Customer relationships and the heterogeneity of firm performance

Abstract

PurposeThe purpose of this paper is to examine how, taking customer relationships as the unit of analysis, the heterogeneity of customer relationship performance influences the heterogeneity of firm performance, and how firms can balance the heterogeneity of customers, customer relationships, and customer portfolios by differentiated business models.Design/methodology/approachThe approach to the topic is one of theoretical analysis and conceptual development.FindingsValue capture is defined as the discounted present value of all future economic profit from the relationship. Three sources of value capture heterogeneity are identified: the customer, the relationship with the customer, and the interdependence between customers in a customer base. Relationship performance can be improved by investing in business model differentiation, in order to facilitate controlled adaptation to specific customer relationships and/or customer portfolios. Firms have to manage parallel business models and a central capability is the ability to create internal fit between the elements of a specific business model.Research limitations/implicationsThe research presented relates to business‐to‐business customer relationships. Some of the conceptual thinking will not be applicable in consumer relationships.Practical implicationsA firm should have an optimum mix of customer relationships in its customer base, in relation to firm goals and strategy. Management needs to recognize the heterogeneity of customer relationship performance, and manage customer portfolios accordingly. In order to deal with the heterogeneity, it may be necessary to manage parallel business models. This will necessitate new capabilities, such as customer insight generation, account management, modularized production platforms, and relationship performance control.Originality/valueFor a scholarly audience the paper contributes to the discussion on how marketing improves firm performance by assuming responsibility for increasing firms' market value. For a practitioner audience it offers ideas for genuinely customer‐centric management.