7 chapter building customer relationships  relationship marketing  relationship value of...

Download 7 Chapter Building Customer Relationships  Relationship Marketing  Relationship Value of Customers  Customer Profitability Segments  Relationship Development

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  • Building Customer RelationshipsRelationship MarketingRelationship Value of CustomersCustomer Profitability SegmentsRelationship Development StrategiesRelationship Challenges7Chapter

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Relationship Marketingis 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

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.2Profit Generated by a CustomerOver TimeSource: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., Zero Defection: Quality Comes to Services, Harvard Business Review, SeptemberOctober 1990.

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.3Profit Impact of 5 Percent Increase in Retention RateSource: F. F. Reichheld, Loyalty and the Renaissance of Marketing, Marketing Management, vol. 2, no. 4 (1994), p. 15.

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Table 7.1Lifetime Value of an Average Business Customer at Telecheck International

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Customer Loyalty ExerciseThink of a service provider to who you are loyal.

    What do you do (your behaviors, actions, feelings) that indicates you are loyal?

    Why are you loyal to this provider?

    What factors have influenced the formation of your loyalty?

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.5 Relationship Development ModelCustomer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefitsRelationship BondsFinancial bondsSocial bondsCustomization bondsStructural bondsSwitching BarriersCustomer inertiaSwitching costsCore Service ProvisionSatisfactionPerceived service qualityPerceived valueStrong CustomerRelationship(Loyalty)Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.1Customer Goals of Relationship Marketing

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Benefits of Relationship MarketingBenefits for Customers:Receipt of greater valueConfidence benefits:trustconfidence in providerreduced anxietySocial benefits:familiaritysocial supportpersonal relationshipsSpecial treatment benefits:special dealsprice breaks

    Benefits for Firms:Economic benefits:increased revenuesreduced marketing and administrative costsregular revenue streamCustomer behavior benefits:strong word-of-mouth endorsementscustomer voluntary performancesocial benefits to other customersmentors to other customersHuman resource management benefits:easier jobs for employeessocial benefits for employeesemployee retention

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Strategies for Building RelationshipsCore Service Provision:service foundations built upon delivery of excellent service:satisfaction, perceived service quality, perceived valueSwitching Barriers:customer inertiaswitching costs:set up costs, search costs, learning costs, contractual costsRelationship Bonds:financial bondssocial bondscustomization bondsstructural bonds

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.6 Levels of Relationship StrategiesExcellentservice and value1. Financial bonds2.Socialbonds4. Structural bonds3. CustomizationBondsVolume and frequency rewardsBundling and cross sellingStable pricingSocial bonds among customersPersonal relationshipsContinuous relationshipsCustomer intimacyMass customizationAnticipation/ innovationSharedprocesses and equipmentJoint investmentsIntegrated information systems

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    Figure 7.4The Customer PyramidMost profitable customersLeast profitable customersWhat segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?GoldIronLeadPlatinum

    2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

    The Customer Is NOT Always RightNot all customers are good relationship customers:

    wrong segment

    not profitable in the long term

    difficult customers

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