7-1 © 2006 by Nelson, a division of Thomson Canada Limited 10/25/2015 Slides developed by: Peter Yannopoulos Chapter 7 Strategic Networks and Customer Relationship Management

7-2 © 2006 by Nelson, a division of Thomson Canada Limited Strategic Networks Cooperative and collaborative actions intended to establish, maintain, and enhance mutually advantageous long-term relationships with important industry stakeholders, such as customers, suppliers, distributors, competitors, and other organizations

7-3 © 2006 by Nelson, a division of Thomson Canada Limited Reasons for Forming Strategic Networks Learn new skills Defend against powerful entrants Expand into new markets Rapid technological advances StrategicNetworks Share risks

7-4 © 2006 by Nelson, a division of Thomson Canada Limited Types of Strategic Networks Distributors Suppliers Competitors Customers Types of StrategicNetworks

7-5 © 2006 by Nelson, a division of Thomson Canada Limited Reasons Strategic Networks Fail Weak support from top management Unclear strategies Poor partner selection Clashing corporate values and goals Different ownership, structure, and management values Differences in size and resources of partners

7-6 © 2006 by Nelson, a division of Thomson Canada Limited Transaction Marketing Versus Relationship Marketing Transaction Marketing Focus on one-time transactions Customers are marketing’s responsibility Emphasis on short term Product-centric - emphasis on product features Sporadic customer contact Little knowledge of most valuable customers Little emphasis on customer service, etc. Transaction Marketing Focus on one-time transactions Customers are marketing’s responsibility Emphasis on short term Product-centric - emphasis on product features Sporadic customer contact Little knowledge of most valuable customers Little emphasis on customer service, etc. Relationship Marketing Focus on long-term relationships Customers is the responsibility of all functions Emphasis on long term Customer-centric – emphasis on customer value Frequent customer contact Know most valuable customers A lot of emphasis on customer service, etc. Relationship Marketing Focus on long-term relationships Customers is the responsibility of all functions Emphasis on long term Customer-centric – emphasis on customer value Frequent customer contact Know most valuable customers A lot of emphasis on customer service, etc.

7-7 © 2006 by Nelson, a division of Thomson Canada Limited The Four Ps of Customer Value Performance Processes People Product The Four Ps of Customer Value

7-8 © 2006 by Nelson, a division of Thomson Canada Limited Customer Value, Satisfaction, Retention, and Performance Product Process Performance People Customer Value Customer Satisfaction Customer Retention Customer Value Customer Satisfaction Customer Retention Increased revenue Increased revenue Lower Costs Performance  Profitability  Market share  Image Performance  Profitability  Market share  Image

7-9 © 2006 by Nelson, a division of Thomson Canada Limited Customer Value Equation Perceived customer value Perceived customer value Perceived benefits – Perceived life cycle costs Perceived benefits – Perceived life cycle costs =

7-10 © 2006 by Nelson, a division of Thomson Canada Limited Value for money Features Convenience Performance Quality PerceivedBenefits Perceived Benefits

7-11 © 2006 by Nelson, a division of Thomson Canada Limited Perceived Life Cycle Costs Maintenance costs Financing costs Operating costs Purchase price Set up costs Perceived Life Cycle Costs Disposal costs

7-12 © 2006 by Nelson, a division of Thomson Canada Limited Customer Value Analysis Customer Value Importance Firm A Firm B Firm C Attributes Weights Rating WxR Rating WxR Rating WxR Handling Traction Rolling resistance Noise levels Resistance to puncture Treadwear rate Appearance Total Performance score: Relative performance:

7-13 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-14 © 2006 by Nelson, a division of Thomson Canada Limited 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 Vulnerability Do not waste resources Focus improvements here Low High

7-15 © 2006 by Nelson, a division of Thomson Canada Limited 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 %

7-16 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-17 © 2006 by Nelson, a division of Thomson Canada Limited 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…

7-18 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-19 © 2006 by Nelson, a division of Thomson Canada Limited Partnering Programs Loyalty Programs Mass Customization MajorCustomerRelationshipPrograms Major Customer Relationship Programs

7-20 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-21 © 2006 by Nelson, a division of Thomson Canada Limited Purpose of Loyalty Programs Intended to retain customers and enhance customer loyalty through special incentives that can increase customer value Intended to retain customers and enhance customer loyalty through special incentives that can increase customer value

7-22 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-23 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-24 © 2006 by Nelson, a division of Thomson Canada Limited Most Profitable Uses of Data Mining Cross-selling Customer retention Customer acquisition MostProfitable Uses of Data Mining

7-25 © 2006 by Nelson, a division of Thomson Canada Limited 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

7-26 © 2006 by Nelson, a division of Thomson Canada Limited Increasing the Effectiveness of Customer Relationship Programs Commitment from top management Target the right customers Communicate with customers Establish common bonding with customers Establish a customer retention culture Retain employees Monitor customer relationship program performance