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Building customer relationships
7Chapter
Building Customer Relationships
• Relationship Marketing• Relationship Value of Customers• Customer Profitability Segments• Relationship Development
Strategies• Relationship Challenges
Building Customer Relationships
It is cheaper to retain existing customers than acquiring new customers
It also requires less marketing effort to do so.
DEFINING RELATIONSHIP MARKETING (3)
• Refined RM definition (Gronroos, 1994):– “The marketing approach aiming to identify
and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties involved are met;and this is done by mutual exchange and fulfillment of promises”
Relationship Marketing»Relationship marketing philosophy assumes that
a) Customers prefer to have on-going relationship with one organisn. than to switch continually.
b) is usually cheaper (for the organisn.) to keep a current customer costs less than attracting a new customer
• focuses on keeping current customers and improving relationships with them
• thus, the focus is less on attraction, and more on retention and enhancement of customer relationships
New definition of marketing:
Marketing is to establish, maintain, and enhance
relationships with customers and othe partners so that
the objectives of the parties involved are met.
This is achieved by a mutual exchange and fulfillment of promises
eg., a) RM efforts of “Peoplesoft” ERP software:
- continuously learning about the needs of customers - helping the customers succeed thro’ their investment in ‘peoplesoft’ products
-rewarding account managers not on sales but on cust. Satisfaction and retention
- providing customised – tailor-madede solutions to more and more complex problems, as and when their needs eveloved
Relationship with all the organisation’s publics:
- channel members- end-customers- internal markets- referral markets- suppliers- trade unions
Relationship with customers
- data base marketing- interaction marketing- network marketing
e.g., Maruti udyog – calling - thanking - followingup
Relationship with suppliers - providing more orders - guaranteeing business- prompt payment
e.g., package tour operators giving accommodation orders to hotels
Referral markets:b2c
- referrals to friends and relatives
b2b- “home finders builders” recommending concrete mixing
machines, borewell servicesto other industrial partners
(like suppliers) - one customer company referring to another customer
company
Internal markets:
- building and maintaining a good work force- recruiting quality personnel
- training, motivating and compensating employees to maintain good relationship with them
Transaction marketing vs Relationship marketing
Transaction marketing vsDatabase marketingInteraction marketingNetwork marketing
Transaction marketingexchange of value between suppliers and customers
Database marketing- rely on IT
- in the form of data base / internet- maintaining information on buyers’ details, buying habits,
needs, etc.
Interaction marketing
Face-to-face interaction or ear-to-ear interaction
mail interactioninternet interaction
Network marketing
b2c:- customer referring to friends
b2b:
one dept recommending branch to others
The “Bucket Theory of Marketing”
Customer Goals of Relationship Marketing
Attracting:- Attract customers who are likely to have
long term relationship- by market segmentation
- also spreads thro’ word of mouth
Satisfying & Retaining:- by providing quality goods and services- by attending to complaints and solving
Then, customers cannot be pulled by competitiors
Enhancing: Working to increase volume of business
Making customers buy more and more of preoducts and services
Benefits of Relationship Marketing
• Benefits for Customers:– Receipt of greater value – Confidence benefits: when the seller knows customers’ tastes and
preferences e.g., banks – denomination
hotel – ingredients doctors – type of medicine Trust, confidence in provider, reduced anxiety– Social benefits:
• Familiarity (e.g., belongingness)• social support (tailor-made service)• personal relationships (e.g., sharing other problems)
Special treatment benefits:special deals
(discounts, instalments for consumer durables)
Getting benefit of doubt (banks waiving service charge)
Getting preference / special requests honoured (avoiding queue, withdrawal without passbook)
Benefits of Relationship Marketing
A. Benefits for Firms:-- Economic benefits:increased purchase / revenue
reduced marketing and administrative costsregular revenue stream
e.g., Lawrence & Mayo gets repeat orders by sending birthday greetings – cum discount
coupon e-mail & card
-- Customer behavior benefits:strong word-of-mouth endorsements
customer voluntary performancee.g., Bajaj Capital giving portfolio advice –
customers coming forward to sell / re-invest in funds
and thus getting services and returns
social benefits to other customersmentors to other customers
e.g., in banks experienced customers helping and providing knowledge to new customers
-- Human resource management benefits:easier jobs for employees
social benefits for employeesemployee retention
customer retention increased profits employee loyalty
more and more quality service by employees
cust. Satisfaction / delight
Most profitable customers
Least profitable customers
What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?
What segment costs us in time, effort and money yet does not provide the return we want?
What segment is difficult to do business with?
Gold
Iron
Lead
Platinum
The Customer Pyramid
Relationship Development Model
Customer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefits
Relationship BondsFinancial bondsSocial bondsCustomization bondsStructural bonds
Switching BarriersCustomer inertiaSwitching costs
Core Service ProvisionSatisfactionPerceived service qualityPerceived value
Strong CustomerRelationship
(Loyalty)
Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits
Strategies for Building Relationships
• Core Service Provision:–service foundations built upon delivery of
excellent service:• satisfaction, perceived service quality, perceived
value
• Switching Barriers:–customer inertia–switching costs:
• set up costs, search costs, learning costs, contractual costs
Strategies for Building Relationships
• Relationship Bonds:– financial bonds– social bonds– customization bonds– structural bonds
Excellentservice
and value
1. Financial
bonds
2.Socialbonds
4. Structural
bonds
3. Customization
Bonds
Volume and frequency rewards
Bundling and cross selling
Stable pricing
Social bonds among
customers
Personal relationships
Continuous relationships
Customer intimacy
Mass customization
Anticipation/ innovation
Sharedprocesses
and equipment
Joint investments
Integrated information
systems
Figure 7.6
Levels of Relationship Strategies
Financial bonds
(1) Volume and frequency rewards:e.g., welcome group of hotels –
frequent guests discountkingfisher – frequent flier fare
airtel : bulk sms – special price
(2) bundling and cross selling: Indian Overseas Bank – Oriental Insurance
Universal Sampo Insurance
Citibank – Diner’s Club coupons
(3) Stable pricing / lower pricing
Social Bonds(1) Interpersonal relationships
e.g., Doctors – maintain case history
- takes time to go thro’ and remember patient’s and family medical history, employment details,
etc.
(2) Social bonds among customers
customers of hotels tourism services
join together and celebrate / enjoy occasions
Customisation bonds
(1) customer intimacy
(2) mass customisation
e.g., one-to-one solution – MARS, RAMCO: customised ERP software
dinner menu to suit individual family
Structural bonds
Shared process and equipments:e.g., UPS & Federal Express – computers to
customers of both cos.
Integrated infn. Systemse.g., FORD and its dedicated suppliers are –
software for integration
“The Customer Is NOT Always Right”
• Not all customers are good relationship customers:
–wrong segment
–not profitable in the long term
–difficult customers