BUILDING CUSTORMER RELATIONSHIPS Donna J Hill MTG 410

BUILDING CUSTORMER RELATIONSHIPS Donna J. Hill MTG 410 Fall 2000

Relationship Marketing is to establish, maintain, enhance (usually but not necessarily always long term) relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfillment of promises. -Christian Gronroos

§ I describe loyal customers as those who will call me as a supplier immediately when they receive a visit from a competitor with a new product and feel that they have a unique relationship with me

Relationship Marketing § is a philosophy of doing business that focuses on keeping and improving current customers § does not necessarily emphasize acquiring new customers § is usually cheaper (for the firm)--to keep a current customer costs less than to attract a new one § goal = to build and maintain a base of committed customers who are profitable for the organization § thus, the focus is on the attraction, retention, and enhancement of customer relationships

Lifetime Value of a Customer § Assumptions § Income l Expected Customer Lifetime l Average Revenue (month/year) l Other Customers convinced via WOM l Employee Loyalty? ? § Expenses l Costs of Serving Customer Increase? ?

Calculating Lifetime Value § $spent per month x 12 months x average lifetime = lifetime value § $1500/month x 12 months/year x 10 years = $180, 000

A Loyal Customer is One Who. . . § Shows Behavioral Commitment l l l 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 l l l wouldn’t consider terminating the relationship-psychological commitment has a positive attitude about the supplier says good things about the supplier

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

Benefits to the Customer § inherent benefits in getting good value § economic, social, and continuity benefits l contribution to sense of well-being and quality of life and other psychological benefits l avoidance of change l simplified decision making l social support and friendships l special deals

“The Customer Isn’t Always Right” § Not all customers are good relationship customers: l wrong segment l not profitable in the long term l difficult customers

Strategies for Building Relationships § Foundations: l Excellent Quality/Value l Careful Segmentation § Bonding Strategies: l Financial Bonds l Social & Psychological Bonds l Structural Bonds l Customization Bonds § Relationship Strategies Wheel

Figure 6 -1 Customer Goals of Relationship Marketing Enhancing Retaining Satisfying Getting

Figure 6 -3 Underlying Logic of Customer Retention Benefits to the Organization Customer Satisfaction Customer Retention & Increased Profits Employee Loyalty Quality Service

Segmentation --- Goods versus Services § Most powerful difference --- need for compatibility in market segments § Services have a far greater ability to customize service offerings in real time

Figure 6 -5 Steps in Market Segmentation and Targeting for Services STEP 1: Identify Bases for Segmenting the Market STEP 2: Develop Profiles of Resulting Segments STEP 3: STEP 4: STEP 5: Develop Measures of Segment Attractiveness Select the Target Segments Ensure that Segments Are Compatible

Bases for Segmentation § Demographic (social statistics) § Geographic (geographic units) § Psychographic (social class, lifestyle, or personality) § Behavioral (knowledge, attitude, uses, or responses to a service)

Requirements for Effective Segmentation § Measurability (size and power an be measured) § Accessibility (can be reached and served) § Substantiality (large or profitable) § Actionability (design effective programs)

Mass Customization § Designed to fit each individual’s needs § (segmenting to the individual level) § Joe Pine l l customizing the service around a standardized core creating customizable services offering point-of-delivery customization offering standard modules that can be combined in unique ways

Figure 6 -6 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 Mass Customization Personal Relationships Social Bonds Among Customers Customer Intimacy