7-1 © 2006 by Nelson, a division of Thomson Canada Limited 10/25/2015 Slides developed by: Peter...

© 2006 by Nelson, a division of Thomson Canada Limited7-104/20/23

Slides developed by:Slides developed by:

Peter YannopoulosPeter Yannopoulos

Chapter 7Chapter 7

Strategic Networks and Customer Relationship Management

© 2006 by Nelson, a division of Thomson Canada Limited7-2

Strategic Networks

Cooperative and collaborative actions intendedto establish, maintain, and enhance mutuallyadvantageous long-term relationships withimportant industry stakeholders, such ascustomers, suppliers, distributors, competitors,and other organizations


Reasons for Forming Strategic Networks

Learn new skills

Defend against

powerfulentrants

Expand intonew markets

Rapid technological

advances

Strategic Strategic NetworksNetworks

Share risks


Types of Strategic Networks

Distributors

SuppliersCompetitors

Customers

Types of Types of Strategic Strategic NetworksNetworks


Reasons Strategic Networks Fail

Weak support from top managementUnclear strategiesPoor partner selectionClashing corporate values and goalsDifferent ownership, structure, and

management valuesDifferences in size and resources of

partners


Transaction Marketing Versus Relationship Marketing

Transaction Marketing

Focus on one-time transactions

Customers are marketing’sresponsibilityEmphasis on short termProduct-centric - emphasis onproduct featuresSporadic customer contactLittle knowledge of mostvaluable customersLittle emphasis on customerservice, etc.

Transaction Marketing

Focus on one-time transactions

Customers are marketing’sresponsibilityEmphasis on short termProduct-centric - emphasis onproduct featuresSporadic customer contactLittle knowledge of mostvaluable customersLittle emphasis on customerservice, etc.

Relationship Marketing

Focus on long-term relationships

Customers is the responsibilityof all functionsEmphasis on long term Customer-centric – emphasis

oncustomer valueFrequent customer contactKnow most valuable customersA lot of emphasis on customerservice, etc.

Relationship Marketing

Focus on long-term relationships

Customers is the responsibilityof all functionsEmphasis on long term Customer-centric – emphasis

oncustomer valueFrequent customer contactKnow most valuable customersA lot of emphasis on customerservice, etc.


The Four Ps of Customer Value

Performance

ProcessesPeople

Product

The Four Ps The Four Ps of Customerof Customer

ValueValue


Customer Value, Satisfaction, Retention, and Performance

Product Product Process Process Performance Performance People People

Customer Value Customer Satisfaction

Customer Retention

Customer Value Customer Satisfaction

Customer Retention

Increased revenue

Increased revenue

Lower Costs Lower Costs

Performance Profitability Market share Image

Performance Profitability Market share Image


Customer Value Equation

Perceived customer value

Perceived customer value

Perceived benefits –Perceived life cycle costsPerceived benefits –Perceived life cycle costs

=


Value formoney

Features

Convenience

Performance

Quality

Perceived Perceived BenefitsBenefits

Perceived Benefits


Perceived Life Cycle Costs

Maintenancecosts

Financingcosts

Operatingcosts

Purchase price Set up

costs

Perceived Perceived Life Cycle Life Cycle

CostsCosts

Disposalcosts


Customer Value Analysis

Customer Value Importance Firm A Firm B Firm CAttributes Weights Rating WxR Rating WxR Rating WxR

Handling 25 9 225 7 175 8 200Traction 20 9 180 8 160 7 140Rolling resistance 15 8 120 7 105 9 135Noise levels 15 7 105 8 120 6 90Resistance to puncture 10 7 70 8 80 7 70Treadwear rate 10 8 80 9 90 7 70Appearance 5 7 35 8 40 8 40Total 100 815 770 745

Performance score: 815 770 745Relative performance: 1.00 0.94 0.91


An Example of the Number of Customers Who Would Switch

Total number of customers 400,000

Number of dissatisfied customers (10%) 40,000

Number of dissatisfied customers who

do not complain (.96 × 40,000) 38,400

Number of customers who would switch (.92 × 38,400) 36,800


The Strategic Satisfaction Matrix

Satisfaction With

Performance

High

Importance

Possible Overkill Competitive Advantage Maintain or reduce Maintain or improve investment or change performance target market

Low priority Competitive VulnerabilityDo not waste resources Focus improvements here

Low

Low High


Customer Net Worth Example

Assume:

Customer lives in an area for 5 years

A supermarket earns from the customer $500, $700, $900, $1,000, and $1,200

Discount rate = 5 %


Year Earnings

1st year $500

2nd year $700

3rd year $900

4th year $1000

5th year $1200

Earnings1 Earnings2 Earnings3 Earnings4 Earnings5

Net worth = ------------ + ------------ + -------------- + ------------ + -----------

(1 + k)1 (1 + k)2 (1 + k)3 (1 + k)4 (1 + k)5

$500 $700 $900 $1000 $1200

= ------------ + ------------ + ------------ + ------------ + -----------

(1 + 5)1 (1 + 5)2 (1 + 5)3 (1 + 5)4 (1 + 5)5

= $3,651

Calculation of a Customer’s Net Worth


Customer Retention and Profitability

Higher customer retention is positively related with higher profitability

Higher customer retention is positively related with higher profitability

Increasing customer retention by 5% increases profits between 25% and 85%

Increasing customer retention by 5% increases profits between 25% and 85%

For example…For example…


Customer Share

Customer share focuses on increasing the amount obtained from an individual customer

Customer share focuses on increasing the amount obtained from an individual customer


PartneringPrograms

LoyaltyPrograms

Mass Customization

Major Major CustomerCustomer

Relationship Relationship ProgramsPrograms

Major Customer Relationship Programs


Mass Customization

Is aimed at satisfying each customer’s needs individually in a cost effective way

Is aimed at satisfying each customer’s needs individually in a cost effective way

It often involves a learning relationship where the producer learns about the customer needs

It often involves a learning relationship where the producer learns about the customer needs


Purpose of Loyalty Programs

Intended to retain customers and enhance customer loyalty through special incentives that can increasecustomer value

Intended to retain customers and enhance customer loyalty through special incentives that can increasecustomer value


Partnering Programs

Collaborative relationships between companies to better meet end-user needs

Collaborative relationships between companies to better meet end-user needs

Co-branding

Affinity partnering programs


Data Mining

The process of discovering useful knowledge from data stored in corporate databases

The process of discovering useful knowledge from data stored in corporate databases


Most Profitable Uses of Data Mining

Cross-selling

Customerretention

Customeracquisition Most Most

Profitable Profitable Uses of Uses of

Data MiningData Mining


Data Warehouses

A type of data architecture that involves a single site containing data from different sources and organized in a way that facilitates decision making

A type of data architecture that involves a single site containing data from different sources and organized in a way that facilitates decision making


Increasing the Effectiveness of Customer Relationship Programs

Commitment from top managementTarget the right customersCommunicate with customersEstablish common bonding with

customersEstablish a customer retention cultureRetain employeesMonitor customer relationship program

performance

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