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TRANSCRIPT
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Building Customer Relationships
Relationship Marketing
Relationship Value of Customers
Customer Profitability Segments
Relationship Development Strategies
Relationship Challenges
7
Chapter
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Objectives for Chapter 7:Building Customer Relationships
Explain relationship marketing, its goals, and the benefits oflong-term relationships for firms and customers.
Explain why and how to estimate customer relationship value.
Introduce the concept of customer profitability segments as astrategy for focusing relationship marketing efforts.
Present relationship development strategiesincluding qualitycore service, switching barriers, and relationship bonds.
Identify challenges in relationship development, including thesomewhat controversial idea that the customer is not alwaysright.
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Relationship Marketing
is a philosophy of doing business, a strategic orientation, thatfocuses on keeping current customers and improvingrelationships 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 andenhancement of customer relationships
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Figure 7.1
Customer Goals of Relationship Marketing
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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 andadministrative 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 managementbenefits: easier jobs for employees
social benefits for employees
employee retention
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Figure 7.2
Profit Generated by a CustomerOver Time
Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., Zero Defection: Quality Comes to Services, HarvardBusiness Review, SeptemberOctober 1990.
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Figure 7.3
Profit Impact of 5 Percent Increase in Retention Rate
Source: F. F. Reichheld, Loyalty and the Renaissance of Marketing, Marketing Management, vol. 2, no. 4 (1994), p. 15.
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Table 7.1
Lifetime Value of an Average BusinessCustomer at Telecheck International
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Customer Loyalty Exercise
Think of a service provider to who you are loyal.
What do you do (your behaviors, actions, feelings) thatindicates you are loyal?
Why are you loyal to this provider?
What factors have influenced the formation of your loyalty?
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Most profitablecustomers
Least profitablecustomers
What segment spends more with usover time, costs less to maintain,spreads positive word-of-mouth?
What segment costs us in time,
effort and money yet does notprovide the return we want?
What segment is difficult to dobusiness with?
Gold
Iron
Lead
Platinum
Figure 7.4
The Customer Pyramid
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Figure 7.5
Relationship Development Model
Customer BenefitsConfidence benefitsSocial benefits
Special treatment benefits
Relationship BondsFinancial bonds
Social bondsCustomization bonds
Structural bonds
Switching BarriersCustomer inertiaSwitching costs
Core Service ProvisionSatisfaction
Perceived service qualityPerceived value
Strong CustomerRelationship
(Loyalty)
Firm BenefitsEconomic benefits
Customer behavior benefitsHuman resource management
benefits
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Strategies for Building Relationships
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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Excellentservice
and value
1.Financial
bonds
2.Socialbonds
4.Structural
bonds
3.
CustomizationBonds
Volume andfrequencyrewards
Bundling andcross selling
Stable
pricing
Social bondsamong
customers
Personalrelationships
Continuousrelationships
Customerintimacy
Masscustomization
Anticipation/innovation
Sharedprocesses
andequipment
Jointinvestments
Integratedinformation
systems
Figure 7.6
Levels of Relationship Strategies
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The Customer Is NOT Always Right
Not all customers are good relationship customers:
wrong segment
not profitable in the long term
difficult customers