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BGS Customer Relationship Management Chapter 3 Relationship Marketing and Customer Relationship Management Thomson Publishing 2007 All Rights Reserved

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BGSCustomer Relationship

Management

BGSCustomer Relationship

ManagementChapter 3

Relationship Marketing and Customer Relationship

Management

Chapter 3Relationship Marketing and

Customer Relationship Management

Thomson Publishing 2007 All Rights Reserved

Transaction vs. Relationship Marketing

Transaction vs. Relationship Marketing

• Short term focus• Marketing mix• Price sensitive

customers• Product quality

dominates• Market share• Ad hoc satisfaction

studies• Little

interdepartmental interface

• Little internal marketing

• Long-term focus• Interactive marketing• Less price sensitive

customers• Interaction quality

dominates• Share of wallet focus• Measurement of

commitment• Interdepartmental focus

• Extensive internal marketing

There is a Paradigm Shift in Marketing

• The 4-P paradigm involves marketing to anonymous masses of customers

• The relationship marketing paradigm in:– industrial marketing– services marketing– managing channel– strategic alliances– consumer packaged

goods marketing deals with

now deals with identifiable customers.

Six Key Aspects of a Successful

Relationship Marketing Strategy

STRATEGIC ISSUES• Service business orientation• Process management

perspective• Partnership/network

formation

TACTICAL ISSUES• Direct customer contacts• Customer databases• Customer-oriented service

system

Today the Concept of Product Must Be Expanded to the Extended Product Model

• Today’s companies must enhance value around their core product. This includes service and commitment components.

Relationship Marketing (RM)

The Meaning of Relationship Marketing

Relationship marketing means identifying, establishing, maintaining, and enhancing relationships with customers and other stakeholders at a profit, so that the objectives of all parties involved are met; this is done by a mutual exchange and fulfillment of promises.

Key Aspects of Relationship Marketing

1. Getting customers and creating transactions

2. Maintaining and enhancing ongoing relationships with customers, distributors, suppliers, networks of cooperating partners, etc.

3. Replacing products with personnel, technology, knowledge, and time

Existing Typology of Marketing

Strategies and Tactics

Existing Markets• Existing products

-Market penetration• Modified products

-Reformulation• New products• Product-line

extension• Horizontal

diversification

New Markets• Existing products

– Market development

• Modified products– Market extension

• New products-Mkt segment/prod

differentiation

• Concentric diversification

• Conglomerate diversification

Roots of Relationship Marketing

• Technological advances in IT• Continued growth of direct marketing• Using B2B relationship building models in

a B2C environment• Published findings of consultants

What is Relationship Marketing All About?

• RM consists of initiating, enhancing, and maintaining relationships with one’s “customers” and dissolving them when appropriate.

• RM has three basic features:– Relational databases– Integrated marketing communications– Capabilities for dialogue

Relationship Marketing is Applicable on at Least Ten

Different Levels1. Goods suppliers2. Service providers3. Competitors as in strategic alliances4. Nonprofit organizations5. Government entities as in joint R&D6. Ultimate customers7. Intermediate customers:

• franchisees• channel members

8. Functional departments9. Employees10.Other company business units

Will Relationship Marketing Benefit Every Company?

Meat Sauce

Shoelaces

Office Supplies

Meat Sauce

Shoelaces

Office Supplies

Hotels

Airlines

Autos

Hotels

Airlines

Autos

Professional Services

Sports Teams

Luxury Items

Professional Services

Sports Teams

Luxury Items

Discrete

Functional

Unemotional

Discrete

Functional

Unemotional

Continuous

Relational

Emotional

Continuous

Relational

Emotional

Exchange ContinuumExchange Continuum

There Are Three Levels of Relationship Marketing

Level 1: relies primarily on pricing incentives. Aim at customers at far left.

Level 2: relies primarily on social bonds involving customization and personalization.

Level 3: bonds are established by structural solutions

Choosing a Loyalty Strategy

Short Term Customers

Long-Term Customers

High Profit Butterflies True FriendsLow Profit Strangers Barnacles

Four Types of Customers

1. Loyalists: the most satisfied become apostles for your company.

2. Mercenaries: only loyal to low prices and are transaction specific with no intentions of ever establishing a relationship.

3. Hostages: “stuck” with you for a variety of reasons. Complainers and prima donnas.

4. Defectors: various types of dissatisfied former customers.

Customers Can Also Be Arrayed Based on

Relationship Strength• Intimate relationships:

doctor and patient• Face-to-face relationships:

customer and retail store

• Distant relationships: interactions over phone or online

• No relationships: manufacturers with final customers who buy through middlemen

“I Can’t Get No Satisfaction”

• Overall or cumulative satisfaction vs. transaction satisfaction

• But satisfaction as a measure does not predict purchase behavior

• The variables trust and commitment are introduced

A Model of a Long-Term Relationship

Long term orientation in a buyer-seller relationship

– F(mutual dependence, trust)– Trust=f(credibility of vendor, benevolence)– Credibility of vendor=f(reputation for

fairness, satisfaction with outcomes)– Reputation for fairness=f(reliable and

consistent behavior over time)– Benevolence=f(caring and making

sacrifices for the channel partner, satisfaction with outcomes)

Relationship Marketing and CRM

CRM is a set of business practices designed to put an enterprise into closer and closer touch with its customers, in order to learn more about each one and to deliver greater and greater value to each one with the overall goal of making each one more valuable to the firm.

Peppers and Rogers

Relationship Marketing Will Make Marketing More

Effective by:• Enabling marketers to learn more about

individual customers and develop customized products and services

• Allowing customers to help design and develop the product/service

• Minimizing negative images of marketing

Relationship Marketing Will Make Marketing More

Efficient by:• Enabling companies to retain customers

and drive profits• Reducing mass marketing wastes• Having customers do much of the

marketers’ work, including order processing, product design, etc.

Are Marketers Losing Ground in Their Ability To Be the Company

Focal Point for Customers?

•Marketing can no longer be confined to a single department.

– Line managers developed their own customer databases.

– They began to work directly with direct marketers to develop programs and testing.

– These efforts led to the CRM systems of today.

Is Marketing Loosing Ground?

• Companies today are being organized across functional lines that decentralizes the marketing function.

• TQC, ERP, in-house venture groups all develop new products and services.

• Product and brand managers focus on “push” marketing, HOEs, POP, and sales promotion to sell.

• These are the complete antithesis of what is needed to build class 1:1 relationships based on dialogues. Enter the customer manager.

• The U.S. recession in the 1990s put a focus on mass media spending.

• IT-supported approaches to direct marketing were less expensive and could reach masses of people individually with measurable results.

• The mass media has fragmented and results are still not measurable.

CRM Systems Can Provide Added Value for Customers

by:• Saving time• Providing convenience• Allowing for

customization• Providing a positive

experience

Have the 4 Ps Outlived Their Usefulness?

Some new suggestions:– 4 P’s: People, preferences, permission,

and precision– 4 C’s: Content, context, collaboration,

and community– 4 C’s: Customer value, lower costs,

better convenience, and better communications

Organizing for Relationship Marketing

• Companies organized around products and markets are not built around one-to-one relationships. No dialogue with the masses.

• Customer service reps, however, do have dialogues.

• Some suggest companies organize around customers in the form of customer portfolios run by segment managers.

• The rise of the CRM department?

One Scenario of the Future Marketing/CRM Interface

• How to connect the customer with the – Product– Service delivery– Financial accountability systems?

• Marketing owns the customer-product connection and is responsible for product strategy, branding strategy, price, and promotion.

One Scenario of the Future Marketing/CRM Interface

• CRM is responsible for the relationship between the customer and– Service delivery function: CRM responsible for

improving satisfaction and loyalty through management of loyalty programs

– Financial accountability system: CRM responsible for managing customer profitability through data mining and determining the profitability of marketing initiatives

Questions?