[Industrial Marketing Management 1982-feb vol. 11 iss. 1] Renato Fiocca - Account portfolio analysis for strategy development (1982) [10.1016 0019-8501(82)90034-7] - libgen.li

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Account Portfolio Analysis
for Strategy Development
*
Renato Fioccat-
This article proposes a method of composhzg and complementing industrial marketing strategy. A new approach to
industrial marketh~g strategy is presented, it has the customer
as the core of the analysis and considers some of the most
important elements of industrial marketing, such as derived
demand and buyer~seller relationships. This new approach,
,.'ailed account portfolio analysis, offers some indications to
bulustrial managers and scholars for the analysis of markethzg
strategies tailored expressly for industrial companies.
INTRODU .¢,TION
With only a few notable exceptions [1,2], the need to
distinguish between industrial and consumer products has
been seldom recorded in marketing strategy and strategic
planning literatures. Strategic analysis methods, such as
the product portfolio analysis by the Boston Consulting
Group [3], the McKinsey/General Electric approach [41,
*An Italian versien of this amcle has been published in Svi/uppoe Organi:zazione 62:35-47 (November-December 1980) under the title "L'Analisi dei
Portafoglio Clienti nel Marketing Industriale."
tThe author expresses great appreciation and gratitude to Associate Professor Thomas V. Bonoma of the Harvard Business School lot his review
of the manuscript, th0: useful comments, and encouragement. Gratitude is
also due to Professors Luigi Guatri and Stefano Podesta of Bocconi University
and to Scuola di Direzione Aziendale of Bocconi University and the Italian
National Research Committee (C.N.R.) for financial support.
Industrial MarketingManagement 11, 53-62 (1982)
~) Elsevier Science Publishing Co., Inc., 1982
52 Vanderbilt Ave., New York, New York 10017
and the PIMS project (Profit Impact of Marketing
Strategy) [41, have been developed without fully exploring the distinctive features between industrial end consumer marketing.
The lack of specific emphasis on extremely ienponant
factors in the industrial market, such as derived demand,
sales concentration, structure and distributio,n of the
power in the market, and buyer/seller relationships, can
hide relevant implications in formulating industrial marketing strategy.
IMPORTANCE OF THE CUSTOMER IN
INDUSTRIAL MARKETS
Effective marketing strategies must begin wi~h complete understanding of the most relevant factors that
shape the particular environment where the finn operates. Many factors suggest that in formulating industrial
marketing strategy the consideration and analysis of the
customer is critically important. According to Webster:
"'All good indus~al marketing planning begins and ends
with the customer and takes the product as a variable, not
as a given" [2, p. 19]. In industrial markets the critical
importance of each single custcwer derives from several
factors; the most important one.s are listed below:
1. Sales concentration. Industrial markets consist of a
limited number of important buyers responsible for
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an important share of the seller's business. Moreover, each customer often has special and unique
needs and behaviors that are not comparable with
the needs and behaviors of other customers. As
consequence, industrial sellers must often handle
each customer individually.
2. Structure of the power in the market. Because of
the considerable importance of each buyer, the
buyer's contractual force, his power is very significant. In industrial markets it is very usual to observe cases in which the power is almost equally
divided between buyer and seller 151. Industrial
marketers can partially reduce *he effects arising
from customers' power by weaving a network of
durable and constructive working relationships
with their customers.
3. Buying process complexly.,. Inside each buying
company the industrial seller often interacts with
managers who have personal and professional pursuits that are often very different. The differences in
objectives pursued by the persol[ls in~,olved in the
buying process reinforces the riced for a careful
analysis of each customer.
4. Buyer~seller
relationships. Smc~
" ; markeJng indus.
trial products is often a long-term process in which
repeat buying is extremely imi~ortant, industrial
sellers are interested in building ;trong and durable
customer relationships. Accordi g to Corey, "The
development of strong, multidim,~nsional, an:] constructive working relationships v,ith one's customers is the key to industrial markq;ting success" [I,
p. 5l.
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5. Derived ~&mand. The particulal!" nature of industrial demand also increases the strategic importance
of the customer in industrial mlarketing. In fact,
every marketing decision made by industrial sellers
should take into account not only the market and
the competition for their produlct, but also, and
importantly, the market and cor~petition for their
customer's product. As a result off derived demand,
industrial marketers must alw@s be up to date
about the current and prospecti/ve trends ir, their
customer's business.
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Since the customer becomes the cor,: of the analysis in
industrial marketing strategy, it can be convenient for the
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Renato Fiocca is Assistant Professor at Bocconi University and
at Scuola di Direzione Aziendale, Milan, Ita~,ly,where he teaches
marketing in graduate and undergraduate courses.
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selling company to divide its business among accounts,
rath.. Jan among products or product lines. In so doing,
Ihe selling company should always consider that each
account must be a homogeneous entity and must be
meaningful from a quantitative (i.e., in terms of sales)
point of view. As a rule each account fits in with one
customer, that is, with a buying company. However,
when the buying company is very diversified and centralized purchasing operations are not used, it can be
more useful for the selling company to deal with the
divisions and to consider each division as a single account.
ACCOUNT PORTFOLIO ANALYSIS
Account portfolio analysis is a two-step analysis that is
based on the customer and on the related accounts. On a
general level the complete portfolio of the selling company is considered. Industrial sellers can develop a
graph, indicating the strategic importance of each account and the difficulties in managing it. The second step
is an in-depth analysis of each important account. At this
level, account portfolio analysis consists of a twodimensional display with the customer's business attractiveness on one axis and the buyer/seller relationship on
the other. This enables the seller to assess marketing
strategies and profitability with respect to the account
considered.
,Step One: Analyzing the Accounts on a General
Level
From an overview of all their accounts, industrial
sellers can rate the importance and the difficulty of managing each account, in particular, industrial sellers can
establish which accounts need special attention and
which deserve in-depth analysis.
Nearly all companies have customers they regard as
more important than the rest. Similarly, all companies
have accounts that are more difficult to manage than
others~ usually because of the special needs and behaviors of the customers.
Generally industrial sellers consider an account very
important when its purchases----or potential purchasesm
are larger than those of other buyers. However, other
elements can define an account as an "important account." When the account is particularly prestigious (for
example, industrial companies that participated in the
NASA projects) or a market leader, industrial sellers may
only marginally consider the amount of purchases. These
are usually considered important accounts because deal-
ing with them increase the prestige of the company, thus
aiding in the development of future accounts
Other elements that make an account important can be
grouped under the label of "overall account desirability." To determine this status the industrial seiler should
consider the following questions. Can the relationship
with an account diversify the industrial company's business? Improve company's technological strength? Open
new markets (from domestic to international)? Improve,
or conversely, spoil relationships with other customers?
The factors by which the strategic importance of the
account can be determined are summarized below:
•
•
•
•
•
Volume or dollar value of purchases
Pt~tential of the account
Prestige of the account
Customer market leadership
Overall account desirability
• company's business diversification
• open new markets
• improve technological strength
• improve/spoil other relationships
In addition to looking at the account's strategic importance, industrial sellers need to determine the difficulty
of managing each account. There are numerous factors
involved here and they differ in nature and importance.
They can be grouped under three major headings: (1)
product characteristics, (2) account characteristics, and
(3) competition for the account.
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larly difficult in the early stages of the product's development, since the customer often does not fully
understand how the product works and how to draw the
best results from it.
Differences among customers in terms of needs and
requirements and often in terms of behavior are typical in
industrial markets. Some customers may require different
levels of post-sale service or may need detailed technical
information in the sales presentation. Yet the amount of
time needed before making a purchasing decision vary
widely from customer to customer. As a result of customers' heterogeinity, there are some customers with
whom it is very easy to deal with, while with some others
it is much more difficult. Generally, industrial sellers can
obtain this kind of information directly from the salespeople in direct contact with the customers.
The customer's buying power is another important
element defining the difficulty in managing the account.
For example, customers hold a powerful position when
their purchases represent an important share of the selling
company's sales, or when the products purchased are
standard or undifferentiated, i.e., when they can easily
change suppliers without suffering high switching costs.
(An in-depth analysis of buyers' power is given in Refs.
5 and 6.) As a rule, the stronger the buyer's power, the
more difficult it is to deal with the account. A strong
customer can impose rules regarding terms of purchase
and conditions of payment. In other circumstances, the
objectives pursued by customers in their buying activity
II
Analyze the accounts on a general level
Product characteristics are often determined by what
meets the particular needs of each customer rather than
by what is inherent in the product itself. For example, a
piece of equipment can be considered extremely complex
by a buyer who is using it for the first time; on the
contrary, another customer can consider the same equipment very simple, since he or she knows how to use it.
Generally speaking, the more the product is perceived as
complex, the more the relationship with the account
requires special attention. In these cases the seller must
closely follow the customer's operations and sometimes
must educate the customer in the use of the product.
In addition, the relationship with an account is particu-
can increase the difficulty of an account. For example,
some customers want to buy from more than one supplier
(usually three or four) and because of the increased competition among sellers, they are usually able to obtain
better purchasing conditions.
The intensity of competition on the account is another
element that defines the difficulty in managing the account. Generally speaking, the higher the competitie.n on
the same account, the more difficult it is for each selling
company to manage that particuhtr account. The number
of competitors on the account, their strength and weakness, and their position vis-a-vis the customer can indicate the intensity of competition ,on the account.
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The factors from which the diffi;,ulty in managing the
account depends are summarized belowl:
• Product characteristics
• novelty
• complexity
• Account characteristics
• customer's needs and requirements
• customer's buying behavior
• customer's technical and commercial competence
• customer's power
• customer creates competition (wants many suppliers)
• Competition for the account
• number of competitors
• strengths and weaknesses of competitors
• competitors position vis-/l-vis the customer
By combining these two variablesmstrategic importance of the account and difficulty in managing the
accountuin a two-dimensional matrix (Fig. 1), industrial
sellers can have a clear and immediate picture of their
entire account portfolio.
Both strategic importance of the account andi difficulty
in managing the account can be high or low.
The accounts can lie in one of four quadrants where
they are defined as key/nonkey with resp(ct to the
strategic importance of the account and dif!icult/easy
with respect to the management of the acco mt. Upon
examining the position of their accounts on t ~e matrix,
industrial sellers can decide which accounts deserve a
more in-depth analysis. Generally speaking, the accounts
in quadrants 1 and 2 can be considered worth~ of further
analysis.
The industrial seller should restrict the number of accounts to analyze, considering only the key accounts,
since the second part of account portfolio analysis involves analyzing each account in depth, which can be
both time consuming and costly.
high
difficulty
in managing
the account
Key
Difficult
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low
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Nonkey
Difficult
3
Key
Easy
2
Nonkey
Easy
4
high
low
Step Two: Analyzing a Key Account
The second part of account portfolio analysis is based
on a nine-celled matrix (Fig. 2). Each matrix graphically
represents a single account. For example, if the selling
company has five key accounts, as defined in the first
part of the analysis> ~ e analysis must start from the
arrangement of five matrixes, one for each account.
The following variables are considered in the matrix:
1. The customer's business attractiveness (vertical
axis)
2. The relative stage of the present buyer/seller relationship (horizontal axis)
CUSTOME~'S BUSINESS ATTRACTIVENESS Account port
folio analysis does not consider the industrial seller's
product: demand, but the demand of the product of the
industrial seller's customer. For example, if the account
is General Motors and the industrial company is selling
engine carburetors (for example, the selling company is
Bendix), Bendix management is interested in examining
the market trend of General Motor's products, i.e., cars,
trucks, buses, and so on, and not the trend of the engine
carburetor market. In other words, in order to have information about the trend of his products the industrial
seller must consider the evolution of the customer's market. By using this approach the industrial seller considers
the derived nature of industrial demand, which is one of
the most relevant factors in industrial markets. Customer's business attractiveness can be high, medium, or
low.
The concept of the customer's business attractiveness
can be derived from some existing literature in strategic
planning |4, pp. 211-227; 7]. In defining customer's
high
customer's
business
attractiveness
medium
low
strong
medium
strategic importance of the account
relative buyer/seller relationship
FIGURE 1.
FIGURE 2.
weak
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business attractiveness, industrial sellers must analyze
the attractiveness of the customer's market and the
status/position of the customer's business.
The factors that make a customer attractive are usually
grouped under five major headings: market factors, competition, financial and economic factors, technological
factors, and sociopolitical factors (Table 1).
The basic question the industrial seller must answer is
whether it is more or less convenient for the selling
company to do business with a certain customer. In this
case convenience is determined through an analysis of
the customer's business attractiveness. If the market in
which the customer operates is attractive and if the customer's position in the market is strong, one can expect
that the operations of the selling company (which
supplies products and raaterials) will result in a positive
business relationship.
Table 1 must be considered as a guideline for the
analysis of customer's business attractiveness. While relatively complete, it is not exhaustive. When performing
customer's business attractiveness analysis, industrial
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sellers must keep in mind that there are often factors that
are unique to the industry involved. As a consequence,
each customer's business must be examined separately,
with its unique features taken into account. Very often
management judgment and experience ca~ facilitate the
understanding of customer's businesses, even more than
the analysis of the factors listed in Table 1.
The analysis of customer's business attractiveness can
be more or less sophisticated depending on how many
businesses the seller has decided to examine. If it is
necessary to analyze a great number, the selling company
can decide to dramatically reduce the variables considered. If only a few businesses are to be examined, the
amount of detail and time invested can be considerable.
RELAT|VE STAGE OF THE PRESENT BUYER/SELLER RELA'rlONSHIP The relative stage of the present buyer/
seller relationship is plotted on the horizontal axis of Fig.
2. Because of its strategic importance in industrial marketing, the buyer/seller relationship can be considered a
measure of the competitive position of the selling company. In order to have more information about the
TABLE 1
Measurement of Customer's Business Attractiveness"
Attractiveness of Customer's Market Status,Position of Customer's Business
Market Factor~
Size (dollars, unit, or both)
customer's share:
Size of key segments
customer's share of key segments
Growth rate per year
customer's growth rate
Sensitivity to price, service features
customer's influence on the market
and external factors
Types of competitors
Degr-e of concentration
Changes in type and mix
Substitution by new technology
Competition
customer's position, strength and
weakness
degrees and types of integration
Financial and
Contribution margins
Leveraging factors, such as economies
of scale and experience
Barrier to entry or exit (both financial
and non financial)
Capacity utilizg~tion
customer's vulnerability to new
technology
customer's level of integration
Economic Factors
customer's margins
customer's scale and experience
barriers to customer's entry or exit
customer's capacity utilization
Technological Factors
Maturity and frequency of changes
Customer's ability to cope with changes
Complexity
Depth of customer's skills
Differentiation
Types of customer's technological skills
Patents and copyrights
Customer's patent protection
Changes in the environment
Sociopolitical Factors
Customer's ability to cow and to fit
'+Source: adapted from Ref. 4, p. 214
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strength ,of a buyer/seller relationship it is necessary to
compare the existing relationship.between a buyer and
seller with the buyer's relationships with other companies
that are in competition with the selling company. For
example, Bendix (selling company), in order to evaluate
its relationship with General Motors (buying company),
must compare it with the relationships that General
Motors has with the direct competitors of Bendix, i.e.
Bosch, Lucas, and so on. The buyer/seller relationship
call be strong, medium, or weak.
To assert that a relationship with a customer is strong,
medium, or weak can be extremely easy or very difficult
for the selling company. It, of course, depends on how
much knowledge the seller has of his customers and of
the relationships that the3, have with other sellers.
Certainly a relationship is strong when it has lasted
many years, when the volume or dollar value of purchases is large, or when the percentage of customer's
purchases on supplier"s sales is high. Other factors are
less easily measurable; for example, a relationship can be
strong when there is "friendship" between buyer and
seller, which, in business, can be defineG as the common
wish to cooperate and to reach positive results for both. A
relationship can be equally strong if one of the
participants--buyer or seller has enough power to establish an authoritative and domineering relationship.
The geographic location of buy r and seller can also
; influence the strength of the relationship. Certainly proximity encourages the development of a strong relationship, since it is easier to meet and communicate. The
converse holds as well.
Differences in language and culture can diminish the
strength of a buyer/seller relationship. For example,
many Western companies find it difficult to deal with
Japanese customers because their business mannerisms
are often very different from what is usual in the United
States and in Europe.
Some of the factor,; that make a buyer/seller relationstdp strong or weak are listed in Table 2. Table 2 is
intended to be suggestive only. In analyzing the strength
of the relationship with the customer, the selling company will probably eliminate or add some items, depending on the relationship being considered.
Often the selling company has more than one relationship with the same account. For example, if the selling
company sells three different products to the same customer (i.e., to the same account) it is likely that there
exist three different relationships, perhaps of different
strength, 6ach one based on one product. In these cases
the measurement of the strength of the relationship must
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TABLE 2
Measurement of the Strength of the Buyer/Seller Relationship
Relationship
Factors
Strong
Weak
Length of the relationship
Volume or dollar value of purchases
Importance of the customer (i.e., percentage
of customer's purchases on supplier's sales)
Power of the participants (one or both)
Friendship
Cooperation in development
Management "'distance" (language and culture)
Geographic distance
long
high
short
low
high
high
yes
high
low
near
low
low
no
low
high
far
be arranged separately. Some of the factors that influence
the strength of the relationship (for example, geographic
distance) remain unchanged, since they are related to the
account in general. On the contrary, other factors, such
as length of the relationship, volume or dollar value of
purchases, etc., can change with respect to the relationship considered.
How to Arrange an Account Portfolio Matrix
An example can clarify how to arrange an account
portfolio matrix. Assume that the selling company "'A"
produces and sells two products ( " x " and " y " ) to five
customers: accounts " 1 " - " 5 . " Consider only account
1. Account 1 is an automotive producer and has three
product lines: cars "'~a," trucks "' l b , " and buses " l c . "
Account 1 buys products x and y from company A;
product x is used in the production of products I a and I b,
while product y is u,;.ed for products lb and lc.
Company A has a strong relationship with account 1
with respect to product x and a medium relationship with
respect to product y.
Customer's 1 business attractiveness is low for product
l a (cars), medium for product l b (trucks), and high for
product lc (buses).
The essential data are summarized in Table 3.
TABLE 3
Company "A" vs. Account (or Customer) "1"
f P r o(strong
d u c t relationship)
"x'"
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product "'ia'"
(low attractiveness)
product ""I b'"
(medium attractiveness)
Product ""y"
I
(medium relationship) I
Product "'lb"
(medium attractiveness)
/
[_... product ""Ic"
(high attractiveness)
high
customer's
business
attractiveness
medium
*
lc/y
*
! b/x
low
*
I b/y
*
la/x
strong
medium
weak
relative buyer/seller relationship
FIGURE 3
At this point it is possible to determine the position of
the two products (x and y) in the matrix, with respect to
the customer's business attractiveness of products l a, l b,
and lc (Fig. 3).
Inside the matrix two other variables can be inserted
(Fig. 4): !) The dollar value of purchases of the buying
company for every single product (depicted by the area of
file circle representing each product on the matrix). By
following the same example, company A needs to know
what is the total amount of purchases of account i with
respect to products x and y (purchases from company A
and from other supplying companies), in oJaterto be able
to determine the second variable; that is, 2) The account
market share for each product, represented by the dark
pie slice inside the circle. The size of the account market
share gives information about the effective position of the
selling company in a given account vis41-vis its competitors.
The dollar value of account i for produclts x and y and
the account market share held by company A complete
the design of the matrix as in Figure 4.
In order to complete the analysis of its account, company A must arrange matrices for account 2-5.
In some circumstances it is necessary to add another
vm'iable: the short period potential of each product in a
given account, represented by a dashed circumference
(Fig. 5).
In an account portfolio the concept of potential appears
twice: a long-term and a short-term potential.
The account's long-term potential is a direct result of
the different product positions in the matrix in correspondence with the axis of the ordinates, i.e.. customer's
business attractiveness. In fact, selling a product ~o a firm
that is in a very attractive business offers greaters pros-
company
A marl~ct s h a r e
of p r o d u c t
x in a c c o u r t
!
actua!
de-anc
~f
high
i
business
Y
~n
~ccrunt
J
customerts
mediu~
I
attractiveness
low
stronc
me'iu~
relative
buyer/se!!er
u e =,~,
re! -t ; ~n -~ " -
FIGURE 4.
$9
S
high
custonerls
business
medium
I/ ~
~I
Ir ~'~1
attractiveness
m
low
i
strong
medium
weak
relative buyer/seller rel~tionship
FIGURE 5.
pect for growth than selling the same product to a firm in
an unattractive business.
The short tern1 potential, represented by the dashed
circumference in Fig. 5, refers to 'he industrial seller's
product (and not to the customer's product) and represents the normal concept of potential which usually is
adopted in marketing, even though here it refers strictly
to a given account.
Two reasons suggest distinguishing between short and
long term potential. The first is that for some industrial
products (equipment, for example), even if the customer
industry is not in a promising phase, it is possible that the
obsolete equipment will have to be replaced. The equipment rebuy can be an interesting opportunity for the
selling company, but only in the short term. in fact, a
new rebuy, if it occurs at all, will occur only after many
years.
The second reason why it is better to combine the
analysis of short- and long-term potential relates to the
time gag between when customer's business attractiveness appears and when it has positive results on the
selling o)mpany's operations. This time gap can last for
years, as it did in the color television market (the industrial prouuct considered is the TV picture tube).
If indastrial companies base their decisions only on
customer's business attractiveness, that is, on the long-
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term potential, they could draw wrong conclusions.
Combining short- and long-term potential can prevent the
selling company from the dangers arising from a remote
reality which is difficult to forecast and impossible to
influence in any way.
ANALYZINGTHEACCOUNTPORTFOLIO
MATRIX
By analyzing the position of their products in the
account portfolio matrix (Fig. 4), industrial sellers can
have information about
• marketing strategies
* profitability
Marketinf°~trategies
There a . hree basic strategies that industrial sellers
can pursue: ,,,.i:"oving the strength of the relationship,
holding the position, and withdrawal. Each strategy depends .an the position of the product inside the matrix
with respect to customer's business attractiveness and
relative buyer/seller relationship. The customer's business attractiveness will help industrial sellers to de,.ermine whether to improve the relationship with a certain
customer.
Improving the strength of the relationship is when the
product is positioned in cells 1, 2, 4, or 5 of Fig. 2. The
attractiveness of the customer's business should induce
industrial sellers to invest time and money trying to better
the relationship.
When the relationship is weak (cells 1 and 4) the
customer usually has a high perceived risk caused by the
lack of information about the selling company and the
product offered. Moreover, if the relationship is based on
a new product, the customer's perceived risk tends to be
higher. A team approach appears to be a valid way for
improving the relationship with a customer whose business is promising. In this way the selling company can
better understand and solve customer's problems and, as
a consequence, it can be easier to start a durable relationship. However, the selling company must consider that
team approach requires considerable efforts both in a
financial and management point of view.
As a result of different levels of customer's business
attractiveness the needs and behaviors of the customers
can change. When the customer's business attractiveness
is particularly high, the customer often is very demanding both from a technological and a commercial point of
view. High customer's business attractiveness often
means high growth rates of the customer's industry; in
these circumstances the customer usually has some difficulties in planning purchases, since it is difficult to forecast the market development. The ability in problem
solving and the rapidity in product delivery become basic
elements of the sale.
In order to increase the intensity of the relationship
with a c"~tomer who has a medium attractiveness, it is
necessary to have the previously described capabilities
even though the relationship is less stressing and can
more easily managed. As a rule the buyer i.s able to plan
orders since his market development is easier to forecast.
In this respect the delivery punctuality (more than delivery rapidity) is very important.
Holding the position is appropriate when the buyer/
seller relationship is strong (cells 3, 6, and 9). In this case
the decision of the selling company should be oriented to
the preservation of the strength of the relationship, paying attention to every possible external change (new
competitors, new products, and so on) that can affect
this strot~g position.
The selling company must be particularly careful when
one of its products is in cell 9. At first sight cell 9 should
appear an almost card'ree situation for the selling comparty. There are few or no changes in R&D, few marketing expenses, and the quasicertainty that, when the customer needs a product he will contact the seller with
whom he has a strong relationship. However, this is also
a dangerous situation. In fact, if the customer's business
Lsrecording a low attractiveness, the customer may try to
better his position through diversification in other businesses where the selling company is probably no longer
involved as a supplier. In this situation it is possible to
suggest two different strategies. In the short term the
selling company should try to examine, in cooperation
with the customer, new forms of the same product. This
would be done to obtain some reduction in customer's
production costs and a related increase in the profit which
could discourage, for the time being, diversification alternatives.
In the medium-long term, sellers can offer their customer some diversification alternatives in new and more
attractive businesses where they could have a promising
position as a supplier.
When the customer's business attractiveness is !o~
and the buyer/seller relationship is not strong (cells 7 and
8) any intervention that could better the selling company
position is not advisable. A more advisable course for the
selling company to adopt is a withdrawal strategy. The
seller should only manage the relationship to prevent
ruining the company's global image and the relationships
founded on other products placed in more. promising
cells.
Profitability
Concerning the different positions of the prt~uct in the
account portfolio matrix some implications in tem~ of
account profitability can be shown.
In account portfolio analysis, profitability depends on
the different price sensitivity of the customer and on the
amount of marketing, product development, and R&D"
expenses that are related to the different cells of the
matrix.
In the first stages of development of the relationship.
usually marketing efforts are vet), intense since the selling company wishes to develop and consolidate its business. Consequently ~ k e t , n g expenses are also yen.
high. When the bu)eriseller relationship is getting
stronger, the selling company does not need to impro~,~c
its position and the marI,~ting expense.,, tend to decrease
New customers often ask that the product is adapted to
their operations so that in opening a new relationship the
selling company is often forced to change the offere6
product/service package. As a consequence. R&D and
product development expenses are also sometimes higher
in the first stages of the relationship.
Profitability is also correlated to the customer's price
61
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sensitivity that changes in reference to both the customer's business attractiveness position and to the stage
of development of the relationship. It is possible to argt~e
that customers in a very attractive business would not t;;:
particularly concerned abom the cost of products and
materials bought. Moreover, their price sensitivity decreases if the purchased product is a new one. In this
case, the buying company usually has a lack of information about the potential supplying companies and the
market prices, if they exist. On the contrary, when the
customer's business attractiveness is in the lower levels
an increase in price sensitivity is recorded, due to the less
interesting perspectives of customer's profit and also due
to the fact that, in the meantime, the customer has probably developed information ab,:}ut the possible alternatives
and prices of the purchased products.
Referring now to the sta~]e of development of the
buyer/seller relationship, one can suppose that when the
relationship is strong the selling company has a broader
freedom in price fixing. In other words, it often happens
that buyers .ale disposed to pay a reasonable additional
price to buy from a supplier they trust. Customers' price
sensitivity become much weaker when the relationship is
so strong that the selling company has a quasimonopolistic position, having the complete share of the account,
with regard to a determinate product.
Combining the expenses of the selling company with
the customer's price sensitivity, i~ is possible to
generalize some conclusions ~n terms of profitability inside the account portfolio matrix.
Generally speaking, profitability is 1o,~, in cells 1 and 4
due to the high level of marketing, product development,
and R&D expenses, even if in these cells the selling
company can have more freedom in price fixing, due to
the weak customer's price sensitivity. On the contrary, in
cell 6 and, above all, in cell 9 the expenses of the selling
company decrease, and even if in the meantime customer's price sensitivity increases, it seems that the selling company's profitability would reach the highest
levels.
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SUMMARY
The critical ilnportance of the customer in industrial
markets suggests that an industrial marketing strategy
~r~ust be based on the analysis of the customers and of the
related accounts~ The new approach to industrial marketing strategy prol?osed in this article considers some of the
most important elements that influence the decisions of
industrial seller,;, such as derived demand and buyer/
seller relationships.
A two-step analysis has' been prceosed. In the first part
the complete poltfolio of accounts of the selling company
has been considered. By analyzing all their accou~its
industrial sellers can decide which accounts need special
attention and, as a consequence, which accounts deserve
a more in-depth analysis.
In the second part of the analysis each " k e y " account
has been analyzed. Through the examination of customer's business attractiveness and buyer/seller relationships, industrial marketers can define their marketing
strategies with respect to each account considered.
REFERENCES
I. Corey, E. Raymond, Industrial Marketing: Cases ami Com'epts. Prentice
Hall, Englewood Cliffs, NJ, 1976.
2 Webster. Frederick E., Jr, Industrial Marketing Strategy. New York.
1979.
Boston Consulting Group Staff. Per.ff~ectiveon l:xperience. BCG, Boston,
i 968.
4. Abell, Derek F., and Hammond, John S., Strategi,' Market Phmning.
Prentice Hail, Englewood Cliffs, NJ, 1979.
5. Bonoma, Thomas V., and Johnston, Wesley J.. The Social Psychology of
Industrial Buying and Selling. In&~stri,i Marketing Manageo,,,nt 7. 213224 (1978).
6. Porter, Michael E., Competitive Sltrategy. Free-Press, N:w York, 1980,
pp. 24-27, ! 13-I 14.
7. Hofer, Charles W., and Schendel, Dan, Strategy Formul,~tion: Analvtit'al
Con,'qJts. West Publishing Co., 19,78.