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Customer portfolio reviews resemble the widely used Boston Consulting Group (BCG) matrix and the McKinsey matrix in terms of the evaluation and presentation. The customer portfolio aims to facilitate long-term strategic decisions and plans. Several criteria can be used to evaluate the customer portfolio. Customer portfolios are multidimensional and can be individual or cumulated. These describe customers individually with regard to their worth and potential. Two- or multidimensional client portfolios are created on the basis of the main features of customer reviews. This could be monetary or non-monetary data and could also be either retrospective or prospective in nature.

The values of the matrix’s dimensions are obtained by merging multiple criteria through scoring methods. The result is a four- or a nine-field matrix with different customer segments. The designations could be similar to the conventional four-field BCG matrix, like Stars, Cash

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Cows, Question Marks, and Poor Dogs. Like the customer value matrix, the two performance variables could be ‘customer attractiveness’ and ‘competitive position’ or ‘turnover growth’ and ‘relative share of deliveries’. The so-called ‘power portfolio’ consists of the following evaluation parameters: ‘own turnover share’ and ‘share of deliveries to the customer’.

Figure: 21 Power portfolio (Freter, 2008)

Customer requirement is an essential part of the customer attractiveness axis in the customer value portfolio (Figure 22). This is the possible sales volume to potential customers (Homburg & Werner, 1998). It is very difficult to determine the exact sales volume; it should be calculated by a mathematical formula based on customer potential, or else should be estimated. If these two values differ greatly from one another, then a deeper probe into customer value is necessary. The researcher’s personal experience says that deviations of up to +/−10 per cent are acceptable.

Other points to determine customer attractiveness could be: • Volume of the contribution margin

106 • Strategic attractiveness of the customer • Market share

• Innovation power

On the competitive position axis, the share of customer sales volume is shown on a scale of 0 to 100 per cent (estimated or calculated). If the share of delivery of the biggest competitor is known, it could be shown on the competitive position axis as well. This value is calculated as the ratio of the company’s own share of delivery to that of the biggest competitor. On this axis, other quality criteria can be used to determine the customer’s position (Homburg & Werner, 1998).

The overall rating on the axis is the average of each of these values. This rating can be weighted as well. The number of criteria for the evaluation should be kept as low as possible, since the cost of acquiring data should not exceed the usefulness of effort or lead to compensation effects on the two axes.

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By classifying customers into various matrix fields, it is possible to derive fundamental statements about sales and marketing activities. Furthermore, it is possible to formulate rules for sales managers, such as visiting frequency, invitation to customer events, etc., in the different fields.

Stars

Customers located in this quadrant are characterized by high attractiveness and the company itself has a strong position against competition. This should be maintained at any cost—if necessary, by reducing prices and the contribution margin to prevent the penetration of competition for these customers. The company’s own position can be additionally secured through long-term purchase agreements. Regular customer visits by the sales manager and invitations to events and marketing activities are helpful too.

Question marks

Like star customers, the question marks are characterized by their attractiveness, but the company’s own position against competition is rather weak. The aim must be to significantly improve the company’s own position against competition with regard to these customers, and thus, to develop these customers to star customers. In most cases, this is a challenging task and it is not possible in the case of every customer (Homburg & Werner, 1998). On the one hand, internal capacity constraints can hinder the extension of the share of deliveries. On the other, the competition may try to stop the company’s increase of share of the deliveries by taking various actions, such as reduced prices, higher rebates, zero services charges, etc. Furthermore, it may not be possible to increase the share of deliveries because some customers may want several suppliers for strategic reasons, for example, to avoid dependency. Again, a customer who knows his attractiveness will expect favours in terms of price, delivery, and support services. Since the claim level is very high, the economic viability of the customer should be checked at regular intervals.

Yield customers

These customers could also be referred to as cash cows. Due to the company’s strong position against competition and the high share of deliveries with regard to these customers, their

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limited attractiveness must be tried with the least possible effort to keep them in their current position. By ensuring the position of yield customers, the company secures basic business. This can be guaranteed through bonus agreements if these customers order certain quantities. These customers should be periodically invited to customer events.

Take-out customers

‘Taking out’ does not mean severing the customer relationship or even deleting the customer from the system. Rather, it involves serving customers through a cost-effective measure by shutting down discounts and other services and allocating them to the right customer levels. This could mean, for example, that the customer is not visited at all or is visited only on request. Therefore, as far as possible, the customer will be dealt with solely over the telephone or by in-house employees, and could even be switched to e-business or other electronic order systems. E-business or other electronic ordering methods can enable customers to place orders directly. It ensures that a customer always gets his terms and conditions because the data is in the system. Some customers may not accept this kind of support and may switch to a competitor. The company, however, has to accept this switch; otherwise, it makes no sense to deal with customer portfolios (Homburg & Werner, 1998).

The aim of the customer portfolio should be to have a homogeneous mix of customers in any field. Stars should be the core of the business because these customers have the highest sales potential and promise good contribution margins due to good delivery share. In percentage terms, they may be lower than yield customers, but they are significantly higher in monetary terms. Question marks represent growth potential and the attempt must be to turn them into star customers. Income customers round out a balanced customer structure by ensuring that the basic business is running.

The segmentation method of the customer portfolio is best suited for businesses in the B2B capital goods sector. In this sector, the number of customers is normal or even low (Mühlbacher, 2013). As mentioned before, it is important to ensure the efficiency of segmentation models. In retailing, especially in B2B retailing and the fast-moving consumer

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goods (FMCG) industry, this is difficult because the number of customers is significantly higher and the company has less customer information, e.g. about buying behaviour.

Compared with the share-of-wallet technique, the advantage of the customer portfolio technique is that this method is multidimensional—it evaluates two factors. Like all other methods, except the ABC analysis, clear strategies and activities can be derived. However, it is difficult to allocate an accurate potential for a customer, for the same reasons as for the share-of-wallet method. If an SME decides to follow this method of customer segmentation, a lot of research must be undertaken to get useful information to draw the right conclusions and put things on the right track.