BU-203-01

November 1, 2006

Business Loyalty in Business Markets

(Summary)

In the article “Business Loyalty in Business Markets” (Harvard Business Review, September 2005), Das Narayandas writes about the importance of loyalty in consumer markets and business markets, however, the business markets have their own way to communicate their benefits in order to acquire different customers with several levels of loyalty.

Narayandas briefly explains the difference between consumer market and business market. Business customers need customized products, quantities, or prices whereas consumers do not. Therefore, companies must manage customers individually.

Marketers must communicate the different types of benefits the company offers in order to acquire customers and to develop loyal customers. Narayandas emphasizes that a product's value by grouping its benefits into four categories: tangible financial, nontangible financial benefit, tangible nonfinancial benefit, and benefit is nontangible nonfinancial benefit. Narayandas and her colleague, V. Kasturi Rangan, of Harvard Business School find out that buyers keep loyal because of these benefits. She also points out that acquiring customers, companies must be at the same level with competitors.

The relationship between benefits and buying decision is very complex for marketers. In companies, buying decisions are made by groups of managers rather than individuals. Every member is frequently interested in one or few benefits. That is why Narayandas developed a simple set of devices about this relationship called “the benefit stack and the decision-maker stack.”(135) On one side, a benefit stack is made in which the seller lists all the benefits it offers. Alongside this, a stack of decision makers is made with the main concerns of each member. This way, vendor can connect the two stacks and meet their specific needs.

Companies must also establish loyalty over time. Narayandas' “loyalty ladder” helps companies to decide how much money and time they should spend on customer relationships. She emphasizes that loyal customers move up “the loyalty ladder” because of certain behavioral characteristics. “The loyalty ladder” consists of growing the relationship, providing word-of-mouth endorsement, resisting competitors' blandishments, paying premiums, cooperating with the company to develop a new product, and investing. According to Narayandas, higher positions on a ladder represent higher levels of loyalty.

Marketers must know what kind of customers they have in the different rungs of “the loyalty ladder.” These customers include the commodity buyers, underperformers, partners and most valuable customers.

Major Marketing Concepts

There are many marketing concepts through the article “Business Loyalty in Business Markets.” It starts describing the differences between consumer markets and business-to-business markets. How consumer markets have a lot of number of customers, and less dollar amount spent per customer. In contrast, business markets have less number of customers, and more dollar amount spent per customer. It also points out that the selling process in consumer markets is brief, retailing strategies are important, and sales efforts are focused on end users. However, the selling process in business markets is long and complex, retailing isn't a factor, and the target may not be focused on end users.

The article also explains that segmentation does not work in business settings as it does in consumer markets because business markets have individual needs. Therefore, they need customization.

Branding strategies don't work in business markets because for most buyers their priority is lower prices.

Customer satisfaction plays an important role in business markets. For many customers, value-added is seeing in several ways. Customers that are at the bottom (commodity buyers and underperformers) don't care about value-added as much as the top ones, (partners and most valuable customers).

Sellers must be aware of competition. When the article explains about the benefits, it discusses how competitive terms, such as, delivering supplies on holidays to keep customers' production lines going (133), affect the buying decision.

Customer relations are very important. The article mentions an example in which in 1990, Lucent Technologies found that customers bought switching systems even though it didn't offer the latest technology (134). Fortunately, its customer relation over the years helped the company to retain customers although they made a little mistake. Buyers trust the company; therefore, they will continue buying from them.

Consumer behavior is mentioned when the article discuss “the loyalty ladder.” As loyal customers move up the loyalty ladder, they display a sequence of behavioral characteristics, such as, growing the relationship by buying more products or services, providing word-of-mouth endorsement in which customer advertises the company by talking about it positively, resisting competitors' blandishments, willing to pay premiums, cooperating with the company to develop a new product, investing in their sellers. Narayandas' studies show that these behaviors are the same for all customers in all business markets.

The major marketing concept is loyalty which is repeated in the article from beginning to end. It mentions that when a company has a loyal buyer, the company does not spend a lot of money on him. The different kinds of customers move up the loyalty ladder differently which is an advantage for companies. Companies can increase profitable relationships by moving customers from one category to another.

At the end, the article concludes that in order to manage individual customers in business markets, companies must return to the basics of marketing which refers about satisfying customers' needs and wants.

Marketing lessons learned

The most important lesson that I learned is the importance of communicating the benefits that the company offers to different customers, so, buyers can climb the loyalty ladder. Because there are different kind of customers, companies must be aware that they look for specific benefits. Sellers will keep loyal buyers if they know their customer needs and wants. On the same hand, vendors must inform each member of the buying group of managers about the benefits that each one is looking for.

Another lesson that I learned is that business market can use segmentation, but in a different way. Unlike consumer market, in business market every customer is one segment which I believe it must be very difficult to handle. A seller must pay attention to an individual buyer instead of a group.