Building Customer Relationships

1
Building Customer Relationships
Chapter
7

• Relationship Marketing
• Relationship Value of Customers
• Customer Profitability Segments
• Relationship Development Strategies
• Relationship Challenges

2
Relationship Marketing

• is a philosophy of doing business, a strategic
  orientation, 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

3
Provider Gap 1

• When companies have strong relationships with
  customers gap 1 is _________________
• Customer Expectations
• Gap 1
• Company Perceptions of
• Consumer Expectations

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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 and administrative 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 management benefits
• easier jobs for employees
• social benefits for employees
• employee retention

5
Customer Loyalty

• Relational Benefits for Customers
• __________ benefits feelings of trust or
  confidence in the provider comfort in knowing
  what to expect
• _________ benefits familiarity personal
  relationship
• _________________ benefits preferential treatment

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Benefits to the Organizationof Customer Loyalty

• Economic Benefits
• Increasing customer purchases - loyal customers
  tend to spend more with the organization over
  time
• Lower costs - on average costs of relationship
  maintenance are lower than new customer costs

7
Benefits to the Organizationof Customer Loyalty

• Customer Behavior Benefits
• Human Resource Management Benefits

8
Figure 7.3Profit 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.
9
Effective Segmentation

• Customer Profitability Segments
• Not all customers are worth attracting and
  keeping
• It is neither practical nor profitable to meet
  (and certainly not to exceed) all customers
  expectations
• Objective company divides target market
  according to current and/or future _______________

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Figure 7.4The Customer Pyramid
Most Profitable
What segment spends more with
Platinum
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
we want? What segment is
Least Profitable
difficult to do business with?
Customers
11
Art of Attracting and Keeping Profitable Customers

• 20-80-30 rule
• Top 20 percent of customers generate 80 percent
  of companys profits, half of which is lost
  serving the bottom 30 percent of unprofitable
  customers
• - William Sherden 1994

12
The Customer Is NOT Always Right

• Not all customers are good relationship
  customers
• wrong segment
• not profitable in the long term
• difficult customers

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Application

• Build relationships with the most profitable
  customers fire the least profitable customers