8/2/2019 Chap007 - Copy

1/15

2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

8/2/2019 Chap007 - Copy

2/15

Building Customer Relationships

Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges

7

Chapter

8/2/2019 Chap007 - Copy

3/15

2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Objectives for Chapter 7:Building Customer Relationships

Explain relationship marketing, its goals, and the benefits oflong-term relationships for firms and customers.

Explain why and how to estimate customer relationship value.

Introduce the concept of customer profitability segments as astrategy for focusing relationship marketing efforts.

Present relationship development strategiesincluding qualitycore service, switching barriers, and relationship bonds.

Identify challenges in relationship development, including thesomewhat controversial idea that the customer is not alwaysright.

8/2/2019 Chap007 - Copy

4/15

2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Relationship Marketing

is a philosophy of doing business, a strategic orientation, thatfocuses on keeping current customers and improvingrelationships 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 andenhancement of customer relationships

8/2/2019 Chap007 - Copy

5/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 7.1

Customer Goals of Relationship Marketing

8/2/2019 Chap007 - Copy

6/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Benefits 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 andadministrative 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 managementbenefits: easier jobs for employees

social benefits for employees

employee retention

8/2/2019 Chap007 - Copy

7/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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, HarvardBusiness Review, SeptemberOctober 1990.

8/2/2019 Chap007 - Copy

8/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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.

8/2/2019 Chap007 - Copy

9/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Table 7.1

Lifetime Value of an Average BusinessCustomer at Telecheck International

8/2/2019 Chap007 - Copy

10/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Customer Loyalty Exercise

Think of a service provider to who you are loyal.

What do you do (your behaviors, actions, feelings) thatindicates you are loyal?

Why are you loyal to this provider?

What factors have influenced the formation of your loyalty?

8/2/2019 Chap007 - Copy

11/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Most profitablecustomers

Least profitablecustomers

What segment spends more with usover 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 dobusiness with?

Gold

Iron

Lead

Platinum

Figure 7.4

The Customer Pyramid

8/2/2019 Chap007 - Copy

12/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 7.5

Relationship Development Model

Customer BenefitsConfidence benefitsSocial benefits

Special treatment benefits

Relationship BondsFinancial bonds

Social bondsCustomization bonds

Structural bonds

Switching BarriersCustomer inertiaSwitching costs

Core Service ProvisionSatisfaction

Perceived service qualityPerceived value

Strong CustomerRelationship

(Loyalty)

Firm BenefitsEconomic benefits

Customer behavior benefitsHuman resource management

benefits

8/2/2019 Chap007 - Copy

13/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Strategies 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

8/2/2019 Chap007 - Copy

14/15 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Excellentservice

and value

1.Financial

bonds

2.Socialbonds

4.Structural

bonds

3.

CustomizationBonds

Volume andfrequencyrewards

Bundling andcross selling

Stable

pricing

Social bondsamong

customers

Personalrelationships

Continuousrelationships

Customerintimacy

Masscustomization

Anticipation/innovation

Sharedprocesses

andequipment

Jointinvestments

Integratedinformation

systems

Figure 7.6

Levels of Relationship Strategies

8/2/2019 Chap007 - Copy

15/15

2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Customer Is NOT Always Right

Not all customers are good relationship customers:

wrong segment

not profitable in the long term

difficult customers