BUILDING CUSTORMER RELATIONSHIPS

Donna J. Hill

Relationship Marketing

Relationship Marketing is to establish, maintain, enhance (usually but not necessarilyalways long term) relationships with customers and other partners, ata profit, so that the objectives of theparties 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

Expected Customer Lifetime Average Revenue (month/year) Other Customers convinced via WOM Employee Loyalty??

Expenses 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

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 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 valueeconomic, 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

“The Customer Isn’t Always Right”

Not all customers are good relationship customers:

wrong segment not profitable in the long term difficult customers

Strategies for Building Relationships

Foundations: Excellent Quality/Value Careful Segmentation

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

Relationship Strategies Wheel

Getting

Satisfying

Retaining

Enhancing

Figure 6-1

Customer Goals of Relationship Marketing

Figure 6-3

Underlying Logic of Customer Retention Benefits to the Organization

Customer Retention &Increased Profits

Employee Loyalty

QualityService

Customer Satisfaction

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

IdentifyBases forSegmentingthe Market

STEP 1:

DevelopProfiles ofResultingSegments

STEP 2: DevelopMeasuresof SegmentAttractive-ness

STEP 3: Select the

TargetSegments

STEP4:Ensure thatSegmentsAre Compatible

STEP 5:

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

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

ExcellentQuality

andValue

Figure 6-6Figure 6-6 Levels of Retention StrategiesLevels of Retention Strategies

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