Keeping customers online

1
Keeping customers online

• Gary Akehurst

2
Keeping customers online

• The concept of customer lifetime value
• The measure of the future financial value of the
  customers purchases with the organisation. It is
  a measure of the future profit flows from the
  customer to the firm, adjusted for the customers
  future probability of purchasing from the firm,
  and appropriately discounted to the present. It
  takes account of
• How much the customer spends on each purchase
  with the firm (and profit thus generated)
• How often the customer purchases from the firm
• How likely the customer is to remain a customer
  of the firm in the future
• How much it costs to serve the customer
• The firms discount rate (for calculating the net
  present value of future purchases)

3
Keeping customers online

• Relationship Marketing
• a set of marketing tactics (where any interaction
  between buyers and sellers, regardless of
  commitment, is described as a relationship)
• and a fundamental marketing philosophy with a
  customer lifetime focus
• often used as a tactical sales promotion tool

4
Keeping customers online

• a strategic process to tie-in customers through
  mutually rewarding co-operation, mutual
  dependence and shared risk
• a marketing philosophy, with customer
  relationship cycles more important than product
  life cycles
• an integration of customer orientation,
  competitor orientation and inter-functional
  co-ordination

5
Keeping customers online

• OMalley and Tynan (2001)
• Consumers may see their interactions with an
  online company as merely a transaction with no
  long-term ties
• The concept of partnership or relationship very
  suited to B2B marketing
• Consumers do not consider this false intimacy an
  interpersonal relationship. It is not driven
  primarily by trust, commitment, communication and
  shared values, but by convenience and
  self-interest

6
Keeping customers online

• Transactions Marketing
• focus on a single sale
• emphasis on product features
• short-term orientation
• little emphasis on customer service
• limited customer commitment
• low or moderate customer contact
• quality is mainly a production concern
• sales to anonymous buyers
• the salesperson may be the main interface between
  buyer and seller

7
Keeping customers online

• Relationship Marketing
• focus on customer retention
• long-term orientation
• emphasis on product benefits
• high customer service emphasis
• high customer commitment
• high customer contact
• quality is the concern of all
• tracking of identifiable buyers
• multiple levels of relationships between buyer
  and seller

8
Keeping customers online
The car sector
BETTER PRODUCT DESIGN differentiation by product
features, e.g. styling, reliability, safety,
economy
BETTER SERVICE FEATURES differentiation by better
finance schemes, warranties and after-sales
service
Internet
BETTER RELATIONSHIPS differentiation by better
ongoing programmes to finance, maintain and
replace a car
Source After Palmer, A. (2001) Principles of
services marketing, London McGraw-Hill, p.119
9
Keeping customers online

• Stages in Buyer and Seller Relationship
  Development
• awareness
• exploration
• expansion
• commitment
• dissolution

Time
10
Keeping customers online
Advocate Supporter Client Customer Prospec
t
Emphasis on long-term loyalty (keeping
customers) emphasis on one-off transaction
s
Source Christopher, M. Payne, A. Ballantyne,
M. (1991). Relationship marketing. Oxford
Butterworth Heinemann
11
Keeping customers online

• Purposes in Relationship Marketing
• 1 customer retention
• suggested strategies - core service strategy,
  customisation, augmentation, relationship
  pricing, internal marketing
• 2 locking in customers
• structural and social bonds
• switching costs
• loyalty schemes
• 3 database marketing
• tracking and understanding customers

12
Keeping customers online

• Developing online loyalty
• Quality customer support
• On-time delivery
• Compelling presentation via the website
• Convenient and reasonably priced handling and
  shipping
• Clear trustworthy privacy and security policies

Source after Reicheld and Schefter (2000)
13
Keeping customers online

• Delight the customer with extra service and added
  value
• Personalisation and mass customisation
  (particularly via website and opt-in email)
• Creation of community around the brand
• Lock-in the customer (retain customers onsite
  when they arrive and encourage revenue-generating
  activities)
• Incentives (special offers, loyalty schemes,
  sales promotions persuade them to return to the
  site)

Source after Reicheld and Schefter (2000)
14
Keeping customers online
Three levels of value
Unanticipated value which exceeds all expectations
Desired value
Expected value
Expected value expected product
benefits Desired value ideal level customer
would like to receive Unanticipated value
exceeding customer expectations, e.g unexpected
service
15
Keeping customers online
Perceived Value of Internet transactions the
sum of benefits less costs and sacrifice
Perceived benefits
Ownership Costs -
Sacrifice (including price and effort) -
High perceived value competitive advantage
16
Keeping customers online

• costs incurred by a customer (when purchasing a
  product online or offline) are often more than
  the basic price paid
• costs of searching and evaluating
• the opportunity value (benefit less cost) of
  other purchases not undertaken as a result of a
  product purchase
• total lifetime costs of ownership (especially
  capital equipment)
• as the trading relationship develops over time it
  is important for the customer to feel there is an
  increase in perceived value received resulting
  from continuing the links with the online or
  offline supplier

17
Keeping customers online
Customer Acquisition
Customer Retention
Customer Extension
Added value Added value Added value

• Forming relationships with new customers
• Promotions
• incentives
• Services
• Customer service
• Profiles
• Direct email

• Actions to retain existing customers
• Personalisation
• Loyalty schemes
• Promotions
• Community
• Extranets

• Persuading customers to increase involvement
  particularly for revenue generating activities
• Direct email
• Learning
• On-site promotions

Progressive segmentation and targeting
Source after Chaffey (2002 331)
18
Keeping customers online
The IDIC approach to relationship building
(identify, differentiate, interact and
customise)
Identify
Interact
Communicate
Differentiate
Source Peppers and Rogers 1998 and 1999 as cited
in Chaffey et al 2003240)
19
Keeping customers online

• Customer identification (incentivise visitors to
  profile them and on repeat visits recognise them
  using cookies or customer logons constant
  updating of the profiles)
• Customer differentiation (profile building to
  segment customers and then differentiate
  offerings, content and services for each
  customer identifying best customers, most
  profitable, repeat customers, large order
  customers)
• Customer interaction (provided on site via for
  example FAQs, customised products, email, phone
  and post)
• Customer customisation

20
Keeping customers online

• Attract new customers to the website using site
  promotion
• Banner advertising (inform, persuade, remind)
• Pop-up adverts
• Search engines and other portals
• Online magazine sites
• Mailshots
• Incentivise visitors to action
• Lead generation offers in return for customer
  details
• Sales generation offers to encourage trial
  product use

21
Keeping customers online

• Offers designed to encourage retention
• Discounted products (enables collection of
  customer details)
• Download free software (again collects customer
  details)
• Free information (e-newsletter, reports, report
  summaries)
• Free trials of private subscription services

22
Keeping customers online

• Capturing customer information to maintain the
  relationship
• Need to collect customer contact information
• Develop customer profiling (specific interests
  and characteristics)
• Maintain the relationship by online and offline
  communications
• Send regular emails
• Specific information on website (personalisation)
• Delivery of news and product information
• Personal reminders
• Loyalty schemes (loyalty points)
• Customer care and support
• Online competitions
• Regular mailshots
• Podcasts

23
Keeping customers online

• Product positioning by emphasising offering
  claims
• the product or service features
• the benefits that it offers
• the relevance for specific usage occasions
• the suitability for particular users or uses
• positive associations with complementary products
• the comparison with competing products
• Source D. Adcock (2000) Marketing Strategies for
  Competitive Advantage, Chichester John Wiley, p
  129

24
Keeping customers online

• differentiation derives usually from the
  augmented elements of the total product
• by itself differentiation does not automatically
  lead to competitive advantage
• competitive advantage is achieved only if the
  differentiation features are valued by customers
• valued features are energizers (i.e. stimulates
  customers to purchase)
• any other discriminators just separate one
  offering from competing offerings without
  presenting customers with any perceived valued
  benefits

25
Keeping customers online

• Product positioning may be broken into
• controllable variables (part of the operational
  marketing mix)
• attributes (tangible and intangible)
• supplier claims (interpreted by customers)
• attributes experienced by customers (not
  controllable)
• benefits (a key element in a customers
  perception of a position)
• the position of an offering develops expectations
  that need to be satisfied when purchase occurs
• after purchase, a customer experiencing
  ownership, can judge satisfaction

26
Keeping customers online
Positioning issues
Enhance value
Redefine position while remaining consistent to
earlier claims
Create image
Introduction Growth Maturity TIME
Source Adcock (2000 131)
27
Keeping customers online

• regular website and product modifications should
  ensure continued relevance to changing needs of
  customers
• but what about associated modifications necessary
  in the product position within the minds of
  customers?
• major changes in product features lead inevitably
  to changes in the promises made about the product
• any messages about current position must be the
  most appropriate in relation to the demands of
  the existing market
• consistency is necessary to avoid confusion about
  product position
• progressive claims over time must be consistent

28
Keeping customers online

• customer expectations develop from offering
  promises
• pre-purchase a customer judges competitive
  offerings on the basis of the different
  expectations and costs of each (the value
  equation)
• if prior expectations fall below what is actually
  offered, then that supplier will be at a
  competitive disadvantage in subsequent customer
  decision making
• if expectations are too high (compared to actual
  experience) there is a risk of customer
  dissatisfaction

29
Keeping customers online

• satisfaction derived from the use of a product
  can increase the perceived value during the
  post-transaction period
• opportunities to continue contact with the
  customer after the web sale are important in
  building relationships and trying to achieve
  repeat purchases
• after sales contracts (guarantees, maintenance,
  etc)
• installation service
• communication asking whether everything working
  as expected
• evaluation of after sales service is difficult
  but not impossible

30
Keeping customers online

• Customer Satisfaction
• related to customer expectations and perceptions
  of product and service quality
• expectations based on word of mouth (perceived
  reputation), marketing communications (promises
  made), experience( with product category and
  specific brand)
• expectations establish minimum expected quality

31
Keeping customers online

• Managing customer expectations
• be realistic
• be reliable and ensure reliability
• ensure promises are delivered
• continue online and offline communications with
  customers to assure satisfaction or explain in
  advance any difficulties

32
Keeping customers online

• Monitoring customer satisfaction
• identify factors important to customers
• measure expectations and importance of these
• measure performance and service delivery
• analyse gaps between expectations and performance

33
Keeping customers online
Performance LOW HIGH
Importance HIGH LOW
improve now
maintain
monitor
rationalise
possibly map against key competitors different
perceptions by different segments?
34
Keeping customers online

• Satisfaction Thresholds
• are dynamic
• new information (e.g. health scares)
• new technological breakthroughs
• legislation (new standards)
• competitors enhanced products or services
• new market entrants (with superior products and
  services)
• changing distribution systems (delivery speed?)
• consumers rising affluence and expectations

35
Keeping customers online
Quality Gap Analysis
36
Keeping customers online

• Adcock, A. (2000) Marketing strategies for
  competitive advantage. Chichester John Wiley
• Chaffey, D., Mayer, R., Johnston, K.
  Ellis-Chadwick, F. (2006). Internet marketing.
  Strategy, implication and practice, (3rd ed).
  London Pearson Education. (2nd ed 2003) Chapter
  6 Relationship marketing using the internet
• Chaffey, D. (2004) E-Business and e-commerce
  management. Harlow Financial Times Prentice Hall
• Christopher, M., Payne A. and M. Ballantyne
  (1991) Relationship marketing. Oxford
  Butterworth Heinemann
• OMalley, L. and C. Tynan (2001) Reframing
  relationship marketing for consumer markets.
  Interactive Marketing, 2(3), pp 240-246.
• Palmer, A. (2001) Principles of services
  marketing. London McGraw-Hill
• Reicheld, F. and P. Schefter (2000) E-Loyalty
  Your secret weapon on the web. Harvard Business
  Review, July-August, pp 105-13.
• Rust, R.T., Lemon, K.N. and D. Narayandas (2005)
  Customer equity management, Upper Saddle River,
  NJ Pearson Prentice Hall