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Building Customer Relationships
Relationship Marketing
Relationship Value of Customers
Customer Profitability Segments
Relationship Development Strategies
Relationship Challenges
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Objectives for Chapter 7:
Building Customer Relationships
Objectives for Chapter 7:
Building Customer Relationships
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.´
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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
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Figure 7.1
Customer Goals of Relationship MarketingFigure 7.1
Customer Goals of Relationship Marketing
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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
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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.
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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.
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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
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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?
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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
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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
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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
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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
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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