Chapter 12-Lovelock Chapter 7-Zeithaml

 Loyalty  Defector  Zero Defection Rate

Increased purchase by some customers New customers Lost Customers Decreased purchase by some customers Lost Customers

Customers become more profitable the longer they remain with a firm: – Increase purchases and/or account balances Customers/families purchase in greater quantities as they grow – Reduced operating costs Fewer demands from suppliers and operating mistakes as customer becomes experienced – Referrals to other customers Positive word-of-mouth saves firm from investing money in sales and advertising – Price premiums Long-term customers willing to pay regular price Willing to pay higher price during peak periods

 Must not assume that loyal customers are always more profitable than those making one-time transactions  Costs ▪ Not all types of services incur heavy promotional expenditures to attract a new customer ▪ Walk-in traffic more important at times  Revenue ▪ Large customers may expect price discounts in return for loyalty ▪ Revenues don’t necessarily increase with time for all types of customers (depends on product life cycle)

 Transactional Marketing  One transaction or a series of transactions does not necessarily constitute a relationship  Requires mutual recognition and knowledge between the parties  Database Marketing:  Includes market transaction and information exchange  Technology is used to ▪ (1) identify and build database of current and potential customers ▪ (2) deliver differentiated messages based on customers’ characteristics ▪ (3) track each relationship to monitor cost of acquiring that customer and lifetime value of resulting purchases

 Interaction Marketing:  Face-to-face interaction between customers and supplier’s representatives  Value is added by people and social processes  Increasing use of technologies make maintaining meaningful relationships with customers a marketing challenge ▪ For example, self-service technology, interactive websites, call centers  Network Marketing:  Common in b2b context where companies commit resources to develop positions in network of relationships with stakeholders and relevant agencies

 Relationship of partner  Actively recommends you  Supports you passively  Repeat business, but passive or negative attitude  Carried out one transaction  Potential customer

The Wheel of Loyalty 1. Build a Foundation for Loyalty 2. Create Loyalty Bonds 3. Reduce Churn Drivers Customer Loyalty  Be selective in acquisition  Conduct churn diagnostic  Segment the market  Use effective tiering of service.  Deliver quality service.  Deepen the relationship  Give loyalty rewards  Build higher level bonds  Implement complaint handling and service recovery  Address key churn drivers  Increase switching costs Enabled through:  Frontline staff  Account managers  Membership programs  CRM Systems

Searching for Value—Not Just Volume Focus on number of customers served as well as value of each customer – Heavy users who buy more frequently and in larger volumes are more profitable than occasional users – Avoid targeting customers who buy based on lowest price Firms that are highly focused and selective in their acquisition of customers grow faster “Right customers” are not always high spenders – Can come from a large group of people that no other supplier is serving well Different segments offer different value

Effective Tiering of Service The Customer Pyramid Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth? Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with? Lead Iron Gold Platinum Good Relationship Customers Poor Relationship Customers Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating and Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–142.

The Customer Satisfaction Loyalty Relationship Loyalty (Retention) Very Dissatisfied Neither Satisfied Very Satisfied Satisfaction Near Apostle Zone of Defection Zone of Indifference Zone of Affection Terrorist Apostle Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr., “Why Satisfied Customers Defect,” Harvard Business Review, November-December 1995, p. 91.

Excellent Service and Value 1. Financial Bond 2. Social Bond 3. Customization Bond 4. Structural Bond Volume & Frequency Stable Pricing Bundling & Cross Selling Continuous Relationships Personal Relationships Social Bonds Among customers Integrated Information Systems Joint Investments Shared processes and equipment s Anticipation/ Innovation Mass customization Customer Intimacy

 Customer is not always right  The Wrong Segment  Not Profitable in the Long Term  Difficult Customers  Personal  Organizational