Developing and Maintaining Long-Term Customer Relationships ATM Semester 2 Lecture 7 By Sanemkhan Nurillaeva

Agenda What is Customer Relationship Management? 12 Differences of CRM Stages of Customer Relationship Development The Role of Quality Total Product Offering Formula of Perceived Value Customer Satisfaction

Definition of CRM Customer Relationship Management (CRM) Defined as a business philosophy aimed at defining and increasing customer value in ways that motivate customers to remain loyal. About retaining the “right” customers Recognizing that not all customers have equal value to the firm

The “Right” Marketing Strategy Is not about creating a large number of transactions Is one that attracts and retains customers over the long-term Considers customer needs, wants, and expectations Develops long-term relationships Principle of Pareto or 80/20 rule 20% of loyal customers bring 80%of sales

CRM Involves: Customers Employees Supply Chain Partners External Stakeholders

12 Differences of CRM According to Ferrel and Hartline (2008), Strategic Shift from Acquiring Customers to Maintaining Clients requires 12 changes Differences Acquiring Customers Maintaining Clients 1st Customers are “Customers” Customers are “Clients” 2nd Acquire a New Customer Build Relationship with current customer 3rd Increase Market Share Increase Share of Customer

12 Differences of CRM Differences Acquiring Customers Maintaining Clients 4th Short-term strategic focus Long-term strategic focus 5th Discrete Transactions Continuous Transactions

12 Differences of CRM Differences Acquiring Customers Maintaining Clients 6th Segmentation based on homogeneous needs Segmentation based on heterogeneous needs 7th Differentiation of products based on Groups Differentiation of products based on Individual Customers 8th Standardized products Mass customization

12 Differences of CRM Differences Acquiring Customers Maintaining Clients 9th Mass Marketing One-to-one Marketing 10th One-way Mass Communication Two way Individualized Communication

12 Differences of CRM Differences Acquiring Customers Maintaining Clients 11th Competition Collaboration 12th Lowest cost provider Value Based Pricing Strategy

Developing Relationships in Consumer Markets Attempts to create true believers and sponsors of the company Recognizes that not all customers have equal value to the firm Involves determining the lifetime value (LTV) of customers

Stages of Customer Relationship Development by Ferrel and Hartline (2008) Similar to Customer Dispositional Funnel (CDF) A long-term process Goal is to move consumers through levels of increasing relationship intensity

The Role of Quality

Understanding the Role of Quality The degree of superiority of a firm’s goods or services Components of the Total Product Offering: The Core Product Satisfies the basic customer need Core product in services (people, processes, and physical evidence) Supplemental Products Add value to the core product Symbolic and Experiential Attributes Usually based on image, prestige, or brand

Components of the Total Product Offering Example: Michelin Tiers The Core Product Tiers Safety Supplemental Products Broad availability Installation Financing Symbolic and Experiential Attributes Security –”Because a lot is riding on your tiers” A better way forward Michelin Man

Components of the Total Product Offering Example : Waldorf Astoria, New York City The Core Product Bed Room Supplemental Products Mid-Manhattan location Restaurants Room Service Executive Lounge Symbolic and Experiential Attributes Extraordinary hospitality The first “Grand Hotel” Art deco styling

More Examples of Components by Ferrel and Hartline (2008)

Understanding the Role of Value A simple formula for value: by Ferrel and Hartline (2008)

Formula discussion Customer Benefits= The Core Product Quality +Supplemental Products Quality +Experiential Attributes Quality Customer Costs = Monetary Costs (financial expenditures) + Non-monetary Costs (customer time, affords, risks)

Delivering Superior Quality Understand Customers’ Expectations Translate Expectations into Quality Standards Uphold Quality Standards Don’t Overpromise

Competing on Quality in Automobile Industry

Competing on Quality in Automobile Industry In the face of high quality competition from Japanese automobile manufacturers, Ford adopted a strategy focused on quality. Has that strategy been successful in convincing you of the quality of Ford’s products? How would you compare Ford in quality to Toyota or Honda?

Customer Satisfaction

Customer Satisfaction: The Key to Customer Retention Understanding Customer Expectations Ranges of Customer Expectations The Zone of Tolerance Customer Delight Customer Satisfaction Customer Dissatisfaction Managing Customer Expectations Satisfaction vs. Quality vs. Value

Range of Customer Expectations by Ferrel and Hartline (2008)

Customer Satisfaction & Customer Retention Steps that can be undertaken to increase customer satisfaction and generate customer retention Understand what can go wrong Focus on controllable issues Manage customer expectations Offer satisfaction guarantees Make it easy for customers to complain Create relationship programs Make customer satisfaction measurement an ongoing priority

Example of Satisfaction Guarantees At Xerox we are committed to the highest quality in the design, manufacture and service of all we sell. We measure our success by one standard. Total Customer Satisfaction. Our winning of the Malcolm Baldrige National Quality Award testifies to this principle. Taking this commitment one step further, we offer this exclusive Xerox Total Satisfaction Guarantee: If you are not satisfied with the performance of your Xerox equipment, at your request Xerox will repair it or will replace it without charge to you with comparable features and capabilities . The term of Xerox Total Satisfaction Guarantee is three years from initial equipment delivery. If the newly delivered equipment is financed by Xerox for more than three years, the Guarantee to repair it or replace it will apply during the entire term of your Xerox financing. This Xerox Total Satisfaction Guarantee applies to Xerox equipment acquired by you from Xerox or Xerox reseller/dealer , and continuously maintained by Xerox or its authorized representatives under our manufacturer warranty or a Xerox Service Agreement. This guarantee is a subject of all limitations set forth in the warranty and service agreement for this agreement.

More Examples

Internal Efficiency vs. Customer Service Northwest Airlines has damaged its relationships with customers through shortsighted attempts to reduce costs (e.g., cutting magazines, pillows, pretzels, etc.). What strategic moves can NWA make to fight off low-cost carriers?

Thanks for Your Attention!

Reading Ferrel and Hartline (2008). Marketing Strategy, Chapter 12.