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 10
Imran-Ul-Karim 16
Md.Mehedi Hassan 32
Habibur Rahman 60
Eleas 74
Fazlul Musawwir Chudhury 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 on-

3. Attractiveness of a customer
4. Current relationship status with the customer.

To do this, organization need-

1.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 attractiveness-
1. 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 by-
1. 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 Price Sensitivity

• 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:
• services in the future?
How effectively are new players
restricted from this business due to
costs, stocks, regulation, training & so
on?
• 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

Exit Barrier:
• How difficult will it be to dislodge
existing suppliers?
 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 &
Maturity extension
•Indispensability of the
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 Rating Weight

Score ed
Score
Sales Potentiality 5 3 15 1 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 Rating Weight

Score ed
Score
Share of customer volume 5 3 15 1 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

Weak Average Weak
High
Attractiveness of the customer

Medium
Low
 Bubble may be shaded
Size of bubble
Or colored to
indicates potential
Indicate
Business
Prioritization Chart Share of potential

Number indicates customer references

90

80
% attractiveness

19
70 24 2
3 22 10 1
33 8
60 4 21 7
25
50 29
20 6
40

30
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. Target for Development

2. Defend against Competition
3. Maintain with minimum resources
4. Withdrawing
 Strategic option for key customer

Relationship status of supplier

Weak Average Weak

High
Attractiveness of the customer Maintain Defend Develop
safety Defend
Medium

Maintain Defend Defend

Minimality Minimality

Withdraw Maintain Defend

Low

Minimality 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.