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West, Ford & Ibrahim: Strategic Marketing Topic 6: Relational and sustainability strategies All the best in Trimeter 1 -2014 1 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 All the best in Trimeter 1 -2014 2 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. All the best in Trimeter 1 -2014 3 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 All the best in Trimeter 1 -2014 4 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 All the best in Trimeter 1 -2014 5 Relationship Marketing All the best in Trimeter 1 -2014 6 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 All the best in Trimeter 1 -2014 7 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. All the best in Trimeter 1 -2014 8 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) All the best in Trimeter 1 -2014 9 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). All the best in Trimeter 1 -2014 10 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). All the best in Trimeter 1 -2014 11 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 All the best in Trimeter 1 -2014 12 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 All the best in Trimeter 1 -2014 13 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 All the best in Trimeter 1 -2014 14 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. All the best in Trimeter 1 -2014 15 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 All the best in Trimeter 1 -2014 16 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. All the best in Trimeter 1 -2014 17 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. All the best in Trimeter 1 -2014 18 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. All the best in Trimeter 1 -2014 19 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. All the best in Trimeter 1 -2014 20 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. All the best in Trimeter 1 -2014 21 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). All the best in Trimeter 1 -2014 22 Customer Relationship Management All the best in Trimeter 1 -2014 23 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 All the best in Trimeter 1 -2014 24 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 All the best in Trimeter 1 -2014 25 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” All the best in Trimeter 1 -2014 26 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. All the best in Trimeter 1 -2014 27 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. All the best in Trimeter 1 -2014 28 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. All the best in Trimeter 1 -2014 29 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 All the best in Trimeter 1 -2014 30 Figure 7.6 – Customer Love Engagement Enlistment Endearment Enlightenment Customer Love Enchantment Entrustment Empowerment All the best in Trimeter 1 -2014 31 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. All the best in Trimeter 1 -2014 32 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). All the best in Trimeter 1 -2014 33 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. All the best in Trimeter 1 -2014 34 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. All the best in Trimeter 1 -2014 35