Developing and Maintaining Long-Term Customer Relationships 12 C H A P T E R

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

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

CRM Involves: Customers Employees Supply Chain Partners External Stakeholders

Strategic Shift from Acquiring Customers to Maintaining Clients Exhibit 12.1

Developing Relationships in Consumer Markets A long-term process Goal is to move consumers through levels of increasing relationship intensity 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

Discussion Question A common use of customer relationship management (CRM) in consumer markets is to rank customers on profitability or lifetime value measures. Highly profitable customers get special attention, while unprofitable customers get poor service or are often “fired.” What are the ethical and social issues involved in these practices? Could CRM be misused? How and why?

Stages of Customer Relationship Development Exhibit 12.2

Strategies for Enhancing and Maintaining Customer Relationships Financial Incentives Using financial incentives to increase customer loyalty Social Bonding Using social and psychological bonds to maintain a clientele Enhanced Customization Using intimate customer knowledge to provide one-to-one solutions or mass customization Structural Bonding Creating customized product offerings that create a unique delivery system for each client From Exhibit 12.3

Developing Relationships in Business Markets Like CRM in consumer markets, involves moving buyers through increasing levels of relationship intensity Based more on creating structural bonds Creates win-win scenarios Is more involving and complex than CRM in consumer markets

Recent Changes in Business Relationships A change in buyers’ and sellers’ roles An increase in sole sourcing An increase in team-based buying decisions An increase in productivity through better integration

Understanding the Role of Quality The degree of superiority of a firm’s goods or services 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 Exhibit 12.4

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

Marketing Strategy in Action 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?

Understanding the Role of Value A simple formula for value: A more useful formula for value:

Connections Between Value and the Marketing Program Exhibit 12.5

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 Exhibit 12.6

The Zone of Tolerance Exhibit 12.7

Discussion Question Of the two types of customer expectations, adequate performance expectations fluctuate the most. Describe situations that might cause adequate expectations to increase, thereby narrowing the width of the zone of tolerance. What might a firm do in these situations to achieve its satisfaction targets?

Customer Satisfaction and 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

Examples of Satisfaction Guarantees Exhibit 12.8

Customer Satisfaction Measurement Lifetime Value of a Customer (LTV) Average Order Value (AOV) Customer Acquisition/Retention Costs Customer Conversion Rate Customer Retention Rate Customer Attrition Rate Customer Recovery Rate Referrals Viral Marketing

Measuring Expectations and Performance (Hypothetical Health Club) Exhibit 12.9

Discussion Question Given the commoditized nature of many markets today, does customer relationship management – and its associated focus on quality, value, and satisfaction – make sense? If price is the only true means of differentiation in a commoditized market, why should a firm care about quality? Explain.

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? Beyond the Pages 12.2