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Key Customer Relationship Management Chapter-3 How much do you really know about your customers?
Thanks to
Presented By Zeal Members Name Roll Md.Zahidul Hasan Imran-Ul-Karim Md.Mehedi Hassan Habibur Rahman Eleas Fazlul Musawwir Chudhury
10 16 32 60 74 88
What is Key Customer? A customer, also client, buyer or purchaser is usually used to refer to a current or potential buyer or user of the products of an individual or organization, mostly called the supplier or Seller. Key Customer –the profit & revenue generator customer for the firm. Key Customer management is about volume, revenue & profit but goes further than large or major management in that it embraces all aspects of corporate planning, growth & survival. Each Key customer is a market segment.
Evaluation of the customer is based on3. 4.
Attractiveness of a customer Current relationship status with the customer.
To do this, organization need1.Greater operational flexibility 2.Investment in new products 3.New organization structure & business skill
How do we prioritize key customer? • Key customer is not the mass market, national or global customer. They are key customer because their policies have considerable influences on their respective industries or because they are recognized technical innovators, monitored and copied by their peers. • Two attribute for evaluating customer attractiveness1. Demographics 2. Psychographics
Demographics These are the physical characteristics of the business environment. They are the tangible benefits of the relationship & relate particularly to the competitiveness advantages. Demographic focus will be strongly influenced by1. Potential for sales 2. Profit & growth analysis (Pareto Analysis) •
Pareto was an Italian economist at the ninetieth century-developed 80:20 rule.
•
In consumer advertising, the Pareto effect is recognized in product usages and is referred to as “the heavy half” i.e. a high percentage of the product is used by only half the total purchasers.
•
With this kind of segmentation, advertiser will focus their promotion and effort on heavy-half users for cost effectiveness.
•
The key customer manager need to identify the heavy half customers or potential.
Psychographics •
These are the values & attitudes shared by suppliers & customers. They are more intangibles aspects of a relationship i.e.1. Negotiating style 2. Co-operation on problems 3. Helpfulness & response speed when things go wrong.
The customer can be classified as • • • •
Loyal Customer Competitive Customers Switch able customer Competitor loyal customer Table-3.1
Cus tomer At tracti veness Four areas to consider when setting out criteria for customer attractiveness: The customer Business The Customer product / Services The competition for the customer business
Customer Business Volume: Is there enough volume? Is your business volume driven? What is the product mix? Are the products involved st5andard or specials Is the volume too big a commitment to one customer for company? Customer Growth: Is the customers rate of growth in line with their industry? How does the customers rate of growth compare with other customers? What are the implication of growth in terms of pressure on future margins in the relationship? International Potential If your business is international,? Is there international compatibility between the business? Do your business operate in the same international markets? Are the customer’s product and services specifications similar in different markets?
Seasonality & trade analysis: Is there seasonality built into the customer’s demand? What external factors are likely to affect customers business? Relationship with suppliers: What are the customer's attitudes top supplier? Is there evidence of loyalty by the customers? Does the customer appreciate loyalty? What quality expectation & system does the customer have? Organization fit: What are the relative sizes of the two companies? Is the customer too large, too small, too complex or just not style? Is there an aggravation factor dealing with this customer? Images: Is there any images spin-off from being a supplier to this customer? Will there be referral opportunities?
Customer’s product/ services The product life cycles At what life cycle stage is the customer products’ and how is this likely to affect purchasing policies & pricing expectation, present & future? At what stages is your product life cycle and what are the implications for your pricing expectation? Product complexity: Can the customer cope with the complexity of product? What are the educational & training cost of introducing product? Added-value potential: Does your product create added-value for customer business? Is the added value sufficient to give scope for premium pricing? Technology: Can the key customers use & value special expertise & the technology of product? Will the relationship permit enhancement & development of the technology? Will the company benefit from the customer experience? Differentiation: Will the key customer perceive your product or service as different from others? Exclusivity: Will you the sole supplier in the field to this customer?
Competition for the customer’s business Concentration • How many serious player are there competing for this customer business? • How will the existence supplier entrenched? Capacity & Need: • How well is the competitive capacity suited & available for this key customers? • To what extent does competition want or need the business? Barriers to entry: • How effectively are new players restricted from this business due to costs, stocks, regulation, training & so on? Exit Barrier: • How difficult will it be to dislodge existing suppliers?
Price Sensitivity • How easily could the share of the business be influenced by future price changes? Influence Sensitivity: • How easily could the share of the business be influenced by quality, service, reliability & other factors? Vertical integration: • How significant is the risk that the customer might develop own resources to provide product or services in the future?
Potential fo r m utual Profi tabil it y Customer Profitability Does this key customer make a healthy profit? What is the trend in share-price, cash flow & credit standing? Customer Structure: Does the cost infrastructure of this customer favor the business as a supplier? What is the relationship of fixed & variable cost? Scope for improvement: Can you improve the performances, profitability or efficiency of this customer’s business? What are their current financial & management ration? Effect on Gross Margins: Will this key customer improve your average gross margins? How soon will you see this improvement? Resources: How much extra resources commitment will be necessary to secure this business? Are these resources readily available?
Other implication in evaluating attractiveness
• The pursuit of market share & the product life cycle concept might significantly affect how the company measure attractiveness & key customer strategy. Two important factor: • Market Share • Life Cycle
Market Share • Probably Started at 1930s. • “when the market has matured & total demand has ceased to grow your competitor cannot grow market share without selling it.” • “the trick is to achieve economics of scale with flexibility of production.” • “Size does matter in cost driven industry but it is not absolute size but size relative to the competition that is critical.
Life Cycle Introduction Stage: Business have slow minimal or negative profit and the key customer is likely to make demands on suppliers for anything that will reduce the short-term benefit. Growth Stage: Marked by rapid sales & increasing profit. The key customer may reduce the market price, improve the product or enter a wider range of market segment & distribution channel.
Maturity Stage: The sales growth is slow down, but the profit begin to stabilized. The company will seek new innovative strategies to renew sales growth, including product & marketing mix modification. Decline Stage: Little can be doe to halt the deterioration of sales & profit. The customer & supplier need to find out
All four stages have implication for supplier: Introduction
•Risk Stage •Supplier has to decide on the probability of success & the resources
Growth
•Call for decision on capacity commitment & extension •Indispensability of the
Maturity
supplier product to the customer •Resisting the temptation to abuse Decline
Collaboration on new products within a proven, well established relationship.
Measuring the current relationship status with key customers How attractive a customer may be, an investment decision can only be made after considering how realistic the chances are that a key customer partnership can be achieved. Measurement of current relationship status with a customer will be both qualitative & quantitative, using the following criteria:
Customer share of the customers business Company share Vs. Competitor share Trend of the share in last 3 years The extent to which the customer is locked into the product Customer perception of technical strengths Customer perception of service Customer perception of price competitiveness Age of relationship Breadth of contact base Customer attitude toward the company.
Calculating attractiveness & relationships status scores Step-1 Agree two list of criteria: • To measure Attractiveness • Measure current relationship status
Step-2 Weighting the criteria on each list on an agreed scale according to relative degree of importance. Several Methods: 5. The weighting of each criterion too be agreed separately on a scale (for example:1-5) 6. Spread across ten factors up to a total of 25 7. Ranking order by using paired comparisons.
Step : 3 Rating: Each individual customer is rated against the weighted criteria on each list using a 0-4 rating scale. A rating of 4 indicates a factor that fully meets the ideal requirements for the supplier Step: 4 Multiplication: The fourth step is to multiply the rating (0-4) each factor by its weighting(1-5) to produce a weighted score for that factor. By adding all ten weighted factor scores on the attractiveness list for each contract of key customer, an index of attractiveness is calculated.
The attractiveness & current relationship status evaluation: Criteria
Customer A
Customer B
Weighting
Rating
Weighted Score
Rating
Sales Potentiality
5
3
15
1
Weight ed Score 5
Current Sales Volume
2
1
2
2
4
Profit Margins
4
3
12
1
4
Total
Criteria
Customer A
Customer B
Weighting
Rating
Weighted Score
Rating
Share of customer volume
5
3
15
1
Weight ed Score 5
Share Trend
2
1
2
2
4
Quality Competitiveness
4
3
12
1
4
Total
The Nine Cell Customer Strategy Grid Relationship status of supplier
High Medium Low
Attractiveness of the customer
Weak
Average
Weak
Size of bubble indicates potential Business
Bubble may be shaded Or colored to Indicate Share of potential
Prioritization Chart Number indicates customer references
% attractiveness
90 80 19
24
70
3 4
60
33 25
10
8
7
29
50
6
20
40 30
22 21
2 1
15
35
55
75
85
% relationship Status The Nine cell customer strategy Grid
How do you Develop strategies to increase key customer business
The four generic strategies are: 1. 2. 3. 4.
Target for Development Defend against Competition Maintain with minimum resources Withdrawing
Strategic option for key customer Relationship status of supplier
High Medium Low
Attractiveness of the customer
Weak
Maintain safety
Average
Defend
Weak
Develop Defend
Maintain Minimality
Defend Minimality
Defend
Withdraw
Maintain Minimality
Defend selectively
Relationship Bonding Four ways to create lasting relationship bonding: • Develop personal Thrust • Create entry barriers • Reinforce exit barriers • Initiate joint venture The strength of the bonding is measured by the share of the customer’s business, together with the aggregate effect of these four types of bonding. The aim is to develop the relationship from being an ordinary supplier to becoming: • A preferred Supplier • A partner • A strategic Partner.
Relationship Bonding Developing Trust -Regular factory visit at all levels -Social Activities -High frequency contacts -Supporting special event for the customer -Ensuring promises are kept -open communication -sharing mutual problems Involvement by top management
Creating entry Barriers -Low competitive pricing -Superior product & application -Electronic link -Network of relationship -Joint long term planning -Joint innovation team
Reinforcing entry Barriers -making the customer dependent on technical support -Agreeing overrides -Agreeing formal long term contracts -Encouraging inter company trading -Utilizing consignment stock -Moving into shared promises
Joint Venture Projects - Assigning staff to the customer - Creating joint projects teams - Collaborating in joint business ventures - A shared customer database.
Thanks to
Presented By Zeal Members Name Roll Md.Zahidul Hasan Imran-Ul-Karim Md.Mehedi Hassan Habibur Rahman Eleas Fazlul Musawwir Chudhury
10 16 32 60 74 88
What is Key Customer? A customer, also client, buyer or purchaser is usually used to refer to a current or potential buyer or user of the products of an individual or organization, mostly called the supplier or Seller. Key Customer –the profit & revenue generator customer for the firm. Key Customer management is about volume, revenue & profit but goes further than large or major management in that it embraces all aspects of corporate planning, growth & survival. Each Key customer is a market segment.
Evaluation of the customer is based on3. 4.
Attractiveness of a customer Current relationship status with the customer.
To do this, organization need1.Greater operational flexibility 2.Investment in new products 3.New organization structure & business skill
How do we prioritize key customer? • Key customer is not the mass market, national or global customer. They are key customer because their policies have considerable influences on their respective industries or because they are recognized technical innovators, monitored and copied by their peers. • Two attribute for evaluating customer attractiveness1. Demographics 2. Psychographics
Demographics These are the physical characteristics of the business environment. They are the tangible benefits of the relationship & relate particularly to the competitiveness advantages. Demographic focus will be strongly influenced by1. Potential for sales 2. Profit & growth analysis (Pareto Analysis) •
Pareto was an Italian economist at the ninetieth century-developed 80:20 rule.
•
In consumer advertising, the Pareto effect is recognized in product usages and is referred to as “the heavy half” i.e. a high percentage of the product is used by only half the total purchasers.
•
With this kind of segmentation, advertiser will focus their promotion and effort on heavy-half users for cost effectiveness.
•
The key customer manager need to identify the heavy half customers or potential.
Psychographics •
These are the values & attitudes shared by suppliers & customers. They are more intangibles aspects of a relationship i.e.1. Negotiating style 2. Co-operation on problems 3. Helpfulness & response speed when things go wrong.
The customer can be classified as • • • •
Loyal Customer Competitive Customers Switch able customer Competitor loyal customer Table-3.1
Cus tomer At tracti veness Four areas to consider when setting out criteria for customer attractiveness: The customer Business The Customer product / Services The competition for the customer business
Customer Business Volume: Is there enough volume? Is your business volume driven? What is the product mix? Are the products involved st5andard or specials Is the volume too big a commitment to one customer for company? Customer Growth: Is the customers rate of growth in line with their industry? How does the customers rate of growth compare with other customers? What are the implication of growth in terms of pressure on future margins in the relationship? International Potential If your business is international,? Is there international compatibility between the business? Do your business operate in the same international markets? Are the customer’s product and services specifications similar in different markets?
Seasonality & trade analysis: Is there seasonality built into the customer’s demand? What external factors are likely to affect customers business? Relationship with suppliers: What are the customer's attitudes top supplier? Is there evidence of loyalty by the customers? Does the customer appreciate loyalty? What quality expectation & system does the customer have? Organization fit: What are the relative sizes of the two companies? Is the customer too large, too small, too complex or just not style? Is there an aggravation factor dealing with this customer? Images: Is there any images spin-off from being a supplier to this customer? Will there be referral opportunities?
Customer’s product/ services The product life cycles At what life cycle stage is the customer products’ and how is this likely to affect purchasing policies & pricing expectation, present & future? At what stages is your product life cycle and what are the implications for your pricing expectation? Product complexity: Can the customer cope with the complexity of product? What are the educational & training cost of introducing product? Added-value potential: Does your product create added-value for customer business? Is the added value sufficient to give scope for premium pricing? Technology: Can the key customers use & value special expertise & the technology of product? Will the relationship permit enhancement & development of the technology? Will the company benefit from the customer experience? Differentiation: Will the key customer perceive your product or service as different from others? Exclusivity: Will you the sole supplier in the field to this customer?
Competition for the customer’s business Concentration • How many serious player are there competing for this customer business? • How will the existence supplier entrenched? Capacity & Need: • How well is the competitive capacity suited & available for this key customers? • To what extent does competition want or need the business? Barriers to entry: • How effectively are new players restricted from this business due to costs, stocks, regulation, training & so on? Exit Barrier: • How difficult will it be to dislodge existing suppliers?
Price Sensitivity • How easily could the share of the business be influenced by future price changes? Influence Sensitivity: • How easily could the share of the business be influenced by quality, service, reliability & other factors? Vertical integration: • How significant is the risk that the customer might develop own resources to provide product or services in the future?
Potential fo r m utual Profi tabil it y Customer Profitability Does this key customer make a healthy profit? What is the trend in share-price, cash flow & credit standing? Customer Structure: Does the cost infrastructure of this customer favor the business as a supplier? What is the relationship of fixed & variable cost? Scope for improvement: Can you improve the performances, profitability or efficiency of this customer’s business? What are their current financial & management ration? Effect on Gross Margins: Will this key customer improve your average gross margins? How soon will you see this improvement? Resources: How much extra resources commitment will be necessary to secure this business? Are these resources readily available?
Other implication in evaluating attractiveness
• The pursuit of market share & the product life cycle concept might significantly affect how the company measure attractiveness & key customer strategy. Two important factor: • Market Share • Life Cycle
Market Share • Probably Started at 1930s. • “when the market has matured & total demand has ceased to grow your competitor cannot grow market share without selling it.” • “the trick is to achieve economics of scale with flexibility of production.” • “Size does matter in cost driven industry but it is not absolute size but size relative to the competition that is critical.
Life Cycle Introduction Stage: Business have slow minimal or negative profit and the key customer is likely to make demands on suppliers for anything that will reduce the short-term benefit. Growth Stage: Marked by rapid sales & increasing profit. The key customer may reduce the market price, improve the product or enter a wider range of market segment & distribution channel.
Maturity Stage: The sales growth is slow down, but the profit begin to stabilized. The company will seek new innovative strategies to renew sales growth, including product & marketing mix modification. Decline Stage: Little can be doe to halt the deterioration of sales & profit. The customer & supplier need to find out
All four stages have implication for supplier: Introduction
•Risk Stage •Supplier has to decide on the probability of success & the resources
Growth
•Call for decision on capacity commitment & extension •Indispensability of the
Maturity
supplier product to the customer •Resisting the temptation to abuse Decline
Collaboration on new products within a proven, well established relationship.
Measuring the current relationship status with key customers How attractive a customer may be, an investment decision can only be made after considering how realistic the chances are that a key customer partnership can be achieved. Measurement of current relationship status with a customer will be both qualitative & quantitative, using the following criteria:
Customer share of the customers business Company share Vs. Competitor share Trend of the share in last 3 years The extent to which the customer is locked into the product Customer perception of technical strengths Customer perception of service Customer perception of price competitiveness Age of relationship Breadth of contact base Customer attitude toward the company.
Calculating attractiveness & relationships status scores Step-1 Agree two list of criteria: • To measure Attractiveness • Measure current relationship status
Step-2 Weighting the criteria on each list on an agreed scale according to relative degree of importance. Several Methods: 5. The weighting of each criterion too be agreed separately on a scale (for example:1-5) 6. Spread across ten factors up to a total of 25 7. Ranking order by using paired comparisons.
Step : 3 Rating: Each individual customer is rated against the weighted criteria on each list using a 0-4 rating scale. A rating of 4 indicates a factor that fully meets the ideal requirements for the supplier Step: 4 Multiplication: The fourth step is to multiply the rating (0-4) each factor by its weighting(1-5) to produce a weighted score for that factor. By adding all ten weighted factor scores on the attractiveness list for each contract of key customer, an index of attractiveness is calculated.
The attractiveness & current relationship status evaluation: Criteria
Customer A
Customer B
Weighting
Rating
Weighted Score
Rating
Sales Potentiality
5
3
15
1
Weight ed Score 5
Current Sales Volume
2
1
2
2
4
Profit Margins
4
3
12
1
4
Total
Criteria
Customer A
Customer B
Weighting
Rating
Weighted Score
Rating
Share of customer volume
5
3
15
1
Weight ed Score 5
Share Trend
2
1
2
2
4
Quality Competitiveness
4
3
12
1
4
Total
The Nine Cell Customer Strategy Grid Relationship status of supplier
High Medium Low
Attractiveness of the customer
Weak
Average
Weak
Size of bubble indicates potential Business
Bubble may be shaded Or colored to Indicate Share of potential
Prioritization Chart Number indicates customer references
% attractiveness
90 80 19
24
70
3 4
60
33 25
10
8
7
29
50
6
20
40 30
22 21
2 1
15
35
55
75
85
% relationship Status The Nine cell customer strategy Grid
How do you Develop strategies to increase key customer business
The four generic strategies are: 1. 2. 3. 4.
Target for Development Defend against Competition Maintain with minimum resources Withdrawing
Strategic option for key customer Relationship status of supplier
High Medium Low
Attractiveness of the customer
Weak
Maintain safety
Average
Defend
Weak
Develop Defend
Maintain Minimality
Defend Minimality
Defend
Withdraw
Maintain Minimality
Defend selectively
Relationship Bonding Four ways to create lasting relationship bonding: • Develop personal Thrust • Create entry barriers • Reinforce exit barriers • Initiate joint venture The strength of the bonding is measured by the share of the customer’s business, together with the aggregate effect of these four types of bonding. The aim is to develop the relationship from being an ordinary supplier to becoming: • A preferred Supplier • A partner • A strategic Partner.
Relationship Bonding Developing Trust -Regular factory visit at all levels -Social Activities -High frequency contacts -Supporting special event for the customer -Ensuring promises are kept -open communication -sharing mutual problems Involvement by top management
Creating entry Barriers -Low competitive pricing -Superior product & application -Electronic link -Network of relationship -Joint long term planning -Joint innovation team
Reinforcing entry Barriers -making the customer dependent on technical support -Agreeing overrides -Agreeing formal long term contracts -Encouraging inter company trading -Utilizing consignment stock -Moving into shared promises
Joint Venture Projects - Assigning staff to the customer - Creating joint projects teams - Collaborating in joint business ventures - A shared customer database.
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