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Week #4 chapter #6
The document discusses building customer relationships through relationship marketing. It emphasizes retaining current customers rather than acquiring new ones since retaining customers is typically cheaper. It discusses segmenting customers into tiers based on profitability and focusing on the most profitable segments. Building strong customer relationships involves developing different types of bonds with customers like financial, social, structural, and customization bonds along with providing excellent quality and value.
Week #4 chapter #6
- 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 Strategies McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 2. Relationship Marketing • isa 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 relationships McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 3. Figure 6.1 Customer Goals of Relationship Marketing McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 4. Profit Generated bya Customer Over Time McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 5. Profit Impact of5 Percent Increase in Retention Rate McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 6. Lifetime Value ofan Average Business Customer at Telecheck International, Inc. McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 7. A Loyal Customeris 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 provider McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 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. Underlying Logic ofCustomer Retention Benefits to the Organization Customer Satisfaction Customer Retention & Quality Increased Profits Service (Start Here) Employee Loyalty McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 10. Benefits to theOrganization 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 high McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 11. Benefits to theCustomer • 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 deals McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 12. “The Customer Isn’tAlways Right” • Not all customers are good relationship customers: – wrong segment – not profitable in the long term – difficult customers McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 13. Steps in MarketSegmentation and Targeting for Services STEP 1: STEP 2: STEP 3: STEP4: STEP 5: Identify Develop Develop Select the Ensure that Bases for Profiles of Measures Target Segments Segmenting Resulting of Segment Segments Are the Market Segments Attractive- Compatible ness McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 14. Strategies for BuildingRelationships • Foundations: – Excellent Quality/Value – Careful Segmentation • Bonding Strategies: – Financial Bonds – Social & Psychological Bonds – Structural Bonds – Customization Bonds McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 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. The Expanded CustomerPyramid 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? Customers McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved
- 17. Levels of RetentionStrategies 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 Customization McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved