6 June 2008
In his doctoral thesis, Harri Terho, MScE, studies companies’ customer portfolio management practices and performance in different business environments. The thesis shows the substantial opportunities of customer portfolio management in business-to-business markets which has been studied this far only minimally. Customer portfolio management – The construct and performance, a doctoral thesis study in the field of marketing, shall be examined at Turku School of Economics on Friday, 13 June 2008.
This thesis studies companies’ customer portfolio management practices which one of the most central topics in contemporary relationships marketing. The concept refers to the management of the firm’s entire customer base on the basis customer value for the selling company.
Currently, there is only very little information available on the companies’ customer portfolio management practices and its performance in business. For this reason, in this study a measure was developed for researching customer portfolio management and its performance was examined in various business contexts. The subject of the study was Finland’s 500 largest business-to-business companies.
The customer also benefits
Two pivotal activities can be distinguished in customer portfolio management. The first activity is the analysis of customer relationships amongst the firm’s entire customer base on the basis of each customer’s value. On the foundation of this knowledge, it is possible to distribute the company’s marketing resources amongst the various customers in the customer base.
The doctoral thesis research indicated that it is worthwhile for companies to analyse the value of their customer relationships as well as to respond to this knowledge in their business. More specifically, customer portfolio management activities were found to be connected to customer profitability. According to the study, customer portfolio management exerts positive impacts from the perspective of customers as well, because it is connected to boarder customer performance as well including customer satisfaction and loyalty.
Merely looking at the value of customers is, however, inappropriate to the purpose.
“It would be dangerous to manage the company’s customer relationships only on the basis of customers’ value for selling company” Harri Terho emphasizes. “Attention must also be given to customers’ needs and the creation of value for customers. The customer value should be seen broadly, and customer portfolio management should be tailored for the company’s needs.”
Customer portfolio management must be tailored for the company’s operational environment
The research examined the relationship between companies’ customer portfolio management practices and performance in various business environments. According to the results, the context formed by customer relationships is pivotal from the perspective of portfolio management. Tailoring of the customer portfolio management activities and style to companies’ context of exchange with their customers was found to be connected to performance.
In the research, the companies’ operational contexts were divided into market-like and network-like exchange contexts. The market-like exchange context is characterized by the large customer base size, more transactional customer relationships, and lower dependency on individual customers, higher customer turnover and heterogeneity of customer base. In network-like exchange context, on the other hand, the size of customer base is smaller, customer relationships are stronger, dependency on the largest customers is greater, customer turnover is lower and the customer base is more homogeneous.
In market-like exchange context, the challenges of customer relationship management are connected with the structure of the customer base. What is pivotal in analysis is the ability to compare and group customers on the basis of their value. From the perspective of performance, cost-effective treatment of customers is emphasized. At the same time, the formal planning and implementation of customer portfolio management improves its performance.
In a network-like exchange context, the challenges of management rest in the complexity of customer relationships and exchange as well as in the mutual dependency on such relationships. The analysis of individual customer relationships instead of customer grouping becomes the central factor for performance.
“In a networked business context, the development of customer relationships is pivotal to the performance of customer portfolio management. In other words, it is essential to make low-value customers more valuable, to develop worthwhile customer relationships, and in certain situations to give up bad relationships and to acquire new ones,” Mr Terho clarifies.
The doctoral thesis can be read at: http://info.tse.fi/julkaisut/vk/Ae4_2008.pdf
Additional information:
Harri Terho
+ 358 2 481 4272, harri.terho(a)tse.fi