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Chapter_6.pptx
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 6-‹#›
Building Customer Relationships
Relationship Marketing
Relationship Value of Customers
Customer Profitability Segments
Relationship Development Strategies
Relationship Challenges
Chapter
6
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 6-‹#›
Objectives for Chapter 6: Building Customer Relationships
Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers.
Explain why and how to estimate customer relationship value.
Introduce the concept of customer profitability segments as a strategy for focusing relationship marketing efforts.
Present relationship development strategies—including quality core service, switching barriers, and relationship bonds.
Identify challenges in relationship development, including the somewhat controversial idea that “the customer is not always right.”
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Chapter 6-‹#›
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
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Chapter 6-‹#›
The “Bucket Theory of Marketing”
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Chapter 6-‹#›
A Typology of Exchange Relationships (Exhibit 6.1)
| Customers as… | Strangers | Acquaintances | Friends | Partners |
| Product offering | Attractive relative to competitors | On a par with industry standards | Differentiated with adaptation to segments | Customized, individualized offerings |
| Source of competitive advantage | Attractiveness | Satisfaction | Satisfaction + Trust | Satisfaction + Trust + Commitment |
| Buying activity (what customer does) | Interest, exploration, trial | Reduced need for search | Buying without perfect information | Commitment in the form of information sharing, specific investments |
| Focus of selling activities (what firm does) | Encouraging trial facilitates initial selling | Familiarity and general knowledge | Specific segment knowledge | Specific knowledge, idiosyncratic investments |
| Relationship time horizon | None | Short | Medium: trust takes time to build | Long: detailed knowledge, interconnections |
| Sustainability of competitive advantage | Low: must continue to attract, induce trial | Low: must build unique value into standard product | Medium: must understand various customer needs | High: depends on uniqueness & effectiveness of interconnections |
| Primary relationship marketing goal | Acquire customer’s business | Satisfy customer needs | Retain customer’s business | Enhance relationship with customer |
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Chapter 6-‹#›
Customer Goals of Relationship Marketing
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Chapter 6-‹#›
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
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Chapter 6-‹#›
Relationship Value of Customers
The relationship value of a customer considers customers from the point of view of their lifetime revenue and/or profitability contributions to a company.
It is influenced by:
Length of average customer “lifetime”
Additional sales over time
Referrals by the customer over time
Costs associated with serving the customer
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Chapter 6-‹#›
Lifetime Value of a Customer
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Chapter 6-‹#›
The Customer Pyramid (Figure 6.3)
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Chapter 6-‹#›
The Customer Pyramid
| Platinum Tier | Company’s most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm |
| Gold Tier | Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors. |
| Iron Tier | Essential customers that provide the volume needed to utilize the firm'’ capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment |
| Lead Tier | Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources. |
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Chapter 6-‹#›
Customer Profitability Segmentation
Companies can improve their profitability when they increase shares of purchases by customers who 1) have the greatest need for the service, or 2) show the greatest loyalty.
Keep in mind that customers in lower profitability tiers who receive lower levels of service may resist or resent their unequal treatment.
Further, what a customer spends today, or has spent in the past, may not necessarily be reflective of what they will spend in the future.
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Chapter 6-‹#›
Relationship Development Model
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Chapter 6-‹#›
Relationship Development Strategies
Core Service Provision:
service foundations built upon delivery of excellent service:
satisfaction, perceived service quality, perceived value
Switching Barriers:
customer inertia
switching costs:
set up costs, search costs, learning costs, contractual costs
Relationship Bonds:
financial bonds
social bonds
customization bonds
structural bonds
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Chapter 6-‹#›
Levels of Relationship Strategies
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Chapter 6-‹#›
“The Customer Is NOT Always Right”
Not all customers are good relationship customers:
The wrong segment
Not profitable in the long term
Difficult customers
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Chapter 6-‹#›
Ending Business Relationships
Should firms fire their customers?
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Chapter 6-‹#›
