Does customer portfolio analysis relate to customer...

Does customer portfolioanalysis relate tocustomer performanceAn empirical analysis ofalternative strategicperspective

Teck-Yong Eng

An executive summary for managers andexecutive readers can be found at the endof this article

Introduction

Customer portfolio analysis is a concept ofbusiness-to-business marketing used foranalyzing supplier-customer relationships inorder to help managers allocate scarceorganizational resources (Ford 1997) andensure long-term profitability of customerrelationships (Kotler et al 1996) Customerportfolio models generally propose that theoptimal composition of customer relationships isdetermined by assessing the relativeattractiveness of customer relationships againstthe relative competitive position of the sellingcompany (eg Fiocca 1982 Campbell andCunningham 1983) Other researchersconcentrate on individual strategic variables suchas cost to serve customers andor profitability ofcustomer relationships (see Shapiro et al 1987Krapfel et al 1991) The strategic variable orcustomer portfolio dimension may correspond toan independent variable or form part of acomposite dimension (Pardo and Salle 1995)The relevant subvariables of the compositedimension suggested by a particular customerportfolio model depend mainly on customerbehaviour the nature of the product theindustry the characteristics of the company andthe preference of its management (Wind andMahajan 1981)

The guiding principle of different customerportfolio dimensions is often based on the notionthat environmental forces (eg market growthcompetition technological factors) areuncontrollable or strategic decision is based onadapting the company to its environment Thisline of reasoning is predominantly influenced byindustrial organization (IO) economics theorythat is a firmrsquos position in the industrydetermines its competitive advantage (Porter1980) For example research shows that industrystructure explains some performance differencesacross industries (Schmalensee 1985 Rumelt1991 McGahan and Porter 1997 McGahan1999) The influence of IO perspective has beena useful starting point for the development ofearly customer portfolio models

The author

Teck-Yong Eng is Lecturer in Marketing Aston University

Aston Business School Birmingham UK

Keywords

Customer records Data analysis Performance measures

United Kingdom

Abstract

An important managerial task in business-to-business

marketing is the strategic management of supplier-customer

relationships which is concerned with a portfolio of

relationships A review of existing customer portfolio

theories reveals that most of the portfolio dimensions have

not yet been empirically validated the theoretical base of

relevant dimensions may be conceptually inadequate in

terms of strategy analysis and the link between customer

portfolio dimensions and customer performance has not yet

been examined Attempts to address these gaps in the

literature by studying customer portfolios of large UK-based

banks The main results indicate that the common industrial

organization perspective may only give a short run picture of

customer performance Suggests that long run positioning

value of a customer portfolio can be accounted for by

resource-based analysis and strategic approach to customer

portfolio analysis Concludes with a discussion of the results

and implications

Electronic access

The Emerald Research Register for this journal is available at

wwwemeraldinsightcomresearchregister

The current issue and full text archive of this journal is

available at

wwwemeraldinsightcom0885-8624htm

49

Journal of Business amp Industrial Marketing

Volume 19 Number 1 2004 pp 49-67

Emerald Group Publishing Limited ISSN 0885-8624

DOI 10110808858620410516736

However early customer portfolio models arelacking behind the development of a dominantresource-based view (RBV) theory of the firm inthe strategy literature The RBV focuses onadapting the environment to the company anddifferential stocks of resources and capabilitiesas the basis for explaining firm performance(Wernerfelt 1984 Peteraf 1993) Marketingscholars have cautioned against thedeterministic approach of IO perspective and itsoveremphasis on environmental forces (Juttner1999 Eng 2002) In addition the long-termnature of business-to-business relationshipsdemands explicit recognition of strategic orlong run positioning value of the array ofcustomer relationships in a portfolio as opposedto short-run profitability Such a strategicapproach may account for the long-termprofitability of IO perspective and resourceadvantage of the customer portfolio Existingcustomer portfolio models have not yetexamined the integration of resources requiredfor both short- and long-run positioning of thecustomer portfolio Kotler et al (1996) note theimportance of a long-term view of buyer-sellerrelationships in business markets These viewsof resource advantage and strategic perspectiveof customer portfolios may provide fruitfulrewards to both marketing academics andpractitioners Yet little is known about theeffects of different strategic perspectives ofcustomer portfolio dimension on customerperformance

The present study addresses the above gaps byempirically examining the link between customerportfolio dimensions and customer performancein the context of large UK-based banksSpecifically the main contributions are to provide empirical evidence of the validity of

common customer portfolio dimensions integrate and examine the RBV and

strategic approach to IO perspective forcustomer portfolio analysis and

explore the relative strength of the impactof different strategic perspectives oncustomer performance

These contributions are accomplished byconceptualizing on and integrating differenttheoretical perspectives empirical research andin-depth study of factors used by banks in

evaluating customer firms with which they wishto form successful relationships

The present study extends customer portfolioresearch by embracing an empirical approachand striving for validation of strategicdimensions from the point of view of the sellingcompany The choice of variables for empiricalanalysis is based on an extensive review ofexisting customer portfolio models as well asobservations of business practice Of particularrelevance will be the usefulness and validity ofcustomer portfolio variables used and whetherthe variables help explain customerperformance Customer performance isconcerned with the overall desirability of thecustomer account with respect to relevantcustomer portfolio dimensions from the sellingcompanyrsquos perspective

The remainder of the article is organized asfollows The next section provides a review ofexisting customer portfolio models in order toidentify common variables andor theory usedfor analyzing supplier-customer relationshipsThis is followed by discussion of studies thatshow the link between strategy theories andfirm performance In doing so hypotheses ofthe relationships among strategic perspectivesand customer performance are put forwardThe method section describes the study sampleand data analysis The article concludes with adiscussion of the results and implications

Reviewing models of customer portfolioanalysis

Customer portfolio development and analysis isa key managerial task of the marketing functionin business-to-business marketing (Turnbulland Valla 1986) The concept of customerportfolio analysis is compatible with theinteraction approach that integrates anddescribes the interplay of properties involved inthe interaction between a supplier and customerin business markets (a detailed description isgiven by Hakansson (1982)) This conceptencourages the analysis of a supplierrsquos ownneeds and requirements from the proposedrelationship before deciding on the degree ofcommitment of resources in the light of theseobjectives It focuses on the interdependenciesamong the various management decisions and

50

An empirical analysis of alternative strategic perspective

Teck-Yong Eng


Volume 19 Number 1 2004 49-67

emphasizes an integrated approach to themanagement of the companyrsquos customerrelationships

The strategic variables of existing customerportfolio models have derived from eitherproduct portfolio analysis or been generatedfrom a specific context of its application As aresult of this there is little consensus as to thepertinent variables against which to analyze acustomer portfolio Some scholars argue that itis more desirable to customize portfolioanalyses to allow idiosyncratic elements to beconsidered by management (Wind andMahajan 1981) or to integrate the dimensionsof the various models to take advantage of theirunique capabilities (Wind et al 1983) Whilethe type of strategic variables used for theanalysis may depend on the supplierrsquosobjectives portfolio decisions are multi-functional and interdependent (Turnbull andValla 1986 Turnbull 1990)

Table I illustrates in a summary form thecommon variables recommended andor usedin customer portfolio development and analysisPrevious customer portfolio models focus onthe analysis of the cost-to-serve individual

customers relative market share marketgrowth and differentiation But there is not yetempirical analysis of the link between thestrategic perspectives adopted for customerportfolio analysis and customer performanceThis is partly due to the difficulty of makingsubstantive generalization from the majority ofcompany-specific case studies of previousresearch In addition most of the customerportfolio variables have not been empiricallydeveloped with the exception of Campbell andCunninghamrsquos (1983) model The commoncomposite dimensions suggested by previouscustomer portfolio models are competitivestrength and industry attractiveness Forinstance relative market share is used forrelating the firm to its competitors (see egFiocca 1982 Campbell and Cunningham1983) It can be noted that competitivepositioning of the selling companyrsquos resourcesandor selection of customers is mainly basedon the analysis of industry characteristics

As the preceding suggests the IO perspectivehas a dominant influence on the strategyanalysis of customer portfolio developmentThe IO theory also known as the structure-

Table I Past studies on customer portfolio models

Customer portfolio modelsa andtheir dimensions Past empirical studies

Theoretical foundations for strategydevelopment

Fiocca (1982)

Ease in managing accountb

Importance of accountb

Business attractivenessb

Buyer-seller relationshipb

Yorke and Droussiotis (1994)

Eng (1999)

Industrial organization economics

Campbell and Cunningham (1983)

Life cycle classificationb

Power balanceb

Growth rate and market share


Eng (1999)

Product life cycle theory

Porterrsquos (1980) five forces framework

(power balance analysis)

Experience curve concept (eg BCG

matrix)

Shapiro et al (1987)

Cost to serveb

Net price (sales revenue)

Turnbull and Zolkiewski (1995)

Eng (1999)

Industry determinants (eg profitability)

Krapfel et al (1991)

Relationship valueb

Interest commonalityb

Perception of relative power balanceb

Turnbull and Zolkiewski (1995) Relational contract model (MacNeil

1980)

Transactional cost analysis approach

(Williamson 1975)

Notes aThere are other customer portfolio models that do not accommodate interactions or relationship developmentbetween buyers and sellers such as Hartleyrsquos (1976) Standard Industrial Classification Grouping Smackeyrsquos (1977) threestage model and Canningrsquos (1982) customer value analysis bDenotes composite dimension comprised at least twosubvariables

51


Teck-Yong Eng



conduct-performance paradigm states thatindustry structure dictates conduct which inturn determines performance (Porter 1980) Incommon with the IO theory much of theemphasis of existing customer portfolio modelsis about the environment Similarly theinteraction approach is mostly characterized byfactors concerning the environment and theirinfluence on the buyer-seller relationshipExamples of structural determinants includebargaining power cost leadership position inthe marketplace and market structure Theperspective of IO theory provides insights intothe determinants of industry structure onperformance particularly in the short run

The present study proposes that customerportfolio development and analysis should notonly examine the short run determinants ofperformance but also the resource advantageand long run positioning value of the customermix Figure 1 provides a graphic overview of thelink between strategic theory and firmperformance This conceptual frameworkprovides the background to the variablesexamined in this study Current customerportfolio models do not analyze the underlying

resource endowments that allow the supplierand customer to interact efficiently in arelational exchange Both firm-specific resourcedifferences and inter-industry differences havebeen noted as important determinants ofstrategy and performance (Henderson andMitchell 1997) Consistent with the nature ofrelationship development in businessmarketing customer portfolio development andanalysis should adopt a strategic approach toachieving successful long-term supplier-customer relationships While there are otherstrategic variables concerned with the analysisof supplier-customer relationships (egcustomer life cycle) they follow the samedeterministic logic of the IO perspective Thedimensions of customer life cycle strength ofthe supplier-customer relationship and easedifficulty of managing customer accounts didnot survive the preliminary scale purificationprocedure and therefore were not included as ameasurement component of the conceptualframework in this study

Figure 2 depicts the conceptual framework ofthis study that integrates the influential IOperspective with RBV drawing on a strategic

Figure 1 An overview of key constructs relevant to firm performance

52


Teck-Yong Eng



approach to customer portfolio analysis Thisframework extends the existing customerportfolio concept by exploring alternativestrategic perspectives for customer portfoliodevelopment and examining the link tocustomer performance Although variousresearchers have studied the link between IOand RBV and firm performance (eg Rumelt1991 Teece et al 1997) they often focus onindividual dimensions To date work oncombining strategic perspectives and examiningtheir influence on customer performance hasnot as yet been the subject of extensiveempirical investigation In the followingsections the link between the strategicdimensions and performance is discussed

The link between industry characteristicsand firm performance

There is a long tradition of empirical researchassociated with the IO theory as regards theidentification of the elements of industriescontributing to firm performance (for reviewssee Scherer 1980) For example a large set ofenvironmental factors have performeddifferently in different studies but the factorsexamined are difficult to dispute (seeRavenscraft 1983) Porterrsquos (1980) popularfive forces model provides a collective analysisof industry forces that determine industryprofitability The five forces are concerned with

the various aspects of an industry structurebargaining power of buyer and suppliersubstitutes degree of competition and threat ofnew entrants These variables have beenexamined as a composite dimension of industryattractiveness in customer portfoliodevelopment and analysis IO economics hasproven extremely useful to researchers ofstrategy content in providing a basic theoreticalperspective on the influence of market structureon firm strategy and performance(Schmalensee 1985 Hansen and Wernerfelt1989) It has also produced many conceptualinsights (eg concepts of barriers to entry andmobility) which can be usefully applied to themarketing strategy area (Varadarajan et al1992 Zinkhan and Pereira 1994)

While research on the elements of industriesfrom the IO perspective purports to explainfirm performance the focus is on short-termperformance of firms rather than the long runpositioning value of a firmrsquos portfolio ofcustomer relationships In addition noempirical investigation has been carried out toexamine the influence of industry variables oncustomer performance Existing customerportfolio models implicitly assume thatempirical evidence from the study of firm levelperformance can be moved to customer levelPrevious customer portfolio models haveemphasized the relevance of their strategicdimensions without examining the implicationsfor customer performance (eg Campbell and

Figure 2 Model overview (from the perspective of the selling company)

53


Teck-Yong Eng



Cunningham 1983) Although Shapiro et al(1987) and Krapfel et al (1991) proposeconceptual models for analyzing thecost-to-serve individual customers and thevalue of customer relationships the linkbetween strategy and customer performancehad not been empirically examined Thusalthough there is empirical support for therelationship between industry structure andfirm performance the relationship withcustomer performance may differ due to thefocus on customer level analysis

According to Porter (1980) firmsrsquo actions bytriggering imitation can positively or negativelyinfluence the structure of an industry withoutleading to competitive advantage In otherwords firm performance is determined byindustry structure and the firmrsquos strategicposition in the industry Strategic position isprimarily based on three generic strategiesoverall cost leadership differentiation andfocus which is a function of the number ofproduct markets served and the degree ofvertical integration Past studies have reportedequivocal results for the link between strategicposition and firm performance fordifferentiation strategy (Pelham and Wilson1996) and cost position (Pelham and Wilson1996 Slater and Narver 1994) Empiricalresults more consistently support theproposition that focus ndash measured as relativemarket share (Narver and Slater 1990 Pelhamand Wilson 1996 Slater and Narver 1994) orlevel of resources (Gatignon and Xuereb 1997)ndash has a positive impact on firm performanceThe emphasis on market share is evident inmost part of the analysis suggested by existingcustomer portfolio models

However the three generic strategies ignorethe fact that all markets are heterogeneous andthus a non-segmented strategy is inevitablysuboptimal (Wind and Robertson 1983)Hatten and Schendel (1977) in their studiesdemonstrated the existence of structuralheterogeneity within industries They add thatthe focus on generic strategies can serve as anobstacle to creativity and can obscure thesubtlety of most successful strategies RecentlyHawawini et al (2003) conclude from theirreview of past studies that industry effects donot matter much with respect to a firmrsquosperformance In addition the static

consideration of cost position does not mirrorthe nature of relationship development inbusiness markets (see Miller and Friesen 1983Miller 1988) Consistent with the IO theory itcan be hypothesized that

H1 Customer performance will have apositive association with the industryattractiveness

The link between resources and firmperformance

While IO perspective to strategy has addressedindustry determinants of competitiveadvantage there is lack of analysis of the firmrsquosinternal resources Resources are defined asthose tangible (or intangible) assets that are tiedsemi-permanently to the firm (Maijoor andWitteloostuijn 1996) Wernerfelt (1984)proposes the resource-based theory of the firmwhich conceives the firm not through itsactivities in the product market but as a uniquebundle of tangible and intangible resources (egbrand names in-house knowledge oftechnology skilled personnel trade contractsetc) The resource-based theory views industrystructure as reflecting efficiency outcomesrather than market power In this traditiondifferences in performance tend to signaldifferences in resource endowments Theresource-based theory recognizes theimportance of unique difficult-to-imitateresources in sustaining performance It seeks toidentify the resources that may provide firmswith a sustainable competitive advantage (egAmit and Schoemaker 1993 Barney 1991Peteraf 1993)

While strategic management research hasshown that resources and capabilities aresources of competitive advantage little isknown about the role of resources in customerportfolio development and analysis Empiricalresearch into the sources of advantage hasbegun to point to organizational capabilitiesrather than product market positions or tacticsas the enduring sources of competitiveadvantage (Rumelt et al 1991 Teece et al1997) Empirically numerous studies haveattempted to measure a firmrsquos resources andcapabilities and then to correlate thesemeasures with a firmrsquos performance (eg

54


Teck-Yong Eng



Robins and Wiersema 1995 Henderson andCockburn 1994 Makadok 1999 Barney andArikan 2001) These studies show that firmsthat build their strategies on path dependentcausally ambiguous socially complex andintangible assets outperform firms that buildtheir strategies only on tangible assets It isgenerally suggested that persistent firmheterogeneity in terms of resource endowmentsarises because of barriers to imitation (Rumelt1991) and firmsrsquo inability to alter theiraccumulated stock of resources over time(Carrol 1993) Thus sustained profits areregarded as a return to unique assets owned andcontrolled by the firm

Literature about the resource-based theoryhas for the most part been process oriented orconcerned with issues of strategyimplementation (Grant 1991) Since the RBVexamines an organizationrsquos resources at the firmlevel the resources allocated in a supplier-customer relationship could be unique Forinstance two companies in a businessrelationship could access exchange developand combine their heterogeneous collections ofresources Hakansson and Snehota (1995) notethat as a general rule of business-to-businessexchange some resources are exchanged andtransferred between the companies others areaccessed and reciprocally used in other waysThe implication of the nature of this exchangeis that superior customer performance inportfolio management may stem from uniqueassets tied to the supplier-customerrelationship With the exception of Hallrsquos(1993) and Barney and Griffinsrsquo (1992) RBVframeworks there is comparative neglect ofstudies on normative frameworks Hallrsquosframework distinguishes between assets andcapabilities (see Figure 1) It has not beenexamined in terms of the association betweenresource capability and customer performance

H2 Customer performance will have apositive association with the resourceadvantage of the customer portfolio

The link between strategic approach andfirm performance

The preceding section suggests that to accountfor the relationship between strategic position

and customer performance the long-term costpositioning of customer mix needs to beconsidered In this study the concept ofstrategic approach has been used to refer tostrategic predisposition and long-term view ofcustomer performance This is in line with thenature of strategic orientation that has beenvariously described as strategic fit strategicpredisposition strategic thrust and strategicchoice (Morgan and Strong 1998) It is alsocompatible with the RBV which recognizes thenature of resource accumulation and pathdependence resource competency Forexample the development of supplier-customerrelationships often requires substantialinvestment of strategic resources and success ofthe relationships depends on ongoing activities(Hakansson and Snehota 1995) A strategicapproach suggests that with a long-term view ofthe resources such as capabilities competitiveposition and cost implications of customerrelationship development an organization canenhance its performance (see Porter 1991)

The concept of strategic approach focuses onstrategic predisposition rather than the broadtreatment of strategic orientation The latter hasnot been well established due to differentdefinitions and treatments of the construct inthe literature (Morgan and Strong 1998 Nobleet al 2002) Also strategic orientation can bedefined as a multidimensional construct thatcaptures an organizationrsquos relative emphasis inunderstanding and managing theenvironmental forces acting on it (Gatignonand Xuereb 1997) In this view strategicorientation encompasses customer competitorand product orientations Empirical resultsprovide support for the relationship betweenstrategic orientation and firm performance(Han et al 1998 Gatignon and Xuereb 1997)In order to consider the long-term positioningof customer performance a strategic approachmust be examined within the context ofcustomer portfolio analysis On reviewingexisting customer portfolio dimensions it ispossible to identify and examine the strategicapproach of customer portfolio developmentand analysis by using the dimension of strategicimportance of account (Fiocca 1982) Whilethe importance of the strategic approach hasbeen recognized work to date remainsconceptual andor limited to operationalization

55


Teck-Yong Eng



of the construct (eg Eng 1999) The directrelationship between strategic approach andcustomer performance has not yet beenexamined Thus

H3 Customer performance will have apositive association with the long-termvalue of the customer portfolio

Methodology

To examine these hypotheses the present studychose a single industry setting of largecommercial UK-based banks in London Atotal of 17 banks were approached and theyaccounted for more than half of the bankingbusiness in the UK This approach allowsperformance consequences to be considered inthe same competitive environment and avoidsinter-industry effects that could confound theresults The financial services industry is aninteresting context given the importance ofcorporate accounts intense competition in amature market and rent-producing strategicassets such as patents knowledge services andother unique advantages

A total of nine banks were prepared toparticipate in the study on the condition thattheir identity would not be disclosed in anypublication Non-response bias was not aproblem because the banks operate in the samegeographic location and the study focused on asingle corporate banking division and examinedportfolios of large customers (eg nationalandor multinational companies) of the banks

The unit of analysis for this study is a specificsupplier-customer relationship While it may beconceptually appealing to collect data fromboth the supplierrsquos and customerrsquos perspectivethis research analyzed customer performancefrom the supplierrsquos vantage point In this studyindividual customer accounts were examinedfrom the selling companyrsquos perspective for thepurpose of customer portfolio management

The present study used a standardquestionnaire guide based on customerportfolio variables identified in Figure 1 Itemsof the questionnaire are presented in Table IIThe wording of scale items and directions andother survey procedures was refined on thebasis of a small pilot study with 11 seniorexecutives prior to the actual study As

indicated earlier several customer portfoliodimensions were removed from the analysis dueto poor reliability results In general itemsreported in previous research were used andmeasured on five-point Likert scales

Personal in-depth interview technique wasemployed to collect data specific to customerportfolios of the banks A letter explaining thepurpose of the study was first sent to chiefexecutive officers (CEOs) or managingdirectors of the sample population This wasfollowed up with telephone calls to assureanonymity and provide further informationabout the study Research access wasestablished through CEOs and a snowballtechnique was used to contact relevantmanagers with knowledge of specific customerportfolio dimensions

A final sample of 225 supplier-customerrelationships was examined in this study Thissample comprised one customer portfolio oflarge corporate customers from each bank Thesample size cannot be determined by statisticalsampling technique because it depends on thenumber of corporate customers managed byindividual banks Also the number of largecustomers in a portfolio is relatively small (egranging from 15 to 25) due to the substantialamount of resources required to manage largeaccounts and the limited number of largeaccounts in the industry The availability of dataat an individual level means that the customerswere considered important to the banks

Measures

The relationship between the various customerportfolio dimensions and customerperformance was examined using multipleobjective and subjective measures As thedescriptions that follow indicate the majority ofmeasures were drawn from the literature andexamined in the context of the financial servicesindustry

Dependent variables

Customer performance was measured usingmultiple indicators This is not only because of

56


Teck-Yong Eng



Table II Scales items and loadings of exploratory factor analysis on customer portfolio variables

Factors and items Loadings

The following criteria were calculated and measured on five-point Likert scales with 1 being anchored at

` very unfavourable performancersquorsquo and 5 being anchored at ` very favourable performancersquorsquo

Customer performance ( of variance = 15951 Eigenvalue = 3287)

Net profit of individual customers was estimated by deducting both direct and indirect cost-to-serve

customer from sales revenue Since data on indirect costs may not be readily available costs were

apportioned based on contribution of sales revenue to relevant cost centres 0751

Return on investment (calculated by dividing gross profit against total assets employed) 0672

Growth rate was examined in terms of sales growth andor growth of the customerrsquos business 0744

Industrial organization perspective (percentage of variance = 14715 Eigenvalue = 2761)

The following scale items were measured on five-point Likert scales with 1 being anchored at ` strongly

disagreersquorsquo and 5 being anchored at ` strongly agreersquorsquo

To what extent do the following statements reflect the customerrsquos operating business environment

Demand characteristic

The demand of customerrsquos business is very high 0601

Market turbulence is very low 0636

Demand uncertainty is very low 0621

The market growth of customersrsquo business is very good 0749

The buyer power is not hindering the management of supplier-customer account 0608

Competitive characteristic

There is little competitive hostility in the market of the customer 0648

Competition is not intense in the customerrsquos business environment 0793

There is low competitive concentration 0620

There is low availability of substitutes of the customerrsquos business 0637

Ease of entry to the customerrsquos business is low 0784

There is high barrier to the customerrsquos business 0713

The industry of the customerrsquos business is growing 0619

Supply characteristic

There is low technological turbulence 0626

We have good bargaining power over the customerrsquos business in the marketplace 0795

Strategic position

We assess our competitive position based on the relative market share of customerrsquos business vis-aAacute -vis

competition 0752

We allocate our scarce organizational resources in terms of the of cost and margin of customerrsquos business 0781

We develop differentiation strategies for product lines and services based on customerrsquos operating business

environment 0725

Strategic importance of the account (percentage of variance = 10361 Eigenvalue = 2492)



The customer account has a very high potential 0850

The customerrsquos volume of business is very significant to us 0793

The customer account has a very high prestige 0613

The customer is the leader in the market 0793

The customer has a diversified business that could create further opportunities for us 0602

The customer business will open new markets for us 0672

(continued)

57


Teck-Yong Eng



Table II


The customer will improve our technological strength 0656

The customer will improve our relationships with other business relationships 0648

Resource-based capability (percentage of variance = 12876 Eigenvalue = 2371)



Product attributes

Companies have sustainable competitive advantage when they consistently produce products andor delivery

systems with attributes which correspond to the key buying criteria for the majority of the customers in

their targeted market

We regard the prices of our products or services as very competitive for the customer 0601

We consistently produce products of high quality for the customer 0681

We consider our products or services playing important functions in the customerrsquos business 0643

We have good availability of products or services for the customer 0612

We consider the image of our products or services as very good for the customer 0630

We provide very good after sales service for the customer 0725

We regard ourselves as innovative in terms of the range of our products or services for the customer 0709

We are seen as providing very good customer convenience for the customer 0682

Regulatory capability (this results from the possession of legal entities such as intellectual property rights

contracts trade secrets etc)

We have secured very good business contracts with the customer 0701

We have exclusive licences for products or services we offer to the customer 0619

We have highly regarded business patents for products or services we offer to the customer 0635

We have copyright of products or services that our competitors cannot sell to the customer 0605

We have trademarks that are regarded as competitive advantage to the customerrsquos business 0652

Positional capability (this is a consequence of past actions and decisions eg have produced a certain

reputation with customers a certain configuration of the value chain etc In some cases the defendability

of onersquos position may reside in the length of time it would take a competitor to achieve onersquos position)

The distribution network for the products or services we offer to the customer is very established 0703

The value chain configuration for delivering product or services to the customer is very superior compared

to our competitors 0742

The networks of relationships of our organization are very beneficial to the customer 0795

The reputation for the products or services we offer to the customer is very good 0683

Functional capability (this relates to the ability to do specific things it results from the knowledge skill and

experience of employees and others in the value chain such as suppliers distributors stockbrokers

lawyers advertising agents etc)

We possess skill that the customer regards as key to its business operations 0852

We have experience that the customer regards as key to its business operations 0816

We possess knowledge that the customer regard as key to its business operations 0781

Cultural capability (this applies to the organization as a whole It incorporates the habits attitudes beliefs

and values which permeate the individuals and groups which comprise the organization)

We have a culture of high quality standards for the services we offer to our customers 0680

We are known for providing very good service to our customers 0679

We regard our ability to manage change as key to the customer 0641

We regard our ability to innovate as key to the customer 0705

We regard our team working ability as key to the customer 0711

We regard our participative management style as key to the customer 0631

58


Teck-Yong Eng



the potential to increase reliability of theanalysis (see Calantone et al 2002) but alsocost data of individual customers could bebased on estimates andor not be readilyavailable (Eng 1999) Sales and cost data overa period of 12 months were used in the profitcalculation to include sales variation in onefinancial cycle Indirect costs (eg overheadcosts) not recorded at an individual level wereestimated by apportioning them based on salesrevenue generated by each customer (see Ward1993) The indicators used were net profit estimated by deducting both

direct and indirect costs from sales revenue return on investment calculated by

dividing gross profit against total assetsemployed and

growth rate examined in terms of growth inoperating profit from the customerrsquosbusiness

Independent variables

IO perspectiveThis strategic perspective was analyzed byassessing the attractiveness of industrycharacteristics used in strategic positioningThe variables were drawn from Porterrsquos (19801985 1991) work on strategy and firmperformance The relationship between IOperspective and customer performance wasexamined as a function of competitivepositioning such as cost leadership relativemarket share and differentiation

Resource-based capabilityThis composite dimension captured fourdifferent resource differentials positionalregulatory functional and cultural (Hall 1993)In addition the attributes of products orservices perceived as sources of competitiveadvantage were identified They were firstexamined in the context of the resourcesproducing competitive advantages in the overallcorporate market and then more specifically theresources allocated to individual customerrelationships of the customer portfolio

Strategic approachFollowing Fiocca (1982) strategic approachwas assessed in terms of the account potential

of individual customers This dimensionattempts to examine the long-term value of acustomer account based on its overalldesirability The strategic approach isconcerned with factors that would enhance thefuture attractiveness of the customer accountFor example improvement of technologicalstrengths between the supplier and customercould enhance cost position and providedirection for resource allocation Thus thisapproach seems to extend the IO perspectiveand RBV by considering the long run costposition and resource development of customeraccounts

Data analysis

First exploratory factory analysis with principalcomponent extraction and varimax rotation wasapplied to each category of exploratory variables(see Table III) Items in each factor wereexamined so that only the items with consistentmeans were retained for measuring the factorThey were summarized by building the scalemean of each first-order construct First-orderconstructs comprised multiple items from thehigher-order (second-order) constructs of thecustomer portfolio dimensions Convergentvalidity of the second-order constructs wasconventionally checked by performingexploratory factor analyses with the first-orderconstructs as input variables Reliability of thefirst- and second-order constructs was checkedby computing Cronbachrsquos alpha coefficientsand item-to-total correlations Items wereremoved using the conventional criterionnamely items loaded on multiple factors andhad a factor loading below 060 (see Table III)Reliabilities of at least 060 are consideredsufficient for exploratory research (Peter1979)

As shown in Table IV the results of theCronbachrsquos alphas for first- and second-orderconstruct and the explained variance of theexploratory factor analyses on second-orderconstruct provide sufficient reliability Onfirst-order level all Cronbachrsquos alphas areabove 060 and second order levelCronbachrsquos alphas are above 070 In allcases explained variance by one factor ismore than 50 per cent Therefore there is

59


Teck-Yong Eng



reasonable reliability and convergent validityof the measures

In order to investigate the relationshipbetween the strategic dimensions andcustomer performance the significant factorsof independent variables were developed byaveraging the respective individual itemsMeans of depended variables were computedand their impact on customer performancewas analyzed by using multiple regressionThis technique provided a simultaneous testof multiple independent variables againstcustomer performance

While the results do not indicate individualvariables that contribute significantly to thecustomer performance they form part of theperspective used for customer portfolioanalysis and development Furthermore theperspective comprised composite variablesthat could be specific to individualorganizations

Results

As shown in Table III the research hypotheseswere tested by means of a regression model thatlinks the three independent variables to themeasure of customer performance There issufficient variance to justify examining theindividual coefficients (adjusted R2 = 033) Theregression analysis is considered to be moreappropriate for explorative instruments thancausal modeling The latter is more suitable forestablished constructs For example the analysisinvolved the use of managersrsquo perceptions Thisis supported by the argument that managersrsquoperceptions shape behaviour and are morecritical to strategy making and firm performancethan some lsquolsquomentally distantrsquorsquo objectiveindicators (Hambrick and Snow 1977 Snow1976 Chattopadhyay et al 1999)

As shown in Figure 3 with respect to theinfluence of attractiveness of the customerrsquos

Table III Multiple regression analysis

Customer performance-dependent variable) b Standard error T-value Significance B

Independent variablesIO-based perspective 028 006 251 001 0241

Resource-based view 021 015 265 001 0358

Strategic approach 013 005 331 005 0253

Note Overall R2 = 0329 df = 4261 overall F = 2416 Sig = 000

Table IV Reliability and validity of measurement

First-order constructNo of itemsdimensions

Cronbachrsquosalpha

Second-orderconstructa

Cronbachrsquosalpha

Explainedvariance by one

factor -)

Demand characteristics 5 0815 IO perspective (14) 0719 618

Competitive characteristics 7 0714

Supply characteristics 2 0850

Strategic importance of theaccount 8 0727 Strategic approach (8) 0702 748

Product attributes 8 0681 RBV (26) 0706 793

Regulatory capability 5 0605

Positional capability 4 0716

Functional capability 3 0873

Cultural capability 6 0730

Note a Number of first-order constructs is in parentheses

60


Teck-Yong Eng



industry characteristics on customerperformance H1 posits that the more attractive acustomerrsquos industry the higher the degree ofcustomer performance will be This hypothesiswas supported b = 028 (p lt 001) Industrycharacteristics are related positively to customerperformance and provided support for strategicpositioning This seems to support the notionthat industry structure influences strategyconduct and customer performance In otherwords the results suggest that industry effectsrelated to competition bargaining power anddemand in the marketplace represent thecustomerrsquos ability to influence structure in such away that would affect customer performanceThus the selling companyrsquos ability to influencestructural characteristics of the industry in whichthe customer operates can enhance performance

Consistent with H2 it was found thatresource advantage of a supplier-customerrelationship has a positive significant effect oncustomer performance (b = 021 p lt 001)The results support that resource-basedcapability seems to influence customerperformance In this regard resource advantageseems to constitute a significant competitiveadvantage in the customer portfoliodevelopment-performance relationship Theresults suggest that the resource-capability ofthe selling company has a positive relationshipwith the customer performance The significanteffects of firmrsquos assets on customerperformance is in line with the contention ofresource-based scholars that a firm shoulddevelop nurture and build on its available stockof resources (eg Rumelt 1991) In particular

acquisition development and maintenance ofdifferential bundles of tangible and intangibleresources over time (eg Dierickx and Cool1989 Hall 1993 Zander and Kogut 1995)seem to directly influence customerperformance For example conventionalaccounting methods do not account forintangible resources based on competenciessuch as skills and knowledge

In contrast there is low support for H3 Theresultant long-term view of customer mix basedon strategic approach does not have a significanteffect on customer performance (b = 013 p lt005) Although this association is weak it isconsistent with the nature resource investmentand development in business relationshipsAlso strategic outlook of performance may giverise to high short run expenditure This isbecause measures of customer performancemainly captured short-term performance (ie aone-year financial cycle) whereas success in asupplier-customer relationship may take manyyears Importantly the items used to examinethe strategic approach are concerned with futureaccount desirability rather than cost positionThe positive relationship between strategicapproach and customer performance seems tosuggest that it is important to analyze the longrun cost position and resource advantage of acustomer portfolio

Although strategic management literature hasnoted the importance of considering alternativestrategic perspectives such as theresource-based theory than relying solely on theIO theory for strategic analysis existing modelsfor customer portfolio development andanalysis have neglected other strategicperspectives Furthermore the majority of thecustomer portfolio models have never beenempirically validated especially againstcustomer performance The above resultssuggest that the analysis of industry structurewould benefit from consideration of resourceadvantage and long run positioning of thecustomer portfolio

Implications

Theoretical implicationsThe present study sets out to explore differentstrategic perspectives and explore the link to

Figure 3 Results of regression analysis

61


Teck-Yong Eng



customer performance The framework forcustomer portfolio development depicted inFigure 2 is not only based on the notion of IOperspective but also extends existing customerportfolio theory by explicitly considering therole of resources and strategic value of supplier-customer relationships While the results of thisstudy have not shown a strong positiverelationship between strategic approach andcustomer performance this is supported by theneed to invest resources and build customerrelationships over time Unlike a portfolio ofstocks supplier-customer relationships are notselected at a point in time (Hunt 1997) andthey need to be valued over time (Elliott andGlynn 1998) In view of this it is logical toargue that integrating the dimension of strategicapproach to customer portfolio analysis is acrucial factor in determining long runprofitability

Regarding the influence of industrycharacteristics the results of this study showthat they have the most significant positiveassociation with customer performance This isin line with Porterrsquos (1991) framework thatstates that firm performance is dependent onindustry effects directly through defense againstdirect and indirect competition and throughfirmrsquos actions altering the balance of the sameindustry forces in its favour Since the industrycharacteristics identified in this study arespecific to the banking sector it is important torecognize that different characteristics of theexternal environment present different degreesof control for firms in terms of their strategy(see Bain 1951 Khandwalla 1977) McGahanand Porter (1997) also found that industry represents an important factor in affecting

firm economic performance and morespecifically

effects are more important in accountingfor firm performance in service industrythan in manufacturing industry

Thus the analysis of industry characteristicscan be used to determine the attractiveness of acustomerrsquos business that captures the customerperformance

Consistent with the resource-based theorythat a firmrsquos performance stems from acquiringand deploying valuable idiosyncratic assetsthere is positive significant association between

resource advantage and customer performanceThis seems to support the notion that customerperformance is the result of a superiordifferential competence As suggested by Hall(1993) the differential capability includestangible and intangible assets The latter has todate received relatively little attention(Camelo-Ordaz et al 2003) Firms thatrecognize the differential resources required forthe development of competitive advantage areable to perform activities with customers orsuppliers in order to accumulate and nurturethe resources The analysis of the link betweenresource advantage and customer performanceextends the concept of customer portfolioanalysis As Spanos and Lioukas (2001 p 901)point out that lsquolsquoresources are not [emphasisadded] valuable in and of themselves becausethey (and not vice versa) are attached tostrategic activitiesrsquorsquo At the same time resourcesrepresent the primary constraints on which afirm can successfully compete in themarketplace Thus resources play a significantrole in the development of successful supplier-customer relationships

The overall results seem to suggest thattogether with strategic approach both industrycharacteristics and resource-based capabilitiescontribute to customer performance Theproposed integrative approach of this studyseems to provide insights into customerportfolio theory by explicitly addressingresource competence and long run positioningvalue of the customer portfolio The literaturegenerally supports the notion that IOperspective and RBV may complement eachother (eg Amit and Schoemaker 1993Barney 1991) Such contributions mainlysuggest that RBV may add to the IOperspective a more satisfactory understanding of the

conditions for sustained competitiveadvantage

a longer-term perspective of addressingstrategy issues and

an analysis of the conditions which preventcompetitive imitation

The environment perspective of IO theory inturn may add insights into the determinants ofthe industry structure on performanceparticularly in the short run The implication

62


Teck-Yong Eng



for customer portfolio theory is that exclusivereliance on only one of these strategicperspectives could lead to misguided strategicchoice (see McWilliams and Smart 1993)Theoretically competitive position depends onresource competencies (Spanos and Lioukas2001) Hansen and Wernerfelt (1989) note thatfirms that can demonstrate excellence in botharenas will do significantly better than thosethat strive for more uni-dimensional concepts ofexcellence In this sense the development ofcertain customer relationships demandsmaintenance and reinvestment of strategicassets through interaction which involvesperforming activities and exchanging resources

Managerial implicationsThe results of this study have importantimplications for the management of customerportfolios In analyzing customer portfoliosmanagers must consider the strategicdimensions on which customer relationships aredeveloped and scarce organizational resourcesare allocated The present research shows thatindustry factors as well as resource-basedfactors are related to the influence of customerperformance The additional insight from theresource-based analysis is compatible with thestrategic commitment and continuity ofbusiness relationships The implication is thatcurrent portfolio decisions will not only affectthe performance of future supplier-customerrelationships but also strategic composition ofthe customer portfolio Each relationshiprequires different types and degrees ofinvestment and produces different outcomes(Cannon and Perreault 1999) Understandingthe short-term industry factors and long runpositioning value of the customer mix isimportant for the management of customerportfolios

Contemporary managerial literatureincreasingly recognizes the importance ofcustomizable strategic tools for individualorganizations Managers must understand theresource capabilities required to matchcustomersrsquo productmarket requirementsvis-aAacute-vis competitors Moreover the sources ofpersistent success are likely to be fundamentallycontext specific (Collis 1994) Although theremay be differences in the type and significanceof variables associated with the composite

dimensions this research shows how differentunderlying strategic perspectives are linked tocustomer performance Therefore managersshould view different customer portfoliovariables as components of a holistic frameworkdepicted in Figure 1

The study points to the critical role managersplay in selecting and developing key customerrelationships In todayrsquos business markets firmsform a multitude of relationships with marketparticipants (eg distributors governmentagencies) that have short- and long-termimplications of resource allocation and strategydecisions For instance given theinterdependence nature of businessrelationships strategy development in businessmarkets may require joint decisions of supplierand customer In other words managers mustanalyze individual customer relationships aspart of a wider portfolio of relationships Whilethis study has not set out to examine theinteraction of all types of a firmrsquos businessrelationships the study provides guidance inthe selection of strategic perspectives forcustomer portfolio analysis and development

Limitations and future research directions

As with any studies this study has severallimitations which present opportunities forfurther research The empirical part of the studyfocuses on customer portfolios of largecommercial banks based in London onlyAdditional research could examine theframework in other contexts or industries suchas small companies and outside the bankingsector It is unclear whether the same strategicdimensions and variables are associated withcustomer performance in other contexts

Although the results of this study provideacceptable support for the theoreticalreasoning as in the case in most empiricalstudies in organization a major proportion ofthe variance related to composite variablesremains unexplained Therefore additionalresearch might incorporate individualdeterminants of customer performance inaddition to the theoretical constructs ofindustry characteristics strategic approach andRBV Also further research might examinetheoretically plausible moderating effects For

63


Teck-Yong Eng



example the relationship between customerportfolio dimensions and performance may bemoderated by the skill of the relevant managersin successfully managing supplier-customerrelationships

The present study can be viewed as anexploratory study attempting to examine the linkbetween portfolio dimensions and customerperformance Inevitably the theoreticalreasoning of the customer portfolio dimensions isbased on commonly used determinants ofperformance Though this should apply acrossindustry sectors there are other strategyperspectives that could affect customerperformance For example a firmrsquos network ofrelationships has been noted to have influence onperformance (eg Turnbull et al 1996) Furtherresearch could also refine the exploratorymeasures developed and used in this study

Although the relative influence of portfoliodimensions on customer performance accountsfor simultaneous effects they are likely to beinterdependent This is mainly becausebusiness relationships are often characterized byhigh-level of interdependency Future work onthe relationship between portfolio dimensionsand performance could be extended to includethe analysis of the effect of individual-levelconstructs and the combined effect onperformance For example the complementaryview of the IO perspective and RBV could beexamined in the context of customer portfoliodevelopment and analysis Finally anotherpotential area for further research is the notionof cross-relational impacts of differentinterdependent portfolio relationships oncustomer performance

References

Amit R and Schoemaker P (1993) ` Strategic assets andorganizational rentrsquorsquo Strategic Management JournalVol 14 No 1 pp 33-46

Bain J (1951) ` Relation of profit rate to industryconcentration American manufacturing 1936-1940rsquorsquoQuarterly Journal of Economics Vol 65 pp 293-324

Barney JB (1991) ` Firm resources and sustainedcompetitive advantagersquorsquo Journal of ManagementVol 17 pp 99-120

Barney J and Arikan A (2001) The Resource-Based ViewOrigins and Implications Handbook of StrategicManagement Houghton Mifflin Company Boston MA

Barney JB and Griffin RW (1992) The Management of

Organizations Strategy Structure and Behavior

Houghton Mifflin Company Boston MACalantone RJ Cavusgil ST and Zhao Y (2002) ` Learning

orientation firm innovation capability and firm

performancersquorsquo Industrial Marketing Management

Vol 3 No 6 pp 515-24Camelo-Ordaz C Martin-Alcazar F and Valle-Cabrera R

(2003) ` Intangible resources and strategic orientation

of companies an analysis in the Spanish contextrsquorsquo

Journal of Business Research Vol 56 pp 95-103Campbell NG and Cunningham MT (1983) ` Customer

analysis for strategy development in industrial

marketingrsquorsquo Strategic Management Journal Vol 4

pp 369-80Canning G Jr (1982) ` Do a value analysis of your customer

basersquorsquo Industrial Marketing Management Vol 11

pp 89-93Cannon JP and Perreault WD Jr (1999) ` Buyer-seller

relationships in business marketsrsquorsquo Journal of

Marketing Research Vol 36 November pp 439-60Carrol GR (1993) ` A sociological view on why firms

differrsquorsquo Strategic Management Journal Vol 14 No 4

pp 237-49Chattopadhyay P Glick W Miller CC and Huber G

(1999) ` Determinants of executive beliefs comparing

functional conditioning and social influencersquorsquo Strategic

Management Journal Vol 20 No 8 pp 763-89Collis D (1994) ` How valuable are organizational

capabilitiesrsquorsquo Strategic Management Journal winter

special issue Vol 15 pp 143-52Dierick I and Cool K (1989) ` Asset stock accumulation

and sustainability of competitive advantagersquorsquo

Management Science Vol 35 No12 pp 1504-11Elliott G and Glynn W (1998) ` Segmenting financial

services markets for customer relationships a

portfolio-based approachrsquorsquo The Service Industries

Journal Vol 18 No 3 pp 38-54Eng T-Y (1999) ` An empirical Investigation into strategic

management theories with reference to a portfolio of

customer relationships in the services sectorrsquorsquo PhD

dissertation UMIST ManchesterEng T-Y (2002) `Contributions of learning to strategy in

networksrsquorsquo A Joint Research Symposium of European

Marketing Academy and Australian and New Zealand

Marketing Academy Proceedings Perth 15-16 December

available at wwwanzmacorgsymposiumFiocca R (1982) ` Account portfolio analysis for strategy

developmentrsquorsquo Industrial Marketing Management

Vol 11 pp 53-62Ford D (Ed) (1997) Understanding Business Markets

2nd ed The Dryden Press Hinsdale ILGatignon H and Xuereb J-M (1997) ` Strategic orientation

of the firm and new product performancersquorsquo Journal of

Marketing Research Vol 34 February pp 77-90Grant RM (1991) ` The resource-based theory of

competitive advantage implications for strategy

formulationrsquorsquo California Management Review Spring

pp 114-35

64


Teck-Yong Eng



Hakansson H (Ed) (1982) International Marketing and

Purchasing of Industrial Goods An Interaction

Approach Wiley ChichesterHakansson H and Snehota I (1995) Developing

Relationships in Business Networks Routledge

LondonHall R (1993) ` A framework linking intangible resources

and capabilities to sustainable competitive

advantagersquorsquo Strategic Management Journal Vol 14

pp 607-18Hambrick D and Snow C (1977) ` A contextual model of

strategic decision making in organizationsrsquorsquo Academy

of Management Proceedings pp 108-12Han JK Kim N and Srivastava RK (1998) ` Market

orientation and organizational performance is

innovation a missing linkrsquorsquo Journal of Marketing

Vol 62 October pp 30-45Hansen G and Wernerfelt B (1989) ` Determinants of firm

performance the relative importance of economic and

organizational factorsrsquorsquo Strategic Management

Journal Vol 10 pp 399-411Hartley R (1976) ` Use of customer analysis for better

market penetrationrsquorsquo Industrial Marketing

Management Vol 5 February pp 53-62Hatten KJ and Schendel DE (1977) ` Heterogeneity

within an industryrsquorsquo Journal of Industrial Economics

Vol 26 December pp 97-113Hawawini G Subramanian V and Verdin P (2003) ` Is

performance driven by industry-or firm-specific

factors a new look at the evidencersquorsquo Strategic

Management Journal Vol 24 pp 1-16Henderson R and Cockburn I (1994) ` Measuring

competence Exploring firm effects in pharmaceutical

researchrsquorsquo Strategic Management Journal Vol 15

pp 63-84Henderson R and Mitchell W (1997) ` The interactions of

organizational and competitive influences on strategy

and performancersquorsquo Strategic Management Journal

Vol 18 summer special issue pp 5-14Hunt SD (1997) ` Competing through relationships

Grounding relationship marketing in resource-

advantage theoryrsquorsquo Journal of Marketing

Management Vol 13 pp 431-45JuEgrave ttner U (1998) ` Strategic marketing tracing the

evolution in the network context of competitionrsquorsquo in

Turnbull PW and Naude P (Eds) Network Dynamics

in International Marketing Pergamon London

pp 289-311Khandwalla P (1977) The Design of Organizations

Harcourt Brace Jovanovitch New York NYKotler P Armstrong G Saunders J and Wong V (1996)

Principles of Marketing Prentice-Hall LondonKrapfel R Salmond D and Spekman R (1991) ` A

strategic approach to managing buyer-seller

relationshipsrsquorsquo European Journal of Marketing Vol 25

No 9 pp 22-37McGahan A (1999) ` The performance of US corporations

1981-1994rsquorsquo Journal of Industrial Economics Vol 47

pp 373-95

McGahan A and Porter M (1997) ` How much doesindustry matter reallyrsquorsquo Strategic ManagementJournal Vol 18 summer special issue pp 15-30

MacNeil I (1980) The New Social Contract Yale UniversityPress New Haven CT London

McWilliams A and Smart DL (1993) ` Efficiency vsstructure conduct performance implications forstrategy research and practicersquorsquo Journal ofManagement Vol 19 pp 63-79

Maijoor S and Witteloostuijn V (1996) ` An empirical testof the resource-based theory strategic regulation inthe Dutch audit industryrsquorsquo Strategic ManagementJournal Vol 17 No 7 pp 549-69

Makadok R (1999) ` Interfirm differences in scaleeconomies and the evolution of market sharesrsquorsquoStrategic Management Journal Vol 20 No 10pp 935-52

Miller D (1988) ` Relating Porterrsquos business strategies toenvironment and structure analysis and performanceimplicationsrsquorsquo Academy of Management JournalVol 31 pp 280-308

Miller D and Friesen PH (1983) ` Strategy making andenvironment the third linkrsquorsquo Strategic ManagementJournal Vol 4 pp 221-35

Morgan RE and Strong CA (1998) ` Market orientationand dimensions of strategic orientationrsquorsquo EuropeanJournal of Marketing Vol 32 No 1112 pp 1051-73

Narver JC and Slater SF (1990) ` The effect of a marketorientation on business profitabilityrsquorsquo Journal ofMarketing Vol 54 October pp 20-35

Noble CH Sinha RK and Kumar A (2002) ` Marketorientation and alternative strategic orientations alongitudinal assessment of performance implicationsrsquorsquoJournal of Marketing Vol 66 October pp 25-39

Pardo C and Salle R (1995) ` Defining customerboundaries the first step in customer portfoliomanagementrsquorsquo in Turnbull PW Yorke D and NaudeP (Eds) Interaction Relationships and NetworksPast-Present-Future Vol 2 IMP 11th InternationalConference Manchester Federal School of Businessand Management Manchester pp 962-78

Pelham AM and Wilson DT (1996) ` A longitudinal studyof the impact of market structure firm structurestrategy and market orientation culture ondimensions of small-firm performancersquorsquo Journal of theAcademy of Marketing Science Vol 24 No 1pp 27-43

Peter JP (1979) ` Reliability a review of psychometricbasics and recent marketing practicesrsquorsquo Journal ofMarketing Research Vol 16 No 1 pp 6-17

Peteraf M (1993) ` The cornerstones of competitiveadvantage a resource-based viewrsquorsquo StrategicManagement Journal Vol 14 pp 179-91

Porter ME (1980) Competitive Strategies Techniques forAnalysing Industries and Competitors The Free PressNew York NY

Porter ME (1985) Competitive Strategy Creating andSustaining Superior Performance The Free Press NewYork NY

Porter ME (1991) ` Towards a dynamic theory of strategyrsquorsquoStrategic Management Journal Vol 12 pp 95-117

65


Teck-Yong Eng



Ravenscraft DJ (1983) ` Structure-profit relationships atthe line of business and industry levelrsquorsquo Review of

Economics and Statistics Vol 65 February pp 22-31Robins J and Wiersema MF (1995) ` A resource-based

approach to the multibusiness firm empirical analysisof portfolio of interrelationships and corporatefinancial performancersquorsquo Strategic ManagementJournal Vol 16 pp 277-99

Rumelt R (1991) ` How much does industry matterrsquorsquoStrategic Management Journal Vol 12 pp 167-85

Rumelt RP Schendel D and Teece DJ (1991) ` Strategicmanagement and economicsrsquorsquo Strategic Management

Journal Vol 12 Special Issue pp 5-29Scherer FM (1980) Industrial Market Structure and

Economic Performance Houghton-Mifflin BostonMA

Schmalensee R (1985) ` Do markets differ muchrsquorsquoAmerican Economic Review Vol 75 pp 341-51

Shapiro B Rangan K Moriarty R and Ross E (1987)` Manage customers for profits (not just sales)rsquorsquoHarvard Business Review September-October

pp 101-8Slater SF and Narver JC (1994) ` Does competitive

environment moderate the market orientation-performance relationshiprsquorsquo Journal of MarketingVol 58 January pp 46-55

Smackey B (1977) ` A profit emphasis for improvingsalesforce productivityrsquorsquo Industrial Marketing

Management Vol 6 April pp 135-40Snow C (1976) ` The role of managerial perceptions in

organizational adaptation an exploratory studyrsquorsquoAcademy of Management Proceedings pp 249-55

Spanos YE and Lioukas S (2001) ` An examination into

the causal logic of rent generation contrastingPorterrsquos competitive strategy framework and theresource-based perspectiversquorsquo Strategic Management

Journal Vol 22 pp 907-34Teece D Pisano G and Shuen A (1997) ` Dynamic

capabilities and strategic managementrsquorsquo StrategicManagement Journal Vol 18 No 7 pp 509-33

Turnbull PW (1990) ` A review of portfolio planningmodels for industrial marketing and purchasingmanagementrsquorsquo European Journal of Marketing Vol 24

No 3 pp 7-22Turnbull PW and Valla J (1986) Strategies for

International Industrial Marketing Croom HelmLondon

Turnbull PW and Zolkiewski J (1995) ` Customerportfolios Sales costs and profitabilityrsquorsquo in InteractionRelationships and Networks Past-Present-Future

Turnbull PW Ford D and Cunningham M (1996)` Interaction relationships and networks in businessmarkets an evolving perspectiversquorsquo Journal of Business

and Industrial Marketing Vol 11 No 34 pp 44-62Varadarajan PR Clark T and Pride WM (1992)

` Controling the uncontrollable managing your marketenvironmentrsquorsquo Sloan Management Review Vol 33No 2 pp 39-47

Ward K (1993) Strategic Management Accounting 2nded Prentice-Hall London

Wernerfelt B (1984) ` A resource-based view of the firmrsquorsquo

Strategic Management Journal Vol 5 No 2

pp 171-80Williamson O (1975) Markets and Hierarchies Analysis

and Antitrust Implications The Free Press New York

NYWind Y and Mahajan V (1981) ` Designing product and

business portfoliosrsquorsquo Harvard Business Review

pp 155-65Wind Y and Robertson T (1983) ` Marketing strategy new

directions for theory and researchrsquorsquo Journal of

Marketing Vol 47 Spring pp 12-25Wind Y Mahajan V and Swire D (1983) ` An empirical

comparison of standardized portfolio modelsrsquorsquo Journal

of Marketing Vol 47 Spring pp 89-99Yorke DA and Droussiotis G (1994) ` The use of client

portfolio theory plusmn an empirical surveyrsquorsquo Journal of

Business and Industrial Marketing Vol 9 No 3

pp 6-18Zander U and Kogut B (1995) ` Knowledge and the speed

of the transfer and the imitation of organizational

capabilities an empirical testrsquorsquo Organization Science

Vol 6 pp 76-92Zinkhan G and Pereira A (1994) ` An overview of

marketing strategy and planningrsquorsquo International

Journal of Research in Marketing Vol 11 No 3

pp 185-218

Further reading

Dess G and Beard D (1984) ` Dimensions of

organizational task environmentsrsquorsquo Administrative

Science Quarterly Vol 29 pp 52-73Zolkiewski JM (1994) ` Marketing of large contracts

selling costs and profitabilityrsquorsquo MSc dissertation

UMIST Manchester

Executive summary and implications formanagers and executives

This summary has been provided to allow managersand executives a rapid appreciation of the content ofthis article Those with a particular interest in thetopic covered may then read the article in toto totake advantage of the more comprehensivedescription of the research undertaken and its resultsto get the full benefit of the material present

Analysing the relationships between supplierand customer can help managers to allocatescarce resources and ensure that the companyrsquoslinks with its customers are profitable in thelong term

66


Teck-Yong Eng



Industrial organization economic theoryEarly customer portfolio models were based onthe idea that such environmental forces asmarket growth competition and technologicalfactors could not be controlled so strategicdecision making was based on adapting thecompany to its environment This line ofreasoning is mainly influenced by so-calledlsquolsquoindustrial organizationrsquorsquo economic theory -that a firmrsquos position in the industry determinesits competitive advantage

The resource-based viewIn contrast a more modern lsquolsquoresource-basedrsquorsquoview focuses on adapting the environment tothe company The resource-based view usesdifferential stocks of resources and capabilitiesas a basis for explaining the performance of thefirm

The strategic approachA third approach ndash the lsquolsquostrategicrsquorsquo approach ndashdeals with factors that would enhance the futureattractiveness of the customer account Forexample improvement of technologicalstrengths between the supplier and customercould enhance the cost position and providedirection for allocating resources The strategicapproach therefore seems to extend theindustrial organization and resource-based viewby considering the long-run cost position andresource development of customer accounts

Research findingsEngrsquos research into 225 supplier-customerrelationships at nine large commercialUK-based banks demonstrates that theindustrial organization perspective may giveonly a short-term picture of customerperformance Resource based analysiscombined with a strategic approach to customerportfolio analysis can help to provide along-term view of the value of a customerportfolio

The research shows that the more attractive acustomerrsquos industry the higher the degree ofcustomer performance will be This of course

is entirely consistent with industrialorganization theory

The research also finds a significant positivelink between resource advantage and customerperformance This is in line with the resource-based theory that a firmrsquos performance stemsfrom acquiring and deploying its own special setof assets These could include tangible assetssuch as the latest piece of computer hardwareand intangible assets such as the skill anddedication of employees

The overall results seem to suggest thereforethat together with a strategic approach bothindustry characteristics and resource-basedcapabilities contribute to customerperformance

Managerial implicationsThe study points to the critical role managersplay in selecting and developing key customerrelationships Managers must consider thestrategic dimensions on which customerrelationships are developed and scarceorganizational resources are allocated Currentportfolio decisions affect not only theperformance of future supplier-customerrelationships but also the strategic compositionof the customer portfolio Each relationshiprequires different types and degrees ofinvestment and produces different outcomesManagers must understand not only the short-term industry factors but also the long-runpositioning value of the customer mixManagers must also understand the resourcecapabilities needed to match customersrsquoproduct and market requirements vis-aAacute-viscompetitors The sources of consistent successare likely to be specific to a given context andso cannot always be applied directly to othercustomers

(A precis of the article lsquolsquoDoes customer portfolioanalysis relate to customer performance Anempirical analysis of alternative strategicperspectiversquorsquo Supplied by Marketing Consultantsfor Emerald)

67


Teck-Yong Eng



However early customer portfolio models arelacking behind the development of a dominantresource-based view (RBV) theory of the firm inthe strategy literature The RBV focuses onadapting the environment to the company anddifferential stocks of resources and capabilitiesas the basis for explaining firm performance(Wernerfelt 1984 Peteraf 1993) Marketingscholars have cautioned against thedeterministic approach of IO perspective and itsoveremphasis on environmental forces (Juttner1999 Eng 2002) In addition the long-termnature of business-to-business relationshipsdemands explicit recognition of strategic orlong run positioning value of the array ofcustomer relationships in a portfolio as opposedto short-run profitability Such a strategicapproach may account for the long-termprofitability of IO perspective and resourceadvantage of the customer portfolio Existingcustomer portfolio models have not yetexamined the integration of resources requiredfor both short- and long-run positioning of thecustomer portfolio Kotler et al (1996) note theimportance of a long-term view of buyer-sellerrelationships in business markets These viewsof resource advantage and strategic perspectiveof customer portfolios may provide fruitfulrewards to both marketing academics andpractitioners Yet little is known about theeffects of different strategic perspectives ofcustomer portfolio dimension on customerperformance

The present study addresses the above gaps byempirically examining the link between customerportfolio dimensions and customer performancein the context of large UK-based banksSpecifically the main contributions are to provide empirical evidence of the validity of

common customer portfolio dimensions integrate and examine the RBV and

strategic approach to IO perspective forcustomer portfolio analysis and

explore the relative strength of the impactof different strategic perspectives oncustomer performance

These contributions are accomplished byconceptualizing on and integrating differenttheoretical perspectives empirical research andin-depth study of factors used by banks in

evaluating customer firms with which they wishto form successful relationships

The present study extends customer portfolioresearch by embracing an empirical approachand striving for validation of strategicdimensions from the point of view of the sellingcompany The choice of variables for empiricalanalysis is based on an extensive review ofexisting customer portfolio models as well asobservations of business practice Of particularrelevance will be the usefulness and validity ofcustomer portfolio variables used and whetherthe variables help explain customerperformance Customer performance isconcerned with the overall desirability of thecustomer account with respect to relevantcustomer portfolio dimensions from the sellingcompanyrsquos perspective

The remainder of the article is organized asfollows The next section provides a review ofexisting customer portfolio models in order toidentify common variables andor theory usedfor analyzing supplier-customer relationshipsThis is followed by discussion of studies thatshow the link between strategy theories andfirm performance In doing so hypotheses ofthe relationships among strategic perspectivesand customer performance are put forwardThe method section describes the study sampleand data analysis The article concludes with adiscussion of the results and implications

Reviewing models of customer portfolioanalysis

Customer portfolio development and analysis isa key managerial task of the marketing functionin business-to-business marketing (Turnbulland Valla 1986) The concept of customerportfolio analysis is compatible with theinteraction approach that integrates anddescribes the interplay of properties involved inthe interaction between a supplier and customerin business markets (a detailed description isgiven by Hakansson (1982)) This conceptencourages the analysis of a supplierrsquos ownneeds and requirements from the proposedrelationship before deciding on the degree ofcommitment of resources in the light of theseobjectives It focuses on the interdependenciesamong the various management decisions and

50


Teck-Yong Eng











Fiocca (1982)






Eng (1999)




Power balanceb



Eng (1999)





matrix)


Cost to serveb



Eng (1999)



Relationship valueb




1980)


(Williamson 1975)


51


Teck-Yong Eng








52


Teck-Yong Eng









53


Teck-Yong Eng











54


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng











Fiocca (1982)






Eng (1999)




Power balanceb



Eng (1999)





matrix)


Cost to serveb



Eng (1999)



Relationship valueb




1980)


(Williamson 1975)


51


Teck-Yong Eng








52


Teck-Yong Eng









53


Teck-Yong Eng











54


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng








52


Teck-Yong Eng









53


Teck-Yong Eng











54


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng









53


Teck-Yong Eng











54


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng











54


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng










55


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng





Methodology








Measures


Dependent variables


56


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng


































Strategic position


competition 0752



environment 0725










(continued)

57


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng



Table II







Product attributes









































58


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng












Data analysis



59


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng






Results











Cronbachrsquosalpha


Cronbachrsquosalpha


factor -)











60


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng








Implications



61


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng















62


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng











63


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng






References















































pp 114-35

64


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng













































pp 373-95


















65


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng
















































pp 185-218

Further reading





UMIST Manchester




66


Teck-Yong Eng













67


Teck-Yong Eng













67


Teck-Yong Eng



Does customer portfolio analysis relate to customer...

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