Building customer relationships

Building customer relationships

7Chapter

Building Customer Relationships

• Relationship Marketing• Relationship Value of Customers• Customer Profitability Segments• Relationship Development

Strategies• Relationship Challenges

Building Customer Relationships

It is cheaper to retain existing customers than acquiring new customers

It also requires less marketing effort to do so.

DEFINING RELATIONSHIP MARKETING (3)

• Refined RM definition (Gronroos, 1994):– “The marketing approach aiming to identify

and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties involved are met;and this is done by mutual exchange and fulfillment of promises”

Relationship Marketing»Relationship marketing philosophy assumes that

a) Customers prefer to have on-going relationship with one organisn. than to switch continually.

b) is usually cheaper (for the organisn.) to keep a current customer costs less than attracting a new customer

• focuses on keeping current customers and improving relationships with them

• thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

New definition of marketing:

Marketing is to establish, maintain, and enhance

relationships with customers and othe partners so that

the objectives of the parties involved are met.

This is achieved by a mutual exchange and fulfillment of promises

eg., a) RM efforts of “Peoplesoft” ERP software:

- continuously learning about the needs of customers - helping the customers succeed thro’ their investment in ‘peoplesoft’ products

-rewarding account managers not on sales but on cust. Satisfaction and retention

- providing customised – tailor-madede solutions to more and more complex problems, as and when their needs eveloved

Relationship with all the organisation’s publics:

- channel members- end-customers- internal markets- referral markets- suppliers- trade unions

Relationship with customers

- data base marketing- interaction marketing- network marketing

e.g., Maruti udyog – calling - thanking - followingup

Relationship with suppliers - providing more orders - guaranteeing business- prompt payment

e.g., package tour operators giving accommodation orders to hotels

Referral markets:b2c

- referrals to friends and relatives

b2b- “home finders builders” recommending concrete mixing

machines, borewell servicesto other industrial partners

(like suppliers) - one customer company referring to another customer

company

Internal markets:

- building and maintaining a good work force- recruiting quality personnel

- training, motivating and compensating employees to maintain good relationship with them

Transaction marketing vs Relationship marketing

Transaction marketing vsDatabase marketingInteraction marketingNetwork marketing

Transaction marketingexchange of value between suppliers and customers

Database marketing- rely on IT

- in the form of data base / internet- maintaining information on buyers’ details, buying habits,

needs, etc.

Interaction marketing

Face-to-face interaction or ear-to-ear interaction

mail interactioninternet interaction

Network marketing

b2c:- customer referring to friends

b2b:

one dept recommending branch to others

The “Bucket Theory of Marketing”

Customer Goals of Relationship Marketing

Attracting:- Attract customers who are likely to have

long term relationship- by market segmentation

- also spreads thro’ word of mouth

Satisfying & Retaining:- by providing quality goods and services- by attending to complaints and solving

Then, customers cannot be pulled by competitiors

Enhancing: Working to increase volume of business

Making customers buy more and more of preoducts and services

Benefits of Relationship Marketing

• Benefits for Customers:– Receipt of greater value – Confidence benefits: when the seller knows customers’ tastes and

preferences e.g., banks – denomination

hotel – ingredients doctors – type of medicine Trust, confidence in provider, reduced anxiety– Social benefits:

• Familiarity (e.g., belongingness)• social support (tailor-made service)• personal relationships (e.g., sharing other problems)

Special treatment benefits:special deals

(discounts, instalments for consumer durables)

Getting benefit of doubt (banks waiving service charge)

Getting preference / special requests honoured (avoiding queue, withdrawal without passbook)

Benefits of Relationship Marketing

A. Benefits for Firms:-- Economic benefits:increased purchase / revenue

reduced marketing and administrative costsregular revenue stream

e.g., Lawrence & Mayo gets repeat orders by sending birthday greetings – cum discount

coupon e-mail & card

-- Customer behavior benefits:strong word-of-mouth endorsements

customer voluntary performancee.g., Bajaj Capital giving portfolio advice –

customers coming forward to sell / re-invest in funds

and thus getting services and returns

social benefits to other customersmentors to other customers

e.g., in banks experienced customers helping and providing knowledge to new customers

-- Human resource management benefits:easier jobs for employees

social benefits for employeesemployee retention

customer retention increased profits employee loyalty

more and more quality service by employees

cust. Satisfaction / delight

Most profitable customers

Least profitable customers

What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?

What segment costs us in time, effort and money yet does not provide the return we want?

What segment is difficult to do business with?

Gold

Iron

Lead

Platinum

The Customer Pyramid

Relationship Development Model

Customer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefits

Relationship BondsFinancial bondsSocial bondsCustomization bondsStructural bonds

Switching BarriersCustomer inertiaSwitching costs

Core Service ProvisionSatisfactionPerceived service qualityPerceived value

Strong CustomerRelationship

(Loyalty)

Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits

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

Strategies for Building Relationships

• Relationship Bonds:– financial bonds– social bonds– customization bonds– structural bonds

Excellentservice

and value

1. Financial

bonds

2.Socialbonds

4. Structural

bonds

3. Customization

Bonds

Volume and frequency rewards

Bundling and cross selling

Stable pricing

Social bonds among

customers

Personal relationships

Continuous relationships

Customer intimacy

Mass customization

Anticipation/ innovation

Sharedprocesses

and equipment

Joint investments

Integrated information

systems

Figure 7.6

Levels of Relationship Strategies

Financial bonds

(1) Volume and frequency rewards:e.g., welcome group of hotels –

frequent guests discountkingfisher – frequent flier fare

airtel : bulk sms – special price

(2) bundling and cross selling: Indian Overseas Bank – Oriental Insurance

Universal Sampo Insurance

Citibank – Diner’s Club coupons

(3) Stable pricing / lower pricing

Social Bonds(1) Interpersonal relationships

e.g., Doctors – maintain case history

- takes time to go thro’ and remember patient’s and family medical history, employment details,

etc.

(2) Social bonds among customers

customers of hotels tourism services

join together and celebrate / enjoy occasions

Customisation bonds

(1) customer intimacy

(2) mass customisation

e.g., one-to-one solution – MARS, RAMCO: customised ERP software

dinner menu to suit individual family

Structural bonds

Shared process and equipments:e.g., UPS & Federal Express – computers to

customers of both cos.

Integrated infn. Systemse.g., FORD and its dedicated suppliers are –

software for integration

“The Customer Is NOT Always Right”

• Not all customers are good relationship customers:

–wrong segment

–not profitable in the long term

–difficult customers