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BUILDING CUSTOMER RELATIONSHIPSChapter 6

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RELATIONSHIP 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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CUSTOMER GOALS OF RELATIONSHIP MARKETING

BENEFITS OF RELATIONSHIP MARKETING

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

Economic benefits: increased revenues reduced marketing and

administrative 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

Benefits for Customers Benefits for Firms

THE CUSTOMER PYRAMID

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

Platinum Tier

Company’s most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm 

Gold TierProfitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors.

Iron TierEssential customers that provide the volume needed to utilize the firm'’ capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment

Lead TierCustomers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources.

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SEGMENTING CUSTOMERS BASED ON COMMITMENT AND PROFITABILITY

TRUE FRIENDS• Good fit of company offering and

customer needs• Highest profit potential• Actions: – Consistent intermittently spaced

communication– Achieve attitudinal and behavioural loyalty– Invest to nurture/defend/retain

CLV

(Be

ha

vio

ral L

oya

lty)

Low High

Low

High

BUTTERFLIES• Good fit of company offering and

customer needs• High profit potential• Action:– Aim to achieve transactional satisfaction, not

attitudinal loyalty – Milk the accounts as long as they are active– Key challenge: cease investment once

inflection point is reached

STRANGERS• Little fit of company offering and

customer needs• Lowest profit potential• Action: – No relationship investment – Profitize every transaction

BARNACLES• Limited fit of company offering and

customer needs• Low profit potential• Action: – Measure size and share-of-wallet– If share-of-wallet is low, specific up and cross-

selling– If size of wallet is small, strict cost control

Relationship Commitment(Attitudinal Loyalty)

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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

Relationship Bonds: financial bonds social bonds customization bonds structural bonds

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THE CUSTOMER IS NOT ALWAYS RIGHT

Not all customers are good relationship customers:wrong segment

not profitable in the long term

difficult customers