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7ChapterChapter
Building Customer RelationshipsBuilding Customer Relationships
Relationship Marketing Relationship Value of Customers Customer Profitability Segments Relationship Development Strategies Relationship Challenges
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Relationship MarketingRelationship Marketing
is a philosophy of doing business, a strategic orientation, 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
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 7.2
Profit Generated by a CustomerOver Time
Figure 7.2
Profit Generated by a CustomerOver Time
Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., “Zero Defection: Quality Comes to Services,’’ Harvard Business Review, September–October 1990.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 7.3
Profit Impact of 5 Percent Increase in Retention Rate
Figure 7.3
Profit Impact of 5 Percent Increase in Retention Rate
Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Table 7.1
Lifetime Value of an Average Business Customer at Telecheck International
Table 7.1
Lifetime Value of an Average Business Customer at Telecheck International
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Customer Loyalty ExerciseCustomer Loyalty Exercise
Think of a service provider to who you are loyal.
What do you do (your behaviors, actions, feelings) that indicates you are loyal?
Why are you loyal to this provider?
What factors have influenced the formation of your loyalty?
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 7.5
Relationship Development ModelFigure 7.5
Relationship Development Model
Customer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefits
Relationship BondsFinancial bondsSocial bondsCustomization bondsStructural bonds
Switching BarriersCustomer inertiaSwitching costs
Core Service ProvisionSatisfactionPerceived service qualityPerceived value
Strong CustomerRelationship
(Loyalty)
Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 7.1
Customer Goals of Relationship MarketingFigure 7.1
Customer Goals of Relationship Marketing
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Benefits of Relationship MarketingBenefits of Relationship Marketing
Benefits for Customers: Receipt of greater value Confidence benefits:
trust confidence in provider reduced anxiety
Social benefits: familiarity social support personal relationships
Special treatment benefits: special deals price breaks
Benefits for Firms: Economic benefits:
increased revenues reduced marketing and
administrative costs regular revenue stream
Customer behavior benefits: strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers
Human resource management benefits: easier jobs for employees social benefits for employees employee retention
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Strategies for Building RelationshipsStrategies for Building Relationships
Core Service Provision: service foundations built upon delivery of excellent service:
satisfaction, perceived service quality, perceived value Switching Barriers:
customer inertia switching costs:
set up costs, search costs, learning costs, contractual costs Relationship Bonds:
financial bonds social bonds customization bonds structural bonds
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Excellentservice
and value
1. Financial
bonds
2.Socialbonds
4. Structural
bonds
3. Customization
Bonds
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
Figure 7.6
Levels of Relationship StrategiesFigure 7.6
Levels of Relationship Strategies
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Most profitable customers
Least profitable customers
What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?
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?
Gold
Iron
Lead
Platinum
Figure 7.4
The Customer PyramidFigure 7.4
The Customer Pyramid
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
“The Customer Is NOT Always Right”“The Customer Is NOT Always Right”
Not all customers are good relationship customers:
wrong segment
not profitable in the long term
difficult customers