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Building Customer Relationships

Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges

7Chapter

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Obe!tives for Chapter 7"

Building Customer Relationships

#$plain relationship marketing% its goals% and the benefits of long&term relationships for firms and !ustomers'

#$plain (hy and ho( to estimate !ustomer relationship value'

)ntrodu!e the !on!ept of !ustomer profitability segments as astrategy for fo!using relationship marketing efforts'

Present relationship development strategies*in!luding +uality

!ore servi!e% s(it!hing barriers% and relationship bonds'

)dentify !hallenges in relationship development% in!luding thesome(hat !ontroversial idea that ,the !ustomer is not al(aysright'-

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Relationship Marketing

is a philosophy of doing business% a strategi! orientation% that

fo!uses on keeping !urrent !ustomers and improving

relationships (ith them

does not ne!essarily emphasi.e a!+uiring ne( !ustomers

is usually !heaper /for the firm0

keeping a !urrent !ustomer !osts less than attra!ting a ne( one

thus% the fo!us is less on attra!tion% and more on retention and

enhan!ement of !ustomer relationships

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1igure 7'2

Customer 3oals of Relationship Marketing

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Benefits of Relationship Marketing

Benefits for Customers"

Re!eipt of greater value

Confiden!e benefits" trust

!onfiden!e in provider

redu!ed an$iety So!ial benefits"

familiarity

so!ial support

personal relationships

Spe!ial treatment benefits" spe!ial deals

pri!e breaks

Benefits for Firms"

#!onomi! benefits" in!reased revenues

redu!ed marketing andadministrative !osts

regular revenue stream Customer behavior benefits"

strong (ord&of&mouth endorsements

!ustomer voluntary performan!e

so!ial benefits to other !ustomers

mentors to other !ustomers

4uman resour!e managementbenefits" easier obs for employees

so!ial benefits for employees

employee retention

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1igure 7'5

Profit 3enerated by a Customer

Over 6ime

Source" n e$hibit from 1' 1' Rei!hheld and 8' #' Sasser% 9r'% ,:ero Defe!tion" ;uality Comes to Servi!es%>?'

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1igure 7'@

Profit )mpa!t of A Per!ent )n!rease in Retention Rate

Source" 1' 1' Rei!hheld% ,oyalty and the Renaissan!e of Marketing%- Marketing Management, vol' 5% no' /2>>0% p' 2A'

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6able 7'2

ifetime Value of an verage Business

Customer at 6ele!he!k )nternational

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Customer oyalty #$er!ise

6hink of a servi!e provider to (ho you are loyal'

8hat do you do /your behaviors% a!tions% feelings0 that

indi!ates you are loyal

8hy are you loyal to this provider

8hat fa!tors have influen!ed the formation of your loyalty

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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 notprovide the return we want?

What segment is difficult to do

business with?

Gold

ron

Lead

!latinum

1igure 7'

6he Customer Pyramid

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1igure 7'A

Relationship Development Model

Customer "enefitsConfiden!e benefits

So!ial benefits

Spe!ial treatment benefits

#elationship "onds1inan!ial bonds

So!ial bonds

Customi.ation bonds

Stru!tural bonds

$witching "arriersCustomer inertiaS(it!hing !osts

Core $ervice !rovisionSatisfa!tion

Per!eived servi!e +uality

Per!eived value

$trong Customer#elationship

%Loyalty&

Firm "enefits#!onomi! benefits

Customer behavior benefits

4uman resour!e management

benefits

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Strategies for Building Relationships

Core Servi!e Provision" servi!e foundations built upon delivery of e$!ellent servi!e"

satisfa!tion% per!eived servi!e +uality% per!eived value

S(it!hing Barriers" !ustomer inertia s(it!hing !osts"

set up !osts% sear!h !osts% learning !osts% !ontra!tual !osts

Relationship Bonds"

finan!ial bonds so!ial bonds

!ustomi.ation bonds

stru!tural bonds

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#$!ellent

servi!e

and value

'(

Financial

bonds

)(

$ocial

bonds

*(

$tructural

bonds

+(

Customiation"onds

Volume andfre+uen!y

re(ards

Bundling and!ross selling

Stable

pri!ing

So!ial bonds

among

!ustomers

Personal

relationships

Continuous

relationships

Customer

intima!yMass

!ustomi.ation

nti!ipationE

innovation

Shared

pro!esses

ande+uipment

9oint

investments

)ntegrated

information

systems

1igure 7'F

evels of Relationship Strategies

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,6he Customer )s GO6 l(ays Right-

Got all !ustomers are good relationship !ustomers"

(rong segment

not profitable in the long term

diffi!ult !ustomers