CUSTOMERS PORTFOLIO AS MANAGEMENT REQUIREMENT - Essay Example

? School: S PORTFOLIO AS MANAGEMENT REQUIREMENT Lecturer: S PORTFOLIO AS MANAGEMENT REQUIREMENT 1.0 Introduction The competitiveness of the global economic market calls for the need for corporations and companies to put in place readily evolving strategies. The implementation of these strategies must however be done in a manner that can guarantee that the strategic management plans of the companies are up to date with changing situations on the market (Levinsohn and Williams, 2004). This means that the search and implementation of strategic management plans must be undertaken as a holistic process that includes all stakeholders who have a role to play in the success of the company. In relation to this argument, Labovitz (2005), identifies the place of the customer in having a very formidable strategic management plan for the modern global economic market. It has been said that the customer is no longer a passive member of the corporate society but an active member of it (Khurana, 2002). Because of this, the need to always include customers in the planning of the company is very relevant and inevitable. With this understanding in mind, the current report is prepared to identify the place of the customer in a typical modern business and outline ways in which companies can make use of the all new concept of customer portfolio to maximise the benefits they can make of their customer base. 2.0 Theoretical Framework A waterfall approach to the theoretical understanding of the concept of customer portfolio is developed. This approach involves the strategic review of what exists in literature as the place of customers in business entities. After this understanding has been developed, there will then be a deduction of what the definition of customer portfolio is, based on what is deduced in literature. 2.1 Customers as assets Writing on the place of customers in a typical business entity, Kets de Vries (2003) explained that the best way for companies to make the best out of their customers is to understand the place of customers as assets to the company. Commonly, the assets of companies are judged as either being tangible or intangible, with much emphasis and focus on those things that can be utilised by the company for revenue generation purposes (Nutt, 2004). Labovitz and Rosansky (2007) laments that hardly are customers envisioned and classified as having the potential of generating revenues for the company. What companies have done over the years is to see the customer as the source of revenue, rather than a generator of revenue. But this perception is said to be erroneous, especially in cases where companies want to make the best out of their customers. As assets, customers will be seen as tangible resources that ought to be managed so as to ensure that they are transformed into revenues (Morrison and Milliken, 2000). Giving a practical explanation of how customers could act as assets, Roberts, Swanson and Dinneen, J. (2004) said that every company that has a formidable database of its customers would realise that each customer has a specific fiscal wealth they account to the customer. Since assets are also quantified as fiscal wealth, customers can be said to be assets. 2.2 Customers as stakeholders Farrell (2004) joins a school of thought that argues that customers may best be seen as stakeholders if companies want to make the most of them. As stakeholders, customers have been explained as people, having a say in the planning and decision making process of the company. This way, customers may be included in decision making in two major ways. The first of these ways is active inclusion, which requires companies to have a mechanism by which views of customers will be collected and considered while taking management level decisions (Sankar, 2003). There is also a passive inclusion of customers as stakeholders in decision making, where the company uses a strategy to identify the views and thoughts of customers about the company and make decisions that attempt to satisfy these views and thoughts (Schein, 2006). Explaining further, Parmalat and Sarbanes (2005) stated that treating customers as stakeholders would mean that the company will see itself obliged to considering the satisfaction of customers in the delivery of company processes as a requirement that must be satisfied to achieve growth. This is contrary to the view that the customer must be nurtured to produce wealth for the company as held among those who see customers as assets. 2.3 Customers as investment centres There is a third school of thought that considers customers to be investment centres. By implication, companies that want to make the best out of their customers must actually invest in their customers and also invest around their customers (Greenleaf, 2007). To invest in customers, Damianides (2005) explains that companies must have a means of ensuring that their customers are in a position to constantly be in business with the company. However, thinking of this as a way of directing creating wealth for the customer so as to ensure that the customer has a larger bargaining power is wrong (DeCelles and Pfarrer, 2004). Instead, customers can simply be invested into by ensuring that products and services are focused on customers in such a manner that customers have no other option than to do business with the company in question. This approach to investing in customers has been likened to the focused strategic option, which ensures that companies produce products and services that meet specific needs of customers. On investing around customers, Greenleaf (2007) explained that this is done by putting in place variables such as pricing, organisational culture and promotions that are seen as favourable to customers, and that has the potential of attracting customers to the company. 2.4 Customer portfolio as a component of Portfolio Management Portfolio management has been explained to be both an art and a science that entails decisions that people in the corporate world make about investment mix and policy (Investopedia, 2013). As a requirement of portfolio management, managers and investors are expected to find ways of relating their investments to the objectives they set. The first relation that this process has with customer portfolio is that managers must see customers as potential investments that must be managed by setting specific objectives that must be achieved with the customers. Toyota has been described as a typical example of a company that practices portfolio management from this perspective where customer portfolio is made to play a central role. Knowing that purchases made by the company’s customers determine the profitability of the company, the company has since 2009 had an objective that ensures that every household can have a Toyota of their choice and affordability (Simons, 2009). This has led to an investment mix that is structured around making different models and price levels of Toyota motors, making the company a market leader in its industry. Another component of portfolio management is asset allocation for individuals and institutions, which companies engage customers in by seeing customers as assets that must be used to generate wealth. 3.0 Application of the concept of customer portfolio 3.1 Management of customer account portfolio Having a customer portfolio in place is not conclusive of the fact that a company will immediately start benefiting from its customers. There are several other responsibilities that the company must undertake, including the effective management of customer account portfolio. To do this, there are two major approaches that can be followed, as described below. 3.11 Commercial Focused Products As the name implies, this management approach to the customer portfolio requires the company to pay particular attention to trade and investment inverse and variables that are directly linked to the customer. In relation to the theoretical concepts discussed above, using commercial focused products is principal to the schools of thoughts that see customers as assets and investment centres. Because customers are assets and investment centres, it is important to have a regularisation that monitors financial inflows and outflows to the company (Simons, 2005). In 2012, Apple Corporation used commercial focused products approach to customer portfolio and the result was that the company a market leader, overtaking key competitor, Microsoft (Tosi et al, 2013). In their approach, Apple used three major models including focused group, total group or individual group models. In focused group model, the company will categorise customers into groups such as students, mothers, females, etc and have a means of assessing the financial contribution trend. Total group also assesses customers as a whole, while individual group model takes specific customers or specific lines of customers and critically assesses any significant account changes they present to the company (Tosi et al, 2013). 3.12 Consumer Credit Focused Products This management approach is in line with the school of thought that customers are stakeholders of the company. As stakeholders, it is important to have an independent credit account for customers either on an individual, group or total customer base. This credit account is often made up of important records of customers that may not necessarily do with their financial contribution to the company. Using Wal-Mart as an example, the company uses consumer credit focused products by creating accounts that is made up of inputs such as the purchasing trend and purchasing behaviour of customers. Based on the trends and behaviour, Wal-Mart takes decisions on customers to ensure that the needs of the customers that are translated indirectly through their purchasing trends and behaviour are adequately met (Conger, 2009). Critiquing Wal-Mart’s approach, Flynn and Staw (2011) admonished the company to factor in some key components of the model. The first of this is a periodic account updating system that ensures that the database being used by the company is as current to prevailing circumstances of customers as possible. The second is on the storage of achieve services that can ensure that the company can draw a trend in consumer engagement with the company. 3.2 Strategic Account Management Account management has been identified to be a very useful mechanism for the growth and success of any organization or outfit that wants to make customers its emphasis of growth. This is because account management presents such companies the opportunity to tactically and mutually understanding the differences in customer variables and meeting all these variables in a single approach that guarantees growth (Dalton, Daily, Johnson and Ellstrand, 1999)). Conger (2009) has however lamented that while companies and organizations attempt to do this, they refuse to distinguish strategic account management from other forms of account management such as sales. In a real strategic account management, there are five key elements of growth that companies would need to consider critically. The first of this is strategy, which must be distinguished in a manner that gives broader rather than specific focus on the need to creating value for the account (Conger, 2009). The second element deals with timeframe, which must always look into the long term rather than short term for the strategic account management portfolio. There is also the element of team, which in a strategic account management, must be made up of a mixture of committed strategic account managers rather than the ordinary pilling up of individuals who will only be focused on short term winning opportunities. The last but one element is the element of label, where it is expected that in the strategic account management, there will be specific labeling of programs, structures and policies that are crafted around the customer with an emphasis on how these will be executed to the benefit of both customer and the company. Lastly, there is the element of connotation in mind of buyers, where the strategic account management must be created with the spirit of attracting buyers for the company (Dalton, Daily, Johnson and Ellstrand, 1999). 3.3 Customer Portfolio Development After appreciating the available management models available for use by the companies, this section of the paper focuses on specific ways in which companies can develop their customer portfolio, whether they are using customers as commercial focused products or as consumer credit focused products. To effectively do this, The Hale Group (2009) suggests 4 major steps that must be followed. These steps are exemplified in the diagram below and subsequently explained. Step 1 The first step requires the company to adequately define and understand its current situation. It is said that if you do not know where you are coming from, you cannot know where you are going. To this end, the company must adequately explain its current situation in terms of the marketing mix it currently uses, the purchasing behaviour of customers, the contribution made by the customer to the business growth, and the advantages and strengths of the current portfolio. This initial appreciation of the company portfolio makes it possible for the needs of the company to be easily identified in terms of the changes that must be made around the customer (DeCelles and Pfarrer, 2004). Step 2 The second step continues directly from the first step and requires that the company bases on the outcome of the current portfolio analysis to define an ideal portfolio that will work in meeting the needs that were identified. Commonly, the second step will require a number of questions being asked and a number of objectives required to be achieved. One of these is the question of ensuring a balance between the interest of the company and that of the customer. The company must also be in a position to know what it needs to offer to satisfy this balance. Finally, the company must abreast itself with the most adequate business model that must be used to achieve their objective. Step 3 This is the point where the company incorporates a strategy into the ideal portfolio it identifies itself with. Selection of the strategy must align with the balance that was created in the second step. To this end, the company will be seeking to find its business focus, so as to ensure that its provisions in the portfolio are in line with the focus of its presentation. Since different customer groups must be treated differently, it is also important to identify market segments and customers belonging to each segment. This way, it will be easier to know the requirements that each of the segments will take from the company. Step 4 The final stage is the execution stage, where all the paperwork is expected to be over for actual action to take place. While taking the action of implementing the customer portfolio, there are very important principles that the company must follow. In the first place, it is important that the company sticks to the plan by ensuring that it does not deviate from the issues and factors that are discussed as part of the earlier steps. Secondly, the company must make efforts to inculcate innovation and initiation into the portfolio. By this, it will be important for the company to use its skilled human resource to align the portfolio to new technological trends. 4.0 Conclusion Several important deductions and implications can be made from the report that has been presented so far, based on which a formidable conclusion can be drawn on the place of customer portfolio in modern business management. First and foremost, the place of the customer as an important catalyst for business processing to start, continue, evolve and end has been established. It can therefore be concluded that whether a business is for profit or not for profit, the place of the customer can never be eliminated if any successful business processing can take place. However, the mere appreciation of the relevance of the customer in the business cannot guarantee that the company can make the most of the customer. It is only when the company takes a step further into defining who its customer is, what the customer needs, how the needs of the customer can be satisfied, why the needs of the customer must be satisfied, and how proper records can be kept of the customer to the company that the full potential of the customer to the company can be realised. As these processes are numerous and haphazard, a single model made up of customer portfolio is recommended for use. 5.0 Recommendations A four-in-one recommendation is made to conclude the report based on the examples that have been shared on major companies such as Toyota, Apple and Wal-Mart. The recommendation is summed in what Johnson and Selnes (2005) describe as the need for there to be a diversification of the customer portfolio based on the evolution of relationship marketing. But to effectively carry out the task of diversification, there are two major questions or options that the company will be considering. These options are business to business (B2B) and business to customer (B2C). Indeed, given the basis of the current discussion which focuses primarily on customer portfolio, it would be strongly recommended that the B2C option be followed, where business will be conducted between the company and the end-user directly. In doing this however, there are four major parameters that must be considered. From an economical viewpoint, it is recommended that the B2C that goes beyond simple transactions be undertaken. As experienced at Wal-Mart, there should be a periodic change in the way the company approaches the customer to make money from the customer, to ensure that the cost of investment over time is justified. From a sociological viewpoint, it will be recommended that the B2C be carried with a combination of networks and interdependence relationship with the customer, just has been seen in the case of Toyota over the years. Toyota boasts by saying that the era of total dependence on the customer has end. Instead, the customer has been assured that he can depend on the company to have his basic needs and wants satisfied. With such sociological approach to the customer portfolio, customers will have a new understanding of their place in the company, knowing that once they contribute to the success of the company, the company can reward them. A simple way to do this may be through the use of corporate social responsibility. On the third perspective to B2C, psychological recommendations are made to the effect that the company must be in a position to enter into the thinking of the customer to know what the customer thinks of the company. Tosi et al (2013) has said that this psychological perspective to relationship marketing is very important because it influences customer behaviour to a very large extent. For most customers, their perception and ideas of a particular company determines whether or not they would do business with the company. As a way of building effective relationship marketing that captures the psychology of the customer, the company must use different data collection processes, including surveys to solicit from customers what they think of the company and changes they require from the company. Lastly, it is recommended that an effective operational relationship marketing that is built on the use of organisational culture that attracts the desire of customers be used. 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