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Building CustomerRelationships

• Relationship Marketing• Relationship Value of Customers• Foundations for Relationship Strategies• The Customer Isn’t Always Right• Customer Profitability Segments• Levels of Relationship Strategies

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Relationship Marketing

• is a philosophy of doing business 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 6.1

Customer Goals of Relationship Marketing

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Profit Generated by a CustomerOver Time

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Profit Impact of 5 Percent Increase in Retention Rate

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Lifetime Value of an Average Business Customer at Telecheck International, Inc.

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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 provider

– says good things about the provider

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Customer 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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Underlying Logic of Customer Retention Benefits to the Organization

Customer Retention &Increased Profits

Employee Loyalty

QualityService

(Start Here)

Customer Satisfaction

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Benefits to the Organizationof 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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Benefits 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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“The Customer Isn’t Always Right”

• Not all customers are good relationship customers:

– wrong segment

– not profitable in the long term

– difficult customers

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Steps in Market Segmentation and Targeting 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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Strategies for Building Relationships

• Foundations: – Excellent Quality/Value– Careful Segmentation

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

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Most ProfitableCustomers

Least ProfitableCustomers

What segment spends more withus over time, costs less to maintain,spreads positive word of mouth?

What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?

OtherCustomers

BestCustomers

Figure 6.5The “80/20” Customer Pyramid

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Most ProfitableCustomers

Least ProfitableCustomers

What segment spends more withus over time, costs less to maintain,spreads positive word of mouth?

What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?

Gold

Iron

Lead

Platinum

The Expanded Customer Pyramid

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ExcellentQuality

andValue

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

Levels of Retention Strategies