managing relationships and building loyalty

8/2/2019 Managing Relationships and Building Loyalty

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Chapter 12

Managing Relationshipsand Building Loyalty


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Four Stages of BrandLoyalty in a Consumer

Cognitive loyalty perception from

brand attribute information that onebrand is preferable to its alternatives

Affective loyalty developing a

liking for the brand based oncumulatively satisfying usageoccasions

Conative loyalty commitment torebu in the same brand


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Profitability :Index of Customer Profits

over Time (Fig. 12.1)

Creditcard

Industriallaundry

Industrial distribution Autoservicing

0

(Year1=100)

50

2

50

300

350

10

0

150

200

Year1

Year2

Year3

Year4

Year5

Based on data from Reichheld and Sasser


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What Makes LoyalCustomers More Profitable?

Tend to spend more as relationshipdevelops customers balances may grow

may consolidate purchases to one supplier Cost less to serve

less need for information and assistance make fewer mistakes

Recommend new customers to firm(act as unpaid sales people)

Trust leads to willingness to pay

regular prices vs. shopping for


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na yz ng y us omersAre More Profitable over

Time (Fig. 12.2)

1 2 3 4 5 6 7

Ye

ar

Profit frompricepremiu

mProfit from references

Profit fromreducedop.

costsProfit from increased

usageBase

Profit

Source: Reichheld and Sasser


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Calculating Life Time Valueof Each Customer

Value at Acquisition revenues (application fee + initial

purchase)

Less costs (marketing +credit check +account set up)

Annual Value (project for each

year of relationship) revenues (annual fee + sales + servicefees + value of referrals)

Less costs (account management + cost

of sales + write-offs)


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Customer-Firm Relationship

Database Marketing: Involves the use of technology by

delivering differentiated service levels to consumersand subsequently tracking the relationship.

Interaction Marketing: Usually in B2B context wherepeople and the social process also add mutuallybeneficial value.

Network Marketing: Common in B2B context wherecompanies commit resources to develop positions in anetwork of relationships with the stakeholders andrelevant agencies.

Todays marketers seek to develop long-term relationships withcustomers. Relationship marketing includes:


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Types of Relationships withCustomers (Table 12.1)

Type of Relationship--Firmand Customer

Nature ofService Delivery Membership No formal

relationship

Continuous Cable TV Radio station

Insurance Police

College enrollment Lighthouse

Discrete transactions Subscriber phone Pay phone

Theater subscription Movie theater

Warranty repair Public transport


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as c egmen a on ssues:Building an Appropriate

Customer Portfolio Target customers whose needs match

firms capabilities Focus on value of prospective

customers within each segment, notjust numbers

Avoid targeting customers who mightabuse: our employees, facilities

other customers


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Service-RelevantSegmentation Variables

Timing of service use (e.g., byhour, day, season)

Level of skill and experience asco-producer/self-server

Preferred language in face-to-facecontact

Access to electronic deliverysystems (e.g., Internet)

Attitudes toward use of new

service technologies


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Identifying and SelectingTarget Segments

(Mgt Memo 12.2)User characteristics demographics

psychographics

geographic location

benefits sought

User behavior when, where, how services

used

quantity/value of purchases frequency of use

profitability of relationship

sensitivity to marketingvariables


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Portfolio of ProfessionalAssignments (Fig. 12.4)

Analytical Work on Project Data

Bread and Butter Projects

Significant Projects

Pacesetters

Major, State-of-the-art challenges for the firmsprincipals that give the firm high visibility

Demanding client assignments offering alearning experience for the firms most

experienced associates

Routine client projects sharedamong principals and associates

Entry-level tasks for newassociates or for researchassistants & paraprofessionals


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The Customer Pyramid (Fig. 12.5)

Lead

Iron

Gold

Which segment sees high value inour offer, spends more with us overtime, costs less to maintain, andspreads positive word-of-mouth?

Which segment costs us in time,effort and money, yet does notprovide the return we want?Which segment is difficult to dobusiness with?

Platinum

Good RelationshipCustomers

Poor RelationshipCustomers


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Relational Benefits in

Service Industries(Research Insights

12.1) Confidence benefits less risk of something going wrong, less

anxiety

ability to trust provider know what to expect get firms best service level

Social benefits mutual recognition, known by name friendship, enjoyment of social aspects

Special treatment benefits tt r ri i unt i l l


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The Customer Satisfaction-Loyalty Relationship (Fig. 12.6)

0

20

40

60

80

100

1 2 3 4 5

Loyalty

(Retention

)

Verydissatisfied Dissatisfied

Neithersatisfied

nor dissatisfiedSatisfied

VerySatisfied

Satisfaction

Near Apostle

Zone of Defection

Zone of Indifference

Zone of Affection

Terrorist

Apostle


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The Wheel of Loyalty (Fig. 12.7)

1. Build aFoundationfor Loyalty

2. Create LoyaltyBonds

3. ReduceChurn Drivers

CustomerLoyalty

Be selective in acquisition

Conduct churn diagnostic Segment the market

Use effective tiering ofservice.

Deliver qualityservice.

Deepen therelationship

Give loyaltyrewards

Build higher levelbonds

Implement complainthandling & servicerecovery

Address key churn drivers

Increase switchingcosts

Enabled through: Frontline staff Account managers Membership

programs CRM

Systems


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ewar ng a ue o se, oJust Frequency at British

Airways (Best Practice in Action 12.2) Dedicated reservations Reservations assurance

Priority waitlist and standby

Advance notification of

delays exceeding 4hours

Upgraded check-in

Preferred boarding

Special services assistance

Bonus air miles

Upgrade for two


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Drivers of Service Switching(Fig. 12.9)

Service

Switching

Service Encounter Failures Uncaring Impolite Unresponsive Unknowledgeable

Response to Service Failure Negative Response No Response Reluctant Response

Pricing High Price Price Increases Unfair Pricing Deceptive Pricing

Inconvenience Location/Hours Wait for Appointment Wait for Service

Competition

Found Better Service

Ethical Problems Cheat Hard Sell

Involuntary Switching Customer Moved Provider Closed

Value Proposition

Others

Service Failure / Recovery

Core Service Failure Service Mistakes Billing Errors Service Catastrophe

Unsafe Conflict of Interest


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Common CRM Applications(Mgt Memo 12.2)

Signifies the whole process by whichrelationships with customers are builtand maintained.

CRM as an enabler, offering a unifiedcustomer interface and allow firms tobetter understand and segment the

customers etc. Applications include: Data collection Data analysis

Sales force automation

s omer e a ons p


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us omer e a ons pStrategies with CRM

Systems: Key Questions How should our value proposition change to increase

customer loyalty?

How much customization or one-to-one marketing andservice delivery is appropriate and profitable?

What is the incremental profit potential of increasingshare of wallet with current customers? How much doesthis vary by customer tier and/or segment?

How much time and resource can we allocate to CRMright now?

If we believe in CRM, why have we not taken steps inthat direction before? What can we do today to developcustomer relationship without spending on technology?

managing relationships and building loyalty

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