Download Chap006

Chapter
6
•
•
•
•
•
•
Building Customer
Relationships
Relationship Marketing
Relationship Value of Customers
Foundations for Relationship Strategies
The Customer Isn’t Always Right
Customer Profitability Segments
Levels of Relationship Strategies
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Objectives for Chapter 6:
Building Customer Relationships
• 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.”
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.1
Customer Goals of Relationship
Marketing
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.2
Profit Generated by a Customer
Over Time
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.3
Profit Impact of 5 Percent Increase in
Retention Rate
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Table 6.1
Lifetime Value of an Average Business
Customer at Telecheck International, Inc.
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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?
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Underlying Logic of Customer Retention
Benefits to the Organization
Customer Satisfaction
Customer Retention &
Increased Profits
Quality
Service
Employee Loyalty
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Benefits to the Organization
of 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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
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
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
“The Customer Isn’t Always Right”
• Not all customers are good relationship customers:
– wrong segment
– not profitable in the long term
– difficult customers
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.4
Steps in Market Segmentation and
Targeting for Services
STEP 1:
Identify
Bases for
Segmenting
the Market
McGraw-Hill/Irwin
STEP 2:
Develop
Profiles of
Resulting
Segments
STEP 3:
STEP4:
STEP 5:
Develop
Measures
of Segment
Attractiveness
Select the
Target
Segments
Ensure that
Segments
Are
Compatible
©2003. The McGraw-Hill Companies. All Rights Reserved
Strategies for Building Relationships
• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
–
–
–
–
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
• Relationship Strategies Wheel
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.5
The “80/20” Customer Pyramid
Most Profitable
Customers
Best
Customers
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
Other
Customers
Least Profitable
Customers
McGraw-Hill/Irwin
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?
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.6
The Expanded Customer Pyramid
Most Profitable
Customers
Platinum
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
Gold
Iron
Lead
Least Profitable
Customers
McGraw-Hill/Irwin
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?
©2003. The McGraw-Hill Companies. All Rights Reserved
Figure 6.7
Levels of Retention Strategies
Volume and
Frequency
Rewards
Bundling and
Cross Selling
Continuous
Relationships
I. Financial
Bonds
Integrated
Information
Systems
Joint
Investments
Stable
Pricing
IV.
Structural
Bonds
Shared
Processes
and
Equipment
Excellent
Quality
and
Value
II.
Social
Bonds
III. Customization
Bonds
Anticipation/
Innovation
Personal
Relationships
Social Bonds
Among
Customers
Customer
Intimacy
Mass
Customization
McGraw-Hill/Irwin
©2003. The McGraw-Hill Companies. All Rights Reserved