 Name of Student: - Pranjal Upadhyay

 Roll no: - TM2019338

 Reg. No: - 13-1431
 Specialization: - Marketing
 Batch: - 2020-2022
 Institute: - BITM
 Semester: - 2nd
 Subject Name: - Marketing Research
 Assignment No: - 02
 Submission Date: - 25/03/2021
 Total no. of pages written: 11

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Q1. A marketing research company found that 6 percent of its client generated 30 percent of sales
and nearly all of its profit. At the other end of continuum, 70 percent of its client provided annual
billings (revenue) that were below breakeven level, because these clients require an extensive
amount of service from research employees. The company took immediate action to terminate
relationship with clients who would not give them higher share of their marketing expenditures.
Evaluate this decision and suggest a set of criteria the might use to screen new clients.

Answer. In my views the decision of the company was a smart one according to the situation of the
question. Although they are the 70 percent of their clients and make up for majority of their business, but
keeping them is actually resulting in reduction of profit and extra expenses.

They are losing more money than they are making off these customers here, so it is a smart to either ask
for more share cut that is increase revenue from them or cut them off to save the profit the company is
already making.

The 70% segment is a part of high cost to serve customers which means they would generally require
extensive pre-sale support, delivery costs, production cost and as in our case service cost.

Here, even it’s not mentioned that they are new customers or old once or whether or not they provide and
additional learning.

So yes, it’s better to let them go and even better if the company can have them to fire themselves by
refusing to grant discounts and reducing or eliminating marketing and technical support.

The decision of the company can be explained by as following points-

1. These 70% customers are below breakeven level of the company revenue.

This means they are the one who provide revenue which is less than the break-even revenue of the
company that is they are loss making customers who are actually reducing the loss of the company.

We can actually divide the total customers of any company into three parts, and the loss-making part
only reduces the total profit of the company.

 Profit creating customers

 Break even customers
 Loss creating customers

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Company profit = Add profit from all customers

2. Requires extreme amount of service from research employees

This is the reason they are reducing profits of the company as they require more cost of service, which is
one of the reasons to reduce profits from any customer, generally also have price discounts as a reason in
many cases.

3. High cost to serve and low revenue

The segment has high cost to serve and low cost of revenue which means they are a part of the
aggressive customer segment which are loss making for any company.

4. Present in the transform segment of the customers of any company

The segment can be placed in the transform segment of graph, where the net margin realized is low and
the cost to serve is high.

Some criteria I would suggest when evaluating a new client would be mainly focused on-

1. How much sales are or can be generated from the segment.

2. How much profit they predict and can generate in the future.
3. What percent of that profit will be paid to the service providers?
4. What percent of the profit will be given back to Market Research Company?
5. They must be a low cost to serve customers.
6. There pre-sale cost should be limited, that is standard pricing and ordering costs.
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 7. They must have limited production costs that is order standard products must be there, there must
be large order quantities, predictable order cycle, electronic processing.
8. The delivery cost must be a standard one.
9. The post-sale cost specially the service cost should also be limited and must not have huge
negative effect on the profits of the company.
10. Should focus on not only present but future profitability of the customers as well.

With checking the profitability of the individual customers, the company should also check and examine
their own internal processes to ensure that it can accommodate customer preference for reduced order
prices or special service at the lowest costs.
This helps large customers who want central point of contact where they could secure services
customized to their needs and small customers preferred minimal contact with a direct salesperson but
wanted the assurance that they could receive advice and support if required.

Q2. Sony develops Collaborative Relationship with some suppliers and transactional relationship
with some suppliers. What criteria would Purchasing managers use in segmenting suppliers into
these two categories?

Answer. SUPPLIER SEGMENTATION:

No two suppliers are alike, as they can impact your business in different ways. Because of this, suppliers
must be divided into different groups.
Supplier segmentation is the process of dividing suppliers into distinct groups based on needs,
characteristics, or behavior. This process incorporates:
• Differentiating suppliers.
• Preparing supplier segmentation
• Reviewing supplier segments
• Identifying opportunities with suppliers
• Developing product / service agreements
• Implementing agreements
• Measuring performance
• Generating supplier/ cost profitability reports
Correct supplier segmentation can help drive and deliver increased value for your supply chain. Some
organizations segment their suppliers by how much they spend with them, the general thought being the
more we spend with them, the more important they are for our organization.
However, this is not always the case. How much you spend with a supplier is no clear indication of
whether that supplier is a strategic partner for your organization. And this is why you should perform a
proper supplier segmentation - to determine the role in helping to deliver value to the end customer a
supplier provides.

I) TRANSACTIONAL RELATIONSHIP:
Centers on timely exchange of basic products at highly competitive market prices.
These types of transactions are autonomous in nature i.e., there is little or no concern as to the needs of
buyer or seller.
Criteria for segmenting suppliers in transactional relationships:
1. If the number of suppliers is high in the market.
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 2. The supply market is constant.
3. The complexity of decision for purchasing is low.
4. Power of bargaining of supplier is less.
Packaging machines and products, cleaning and sanitizing technology and products, commodity type
products are some of the goods which will have transactional suppliers.
II) COLLABORATIVE RELATIONSHIP:
Centers on long term relationship between company and suppliers.
The basic foundation in this type of relationship is the commitment and trust between the buyer and the
supplier.
The major objective in this is to maintain a long term mutually benefitted relationship.
Criteria for segmenting suppliers in collaborative relationship:
1. If the number of suppliers is less.
2. The supply market is dynamic.
3. The complexity of decision for purchasing is high.
4. Power of bargaining of supplier is more.

Q3. Analyze research article on Customer Profitability written by L Brown.( Link -

https://www.profitanalytics.co.uk/app/download/5780156676/CustomerProfitabilityAnalysis_Leonard
Brown.pdf)
Answer. The article “Customer Profitability Analysis” written by Leonard Brown tell us about the
following aspects of customer profitability.
 Do you know which of your customers are unprofitable - and why? – We observe that with each
passing years the companies register decrease in the profits earned for that year. However, they
fail to recognize the reason for this downfall. The managers struggle to accept that the fall in
profit is due to their potential profitable customers who turn out to be unprofitable. There are
managers who do understand the issue still fail to identify the customers who are profitable and
who are unprofitable and why. Simply put as, they cannot identify their “profit makers” from
their “profit takers”. According to the professors from Harvard Business School – “it’s observed
that, often some of the large customers turn out to be the most unprofitable for the company”. It’s
not like the large customers are always unprofitable, they are found at both ends of profit
spectrum, however, and the managers fail to accept it.
 Revenue and Gross Margin can be unreliable indicators of profitability – It has been seen that
traditional accounting methods can be helpful in calculating profitability of a customer at an
individual level, however, it is unable to explain why the customer is profitable or unprofitable.
Therefore, Customer Profitability Analysis (CPA) has become important tool for the companies
for in identifying the profitable and unprofitable businesses. CPA helps company to identify the
nature of each customer and that the revenue or gross margins does not necessarily contribute
equally to the profit for the business. Since, customer use resources differently, the cost to serve
them vary from customer to customer, thus, the only revenue or gross margins could be unreliable
indicators of profitability.
 CPA Uses ‘Activity Based Costs’ to establish the ‘Cost to Serve’ – Since, different customers use
resources differently so the companies has to bear the ‘cost to serve’ at different and varying
rates. The ‘cost to serve’ a customer results from a combination of characteristics, behaviors and
the resultant activities they consume where ‘Characteristics’ tend to be the fixed and more up-

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 front obvious factors such as product range purchased and delivery location, however, ‘Behavior’
tends to be about the way a customer chooses to operate. Therefore, the CPA uses ‘Activity
Based Costs’, to cover all the possible activity costs, with identifying the drivers of those costs
and charge the customers on the basis of their use. For Ex.: If the ordered product is to be
customized or the order come unpredictable then the company should charge higher and if the
ordered product is standards and the orders are predictable then the company could charge the
normal cost.
 Understanding the ‘Whale Curve’ for your business – The Whale curve shows the cumulative
profitability of customers. It also explains how profits are earned and lost across customer base of
a company and how many degree of profitable customers are subsidizing the unprofitable
customers. Also, the biggest surprise for businesses is that the Pareto’s Principle or ’80:20 rule’
seldom apply on profits, that is 20% customer contribute to 80% profit of the organisation.
Instead, CPA suggests that there are instances that 20% of customers contribute to the 100% pf
the profit or even more, of the final profit. However, experience suggests that 20-25% of
customers generate the potential profits; 50-60% roughly break-even and 20-25% are distinctly
‘unprofitable’ and reduce the potential profits of the business to its ‘actual’ or final (100%) level.
The difference between the potential and actual profit is the area to be focused by the
organisation to increase their profits and reduce the unprofitable customers.

 The ‘Critical Few’ – These are the customers who are few in number as compare to the whole
customer base of the business, but are the key providers of the organisations potential profits.
Now, presenting the data from whale curve, as the profit per customer for every ten group of
customers, we can identify from the graph those critical few customers which contribute for the
maximum profit for the organisation.

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  Once each customer’s profitability has been established – what next? – After identifying the
profitability of the customer we can separate them into ‘4-Box model’ to segment them in simple
form with structured approach and prepare the action plan. Customers are allocated to one of four
boxes dependent upon a combination of two factors (i) whether or not they are ‘profitable’ and
(ii) whether or not they ‘fit’ with the competitive strategy of the business – i.e. are genuinely
‘target’ customers. A generic action is suggested according to the ‘box’ in which the customer
sits, i.e. ‘Retain’, ‘Monitor’, ‘Transform’ or ‘Replace’.
For ‘Target’, ‘Profitable’ customers the action is to try to RETAIN them and if possible increase
their business. For ‘Target’, ‘Loss-Making’ customers, the thrust of any action is to
TRANSFORM them to be ‘profitable’ and move them to the Retain or at worst, move them to
breakeven. The specific action(s) required for each customer will depend upon individual
circumstances.
‘Non-Target’, ‘Profitable’ customers, are customers that don’t ‘fit’ the customer profile described
within the strategy - yet still provide a source of profit for the business. For these customers, the
action is to continue trading but to regularly MONITOR the orders and service levels to ensure
nothing changes that causes.
No effort would be spent developing customers within the ‘Non- Target’ ‘Loss-Making’ box. The
overriding action is to REPLACE the volume and contribution of these customers with that of
customers from within the Target segments.

PROFITABLE LOSS-MAKING

TARGET
TRANSFORM
RETAIN

STRATEGY

REPLACE
NON-TARGET
MONITOR

Thus, the article explains how the company needs to be agile in identifying the profitable customers from
the unprofitable customers in order to increase their profit and avoid losses.

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Q4. Visit the website of Tata steel and download key segments of Tata steel and analyses the
segmentation strategy of Tata steel.
Answer.

Market sub-
Market Key Support Initiatives to
segments Products & Brands
Segment Customers
(customer groups)
Tata Tiscon (Rebars)
Individual House Superlinks & Footings
Tata Structura (Pipes)
Builders   Customer Service Engineers
Tata Pravesh (Doors &
(B2C) Experience Zones
Windows)
Tata Shaktee (Roofing
Roof-junction (Installation
Rural Roofing sheets)
solution)
(B2C ) Nest-in (Housing, Water
Roofing Accessories
Construction ATMs, bio-toilets)
Infrastructure
(B2B)
Housing & TMT Rebars (Higher Tiscon Readybuild (Cut & Bend
Commercial Dia Rebars, Corrosion Bars)
(Business 2 Resistance Steel) Bar Bending Schedules
Emerging Corporate
Account)

Product Application Experts &

Hot Rolled, Cold Rolled,
Auto OEMs Customer Service Teams
Coated Steel Coils &
(B2B) Shaped Blanks
Sheets
Value Analysis & Value
Engineering Support
Automotive Hot Rolled, Cold Rolled,
Coated Steel Coils &
Sheets
Auto Ancillaries
Tubes Certified Service Centres
(B2B, B2ECA)

Spring
Bearings
General Panel & appliances Steelium Panel Application Specific Products
Engineering (B2ECA) Galvano Panel,
Fabrication & Appliance Restriction of Hazardous
Capital Goods Substances (RoHS) Compliant
(B2ECA) Product

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 Furnitures
(B2ECA)
Higher Width
LPG
Hot Rolled LPG Blanks
(B2B)
Single Cast Supplies
Vendor Managed Inventory
Welding
Wire Rods Wire-2-Win (Knowledge
Industrial (B2B)
Platform)
Process Industries
(e.g. Cement, power, Ferro Chrome
Long-Term Contracts
steel) Process Tubes
Customised Packaging
(B2B)
Agri equipment
Bearings Early Vendor Involvement
(B2B)
Agriculture
Fencing, Farming & GI wires
Amritdhara (Borewell pipe with
Irrigation Agri & Garden Tools
seamless socket)
(B2C) Conveyance Tubes
Barbed Wires

Q5. Explain Industry Bandwidth of Working Relationship. (Prepare diagram, construct relationship
specific market offering and price relationship specific offering). Give suitable example from Hospital
sector.

Answer. The strategies competing firms in an industry pursue fall into a range referred to as the industry
bandwidth of working relationships. Business marketers either attempt to span the bandwidth with a
portfolio of relationship-marketing strategies or concentrate on a single strategy, thereby having a
narrower range of relationships than the industry bandwidth.
By diagnosing the spectrum of relationship strategies competitors in an industry follow, a business
marketer can tailor strategies that more closely respond both to customers who desire a collaborative
emphasis and to those who seek a transaction emphasis. The strategy involves flaring out from the
industry bandwidth in the collaborative as well as in the transactional direction
FLARING OUT BY UNBUNDLING - An unbundling strategy can reach customers who desire a
greater transaction emphasis. Here, related services are unbundled to yield the core product, which meets
a customer’s basic price, quality, and availability requirements. For each service that is unbundled, the
price is lowered. Augmented services, such as technical assistance, consulting, and just-in-time delivery,
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are each offered, but in a menu fashion, on an incremental price basis. Importantly, the price increments
for the entire set of unbundled services should be greater than the price premium sought for the
collaborative offering. This reflects the efficiencies of providing the complete bundle of services to a
collaborative account. This pricing policy is market oriented in that it allows customer fi rms to choose
the product and relationship offering that they perceive to provide the greatest value.
FLARING OUT WITH AUGMENTATION - At the other extreme, the collaborative offering
becomes the augmented product enriched with features the customer values. Augmented features might
include coordinated cost-reduction programs, technical assistance, delivery schedule guarantees, and
cooperative advertising. Because collaborative efforts are designed to add value or reduce the costs of
exchange between partnering firms, a price premium should be received for the collaborative offering.

Example - Allegiance Healthcare Corporation has developed ways to improve hospital supply ordering,
delivery, and billing that provide enhanced value to the customer. Instead of miscellaneous supplies
arriving in boxes sorted at the convenience of Allegiance’s needs, they arrive on “client-friendly” pallets
customized to meet the distribution needs of the individual hospital. Moreover, hospitals can secure a
structural connection to Allegiance through its ValueLink ordering system for added value and
convenience.
CREATING FLEXIBLE SERVICE OFFERINGS - Business marketers can gain a competitive edge
by creating a portfolio of service offerings and then drawing on this portfolio to provide customized
solutions for groups of customers or even individual customers.40 First, an offering should be created
that includes the bare-bones-minimum number of services valued by all customers in a particular market
segment. Microsoft refers to these offerings as “naked solutions.” Second, optional services are created
that add value by reducing costs or improving the performance of a customer’s operations. To meet the
needs of particular customers, optional services can then be “custom wrapped” with the core offering to
create added value.
INDUSTRY BANDWIDTH OF WORKING RELATIONSHIP - The company marketer should then
investigate the dynamics of buyer-seller relationships in the industry in order to establish customer-
specific product offerings. Competing companies in a sector follow strategies that fall within a spectrum
known as the industry bandwidth of working relationships. Business marketers may either try to cover
the spectrum with a portfolio of relationship marketing strategies or focus on a single approach, resulting
in a smaller number of relationships than the industry bandwidth.
Medical equipment and hospital supplies are two distinct types of sectors that are placed on a
relationship continuum. The medical equipment industry is classified as such because the underlying
technology is complex and diverse collaborative relationships. The core product can be supplemented
with a variety of resources such as technical assistance, installation, professional training, and
maintenance agreements. In the hospital supply sector, collaborative relationships are more focused on
assisting healthcare entities in meeting their organizational needs.
Through analyzing the range of partnership tactics that rivals in an industry use in a business
environment, you will develop strategies that are more responsive to customers who want to collaborate
as well as those who want to transact. Flaring out from the market bandwidth in both the collaborative
and transactional directions is part of this strategy.
Flaring out by Unbundling:
Customers who want a stronger transaction focus will benefit from the unbundling strategy. Related
services are bundled with the core product to ensure that it meets the customer's specific price, quantity,
quality, and availability criteria. The price is reduced for each service that is unbundled. Technical
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assistance, consultation, and just-in-time delivery are all available as augmented offerings, but only on a
menu basis with incremental pricing. Importantly, the price increments for the full package of packaged
services should exceed the price premium sought for additional collaborative offerings. This pricing
policy is market oriented and that it allows customer firms to choose the product and relationship
offering that they perceive to provide the greatest value.

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