week #4 chapter #6
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Building CustomerRelationships
• Relationship Marketing• Relationship Value of Customers• Foundations for Relationship Strategies• The Customer Isn’t Always Right• Customer Profitability Segments• Levels of Relationship Strategies
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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 relationships
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Figure 6.1
Customer Goals of Relationship Marketing
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Profit Generated by a CustomerOver Time
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Profit Impact of 5 Percent Increase in Retention Rate
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Lifetime Value of an Average Business Customer at Telecheck International, Inc.
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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 provider
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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?
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Underlying Logic of Customer Retention Benefits to the Organization
Customer Retention &Increased Profits
Employee Loyalty
QualityService
(Start Here)
Customer Satisfaction
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Benefits to the Organizationof 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
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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 deals
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“The Customer Isn’t Always Right”
• Not all customers are good relationship customers:
– wrong segment
– not profitable in the long term
– difficult customers
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Steps in Market Segmentation and Targeting for Services
IdentifyBases forSegmentingthe Market
STEP 1:
DevelopProfiles ofResultingSegments
STEP 2: DevelopMeasuresof SegmentAttractive-ness
STEP 3: Select the
TargetSegments
STEP4:Ensure thatSegmentsAre Compatible
STEP 5:
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Strategies for Building Relationships
• Foundations: – Excellent Quality/Value– Careful Segmentation
• Bonding Strategies:– Financial Bonds– Social & Psychological Bonds– Structural Bonds– Customization Bonds
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Most ProfitableCustomers
Least ProfitableCustomers
What segment spends more withus over time, costs less to maintain,spreads positive word of mouth?
What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?
OtherCustomers
BestCustomers
Figure 6.5The “80/20” Customer Pyramid
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Most ProfitableCustomers
Least ProfitableCustomers
What segment spends more withus over time, costs less to maintain,spreads positive word of mouth?
What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?
Gold
Iron
Lead
Platinum
The Expanded Customer Pyramid
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ExcellentQuality
andValue
I. Financial Bonds
II. Social Bonds
IV. Structural
Bonds
III. CustomizationBonds
Volume and Frequency Rewards
Bundling and Cross Selling
Stable Pricing
Social Bonds Among Customers
Personal Relationships
Continuous Relationships
Customer Intimacy
Mass Customization
Anticipation/ Innovation
SharedProcesses and Equipment
Joint Investments
Integrated Information Systems
Levels of Retention Strategies