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SMSM

McGraw-Hill © 2000 The McGraw-Hill Companies

Chapter 6

BUILDING

CUSTOMER

RELATIONSHIPS

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SMObjectives for Chapter 6:Objectives for Chapter 6:

Building Customer Building Customer RelationshipsRelationships

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

• Explain why and how to estimate customer lifetime value

• Specify the foundations for successful relationship marketing--quality core services and careful market segmentation

• Provide you with examples of successful customer retention strategies

• Introduce the idea that “the customer isn’t always right”

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SM Relationship MarketingRelationship Marketing

• is a philosophy of doing business that focuses on keeping and improving current customers

• does not necessarily emphasize acquiring new customers

• is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one

• goal = to build and maintain a base of committed customers who are profitable for the organization

• thus, the focus is on the attraction, retention, and enhancement of customer relationships

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SM Lifetime Value of a CustomerLifetime Value of a Customer

• Assumptions

• Income

– Expected Customer Lifetime

– Average Revenue (month/year)

– Other Customers convinced via WOM

– Employee Loyalty??

• Expenses

– Costs of Serving Customer Increase??

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SM A Loyal Customer is One Who...A Loyal Customer is One Who...

• Shows Behavioral Commitment– buys from only one supplier, even though other options

exist

– increasingly buys more and more from a particular supplier

– provides constructive feedback/suggestions

• Exhibits Psychological Commitment– wouldn’t consider terminating the relationship--

psychological commitment

– has a positive attitude about the supplier

– says good things about the supplier

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SM Customer Loyalty ExerciseCustomer Loyalty Exercise

• Think of a service provider you are loyal to.• What do you do (your behaviors, actions, feelings)

that indicates you are loyal?• Why are you loyal to this provider?

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SMBenefits to the Organization Benefits to the Organization

of Customer Loyaltyof Customer Loyalty

• loyal customers tend to spend more with the organization over time

• on average costs of relationship maintenance are lower than new customer costs

• employee retention is more likely with a stable customer base

• lifetime value of a customer can be very high

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SM Benefits to the CustomerBenefits to the Customer

• inherent benefits in getting good value• economic, social, and continuity benefits

– contribution to sense of well-being and quality of life and other psychological benefits

– avoidance of change– simplified decision making – social support and friendships– special deals

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SM““The Customer Isn’t Always The Customer Isn’t Always

Right”Right”

• Not all customers are good relationship customers:

– wrong segment

– not profitable in the long term

– difficult customers

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SMStrategies for Building Strategies for Building

RelationshipsRelationships

• Foundations: – Excellent Quality/Value– Careful Segmentation

• Bonding Strategies:– Financial Bonds– Social & Psychological Bonds– Structural Bonds– Customization Bonds

• Relationship Strategies Wheel

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SM

Getting

Satisfying

Retaining

Enhancing

Figure 6-1Figure 6-1

Customer Goals of Customer Goals of Relationship MarketingRelationship Marketing

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SM

Figure 6-3Figure 6-3

Underlying Logic of Customer Underlying Logic of Customer Retention Benefits to the Retention Benefits to the

OrganizationOrganization

Customer Retention &Increased Profits

Employee Loyalty

QualityService

Customer Satisfaction

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SMFigure 6-5Figure 6-5

Steps in Market Segmentation Steps in Market Segmentation and and

Targeting for ServicesTargeting for Services

IdentifyBases forSegmentingthe Market

STEP 1:

DevelopProfiles ofResultingSegments

STEP 2: DevelopMeasuresof SegmentAttractive-ness

STEP 3: Select the

TargetSegments

STEP4:Ensure thatSegmentsAre Compatible

STEP 5:

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SM

ExcellentQuality

andValue

Figure 6-6Figure 6-6 Levels of Retention StrategiesLevels of Retention Strategies

I. Financial Bonds

II. Social Bonds

IV. Structural

Bonds

III. CustomizationBonds

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