Download Topic 6 File

West, Ford & Ibrahim: Strategic
Marketing
Topic 6: Relational and
sustainability strategies
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Structure
A. INTRODUCTION
1. Overview and Strategy Blueprint
2. Marketing Strategy: Analysis &
perspectives
C. WHERE DO WE WANT TO BE?
B. WHERE ARE WE NOW?
3. Environmental & Internal Analysis:
Market Information & Intelligence
4. Strategic Marketing Decisions,
Choices & Mistakes
5. Segmentation, Targeting
& Positioning Strategies
6. Branding Strategies
7. Relational & Sustainability
Strategies
D. HOW WILL WE GET THERE?
E. DID WE GET THERE?
14. Strategy Implementation, Control
& Metrics
8. Product Innovation & Development
Strategies
9. Service Marketing Strategies
10. Pricing & Distribution
11. Marketing Communications
12. E-Marketing Strategies
13. Social and Ethical Strategies
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Learning Objectives
 Examine the importance of developing relationships with customers.
 Discuss ways in which marketers can assess customer desirability and
rank customers in terms of customer value to the firm.
 Identify the various ways in which marketers can build loyalty with
customers.
 Provide an explanation of the importance of customer relationship
management systems and understand the differences between CRM for
consumer marketers (B2C) and industrial marketers (B2B).
 Present various approaches to the building of customer databases with
which to strategically address customer relationship building strategies
while also explaining the potential pitfalls inherent in ill-designed and illconceived data mining approaches and relationship management
systems.
 Explain the strategies that will help the firm to create long-term
relationships with its customers that can create competitive advantage
and which can be sustained.
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Introduction
• Companies have moved their focus from transaction
based to relationship centered
• One time purchases alone do not keep companies in
business, repeat purchases are the key to success
• 80/20 rule does have merit
– 80% of the revenue comes from 20% of the customers
– 20% of the revenue comes from 80% of the customers
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Introduction
• Customer Lifetime Value
– Happy customers spend increasing amounts on the purchase of
a specific product/service over time
– CLTV is the present value of future profits that will accrue from
customers lifetime purchase
– Determine CLTV for each individual customer or group of
customers to determine the proper investments that will be
necessary to build meaningful relationships
– Customer relationship programs & strategies is a very hot topic
in the B2C world, B2B have been practicing it for over fifty years
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Relationship Marketing
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Relationship Marketing in the B2C Context
• Long term and intimate relationships between buyers
and sellers
• Open communication and the ability to know the
customers
• Anticipate changes in wants & needs
• One of the best frameworks to discuss the nature of
different customers is the loyalty ladder, see Fig 7.1
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Figure 7.1 – Loyalty Ladder for B2C Marketers
Partners
Advocates
Successively
Higher Levels
of loyalty
Supporters
Clients
Customers
Prospects
Suspects
Source: Adapted from Raphel, M., “Ad Techniques Move Customers up the Loyalty Ladder,” Bank
Marketing (1980), 12 (11 November), pp. 37-8.
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Suspects
• Not yet even mildly warm leads for the selling company
• Are not yet interested in your products or services
• Companies should not spend too much time or effort on
this group of consumers
• The firm must develop some kind of mechanism to
determine whether the suspect is worth spending time
with
• One such approach is customer equity as posited by
Blattberg and Deighton (1996)
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Customer Equity
• Each customer’s expected contribution to offset the
company’s fixed costs over their expected lifetime
• Expected contributions to net present value are
discounted
• Add together all of the discounted expected contributions
across all of the company’s current customers
• From the customer equity standpoint, the suspect is
probably a poor candidate for the time and effort that
would be required for acquisition, and there would be
little guarantee of profitability (see Figure 7.2).
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Prospects
•
•
•
•
•
A better candidate would be found in a prospect
This is warm lead
Customer equity would be higher than for the suspect
Interest is not a guarantee for purchase
Too much time should not be spent on prospects (see
Mini Case 7.1).
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Customers
• He is one who has actually bought your
product/service
• The game is to increase his purchase frequency and
volume
• Are all customers are “good” customers?
• Compatibility management looks to minimize
exposure to inappropriate customers.
• Some companies adjust for different customers by
using different pricing and venues
• Zeithaml Rust and Lemon’s (2001) customer
profitability pyramid is an important approach to rank
& prioritize customers, on the bases of the impact of
the group of customers on the firm’s profitability
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Clients
• They are regular customers
• They have some level of trust in the seller
• Some clients may feel that they are hostages to the
seller
• Some clients may be “mercenaries”
• Some clients can act as terrorists if they become
unsatisfied
• Monitoring client satisfaction becomes important
• Frequency marketing
• After-marketing
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Supporters
• They buy everything you produce that they can use
• You can convert a client into a supporter through great
service
• Reward clients for their purchases and loyalty and move
them to supporters
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Advocates
• They buy the products and services and actively recruit others
to do the same
• They are the most valuable
• The company must try and keep them happy
• Loyalty schemes (see Mini Case 7.2)
– Loyalty schemes can neutralize competitors, broaden brand
distribution, enhance brand image and increase value
– Nunes and Dreze (2006) suggest that loyalty schemes can
reasonably be expected to do five things for the companies
that use them:
•
•
•
•
(1) keep customers from defecting,
(2) win a greater share of the wallet,
(3) prompt customers to make additional purchases,
(4) provide insight into customer behaviour and preferences,
and
• (5) create profit.
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Partners
• Partnership is when the buyer and seller enter into a joint
position of commitment and the buyer often has to
modify the ways in which he/she works to accommodate
the seller
• Both parties have a vested interest in the partnership
owing to trust and commitment
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Relationship Marketing in the B2B Context
• When compared to B2C markets, B2B markets are
characterized as:
• dealing with fewer customers,
• larger transactions,
• customized products,
• negotiated prices,
• values are often determined by usages,
• and brands are not as critical as often as the relationships
that are built between the buyers and the sellers.
• In this case, selling is far more complex as buyers may be
groups instead of individuals and selling teams may be
important, although often there is a key sales person who
deals with a key customer.
• The problem is that using the same types of mechanisms as
are used in B2C markets to build relationships often are not
effective in B2B market situations.
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Relationship Marketing in the B2B Context
• Narayandas (2005) provides insight for B2B
marketers by suggesting a B2B loyalty ladder as
shown in Figure 7.3.
• This ladder helps by providing strategic insight
that may not be gained from use of the B2C
loyalty ladder as shown in Figure 7.1.
• Narayandas (2005) suggests that there are really
four kinds of buyers (see Figure 7.4), and their
position on the buyer matrix will suggest whether
they are good candidates for investment,
maintenance or divestiture.
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Commodity Buyers
• They are only interested in basic offerings.
• They are primarily interested in shopping the lowest
prices.
• They tend to be large volume types of customers,
and the strategic focus should not be on trying to sell
them on high-value added services, but to strip
service costs to the bare minimum.
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Underperformers
• Those prestigious accounts that were acquired to
build credibility by luring them with very low cost or
even free services.
• The hope is that by acquiring them with low fees that
they will later be able to trade them up, but this is not
usually the case.
• The best way to deal with these accounts is to either
try to move them to commodity buyers by cutting the
level of services provided that are not essential, to
move them to partners by having them pay more for
services they need, to offer standard products, or to
divest them.
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Partners
• Customers who want everything provided for them since
they don’t have the in-house capability to handle these
needs.
• The key is to provide them the latest and best products
available, and price premiums will not be a problem for
them.
• They can be helpful in new product development.
• The issue is that these customers can become
problematic if the product evolutionary cycles are short (as
in high-tech offerings), and if the supplier doesn’t stay on
the leading edge of product innovation, these accounts
can be lost.
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Most Valuable Customers
• These customers are loyal and do not cost as much to maintain
as the partners.
• In these cases often the customer has taken over some of the
things originally provided by the supplier, but the customer is still
willing to pay premium prices for the offerings in honour of past
services provided.
• These customers will also be strong proponents for the supplier.
• One strategic imperative here is for the suppliers to consider
moving these customers to the partner category if new
technologies are created or new competitors enter the market
with the offering of new services
• Lages, Lancastre and Lages (2007) have developed a scale
that can potentially be used to judge the nature of B2B
relationships that they call the B2B-RELPERF scale and
scorecard (see Figure 7.5).
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Customer Relationship Management
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Customer relationship management
• Customer retention is an important goal for any company
– It is more expensive to acquire a new customer as
opposed to keeping one
• The corporate solution is the creation of customer
relationship management (or CRM) system.
• CRM is a process by which a firm gathers information
about the wants and needs of its customers to enable it
to adjust its offerings to better fit those wants and needs
• It involves data gathering, storage and dissemination to
those who need it
• This becomes complex in a B2C situation, involving
large numbers of consumers
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Customer relationship management
• Data mining is an important tool in customer relationship
management
• Data collected for the sake of data collection will do very
little
• The relationship must be carefully nurtured
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CRM pitfalls to avoid
• Implementing CRM before a customer strategy is
developed
• Implementing a CRM program before the organization
has become customer focused
• The assumption that more CRM technology is always
preferred
• “Don’t stalk your consumer, woo them”
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Developing personal knowledge banks
• Watson (2004) suggests a valuable tool for customer
relationship management called personal knowledge
banks.
• Building a customer database is not enough.
• Understand customer’s interactions with the particular
industry as a whole.
• Let the customer have control.
• This is also referred to as CMI or customer managed
interaction.
• The problem for companies is to let the control be with
the consumer.
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Sustainability of Relationships and
Competitive Advantage
• The key to relationships is to convert them into longterm partnerships between the buyer and seller
whether B2C or B2B.
• In this way the two parties become co-dependent
upon each other.
• The hope is that the relationship will become so
comfortable that the commitment level will remain as
high as possible.
• It is the hope that switching costs will increase over
time making dissolution of the relationship no longer
a possibility.
• Of course this will require true trust, commitment and
confidence on the part of both partners.
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Judging Sustainability
• Ryu, Park and Min (2007) suggest that there has been a major
paradigm shift for B2B marketers and that now relationship
marketing has shifted from a short-term to a long-term focus to
be effective.
• As a result, the measurement of the relationship management’s
LTO (long-term orientation) is vital for ensuring success.
• Practice suggests that there can be no LTO without the
existence of trust.
• Trust on the part of one partner is usually formed as a result of
the proven abilities of the other partner to offer proper solutions
and adapt to changing circumstances while also openly
exchanging information.
• As a result, the supplier should regularly measure, share and
also manage all aspects of the exchange process (even what
would seem to be implicit instead of explicit) so that the buyer
will want to develop a long-term relationship.
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Latest thinking on CRM
Building Customer Love
• It is no longer enough just to have a relationship with your
customer, you need to develop the “love” of your customer
• There are seven important steps in building customer love (see
Figure 7.6)
• The following are the benefits from achieving customer love
– Customers who love you take care of you
– Customers not only recommend you, they insist
– Customers forgive our mistakes
– They will give you candid feedback
– They will not take legal action against you
– They will pay more for what you offer
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Figure 7.6 – Customer Love
Engagement
Enlistment
Endearment
Enlightenment
Customer
Love
Enchantment
Entrustment
Empowerment
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Latest thinking on CRM
Customer Experience Management (CEM)
• Suggested by Meyer and Schwager (2007).
• It involves the systematic monitoring of customer
experiences in such a way that the customer is
always positive about their interactions with the
company and its employees across all possible touch
points (see Figure 7.7).
• The theory behind the system is that if the customer
experience is tracked and every effort is put into
ensuring that all experiences with the company and
its products/services is positive, then this type of
reinforcement will create a stronger bond between
the customer and the company and lead to
increasing levels of profitability.
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Latest thinking on CRM
The Virtual Customer Environment (VCEs)
• Satish and Priya Nambisan (2008) suggest that market winners
have succeeded in part due to the fact that they have built such
strong links with customers through the development of
innovative customer forums that have brought customers into
the process of product development and the creation of
perceived value.
• These forums are virtual in nature and range from such activities
as online discussions to product development innovation
centres.
• In these situations the customers are linked to new product
development, and the feelings of ownership and involvement
that come with these connections, further enhance customer
relationships with the company.
• These VCEs mould and shape the customer relationships with
the company and its various products/brands (see Figure 7.8).
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Figure 7.8– Types of Virtual Customer Environments
Primary Focus of the VCE: Customer Role
As Product
Conceptualiser
As Product
Designer
As Product
Tester
As Product
Support
Specialist
As Product
Marketer
Nature of
Customer
Contributions
Suggestions and
ideas for new
products and/or for
product
improvement
Specification of
new product
design; inputs on
product features
and design tradeoffs
Identification of
product design
flaws; input on
product prototypes
Delivery of product
support services to
peer customers
Diffusion of new
product information;
shaping peer
customers’
purchase behaviour
Dominant Nature
of Customer
Interactions
·CustomerCustomer
·CustomerCompany
·Customer-Tool
·CustomerCompany
·Customer-Tool
·CustomerCompany
·CustomerCustomer
·CustomerCustomer
·CustomerCustomer
·Customer-Tool
Typical VCE
Technologies
·Discussion forums
·Knowledge centres
·Blogs, wikis
·Virtual product
design and
prototyping tools
·Messaging tools
·Virtual product
simulation tools
·Messaging tools
·Discussion forums
·Knowledge centres
·Discussion forums
·Virtual product
simulation tools
Typical Example
Ducatii’s Tech Cafe
BMW’s Customer
Innovation Lab
Volvo’s Concept
Lab
Microsoft’s MVP
Program
Samsung’s Virtual
Product launch
Centre
Dominant
Customer
Experience
Components
·Pragmatic
·Hedonic
·Pragmatic
·Usability
·Hedonic
·Pragmatic
·Usability
·Pragmatic
·Sociability
·Pragmatic
·Sociability
Reprinted from “How to Profit from a Better Virtual Customer Environment,” by Satish Nambisan and
Priya Nambisan, MIT Sloan Management Review, Spring, 2008, pp. 53-61, by permission of publisher.
Copyright © 2008 by Massachusetts Institute of Technology. All rights reserved.
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Conclusion
• Once the company has gone through the process of
segmentation, processing and positioning they must look to
the creation of meaningful relationships with the customers.
• Customer acquisition is far more costly that customer
retention.
• Building an intimate relationship with the customer allows the
company to keep in step the changes in the customers needs
& wants.
• CRM is an important approach to managing customer
relationships.
• Committing to CRM requires careful preplanning and a
commitment throughout the organization to being customer
oriented.
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