Download Contemporary Logistics Study of Customer Value-based Marketing Strategies of SMEs

Contemporary Logistics 06 (2012) 1838-739X
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Contemporary Logistics
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Study of Customer Value-based Marketing Strategies of SMEs
Haiqing XU*, Xinya FAN, Zhichen WU
Inner Mongolia Finance and Economics College, Huhhot 010070, P.R.China
KEYWORDS
ABSTRACT
Customer value,
SMEs,
Marketing strategy
Customers are the source of corporate profits and the key to business success, small and
medium-sized enterprises’ (SMEs) customer segments for different customers can design
different marketing strategies. This paper is based on the theory of customer value, analyzes
the characteristics of SMEs customer from two dimensions that the customer's current value
and potential value. Having dissected the characteristics of customer segments, and then
proposed different marketing strategies for segmental SME customers.
© ST. PLUM-BLOSSOM PRESS PTY LTD
1 Introduction
Compared with large enterprises, SMEs’ scale, capital, technology, human resources and management are its disadvantages, but what
we will have to point out is its flexible mechanisms and its ability to react quickly according to changes and adjustment management
direction timely. The segmentation market is unable to take into consideration brings developing opportunities for SMEs. Therefore,
customer segmentation based on customer value allows small and medium-sized enterprise to be able to give full play to their own
advantages, mining target customers effectively, providing valuable and specialized characteristic product and service in terms of
customers’ demands.
2 The Theory of Customer Value
The customer value refers to current value of complete profit obtained from these customers through the maintainable business
relation of these customers. The study of this theory is completed as enterprises continually seek competitive advantage and the
related theory formed and developed on the basis of reference summary. Since 1990s, the customer value (Customer Value, CV) has
become the focal point which the western marketing scholars and entrepreneurs pay attention to together, and is regarded as the new
origin of competitive advantages. Representative theories on-load contains Zaithaml’s perceived value of customers’ theory,
Lauterborn’s 4CS theory, Philip Kotler’s customer delivered value theory and Grouroos’s customer value process theory.
2.1 Zaithaml’s (1988) theory of perceived value to customers
This theory maintains that when we are designing, creating and providing value for enterprise customers, we should base on the
orientation of customers, and view the customer's perception of value as a determining factor. Customer value is determined by the
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Corresponding author.
Email: [email protected]
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI: 10.5503/J.CL.2012.06.017
97
customer rather than supply enterprises. Actually, customer value is customer perceived value, the overall evaluation of effectiveness
of a product or service customers are able to perceive, the interests and obtained products or services received when they make a
balance. Its concept contains two implications: Firstly, the value of perceptual knowledge is subjective. Different customers perceive
different value for the same product or service. Next, the value represents the balance between effectiveness (income) and the cost
(price), Customers make purchasing decisions based on the value they experienced, neither depending on a single factor. The core of
the customer’s perceived value is the balance between perceiving benefits and interests. Therefore, enhance customer value can be
achieved by increasing customer’s perceived interest’s value or reducing customer perceived cost.
2.2 Lauterborn’s (1990) theory of 4CS
Lauterborun is an American marketing expert where he explained the value to customers mainly in 4CS theory that proposed in 1990.
The traditional marketing mixes 4PS (product, price, distribution, promotion) theory only develop marketing decisions from the
business point of view, ignoring the problem of the needs of the customer real value, Lauterborn re-set the four marketing mix
elements, namely 4CS (customer, cost, convenience, communication). He pointed out that enterprises should attach importance to the
customer attention rather than in the product. Lauterborun is a American marketing expert where he explained the value to customers
mainly in 4CS theory that proposed in 1990; Do not have to consider the fixed price strategy temporarily, but must understand the
price they are willing to pay to satisfy themselves, namely customer cost. Do not have to consider the marketing channel strategy
temporarily, but must consider how they can provide better commodity convenient condition; Do not consider how to promote
temporarily, but should consider the means and methods of the communications with consumers. In general, 4CS theories focusing
on customer demand-oriented and customer value; however, it only focuses on customers' demand in a short term, and ignores the
economic needs of the market competition and cooperation-oriented source of productivity.
2.3 Philip kotler’s (1994) theory of the customer delivered value
Kotler pointed out that the customer delivered value (CDV) is the subtraction of the total customer value (TCV) and total customer
cost (TCC). Total customer value is the sum of interests, including product value, service value, personnel value and image value and
so on. The customer gets the interests from a particular product or service. Total cost of the customer refers to the sum of the cost that
customer paid for the purchase when using particular products and services, including cost, time cost, spirit, and physical costs.
When the clients are buying products, they hope that the relevant costs can be down to a minimum, while hoping to gain more
practical benefits in order to make their own needs can be met with the greatest possible at the same time. Therefore, when customers
are choosing the products, they often make a comparative analysis at the cost of two aspects: interests and cost, and select the highest
value, the lowest cost. That is to say, choosing the maximum customer delivered value of products as a priority target.
2.4 Grouroos’s (1996) theory of customer value process
Grouroos described customer value from the perspective of customer relationship. He believed, the value process relates the
beginning and end point of marketing, the relational marketing should create greater value compared to a pure transaction for the
customer and other various aspects. As the relationship is a long process, the customer value appears in a longer period of time,
Grouroos called this process as value process. He believes that the relationship is considered to have sufficient values; the parties
may still participate in the exchange agreement even though products and services are not the best. So the value of relationship
marketing is an important concept in the enterprise. The ability to provide value to the customer is considered one of the most
successful strategies in 1990s.
In short, the above marketing ideas provide theoretical support for companies to develop effective marketing strategies to build
competitive advantages. We can see that people’s ideas are changing depend on the understanding of customer value from these
changing theories.
3 The Value of SME Customers Based on Customer Segmentation
The customer value defined by the paper refers to the future customer value, it including the customer current value and customer
value-add potential. Supposes that the customer present purchase behavior pattern maintenance to be invariable, the customer will
possibly create the sum profit for the enterprise in the future. This part will be made according to the customer relations, current
condition to the customer future, and valuing one conservative estimate, this will be called “the customer current value”. Assume that
the enterprises adopt a more proactive customer retention strategy, making customer buying behavior pattern toward a direction
conducive to increased corporate profits, customer is expected to increase profit sum present value to the enterprise in the future, this
is an estimate of the customer value-add potential, known as the "customer value-add potential". Therefore, the current composition
of customer value customer value and customer value-added potential is the current composition of customer value, in two specific
dimensions of customer segmentation, each dimension is divided into high and low steps, thus the entire customer base is divided
into four groups, with a breakdown of the results matrix, known as customer value matrix, shown in Table 1.
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Table 1 Customer value matrix
High
Customer
value-added
potential
Low
A
C
B
D
High
Low
Customer current value
A class of customers creates the largest profits to enterprises is the most valuable, known as the "gold customer"; B class of
customers can also create very large profits to enterprises with higher current value, but low value-added potential, known as the
"Silver customers." According to "Pareto's law", A, B two types of customers only in small amount, account about 20%, but the
profits they created account for 80% of corporate profits, "the most valuable customers" refers to this two types of customers. C class
of customers are potential customers, and it can be transformed into Class A or B class, but it brought the current-margin business,
known as the "copper customers"; Class D creates the smallest value for enterprise, is the company's rare profit or non-profit
customers, known as the "iron customers"; C, D account for about 80% of the total number of enterprise customers in the number of
two types of customers, but the profits they created for the enterprise is only about 20% of corporate profits.
4 Different Types of Marketing Strategies of SMEs for Different Customers
4.1 Golden customer
Golden customers are the cornerstone of corporate profits. Customer relationship management research shows that 30% -50% of
sales revenue come from this 10% customers. Specific marketing strategies for SMEs as follows:
Firstly, the responsible specialist. The enterprise sets up the special customer information file through continually collects newly and
accurate customer information, sets up customer service representatives to understand these customers demand and the expectation
promptly, establish and maintain good customer relations.
Secondly, maintain communication. Enterprises should regularly communicate with customers, asking the feelings and the
consumption process, whether there is problem to be solved, or even just to greet, to provide psychological or perceived value in
order to maintain customer’s loyalty. In addition, the type of customer’s complaints should be given in priority.
Thirdly, quick service. Analysis and understand the preferences for the types of products, brands and other of these customers. As to
the customer’s frequented brand, marketers should acquire the relevant information in order to provide fast, attentive service for the
gold throughout. On holidays and retail promotions and other intensive periods of passenger flow on Humanized service, we should
take special measures for such clients, realize differentiated services, enabling these customers to feel as being special gold customer
courtesy, to increase customer satisfaction and improve loyalty.
Last, effective motivation. For the customer whose expense total amount arranges at the front position in a certain period of time (e.g.
one year), we should give special rewards (such as free travel, etc.) in addition to the normal activities of rebates and discounts, this
can not only allow customers to get spiritual satisfaction, but also stimulate the customer's desire to consumption and increase
customer loyalty.
4.2 Silver customers
This type of customers is very important to enterprises, is the most valuable customers only second to gold customers, they have
almost offered 100% of their business to the enterprise, and recommend new customers for the enterprise in addition. Therefore, the
enterprise should guarantee enough resources investment to maintain this kind of customer by any means possible, in case that these
customers convert to the competitors.
Firstly, preferential policies. For example, give more concessions when they are in purchase, invite them to participate in business
activities so that they can feel a special kind of customer satisfaction and more willing to work with enterprises, to maintain relations
of cooperation. We can also give special offers to a number of large- purchase customers, allowing customers to purchase a large
number of long-term purchase and to enjoy the maximum benefits.
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Secondly, interactive Marketing. SMEs should meet the spiritual needs of these customers to maintain a high degree of customer
loyalty. They can establish customer club, allowing the distributor and the customer to entertain together, so that they can
communicate in the sphere of emotional feelings. We can also organize the customer forum for customers to grasp the business and
product information, participate in technical discussions, packaging design and other sectors, so that customers can approve
enterprises through participating.
4.3 Copper customers
This kind of customer refers to those who have low current value, but has a high increment potential. SME's marketing goal is to
improve the relationship with these customers, and improve commodity's share in their purchase, and ultimately turn them into gold
customers.
Firstly, brand strategy. Only when such clients develop a high degree of trust to the enterprise can they be maximized to the
value-added potential. The brand has a strong appeal to these customers, allowing it to identify and buy the target product to help
companies develop their loyalty. So SMEs should create their own brand, relying on high standards of quality and credibility and
sustainable innovation, win the customer's brand preference and type of brand loyalty.
Secondly, create a personalized service. In order to maintain these customers alive, SMEs should target their diverse needs, not only
just providing products, but also providing them with a wide range of personal goods or services through two types of products from
the start, to form a full range of services with customers’ relationship. For example, to provide financial services, health counseling,
clothing design and so on.
In addition, SMEs can also give these customers some special treatment. For example, take the initiative to communicate with
customers by telephone, to communicate with customers, for their suggestions and recommendations as well as unmet needs to take
appropriate measures; Provide business magazine subscriptions to customers, the magazine with shopping coupons to encourage
customers to buy again, or recommend to their friends to buy.
4.4 Ferruginous customer
This is the least attractive class of customers, the current value of this type of customers and value-added potential is very low. There
is always a big gap between this type of customer’s demands and enterprise products and services. So the expenses enterprise spends
on this customer cannot be earned back through the product and service these customer buys, and that such customers would
seriously affect the morale of front-line marketers. So, for such clients, organizations can take the following marketing strategies.
Firstly, "mining" strategies. There are almost no profits for the customer in terms of iron, small and medium enterprises should
properly tap their potential, using the lowest maintenance costs. Through the internet, and to make regular channels, providing their
publish enterprise news and the latest product information; Take full advantage of e-commerce, actively carry out Internet marketing
by providing caring, attentive service, allowing consumers to obtain a fresh feel.
Secondly, "abandoned" strategy. Regarding this kind of customer, the enterprise may adopt the “giving up” strategy, no longer
implement the marketing strategy aimly and reduce the marketing cost. But it is necessary that the enterprises pay attention to this
kind of customer's responses, to reduce their negative influence on enterprises.
5 Conclusion
As the economic globalization becomes the mainstream in nowadays, it is extremely important that the marketing strategies for
SMEs must be getting stronger when faced with the increasingly intense market competition. In the process of marketing, customer is
the source of enterprises profits and the key to business success, especially in the era of the buyer's market, who owns customers, is
equal to having profit. Customer segmentation enables SMEs to design different marketing strategies for different customers, and
applies its superior resources to high value customers, mines customers’ potential value, and increases customers’ satisfaction,
realizes customers’ loyalty. Only by turning the target to low-cost and customer differentiation, creating more customer value than
competitors can make SMEs maintain sustained competitive advantage in the fierce market competition.
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