Customer Portfolio Management - Essay Example

? Portfolio Management Portfolio Management Introduction s are considered as an asset for a business, because; these customers are the one who influence policy and business strategy development. Customer preferences and customers’ attributes helps businesses to decide upon what products and services should be offered to the customer segment and how it should be marketed and priced so that it matches customers’ requirements and desires. This research paper would look into marketing concepts and theories, which helps businesses to build and maintain a customer portfolio. For this purpose, the researcher has gone through and understood various theories and research works to elaborate on the concept of customer portfolio management. Content of the Customer Portfolio The content of the customer portfolio enables managers to understand the business-to-business marketing strategies that can be utilized for assessing supplier-customer relationships. With this assessment, managers identify scarce resources of the organization and allocate them accordingly so that maximum profitability can be achieved (Sinha et al., 2002). The content of customer portfolios makes it easier for managers to optimally compose customer relationships in order to determine, whether the company amongst members of the target market because of its customer relationship tactics or the competitive position of the organization (Ravenscraft, 1983). This is the reason, that customer portfolio management is considered as an integral part of an organization’s marketing functions. This is because; it facilitates the handling of business-to-business marketing and improves the communication process between the suppliers and the business (Shapiro et al., 1987). A very effective example can be drawn from the case of Lufthansa Company. It has been noted that the company was able to bring wide variety of products depending upon the customer portfolio. It is thus conclusive that managing customer profile allows a company to gain competitive advantage over other competitors (Schulz, 2008). Comparison between Customer Portfolio and Product Portfolio Management Product portfolio management refers to managing the line of products and brands, by aligning financial and budgetary resources with the resource allocation strategy and creating coordination between organizational teams to ensure implication of business, product and marketing strategy. The product portfolio management consists of taking care of a number of activities such as conducting market research to understand consumer dynamics, aligning key suppliers who will prove to be beneficial, determining marketing and distribution tactics and etc. On the other hand, customer portfolios makes it easier for managers to optimally compose customer relationships in order to determine, whether the company amongst members of the target market because of its customer relationship tactics or the competitive position of the organization. This is the reason, that customer portfolio management is considered as an integral part of an organization’s marketing functions (Sanchez, 2005). Strategic Accounting Management Strategic accounting management is different from managing financial accounts of a business. Instead, these strategies are related with developing marketing systems that ensures that long-term relationships are maintained with strategic customers of the organization. These strategic customers might include organization’s suppliers of raw material and other vendors. Strategic accounting management is beneficial in a sense, that it helps the business to improve the quality of raw material used by maintaining healthy relationships with the suppliers and also reduces the cost of acquiring new strategic partners in the given marketplace. On the other hand, strategic accounting management also enables the organization to determine the specific needs of strategic customers and tailoring the products according to their specific requirements. In this sense, it can be asserted that strategic accounting management enables organizations to form strong bond with the major customers, keeping in view the mutual approach towards decision-making and problem solving tactics. These tactics ensures that the relationships work in integration with the business processes and collaborative working across the relationship boundaries (Evert, 2002). Strategic accounting management also enables a business to understand business of its strategic partners, and forces strategists to include accounting management tactics within the business plan, upon reaching mutual understanding. By strategically managing accounts and major partners of the business, a business achieves greater understanding of the market; bring efficiency in resource allocation strategies and enables managers to make more precise innovative decisions by influencing lifetime value of client’s business (Bendapudi & Robert, 2002). It can be fairly noted these practices are given top considerations by companies in mainstream economic sectors. For instance, a leading Indian steel company has been able to increase its profit margin with the help of strategic management technique. A series of increased product activity were noted in terms of cost i.e., less which was double in previous years (Bendapudi & Robert, 2002). In the coming lines, the author of the report would present how strategic accounting management or key accoutnign management is necessary for the growth of the business. As the demand for products and services is increasing throughout the globe, suppliers have to treat their large customers accordingly. They need to reserve special resources, which are usually majority of suppliers’ business resources, for large customers in order to meet their demand. Moreover, to keep these large customers loyal to the business, suppliers also need to create special value for these customers. Value addition strategies might include entering into joint production of new products, helping the large customers in business planning and providing them consulting services pertaining to the decision making processes. In this scenario, strategic accouting management or key accoutn management helps suppliers to respond to widespread customer and market pressures, which can be seen as a threat to suppliers’ business. These are listed as following: 1. The increasing selling cost of supplies due to increased competitiveness of the marketplace 2. Increasing trend amongst customers, to focus on centralized purchasing of raw material so that buyer’s cost structure can be controlled and to bring consistency in the quality of products delivered to the end consumers 3. Increasing trend of keeping the list of suppliers short, so that purchasing costs can be controlled 4. Increasing exploitation by the dominant customers of suppliers to negotiate on prices and mold terms of transaction in the favor of dominant customers. In this scenario, where suppliers face immense pressure from their dominant customers of suplies, strategic account management provides a platform to create partnership with the customers and entering into a strategic alliance. In this manner, suppliers become an essential part of customers’ decision making processes and resolution to emerging market challenges. While doing so, suppliers does not only focus on satisfying dominant customers’ requirement of reserving large amount of resources for them, but also strive to hold on to a newly formed buyer-seller relationship. As this section outlined why startegic accoutn management is important for a supplier’s business, the author would also like to define negative aspect of strategic account management. It is common belief that strategic account management pushes suppliers towards depending more on dominant customers and enter into a situation, where the business would be resting on 20/80 rule. That is; 80% of company’s revenues are geenrated by the 20% of small customers of the business. In this scenario, it can be asserted that the business model of such suppliers has already failed as it actually is depending more on small customers and allowing dominant customers to keep the business transcations in credit for a longer time period. It can also be stated here that, in such situations suppliers’ business and its control is in the hand of dominant customers which might result in declining prices of raw material which results in lower profits. For example, Apple Inc. is one of the largest IT solution provider and cellular product manufacturer in the world. If a suppliers want to do business with Apple Inc., he can not dictate his business’s terms to Apple Inc. The supplier will have to depend upon Apple Inc. to set the terms of carrying out business, which would result in greater control in the hands of Apple Inc.’s management. Supplier’s business would be exploited by Apple Inc. for its own benefit and the payments will be made after a significant time period which would leave the supplier to keep the cash flow stable, by depending more on small customers. Therefore; to create a win-win situation for both suppliers and their customers, there is a requirement for create a matching point between both parties’ requriements that they percieve from a working relationship. Customers of suppliers in a number of industries look to develop a close relationship with the suppliers in order to avail exclusive discounts and value added packages. This is the point where conflict arises between suppliers and their customers, which can be resolved by alligning supplier’s business objectives with customer’s business objectives. Portfolio Management Customers as Asset? In modern business environment, it becomes important for businesses to retain their existing customers. This is because; the existing customers are the loyal segment of the organization and it is cheaper to retain an existing customer than attracting new customers. For this purpose, customers of a business are considered as an integral asset, which is the most reliable source of achieving growth and increasing revenues. Keeping in view their importance, customers of an organization’s different products and services are divided into portfolios depending upon their preferences and demographic attributes. Similar are the views presented by Basenes (2002) by stating that acquiring new customers is way more expensive than retaining the existing customers. In his theory of customer lifetime value, Basenes et al. (2002) linked product life cycle concept with different stages of the customer life –time value. As the product go through different stages of product life cycle, the marketers and decision makers of products and services starts to focus on different stages of consumer behavior. For example, when the product is in its initial stages of life cycle, marketers focused on aggressive marketing tactics, which helps them to penetrate in the target market. As the products enters in the maturity stage, fewer expenditures are made on marketing activities and the focus is shifted on enhancing customers’ experience of product usage. In this manner, businesses strive to develop portfolios of customers that are matched with the environment of the target market. Rajgopal (2002) formulated customers-organization fit (C-O), which explains the different stages of consumer buying decision-making. It helps marketers to identify the traits of consumers, their behavioral dimensions, attributes of products and marketing activities that are liked by the customers, competition in the market place, an economic value of product perceived by the customers and customers’ expectations towards the performance of the brand. Such a portfolio management by a business for its products and services is termed to as Market environment related portfolio management. The resultant products or services become the business’s strength as it satisfies the core asset of the firm, i.e. its customers. The marketing activities for this product would aim at making the customers adopt certain behaviors take advantage of differentiated attributes of the product. How to Retain Customers? From the discussion above, it is clear that the basic aim of marketers is to retain existing customers. It is done effectively by dividing different customer segments in different portfolios of products. The information for creating customer portfolios is retrieved from marketing research and by the use of different strategic tools, such as Ansoff Matrix etc. These models and findings of marketing research activities notify marketers about different preferences and soft points of the consumer groups; thus enabling the organization to treat and attract each customer portfolio with a different strategy. It should be noted that leading textile firms have made use of Ansoff Matrix, which did not just allow them to increase their product marketing campaigns but also develop their products with the usage of the strategic tools. These include Zara, Zegna etc. (Basenes, 2002). In this manner, it can be suggested that customer portfolios are the most authentic tool that can be used by marketers for studying the behavior of each consumer segment and determine strategies that will be helpful in winning customers’ loyalty. By maintaining healthy relationships with customer segments, marketers help senior management to bring down cost of production and marketing and shift the benefit to consumers in the form of enhanced benefits associated with the purchase of a product. Ansoff Matrix Ansoff Matrix is a tool for the market development used by businesses to assess opportunities for product in targeted markets. Ansoff Matrix helps businesses to decide on strategies that can be used for growing in the global marketplace and helps to identify whether the need of a particular market is for new product or an existing product. In the context of customer portfolio management, a business with various products and services delivering to the customer would use this matrix to define clear boundaries of marketing strategies for each product and service (Luck, 2010). On top of that, these products and services are designated with individual brands, such as Pepsi is a brand and 7up, Miranda and Mountain Dew are products, which lie in the brand’s category. By using Ansoff Matrix, businesses place their products in new and existing categories and define a marketing strategy, i.e. whether the marketing strategy focuses on increasing the cash flow, to enhance the features of an existing product or has become an obsolete product in the market and needs alterations to be revitalized. Once a product is placed in one of the grids in Ansoff Matrix, the marketers of a business than focus on identifying the behavior of customers of each product and brand. These identified traits are than used to determine what relationship strengthening tactics can be used in the marketing plans to retain customers and win the loyalty of new customers. In this way, customer portfolio for each brand is developed which is used as a guideline in planning and implementing marketing activities (Cheverton, 2005). Recommendations for Managers From the review of available literature on customer portfolio management, the author of the report can assert that managing customer portfolios is of a number of benefits to the managers of a business. This is because; it helps in obtaining important data, which is used in strategic planning for developing differentiated products to fulfill the desires and requirements of customers, by helping them to achieve satisfaction. On the other hand, this strategic planning enables managers to successfully build healthy relationships with customers and suppliers. Following are the recommendations that might prove to be helpful to manager, in managing customer portfolios of the business effectively: Managers should conduct customer portfolio management activities for the purpose of managing profitable and efficient customer resources. In this manner, managers may avoid tiring practice of managing unhealthy customer portfolios and save those resources in managing profitable customer segments. This can be achieved by aligning business’s suppliers and vendors with the strategic objectives of the business. Marketers should focus solely on marketing research and the information retrieved from the research activity to develop a customer portfolio management policy and strategy. By doing so, managers would be able to develop their strategies for the future in advance and remain proactive. On the other hand, such working style would help to make precise but immensely long-lasting decisions pertaining to portfolio management of the customers. This practice could be referred to as market-back product development, in which a business asks its strategic partners, which includes suppliers and distributors to help in research and development pertaining to the target market. Managers should ensure that B2B and B2C clients’ queries and feedback on the product and service related experience is answered timely. If the managers fail to do so, customers would turn their back on using the product or service, and would switch to alternative brands available. The evidences retrieved from the past regarding customer portfolio management and its benefits focus on the business’s costs and benefits. Efforts to create understanding of customers’ benefits and costs associated with the business’s marketing relationship efforts should also be investigated, which would enable the organization to shift greater benefits towards customers for the sake of achieving customers’ satisfaction and improving the composition of the relationship (Bendapudi & Robert, 2002). Managers should have an understanding of the performance of a business’s relational assets. To this point, the overall assessment of relational assets’ ability to deliver performance, with gratitude and efficiency reduces confusion in the mind of the customers and increases the sales of the product. On the other hand, managers should also focus on understanding the degree of conflicts that may arise between the relational assets and the business itself (Palmatier, 2008). Strategic accounting managers should rely heavily on the information and data provided by the B2B and B2C clients in order to understand market dynamics and end consumers’ preferences. Unlike market research, data and information collection from B2B and B2C clients is a cheaper way to understand the emerging trends and the future demand of the end consumers. This information can be integrated into organizational strategy by setting new goals and objectives. For this purpose, it is highly recommended that the B2B and B2C customers should be included in strategy formulation and implementation procedures to increase the effectiveness. Conclusion From the assessment of old and new theories and frameworks pertaining to customer portfolio management, it is evident that the trends in the global marketplace are giving birth to new marketing challenges. In that time, relationship marketing and efficient allocation of resources would present a long lasting positive impact as it will transform the way business is conducted. This is because; the modern business world requires businesses to be customer focused and developing positioning, targeting and other marketing tactics that facilitates attracting new customers and at the same time, retaining the existing ones. The use of customer portfolio management in all the industries, especially the customer-focused industries is expected to increase, which will be the resultant of transformation of economies into digital hub. The implication of marketing strategies in the business processes of any industry ensures that reaching potential new customers, attracting them and retains them. Therefore, there is a need for developing new theories and frameworks in the field of customer portfolio management, which should match the future requirements of marketing for an organization’s offerings in the marketplace. References List Barak, L., Narayandas, D. & Humby, C., 2002. Towardan Individual Customer Profitability Model: A Segment-Based Approach. Journal of Service Research, 5(8), pp.69-76. Basenes, B., 2002. Bayesian network classification for the scope of customer life-cycle of long-life customers. In Working Paper, No. 02/153, Faculty of Economics and Business Administration. Ghent, 2002. Ghent University. Bendapudi, N. & Robert, L.P., 2002. Managing business to business customer relationships following key contact employee turnover in a vendor firm. Journal of Marketing, 66(4), pp.83-101. Boulding, W., Staelin, R., Ehret, M. & Johnston, W.K., 2005. A Customer Relationship Management Roadmap: What Is Known, Potential Pitfalls, and Where to Go. Journal of Marketing, 69(4), pp.155-66. Bruning, E.R., Hu, M.Y. & Hao, W., 2009. Cross-national segmentation: An application to the NAFTA airline passenger market. European Journal of Marketing, 43(1), pp.1498-522. Cheverton, P., 2005. Key Marketing Skills: Strategies, Tools and Techniques for Marketing Success. London: Kogand Page Publishers. Dibb, S. & Simkin, L., 1991. TARGETING, SEGMENTS AND POSITIONING. International Journal of Retail & Distribution Management, 19(3). Evert, G., 2002. Total relationship marketing. Oxford: Butterworth-Heinemann. George, D.S., 2000. Managing Market Relationships. Journal of the Academy of Marketing Science, 28(1), pp.24-30. Hogan, J.E., Lemon, K.N. & Rust, R.T., 2002. Customer Equity Management: Charting New Directions forthe Future of Marketing. Journla of Service Research, 5(8), pp.4-12. Hunt, S.D., 2002. Foundations of Marketing Theory: Towards a general theory of marketing. London: M E Sharpe. Kotler, P., Michi, I. & Pfoertsch, W., 2006. B2B Brand Management. NY: Springer. Luck, D., 2010. Assessing the Marketing Environment. London: Routledge. Martin, C., Payne, A. & Ballantyne, D., 2002. Relationship Marketing: Creating Stakeholder Value. Oxford: Butterworth-Hienemann. McDonald, M., Rogers, B. & Woodburn, D., 2000. Key Customers: How to Manage Them Profitably. London: Buterworth-Heinemann. Palmatier, R.W., 2008. Relationship Marketing. Cambridge: Marketing Science Institute. Rajgopal, A., 2002. Review of customer portfolio management models in reference to relationship building. In Department of Marketing, ITESM. Mexico City, 2002. Tec de Monterrey. Ravenscraft, D.J., 1983. Structure-profit relationships at the line of business and industry level. Review of Economics and Statistics, 65(1), pp.22-31. Reekie, D. & Savitt, R., 1982. Marketing Behaviorand Entrepreneurship: A Synthesis of Alderson and Austrian Economics. European Journal of Marketing, 16(7), pp.55-66. Robert, B.C., Getz, G. & Thomas, J.S., 2001. Customer Equity: Building and Managing Relationships asValuable Assets. Boston: Harvard Business School Press. Roger, B.J., 2000. Market-Based Management: Strategies forGrowing Customer Value and Profitability. NJ: Prentice Hall. Roland, R.T., Moorman, C. & Dickson, P.R., 2002. Getting Return on Quality: Revenue Expansion, Cost Reduc-tion, or Both? Journal of Marketing, 66(10), pp.7-24. Sanchez, R., 2005. Analysis of customer portfolio and relationship management models: bridging managerial dimensions. Journal of Business & Industrial Marketing, 20(6), pp.307-16. Schulz, P., 2008. Customer Relationship Management: Lufthansa. New York: GRIN Verlag. Selnes, F. & Sallis, J., 2003. Promoting Relationship Learning. Journal of Marketing, 67(7), pp.80-95. Shapiro, B., Rangan, K., Moriarty, R. & Rose, E., 1987. Manage customers for profits (not just sales). Harvard Business Review, September-October. pp.101-08. Sinha, R.K., Noble, C.H. & Kumar, A., 2002. Market orientation and alternative strategic orientations: a longitudinal assessment of performance implications. Journal of Marketing, 66(10), pp.25-39. Sunil, G. & Lehmann, D.R., 2003. Customers as Assets. Journla of Interactive Marketing, 17(1), pp.9-24. Zeithaml, V.A. & Lemon, K.N., 2000. Dri-ving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy. NY: The Free Press. Read More