Week #4 chapter #6

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Week #4 chapter #6

  1. 1. Building Customer Relationships • Relationship Marketing • Relationship Value of Customers • Foundations for Relationship Strategies • The Customer Isn’t Always Right • Customer Profitability Segments • Levels of Relationship StrategiesMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  2. 2. Relationship Marketing• is a philosophy of doing business 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 relationshipsMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  3. 3. Figure 6.1 Customer Goals of Relationship MarketingMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  4. 4. Profit Generated by a Customer Over TimeMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  5. 5. Profit Impact of 5 Percent Increase in Retention RateMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  6. 6. Lifetime Value of an Average Business Customer at Telecheck International, Inc.McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  7. 7. 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 provider – says good things about the providerMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  8. 8. Customer Loyalty Exercise• Think of a service provider you are loyal to.• What do you do (your behaviors, actions, feelings) that indicates you are loyal?• Why are you loyal to this provider?McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  9. 9. Underlying Logic of Customer Retention Benefits to the Organization Customer Satisfaction Customer Retention & Quality Increased Profits Service (Start Here) Employee LoyaltyMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  10. 10. 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 highMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  11. 11. Benefits to the Customer• inherent benefits in getting good value• economic, 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 dealsMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  12. 12. “The Customer Isn’t Always Right”• Not all customers are good relationship customers: – wrong segment – not profitable in the long term – difficult customersMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  13. 13. Steps in Market Segmentation and Targeting for Services STEP 1: STEP 2: STEP 3: STEP4: STEP 5:Identify Develop Develop Select the Ensure thatBases for Profiles of Measures Target SegmentsSegmenting Resulting of Segment Segments Arethe Market Segments Attractive- Compatible nessMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  14. 14. Strategies for Building Relationships• Foundations: – Excellent Quality/Value – Careful Segmentation• Bonding Strategies: – Financial Bonds – Social & Psychological Bonds – Structural Bonds – Customization BondsMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  15. 15. Figure 6.5 The “80/20” Customer Pyramid Most Profitable What segment spends more with Customers us over time, costs less to maintain, Best Customers spreads positive word of mouth? Other Customers What segment costs us in time, effort and money yet does not provide the return Least Profitable we want? What segment is Customers difficult to do business with?McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  16. 16. The Expanded Customer Pyramid Most Profitable Platinum What segment spends more with Customers us over time, costs less to maintain, spreads positive word of mouth? Gold Iron What segment costs us in Lead time, effort and money yet does not provide the return Least Profitable we want? What segment is difficult to do business with? CustomersMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
  17. 17. Levels of Retention Strategies Stable Volume and Pricing Frequency Bundling and Rewards Cross Selling Integrated I. Financial Continuous Information Bonds Relationships Systems IV. Excellent Quality II. Joint Structural Personal Investments and Social Relationships Bonds Value Bonds Shared Social Bonds Processes III. Customization Among and Bonds Customers Equipment Anticipation/ Customer Innovation Intimacy Mass CustomizationMcGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved

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