Business-to-Business marketing Business relationships & Customer relationship management (CRM) Antti Sihvonen
Agenda 1. Business relationships 2. Customer Relationship Management (CRM)
Business relationships
Business relationships Now we move from buying behavior into relationship behavior Business relationships are a central area of focus in B2B marketing Focus on relationships especially prominent among the researchers in the Nordic countries The terms Dyad, Dyadic, Industrial Marketing and Purchasing Group and IMP Group often indicate a relationship focus For example Managing Business Relationships by Ford & al. 1998 focuses on interaction perspective
What is the focus? Supplier A Supplier D Supplier B Focal firm Customer Supplier E Interaction between two firms à interaction perspective Supplier C
The relationship spectrum Transactional Exchanges ANONYMOUS TRANSACTIONS/ AUTOMATED PURCHASING Value-added Exchanges Collaborative Exchanges COMPLETE COLLABORATION AND INTEGRATION OF SUPPLIER WITH CUSTOMER OR CHANNEL PARTNER
Why and when sellers want to build close relationships with buyers? Cumulative sales in business markets usually follow the typical 20/80 rule 20 percent of the customers provide 80 percent of the sales After identifying customers with high profit margins/ low cost-to-serve, a focal company should forge close relationships with them à Protects against competition! PERCENT AGE OF TOTAL PROFIT PERCENTAGE OF CUSTOMERS (ORDERED BY CUSTOMER PROFITABILITY)
Why and when buyers want to build close relationships with sellers? Transactional Exchanges AVAILABILITY OF ALTERNATIVES Collaborative Exchanges Many alternatives" Few alternatives" SUPPLY MARKET DYNAMISM Stable" Volatile" IMPORTANCE OF PURCHASE Low" High" COMPLEXITY OF PURCHASE Low" High" INFORMATION EXCHANGE Low" High" OPERATIONAL LINKAGES Limited" Extensive"
Interaction perspective to business relationships (1/3) Buyers and sellers craft different types of relationships in response to market conditions and characteristics of the purchasing situation Interaction focus: Sellers seek out buyers and influence them to buy Buyers also seek sellers that can and are prepared to meet their requirements à Both parties are active participants!
Interaction perspective to business relationships (2/3) Often in business markets, it is not a case of exchange but one of interaction. EXCHANGE Focal firm Exchange = The transfer of goods between unchanging entities (e.g. Products, services or money) Interaction = Transforming process that occurs between business actors Customer INTERACTION Focal firm Customer
Interaction perspective to business relationships (3/3) Characteristics of interaction The interaction process can be separated from the two actors (focal firm and customer) themselves Each actor has a view of how they wish to contribute and approach which they wish to take to the interaction Each actor has also a view what they want to gain from interaction EXCHANGE Focal firm Customer INTERACTION Focal firm Customer
Interaction perspective to business relationships (3/3) The process and outcome of interaction Interaction develops in a way that it is not fully controlled by any of the two Interaction changes what is contributed and received by both companies over time EXCHANGE Focal firm Customer INTERACTION Focal firm Customer
Interaction model of business relationships Used to describe a dyadic relationship using the following factors: 1. Variables describing the parties involved, both as organizations and individuals 2. Variables describing the elements and process of interaction 3. Variables describing the environment within which the interaction takes place 4. Variables describing the atmosphere affecting and affected by the interaction Enables explicating the different dimensions affecting the relationships
Development of business relationships: The stage based model 2. EXPLORATORY STAGE Investment of time for learning & distance reduction 1. PRE-RELATIONSHIP STAGE What we both get? How much Investment, adaptations? 3. DEVELOPMENT STAGE 4. STABLE STAGE Intensive mutual learning Trust building Routine and institutionalisation
Development of business relationships: 1. Pre-relationship & 2. exploratory stage 1. Pre-relationship Only limited experience on the other party, earlier relationships form a base for evaluation Level of uncertainty is high Wide distance 2. Exploratory stage There is still a lack of experience and routines Decreasing uncertainty Distance: So far only limited amount of social relationships Aim to diminish the cultural and geographical distance There may be technological mismatch Lack of commitment, external factors influence the development
Development of business relationships: 3. Development stage 3. Development stage Cooperation starts Increasing experience and understanding of norms and values Decreasing uncertainty Social and cultural distance has decreased because of multiple interactions and technological adaptations Commitment is manifested Official agreements Additional adaptations indicate commitment The frequency and character of contacts
Development of business relationships: 4. Stable stage 4. Stable stage (i.e. Institutionalisation) A remarkable experience of the partner Many kinds of common routines Uncertainty has disappeared. The relationship is institutionalized, which may create problems as well: The routines and practices followed by the buying and selling firms in the relationships become second nature or automatic with frequent use Positive: It can be efficient and enabling because the parties don t have to talk about the fine points Negative: When there is a need to change, it can be inefficient and disabling
The stage based model in use: Strenghts Customer relationships of a company may be in different stages, so they need different kind of management according to this. New customers: Need to evaluate the relationship that the potential customer has with competitive suppliers Interfering with the competitors customer relationships in the right moment Management of the portfolio of customer relationships instead of operative management of a single customer relationship
The stage based model in use: Weaknesses It is not a valid description of all relatioships but rather a generalization Many relationships are short-lived because of transaction orientation or lack of usefulness Managing relationships is not a linear process of progress A relationship may be more about coping
Customer Relationship Management (CRM)
Three levels of CRM 1) WHY" " Why should companies use CRM?" " 2) HOW" How could companies do CRM?" 3) TO WHOM?" " To whom should we do CRM programs?" "
Why CRM: Relationship marketing and CRM Relationship marketing centers on all activities directed towards establishing, developing, and maintaining successful exchanges with customers and other constituents. (Hutt & Speh, 2010, pp. 61) WHY: 1. Loyal customers are more profitable 2. Shielding relationships from competition 3. Acquisition vs. retention costs
Why CRM: CRM continuum and the centrality of CRM CRM can be approached from many different angles with varying degrees of importance Payne, A., & Frow, P. (2005). A strategic framework for customer relationship management. Journal of marketing, 69(4), 167-176.
How to do CRM: CRM model (1/4) STEP 1. CREATE DATABASE STEP 2. ANALYSIS STEP 3. CUSTOMER SELECTION STEP 4. CUSTOMER TARGETING STEP 5. RELATIONSHIP MARKETING STEP 6. PRIVACY ISSUES STEP 7. METRICS Winer, R. S. (2001). A framework for customer relationship management. California management review, 43(4), 89-105.
How to do CRM: CRM model (2/4) Step 1: Create a customer database Foundation for all CRM activities It could contain: transactions, customer contacts, descriptive information, response to marketing stimuli over time The database should also be kept up-to-date at all times Step 2: Analyzing the data Defining segments with similar behavior Analyzing profitability of single customers Step 3: Customer selection Which customers to target with the firm s marketing program Which customers are most likely to generate profits and which can be left without attention Winer, R. S. (2001). A framework for customer relationship management. California management review, 43(4), 89-105.
How to do CRM: CRM model (3/4) Step 4: Targeting the customers Segments or 1-to-1 marketing Step 5: Relationship marketing Goal is to increase customer satisfaction Possible means Frequency/loyalty programs Customization Community building Reward programs Enhanced customer service Winer, R. S. (2001). A framework for customer relationship management. California management review, 43(4), 89-105.
How to do CRM: CRM model (4/4) Step 6: Privacy issues Many customers are very concerned for their own privacy What amount of information is necessary to conduct effective relationship marketing? Step 7: Metrics Direct financial metrics such as profit CRM-based measures such as customer acquisition costs, conversion rates, retention rates Winer, R. S. (2001). A framework for customer relationship management. California management review, 43(4), 89-105.
CRM to whom: Fiocca (1982) (1/3) Account portfolio analysis Two-step analysis To specify the roles of different accounts Step one: Analyzing accounts on a general level Importance of an account Sales volume, potential, prestige, overall account desirability Difficulty of managing an account Product characteristics, account characteristics, competition for the account High Key Difficult 1 Nonkey Difficult 3 Low Key Easy 2 Nonkey Easy 4 High Low Difficulty in managing the account Strategic importance of an account
CRM to whom: Fiocca (1982) (2/3) Step two: Analyzing key accounts Customer s business attractiveness Market factors, competition, financial and economic factors, technological factors, sociopolitical factors Relative stage of the present buyer/seller relationship Strong, medium, weak relationships (in comparison to other relationships) High Customer s business Medium attractiveness Low 3 2 1 6 5 4 9 8 7 Strong Medium Weak Relative buyer/seller relationship
CRM to whom: Fiocca (1982) (3/3) Generating marketing strategies based on the analysis Defining for an account whether to improve Customer s business relationship, hold attractiveness position, withdraw Customer s business attractiveness helps to define which strategy to employ Hold position Improve relationship High 3 2 1 Medium 6 5 4 Low 9 8 7 Strong Medium Weak Withdraw Relative buyer/seller relationship
4 things to remember after this class 1. Types of relationships and why relationships are important for sellers and buyers 2. Definition of interaction and how interactions can be studied (IMP interaction model) 3. Development of business relationships: The stage based model 4. Why, how and to whom b2b companies do CRM programs
Thank you Any questions?