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1. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Developing and
Maintaining Long-
Term Customer
Relationships
Chapter 12
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2. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Is not about creating a large number of transactions
 Is one that attracts and retains customers over the
long-term
 Considers customer needs, wants, and expectations
 Develops long-term relationships
The “Right” Marketing Strategy
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3. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 A business philosophy aimed at defining and
increasing customer value in ways that motivate
customers to remain loyal
 CRM is about retaining the “right” customers.
 CRM Stakeholders
 Customers
 Employees
 Supply chain partners
 External stakeholders (government, media, advocacy groups)
Customer Relationship Management
(CRM)
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4. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Shift from Acquiring Customers to
Maintaining Clients (Exhibit 10.1)
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5. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Goal is to move consumers through levels of
increasing relationship intensity
 Recognizes that not all customers have equal value
to the firm (based on the lifetime value of customers)
 Focuses on building share of customer
 Fully serving the needs of current customers, rather than
acquiring new customers
 Encourage current customers to do more business with the
firm
Developing Relationships in Consumer
Markets
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6. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Stages of Customer Relationship
Development (Exhibit 10.2)
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7. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Financial Incentives
 Using financial incentives to increase customer loyalty
 Examples: Coupons, frequent customer programs
 Adv: Easy to use, effective in the short term
 Dis: Easy to imitate, hard to end once started
 Social Bonding
 Using social and psychological bonds to maintain a clientele
 Examples: Membership programs, customer-only events
 Adv: Difficult to imitate, reduces brand switching
 Dis: Takes time, must build customer trust
Customer Relationship Strategies
(Exhibit 10.3)
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8. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Enhanced Customization
 Using intimate customer knowledge to provide one-to-one
solutions or mass customization
 Examples: Reminder notices, personal shoppers
 Adv: Promotes brand loyalty, very hard to imitate
 Dis: Can be expensive, takes time to develop
 Structural Bonding
 Creating customized product offerings that create a unique
delivery system for each client
 Examples: Contractual relationships; structured, lock-step
programs
 Adv: Ultimate reduction in brand switching
 Dis: Time consuming and costly, customer resistance
Customer Relationship Strategies
(Exhibit 10.3) (continued)
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9. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Like CRM in consumer markets, involves moving
buyers through increasing levels of relationship
intensity
 Typically based on creating structural connections
between partners
 Creates win-win scenarios
 Is more involving and complex than CRM in
consumer markets
Developing Relationships in Business
Markets
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10. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Change in Buyers’ and Sellers’ Roles
 Shift from competitive negotiation to collaboration
 Increase in Sole Sourcing
 Creates solutions at lower costs
 Increase in Global Sourcing
 Easier to find partners that meet exacting needs
 Increase in Team-Based Buying Decisions
 Better decisions come from diverse expertise
 Increase in Productivity through Better Integration
 Reduces inefficiency and hard/soft costs; increases
profitability
Changes in Business Relationships
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11. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
After firms rank their customers on
profitability or lifetime value measures,
highly profitable customers get special
attention, while unprofitable customers get
poor service or are “fired.” What are the
ethical and social issues involved in these
practices? Could CRM be misused? How
and why?
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12. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Quality is a relative term that refers to the degree of
superiority of a firm’s goods or services
 The Core Product
 Satisfies the basic customer need
 Core product in services (people, processes, and physical
evidence)
 Supplemental Products
 Goods or services that add value to the core product
 Symbolic and Experiential Attributes
 Usually based on image, prestige, or branding
Understanding the Role of Quality
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13. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Components of the Total Product
Offering (Exhibit 10.4)
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14. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Most firms struggle with improving quality
 Customers have very high expectations
 Most products compete in mature markets
 Very little differentiation among product offerings
 Keys to improving quality
 Understand customers’ expectations
 Translate expectations into quality standards
 Uphold quality standards
 Don’t overpromise
Delivering Superior Quality
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15. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Value is the subjective evaluation of benefits relative
to costs to determine the worth of a firm’s product
offering relative to other product offerings.
 Value can be used to guide marketing strategy.
 It balances the five types of utility.
 It includes the concept of quality, but is broader in scope.
 It takes into account every marketing program element.
 It can be used to explicitly consider customer perceptions.
Understanding the Role of Value
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16. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 A simple formula for value (from Chapter 6):
 A more strategic formula for value:
The Value Formula
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Perceived Value =
Customer Benefits
Customer Costs
Perceived Value =
Core Product Quality + Supplemental Product Quality + Experiential Quality
Monetary Costs + Nonmonetary Costs

17. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Core Product, Supplemental Product, and
Experiential Quality
 Firms can create unique combinations to drive value
perceptions.
 Monetary Costs
 Transactional costs include the immediate financial outlay that
must be made to purchase the product.
 Life-cycle costs include additional costs that will be incurred
over the life of the product.
 Nonmonetary Costs
 Time, effort, risk, and opportunity costs
 Not as obvious as monetary costs, so customers sometimes
ignore them.
The Value Formula (continued)
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18. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Value and the Marketing Program
(Exhibit 10.5)
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19. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Understanding Customer Expectations
 Range of customer expectations
 Ideal expectations
 Normative expectations
 Experience-based expectations
 Minimum tolerable expectations
 Customer expectations can vary based on the situation
 Expectations increase during highly involving or important
purchase situations.
 Expectations decrease when customers are more tolerant of poor
performance, when they have few alternatives, or when
performance is beyond the control of the firm.
Customer Satisfaction: The Key to
Customer Retention
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20. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Range of Customer Expectations
(Exhibit 10.6)
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21. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 The difference between the upper and lower end of
the range of possible customer expectations
 The width of the zone represents the degree to which
customers recognize and are willing to accept
variability in performance.
 Three potential outcomes
 Customer delight – performance exceeds desired expectations
 Customer satisfaction – performance falls within the zone
 Customer dissatisfaction – performance falls below adequate
expectations
The Zone of Tolerance
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22. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Zone of Tolerance
(Exhibit 10.7)
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23. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Of the two types of customer expectations,
adequate performance expectations
fluctuate the most. Describe situations that
might cause adequate expectations to
increase, thereby narrowing the width of
the zone of tolerance. What might a firm do
in these situations to achieve its
satisfaction targets?
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24. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Why are Customer Expectations Unrealistic?
 Typically, customers are not unrealistic. They only want the
basics of performance.
 Should We Delight the Customer?
 May not be worth the effort if:
 It does not increase loyalty or retention.
 It lowers performance for other customers.
 It increases expectations over time.
 Competitors can easily copy it.
 The firm should look for small ways to delight customers
without it becoming an everyday occurrence.
Managing Customer Expectations
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25. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Quality is narrowly defined and judged on an
attribute-by-attribute basis.
 Value includes quality, but it also includes monetary
and nonmonetary costs.
 Satisfaction is based on expectations and is typically
considered holistically.
 Satisfaction can be based on quality, value, or factors that
have nothing to do with quality or value.
 Expectations and satisfaction can be affected by nonquality
and nonvalue issues over which the firm has little control.
Satisfaction versus Quality versus Value
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 Understand what can go wrong
 Focus on controllable issues
 Manage customer expectations
 Offer satisfaction guarantees
 Make it easy for customers to complain
 Create relationship programs
 Make customer satisfaction measurement an ongoing
priority
Customer Satisfaction and Customer
Retention
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27. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Examples of Customer Satisfaction
Guarantees (Exhibit 10.8)
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28. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Measuring Expectations and
Performance (Exhibit 10.9)
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29. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 Lifetime Value of a Customer (LTV)
 Average Order Value (AOV)
 Customer Acquisition/Retention Costs
 Customer Conversion Rate
 Customer Retention Rate
 Customer Attrition Rate
 Customer Recovery Rate
 Referrals
 Social Communication
Customer Satisfaction Measurement
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30. © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Given the commoditized nature of many
markets today, does customer relationship
management – and its associated focus
on quality, value, and satisfaction – make
sense? If price is the only true means of
differentiation in a commoditized market,
why should a firm care about quality?
Explain.
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