| Summary and Conclusions
Overall, the results illustrate a concept that we call the "power of weak relationships." Put simply, building closer and more profitable relationships over time with customers depends directly on building a balanced portfolio that includes weaker relationships. Acquaintances provide both the economies of scale that benefit an entire portfolio and serve as a basis for future, more profitable friends and partners. Even in the context of a high touch, luxury service, acquaintances are critical to building a high performing customer portfolio. However, in spite of the growth that characterizes the Asian hospitality industry, building closer relationships with customers protects a company´s customer portfolio from eroding margins. As more than one of our scenarios illustrates, focusing on intermediate-level relationships (i.e., friendships) provides a natural balance in the tradeoff between the time and cost involved in building closer relationships and the risks associated with small-margin customers.
The results further underscore the complexity of CPM decisions. The timing of relationship-specific investments becomes a very complex marketing problem when multiple characteristics of the Asian hospitality industry are considered simultaneously. I would like to use this observation to reinforce the need to model this complexity. Our approach to helping individual companies is to better understand their specific inputs to the CPLV model, estimate how contributions from their portfolio are affected by different types of relationship investments, and adjust their marketing mix variables accordingly. No one, myopic approach to managing customers will suffice in a context as rich and dynamic as the Asian hospitality industry.
I hope that you all enjoyed today´s lecture. I want to thank the Chinese University of Hong Kong for this wonderful opportunity and their gracious hospitality. Special thanks go to my friend and colleague Professor Kam-hon Lee for organizing today´s event. Thank you!
References
• Johnson, Michael D. and Fred Selnes (2004), "Customer Portfolio Management: Toward a Dynamic Theory of Exchange Relationships," Journal of Marketing, 68 (April), 1-17.
• Johnson, Michael D. and Fred Selnes (2005), "Diversifying Your Customer Portfolio," MIT Sloan Management Review, 46 (Spring), 11-14.
• Buzzell, Robert D. and Bradley T. Gale (1987), The PIMS Principles. New York: The Free Press.
• Kynge, James (2006), China Shakes the World: A Titan´s Rise and Troubled Future – and the Challenge for America. New York: Houghton Mifflin Company.
• Selnes, Fred and Michael D. Johnson (2004), "A Dynamic Customer Portfolio Management Perspective on Marketing Strategy," in Håkan Håkansson, Debbie Harrison and Alexandra Waluszewski (eds.), Rethinking Marketing: Developing a New Understanding of Markets, West Sussex, England: John Wiley & Sons, pp. 117-135. |