1 RELATIONSHIP MARKETING IN SERVICES At the end of this module the learning outcomes are What is the importance of relationship marketing? What are the goals of relationship marketing? What are the benefits of relationship marketing for customer and organizations? Concept of Lifetime value of customer What are the various levels of customer retention strategies?

2 RELATIONSHIP MARKETING IN SERVICES Services Marketing By Zeithaml and Bitner 2nd Edition, Chapter 6.

3 RELATIONSHIP MARKETING IN SERVICES RELATIONSHIP MARKETING How to retain customers Building long-term relationship Using –Quality –Service –Innovation This is Relationship Marketing

4 RELATIONSHIP MARKETING IN SERVICES Relationship Marketing Focus Towards retention/relationship Keeping and improving current customers rather than focus on acquiring new customers. Consumers prefer ongoing relationship with one organization than to switch continuously. Studies have shown that it is much cheaper to retain an existing customer than to attract a new customer.

5 RELATIONSHIP MARKETING IN SERVICES Goals of Relationship Marketing To build maintain a base of committed customers who are profitable for the organization. –Focus on Attraction Retention Enhancement of customer relationships

6 RELATIONSHIP MARKETING IN SERVICES Attraction –Seek those customers with whom there is likely to be a long-term relationship. –Market segmentation –Select target markets –Build relationship –Loyal customers speak to others.

7 RELATIONSHIP MARKETING IN SERVICES Retention Why will customers stay? Provided with quality goods and services Unlikely to go to competitors If organizations continuously innovate Companies investing in relationships Improve their product and product mix.

8 RELATIONSHIP MARKETING IN SERVICES Enhancement Loyal customers are even better customers. They buy more products from the company over time. Buy through their life time Even their children buy Example ICICI Bank customers Opens saving accounts. If happy, applies for a loan. Later applies for a ICICI credit card. Buys range of products over time.

9 RELATIONSHIP MARKETING IN SERVICES Benefits for customers and organizations Benefits for customers –Confidence Benefits –Social benefits –Special treatment benefits Benefits for the organization –Increasing purchases over time –Free advertising through word of mouth –Lower costs –Employee Retention

10 RELATIONSHIP MARKETING IN SERVICES Benefits for Customers –Receive greater value –Feel comfortable in the relationship –You know what to expect –Unusual requests will be taken care of.

11 RELATIONSHIP MARKETING IN SERVICES a Confidence Benefits Would you change your Banker Doctor Insurance provider Mobile service provider Most of the times we will say no We invest in relationships Costs of switching higher Build confidence Reduces stresses Better quality of life

12 RELATIONSHIP MARKETING IN SERVICES b Social Benefits Customer – company relationship As it builds Social relationship Customers make organizations a part of their social systems Example Customer’s Birthday –Celebrates –Invites his/ her doctor –Invites insurance agent –Become a part of the customer’s social circle.

13 RELATIONSHIP MARKETING IN SERVICES c Special Treatment Benefits Long relationship Provides special benefits Example American Express Credit Card –Customer for 15 years –Always paid on time –One payment not on time –Realizes not charged penalty –Benefit of lasting relationship

14 RELATIONSHIP MARKETING IN SERVICES Benefits for the organization a Increasing purchases over time As customers stay loyal Spend more in successive years Increase their purchases Higher profits.

15 RELATIONSHIP MARKETING IN SERVICES b Free advertising through word of mouth Complex products Difficult to understand Customers often look to others for advice Loyal customers –Provide word – of – mouth –Strong endorsements –More effective advertising –Speak positive/good to friends, relatives.

16 RELATIONSHIP MARKETING IN SERVICES Example Mahindra Holidays Sell timeshare How Satisfied customers Speak to their friends relatives associates Based on trust 50% of their sales by word-of-mouth

17 RELATIONSHIP MARKETING IN SERVICES c Lower Costs To attract initial customers Spend on promotion Create infrastructure Huge costs Profits take time With loyal customers Continuous relationships Costs go down Time and effort required to build relationship goes down

18 RELATIONSHIP MARKETING IN SERVICES d Employee Retention Benefit of customer retention Employee retention How Loyal and happy customers Makes employees happy Better service quality Cost of hiring employees goes down

19 RELATIONSHIP MARKETING IN SERVICES LIFETIME VALUE OF A CUSTOMER How much potential profit you lose. If you are not able to retain customers. Opportunity cost of loosing profitable customers.

20 RELATIONSHIP MARKETING IN SERVICES FEDERAL EXPRESS A customer of Federal Express 20 person Office Spends $1500 per month with Federal Express Assume 10-year average lifetime for a customer. Value of one customer to Federal Express is 1500*12*10 = $1,80,000

21 RELATIONSHIP MARKETING IN SERVICES FEDERAL EXPRESS CUSTOMERS If this happy creates at least one more customer via word of mouth. Total amount is 1,80,000*2=$3,60,000 Value of this company’s business for Federal Express was about $3,60,000 Federal Express handles 40 customers each day. Total business handled = 3,60,000*40=$

22 RELATIONSHIP MARKETING IN SERVICES FEDERAL EXPRESS If Federal Express retains 40 customers for 10 years period then total business accrued is $14,40,0000. Relationship Marketing attempts this by retaining profitable customers.

23 RELATIONSHIP MARKETING IN SERVICES Lifetime value ITC – Classic Cigarette An average consumer spends Rs. 2000/ month Yearly Rs /- If he stays customer for 30 years Likely revenue x 30 = 7.2 lacs per customer Lifetime value of Customer is Rs. 7.2 lacs

24 RELATIONSHIP MARKETING IN SERVICES Classic has 2 lac customers Total potential revenue earned is Rs. 7.2 lacs x 2 lacs = crores If Classic customers stay loyal, ITC will earn a potential sale of Rs crores Retaining and maintaining loyalty critical. Plus profits from references.

25 RELATIONSHIP MARKETING IN SERVICES Importance of lifetime value Importance of retaining customers Loss of potential sales and profits when customers defect Strategic importance of retaining customers. If you retain customers for the entire lifetime, you have done an excellent job.

26 RELATIONSHIP MARKETING IN SERVICES Retention Strategies Four levels Level 1 – Financial bonds Level 2- Social bonds Level 3 – Customization bonds Level 4 – Structural bonds

27 RELATIONSHIP MARKETING IN SERVICES Level 1- Financial Bonds Provide financial incentives Lower prices for higher volume purchases Used in most situations Example Airlines Frequent flier programs Telecom Volume discounts

28 RELATIONSHIP MARKETING IN SERVICES Financial Bonds Most easy to imitate Short terms gains Do not provide long-term advantages Easy for competitors to imitate Customer tend to switch Where they get the best deal on prices

29 RELATIONSHIP MARKETING IN SERVICES Level 2- Social bonds Price is important For long – term relationship Social bonds common –Lawyers –Accountants –Teachers –Family doctors

30 RELATIONSHIP MARKETING IN SERVICES Example – Family Doctor Builds personal rapport Discuss any personal issues Becomes a part of your social circle Invited in the social gatherings

31 RELATIONSHIP MARKETING IN SERVICES Social bonds Many not tie customers permanently More difficult for competitors to imitate than financial bonds Can encourage longer relationship with consumers With financial incentives become very effective

32 RELATIONSHIP MARKETING IN SERVICES Level 3- Customization Bonds Dell computers Boeing a major customer Large population of Dell computers Mass customization Each computer made according to requirement of Boeing Dell sales and services personnel Deployed at various offices of Boeing To solve customer problems

33 RELATIONSHIP MARKETING IN SERVICES Dell Computers Customer Meets Top officials of Dell participate Including Michael Dell, CEO Understand customers better Dell is the second largest PC seller in the US

34 RELATIONSHIP MARKETING IN SERVICES Customization Bonds Make your processes flexible Customized to individual requirements Two important aspects Mass customization Customer intimacy Even more difficult to imitate than financial and social bonds

35 RELATIONSHIP MARKETING IN SERVICES Level 4- Structural Bonds Look in to customers processes Suggest improvements Use of technology and expertise Most difficult to imitate Totally customized according to requirements Improve customer processes

36 RELATIONSHIP MARKETING IN SERVICES Dell Computers Dell services/ technical personnel at Boeing’s offices Dell personnel suggest various process improvements Boeing’s inventory holding came down by few days of raw material Substantial cost savings for Boeing Chances are Boeing may not look at other suppliers