Chapter 4: Financial Portfolio Theory and Customer Management: Insights and Research Directions
Michael D. Hutt, Crina O. Tarasi and Beth A. Walker For an investor, financial portfolio theory demonstrates that optimal performance, for a given level of risk, can best be achieved by building a diversified mix of investment assets that includes the stocks of both large and small firms, drawn from diverse industry sectors and representing both US and foreign companies. In building a customer portfolio, similar benefits can be realized by diversifying across different customer categories. To illustrate, after the technology bubble, many information technology (IT) companies, like IBM and Microsoft, were surprised to observe that small and medium-sized business (SMBs) fueled the recovery in IT spending (Veverka, 2003). Why? Most of the SMB customers did not overindulge in massive hardware and software upgrades to the same extreme extent during the bubble as their large enterprise counterparts did. So, SMB customers were the first to return and aggressively buy IT products and services. As a result, those IT firms that devoted a meaningful weighting to SMB organizations in the customer portfolio enjoyed an edge over rivals that were less focused on this customer group and were ‘caught waiting’ for large enterprise customers to return. Traditional treatments of market segmentation in textbooks and in the broader marketing literature fail to address the issue of risk or to consider the way in which a particular combination of segments might advance or inhibit firm performance during different stages of a business cycle or under different economic scenarios. By highlighting the role that risk...
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