Relationship marketing and management

1
Relationship marketing and management

• Module 5
• Chapter 5
• Textbook readings
• 2 6

2
Session overview

• What is customer retention?
• Pathways to growth
• Why do customers defect?
• Building a loyal customer base
• Switching barriers
• Relationship marketing
• Benefits of developing a successful customer
  relationship
• firm
• customer

3

• Key determinants of a successful customer
  relationships
• Other factors influencing relationships
• Relationship marketing v relationship management
• Developing a profitable customer portfolio
• Levels of relationships
• Service employees and customer relationships
• Service profit chain
• Using information technology to manage customer
  relationships
• Guidelines for maintaining customer relationships

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Customer retention is..

• Keeping customers
• reducing churn, gaining loyalty
• a key strategy ..that reflects a longer-term
  outlook than either customer satisfaction or
  service quality as a business goal or outcome
  (p. 129).
• Most firms are seeking growth

5
Pathways to growth include

• Attract new customers
• Increase purchase rate or quantity by existing
  customers
• Encourage purchase of higher value services by
  existing customers
• Reduce loss of profitable customers (churn)
• Regain lost customers
• Terminate unprofitable relationships

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Why do customers defect?

• Core service failure
• technical quality
• Service encounter failure
• functional quality
• Unhappy with response to service failure
• Price
• Inconvenience
• Attracted to switch to other firms

This service is lousy!
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So, how can we keep customers?

• Erect switching barriers
• Relationship marketing

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Erect switching barriers

• Risk in switching
• services are harder to evaluate
• Costs of switching
• search
• financial
• psychological

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Relationship marketing

• establish, maintain and enhance relationships
  with customers and other partners at a profit, so
  that the objectives of both parties involved are
  met. This is achieved by a mutual exchange and
  fulfilment of promises (Lovelock et al. 2001, p.
  139)

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Relationship marketing (RM) involves...
Its good doing business with you

• ongoing interactions between the firm and the
  customer
• mutual benefits
• added-value
• both parties wanting to be in the relationship

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What are the benefits of RM for the customer?
How are the kids going?

• Confidence benefits
• know what to expect
• less risk, less stress
• know their role and script
• Social benefits
• develop a social relationship with service
  provider
• personalised service

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Customer benefits cont.

• Special-treatment benefits
• service may be customised to meet their needs
• quality service, better value
• Financial benefits
• avoid search time and faster service
• special deals

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What are the benefits of RM for the firm?

• opportunity to cross-sell
• reduced operating costs
• serving a loyal customer costs less than
  attracting a new customer
• long-term customers tend to buy more
• positive word of mouth
• employees are more satisfied

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Determinants of a successful relationship

• trust
• a confident belief that the seller can be relied
  upon to act in the long-term best interests of
  the customer
• trust in the sellers abilities, expertise,
  knowledge, motives and intentions (p. 140).
• refer to text reading 6
• satisfaction across multiple service encounters
• a delighted customer is a loyal customer

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Determinants cont..

• value
• perceived benefits or gt perceived costs
• effective communication
• empathy, information, responsiveness
• social bonds
• friendship, personalised relationship
• length of patronage
• benefits for being loyal, committed

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What other factors influence customer
relationships?

• cultural factors
• high v low context cultures (table 5.2, pp.
  142-3).
• switching costs
• economic and psychological costs
• service category
• high v low contact
• formal membership v no membership
• standardised v customised
• degree of customer involvement
• availability and attractiveness of alternative
  services

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Relationship marketing v relationship management

• relationship marketing involves attracting new
  customers and creating a relationship
• relationship management involves maintaining,
  enhancing and retaining the relationship
• ladder of customer loyalty
• refer to fig 5.4, p. 144

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Relationship marketing stages
Relationship marketing
Relationship management
Evangelist
Advocate
Customer ladder
Client
Customer
Attract
Create
Retain
Maintain
Establish
Develop
Prospect
Enhance
Stages (time)
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Levels of relationships

• Refer to table 5.3, p. 145
• Level 0 - no bonds (transactional marketing)
• Level 1 financial bonds
• Level 2 financial and social bonds
• Level 3 financial, social and structural bonds
• http//knowledge.insead.fr/index.cfm
• Marketing (He Who Is Always Right Customer
  Relationship Management

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Developing a profitable customer portfolio

• How should we segment our market?
• needs, characteristics and behaviours
• can we serve these segments effectively?
• Which are the most attractive (profitable and
  satisfying) segments for us to target?
• usage, price sensitivity, referrals, cost of
  servicing and retaining
• refer to figure 5.6, p. 150 customer
  profitability matrix

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Figure 5.6 Customer profitability matrix
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Identifying tiers of customers
Good relationship customers
The segment that spends more with us over time,
costs less to maintain, and spreads positive word
of mouth.
A
B
C
D
The segment that costs us in time, effort and
money yet does not provide the return we want.
The segment that is most difficult for us to
serve.
Poor relationship customers
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• What services marketing mix will appeal to those
  segments?
• How can we differentiate our service offering to
  gain a competitive advantage?
• How can we develop long-term relationships with
  profitable segments?

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Our portfolio should include customers that .

• demand the different services we offer
• demand our services across the times that we are
  open for service
• are professional rewarding and challenging to
  serve
• not always the most profitable

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Managing the customer portfolio

• If customer segments are not homogeneous, can we
  separate them?
• Temporal separation
• different times
• Spatial separation
• different locations

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Service employees and customer relationships

• The service employee is an integral part of the
  service offering
• face of the organisation
• develops social relationships with customers
• Loyal committed employees are important in
  creating customer satisfaction

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• Employee retention is important
• internal marketing program
• training and support
• ServQual dimensions
• recognition and rewards
• career paths

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Service profit chain

• Text reading 2, pp. 549-58
• Refer to fig R2.1, p. 550
• Link between
• profits
• customer satisfaction
• employee satisfaction

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Service-profit chain
Employee retention
Internal service quality
Employee satisfaction
External service quality
Employee productivity
Revenue growth
Customer satisfaction
Customer loyalty
Profitability
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• Refer to figure R2.2, p. 551
• zone of affection very satisfied (apostles)
• zone of indifference
• zone of defection very dissatisfied
  (terrorists)
• Service profit chain audit, pp. 544-8.

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The role of information technology in
relationship management

• Customer database
• profile, purchase history, special requirements
• contact details
• Benefits of a database
• faster, accurate, personalised service
• reminders and follow up
• target people for special promotions
• cross-selling

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Guidelines for developing customer relationships

• Build a relationship culture
• Develop a profitable customer portfolio
• Build value into customer relationships
• Be prepared to invest the time and money
• Regular monitoring
• Provide access - communication channels
• Reward and recognise loyal customers

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• Build and emphasise social bonds
• Provide special care for key accounts
• Select service-minded staff with good
  interpersonal skills
• Train staff to be relationship oriented
• Develop and use a customer-centred data base

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Summary

• Pathways to growth
• Why do customers defect?
• Building a loyal customer base
• Switching barriers
• Relationship marketing
• Benefits of relationship marketing
• firm
• Customer
• Key determinants of a successful customer
  relationships
• Other factors influencing relationships

35

• Relationship marketing v relationship management
• Developing a profitable customer portfolio
• Levels of relationships
• Service employees and customer relationships
• Service profit chain
• Using information technology to manage customer
  relationships
• Guidelines for maintaining customer relationships

36
Tutorial

• Case 5 Relationship marketing Is it black and
  white?, p. 456.
• Review questions
• 7, 11, 12 15