment According to Kumar and Reinartz (0, s.6), the transaction volume on BB market is much greater than on BC market. Several sources (Saini et al. 00; Kumar & Reinartz 0) state there are fewer subjects on BB market, therefore the value of each transaction and amount in purchase is much bigger. Gummesson (008, s.74) sees the biggest difference in BB and BC in the greater degree of independence between buyers and sellers in the former. Saini et al. (00, s.366) show the evidence that the CRM technology leads to higher performance in BB than in BC relationships. 3

3 Saini, Grewal and Johnson (00) add another differences: in BC relationship customers are less loyal and therefore more likely to switch. Davis et al. explain the bigger loyalty in BB relationships by need of bigger reliability among trading partners (Davis et al. 0, s.00). Because pure and discrete transactions are rare in BB (Day 000), the importance in BB is not only about the product or service, but also in the customer relationship (Davis et al. 0, s.00). The study and methodology The main aim of the study is to discover differences between BB and BC relationships. The research was based on online questionnaire sent to random small and medium companies in the service industry in Czech Republic. Company samples were selected from Albertina database. The questionnaire contained 0 questions, but for purpose of this study, only 6 were used. An containing link to the questionnaire was sent to randomly chosen SMEs. 46 replies were collected, and 70 were possible to link with additional information from the Albertina database. From this amount were 0 samples from BB relationship and 60 from BC. Since the main aim of this study was finding differences between the two types of relationships, all the answers were analyzed for maximal differences between the two groups. The table shows ten most interesting results. Code Question with a specific answer BB BC QA QA QA3 QA4 QA5 QA6 QA7 QA8 QA The customer satisfaction with your services are inquired by: [Social media and internet monitoring] The key customers are determined by: [financial contribution to the company] The key customers are determined by: [We do not differentiate customers, everyone is equal] How do you select which customers have the right to better customer service? [Those who spend more money] How do you select which customers have the right to better customer service? [Those who are prestigious, e.g. for the reference] How do you select which customers have the right to better customer service? [We do not differentiate customers, everyone is equal] The most common customer faults are in your opinion: [They do last minute orders] The most common customer faults are in your opinion: [They ask about information that can be easily found] The most common customer faults are in your opinion: [They pay after maturity] 0% 7% 55% % 43% 67% 5% 5% % % 43% 56% 45% 8% % 4% 65% 36% QA0 What kind of the loyalty program does your company have? [None] 54% 47% Tab. : Selected questions with selected answers The differences between BB and BC group could be measured separately (as shown above) or together as two groups. Coordinates of the centers and distance of the centers m(bb) and n(bc) were calculated. m(bb) = [0,0; 0,550; 0,436; 0,53; 0,8; 0,4; 0,4464; 0,47; 0,6508; 0,537] n(bc)=[0,7; 0,86; 0,667; 0,4; 0,3; 0,5574; 0,754; 0,46; 0,363; 0,4656] In general: m(bb)=[ m; m; m3; m4; m5; m6; m7; m8; m; m0] n(bc)=[ n; n; n3; n4; n5; n6; n7; n8; n; n0] 4

4 Afterwards the distances between all items and centers of their clusters using the equation of Euclidean distance were calculated: L x i m(bb) = (x m ) + (x m ) + + (x 0 m 0 ) L y i m(bc) = (y n ) + (y n ) + + (y 0 n 0 ) Using the same principle the distances between all items and the centers of the other clusters: L(x i n BC ) = (x n ) + (x n ) + + (x 0 n 0 ) L(y i m BB ) = (y m ) + (y m ) + + (y 0 m 0 ) For the confirmation of affiliation of the item (company) to its group (BB or BC) the test was made: if the distance between this item and the center of its cluster is smaller, then add to the group counter. Therefore: If L(x i m BB ) > L(x i n BC ) then count + to BB cluster If L(y i n BC ) > L(y i m BB ) then count + to BC cluster This test showed 705 from 0 BB and 4 from 60 BC are affiliated with their groups 4. The conformity is not absolute; therefore the groups are partly overlapped. This result shows the BB and BC relationships are not completely different entities but they have something in common. For a better quantification of the overlap was used distance from the clusters centers and standard deviation for both clusters. i=0 L(m BB n BC ) = (m i n i ) i= i=0 σ BB = N (x i m i ) i= i=0 σ BC = N (y i n i ) i= =,4 =,40 = 0,57 The results can be visualized (see Fig. ). The width of BB rectangle is x,4 and the width of BC rectangle is x,40. The distance between clusters centers is 0,57. As mentioned above, the visualization shows BB and BC groups partly similar, partly different. Fig. : The distance of the BB and BC clusters Next step was to find out which answers differentiate clusters the most. Therefore the ratio between the answers was developed. 4 Which means with the type of the relationship they claimed in the questionnaire to use the most 5

5 BB BC QA QA QA3 QA4 QA5 QA6 QA7 QA8 QA QA0 0,0 0,7 0,550 0,86 0,43 6 0,667 0,53 0,4 0,8 0,3 0,4 0, , ,75 4 0,4 7 0,4 6 0, ,363 ratio,7 0,5,54 0,5 0,5,3 0,6,5 0,56 0,87 inverted ratio 0,37, 0,65,7,3 0,77,6 0,5,7,5 how many times more important 0,537 0,465 6,7,,54,7,3,3,6,5,7,5 rank Tab. : Ratio and comparison of the answers In the Graph the results are visualized. The bigger value the more this answer contributes to the difference of the clusters. In the graph the answers are sorted from highest contribution to lowest. QA QA3 QA QA8 QA6 QA QA7 QA5 QA4 QA0 0,00 0,50,00,50,00,50 3,00 Graph : Comparison of the answers Conclusion From the literature review are visible the similarities differences between BB and BC customer relationship management. Although the topic of CRM is popular, not many researchers compared these types of relations. This research paper showed the evidence of different customer relationship management approach in BB and BC relationship types. On the large number of respondents from small and medium companies in Czech Republic was shown the approach is partly similar, but more less different. The topics which differentiate the two groups the most are QA, QA3 and QA8+. The further research should be directed into deeper description of the differences and comparison in different industries and countries. Deeper description could be fulfilled by qualitative research especially interviews. References: Campbell, D., Wells, J. & Valacich, J.S., 00. Diagnosing and Managing Online Businessto-Consumer (BC) Relationships: Toward an ecommerce BC Relationship Stage Theory. AIS Transactions on Human-Computer Interaction, (4), s

6 Coltman, T., Devinney, T.M. & Midgley, D.F., 0. Customer relationship management and firm performance. Journal of Information Technology, 6(3), s.05. Davis, D.F., Golicic, S.L. & Marquardt, A., 0. Business-to-business Marketing Management: Strategies, Cases, and Solutions, Emerald Group Publishing. Day, G.S., 000. Managing Market Relationships. Journal of the Academy of Marketing Science, 8(), s Gummesson, E., 008. Quality, service-dominant logic and many-to-many marketing. The TQM Journal, 0(), s Hutt, M.D. & Speh, T.W., 0. Business Marketing Management: BB, th ed.: BB, Cengage Learning. Chen, I.J. & Popvich, K., 003. Understanding customer relationship management (CRM): People, process and technology. Business Process Management Journal, (5), s Javalgi, R.G., Martin, C.L. & Young, R.B., 006. Marketing research, market orientation and customer relationship management: a framework and implications for service providers. The Journal of Services Marketing, 0(), s. 3. Johnston, W.J. & Bonoma, T.V., 8. The Buying Center: Structure and Interaction Patterns. Journal of Marketing, 45(3), s Kale, S.H., 004. CRM Failure and the Seven Deadly Sins. Marketing Management, 3(5), s Kotler, P. & Armstrong, G., 00. Principles of Marketing, Pearson Education. Kumar, V. & Reinartz, W., 0. Customer Relationship Management: Concept, Strategy, and Tools, Springer. Mousavy, S.K. et al., 0. Customer Relationship Management (CRM) and Study of Its Effect on Competitive Advantage. Life Science Journal-Acta Zhengzhou University Overseas Edition, (4), s Payne, A. & Frow, P., 03. Strategic Customer Management: Integrating Relationship Marketing and CRM, Cambridge University Press. Reichheld, F.F., 6. The Quest for Loyalty: Creating Value Through Partnerships, Harvard Business Press. Reinartz, W., Krafft, M. & Hoyer, W.D., 004. The Customer Relationship Management Process: Its Measurement and Impact on Performance. Journal of Marketing Research, 4(3), s Saini, A., Grewal, R. & Johnson, J.L., 00. Putting market-facing technology to work: Organizational drivers of CRM performance. Marketing Letters, (4), s Ulaga, W. & Eggert, A., 006. Relationship value and relationship quality: Broadening the nomological network of business-to-business relationships. European Journal of Marketing, 40(3/4), s Webster, F.E. & Wind, Y., 7. Organizational buying behavior, Prentice-Hall. Woodburn, D., 00. Customer relationship management: Hard lessons learned in BB pose tough questions for BC. Interactive Marketing, 4(), s. 3. 7