Chap007 building customer relationship

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Building Customer Relationships

Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges



© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Objectives for Chapter 7:


Objectives for Chapter 7:


Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers.

Explain why and how to estimate customer relationship value.

Introduce the concept of customer profitability segments as astrategy for focusing relationship marketing efforts.

Present relationship development strategies²including quality

core service, switching barriers, and relationship bonds.

Identify challenges in relationship development, including thesomewhat controversial idea that ³the customer is not alwaysright.´




Relationship MarketingRelationship Marketing

is a philosophy of doing business, a strategic orientation, that

focuses on keeping current customers and improving

relationships with them

does not necessarily emphasize acquiring new customers

is usually cheaper (for the firm)

keeping a current customer costs less than attracting a new one

thus, the focus is less on attraction, and more on retention and

enhancement of customer relationships




Figure 7.1

Customer Goals of Relationship MarketingFigure 7.1

Customer Goals of Relationship Marketing




Benefits of Relationship MarketingBenefits of Relationship Marketing

Benefits for Customers:

Receipt of greater value

Confidence benefits:

trust

confidence in provider

reduced anxiety

Social benefits:

familiarity

social support

personal relationships

Special treatment benefits: special deals

price breaks

Benefits for Firms:

Economic benefits:

increased revenues

reduced marketing andadministrative costs

regular revenue stream

Customer behavior benefits:

strong word-of-mouth endorsements

customer voluntary performance

social benefits to other customers

mentors to other customers Human resource management

benefits:

easier jobs for employees

social benefits for employees

employee retention




Figure 7.2

Profit Generated by a Customer

Over Time

Figure 7.2

Profit Generated by a Customer

Over Time

Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., ³Zero Defection: Quality Comes to Services,¶¶ Harvard

Business Review, September±October 1990.




Figure 7.3

Profit Impact of 5 Percent Increase in Retention RateFigure 7.3

Profit Impact of 5 Percent Increase in Retention Rate

Source: F. F. Reichheld, ³Loyalty and the Renaissance of Marketing,´ Marketing Management, vol. 2, no. 4 (1994), p. 15.




Table 7.1

Lifetime Value of an Average Business

Customer at Telecheck International

Table 7.1

Lifetime Value of an Average Business

Customer at Telecheck International




Customer Loyalty ExerciseCustomer Loyalty Exercise

Think of a service provider to who you are loyal.

What do you do (your behaviors, actions, feelings) that

indicates you are loyal?

Why are you loyal to this provider?

What factors have influenced the formation of your loyalty?




Most prof itable

customers

Least prof itable

customers

What segment spends more with us

over time, costs less to maintain,

spreads positive word-of-mouth?

What segment costs usin t

ime,effort and money yet does not

provide the return we want?

What segment is diff icult to do

business with?

Gold

Iron

Lead

Platinum

Figure 7.4

The Customer PyramidFigure 7.4

The Customer Pyramid




Figure 7.5

Relationship Development ModelFigure 7.5

Relationship Development Model

Customer Benef itsConfidence benefits

Social benefits

Special treatment benefits

Relationship BondsFinancial bonds

Social bonds

Customization bonds

Structural bonds

Switching Barr iersCustomer inertia

Switching costs

Core Service ProvisionSatisfaction

Perceived service quality

Perceived value

Strong Customer

Relationship

(Loyalty)

Firm Benef itsEconomic benefits

Customer behavior benefits

Human resource management

benefits




Strategies for Building RelationshipsStrategies 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

Relationship Bonds:

financial bonds

social bonds

customization bonds

structural bonds




Excellent

service

and value

1.

Financial

bonds

2.

Social

bonds

4.

Structural

bonds

3. Customization

Bonds

Volume and

frequency

rewards

Bundling and

cross selling

Stable

pricing

Social bonds

amongcustomers

Personal

relationships

Continuous

relationships

Customer

intimacyMass

customization

Anticipation/

innovation

Shared

processesand

equipment

Joint

investments

Integrated

information

systems

Figure 7.6

Levels of Relationship StrategiesFigure 7.6

Levels of Relationship Strategies




³The Customer Is NOT Always Right´³The Customer Is NOT Always Right´

Not all customers are good relationship customers:

wrong segment

not profitable in the long term

difficult customers

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Chap007 building customer relationship