BGS Customer Relationship Management Chapter 3 Relationship Marketing and Customer Relationship Management Chapter 3 Relationship Marketing and Customer Relationship Management Thomson Publishing 2007 All Rights Reserved

Transaction vs. Relationship Marketing

Short term focus Marketing mix Price sensitive customers Product quality dominates Market share Ad hoc satisfaction studies Little interdepartmental interface Little internal marketing Long-term focus Interactive marketing Less price sensitive customers Interaction quality dominates Share of wallet focus Measurement of commitment Interdepartmental focus Extensive internal marketing

There is a Paradigm Shift in Marketing The 4-P paradigm involves marketing to anonymous masses of customers The relationship marketing paradigm in: – industrial marketing – services marketing – managing channel – strategic alliances – consumer packaged goods marketing deals with now deals with identifiable customers.

Six Key Aspects of a Successful Relationship Marketing Strategy STRATEGIC ISSUES Service business orientation Process management perspective Partnership/network formation TACTICAL ISSUES Direct customer contacts Customer databases Customer-oriented service system

Today the Concept of Product Must Be Expanded to the Extended Product Model Today’s companies must enhance value around their core product. This includes service and commitment components.

Relationship Marketing (RM)

The Meaning of Relationship Marketing Relationship marketing means identifying, establishing, maintaining, and enhancing relationships with customers and other stakeholders at a profit, so that the objectives of all parties involved are met; this is done by a mutual exchange and fulfillment of promises.

Key Aspects of Relationship Marketing 1.Getting customers and creating transactions 2.Maintaining and enhancing ongoing relationships with customers, distributors, suppliers, networks of cooperating partners, etc. 3.Replacing products with personnel, technology, knowledge, and time

Existing Typology of Marketing Strategies and Tactics Existing Markets Existing products -Market penetration Modified products -Reformulation New products Product-line extension Horizontal diversification New Markets Existing products – Market development Modified products – Market extension New products - Mkt segment/prod differentiation Concentric diversification Conglomerate diversification

Roots of Relationship Marketing Technological advances in IT Continued growth of direct marketing Using B2B relationship building models in a B2C environment Published findings of consultants

What is Relationship Marketing All About? RM consists of initiating, enhancing, and maintaining relationships with one’s “customers” and dissolving them when appropriate. RM has three basic features: – Relational databases – Integrated marketing communications – Capabilities for dialogue

Relationship Marketing is Applicable on at Least Ten Different Levels 1.Goods suppliers 2.Service providers 3.Competitors as in strategic alliances 4.Nonprofit organizations 5.Government entities as in joint R&D 6.Ultimate customers 7.Intermediate customers: franchisees channel members 8.Functional departments 9.Employees 10.Other company business units

Will Relationship Marketing Benefit Every Company? Meat Sauce Shoelaces Office Supplies Meat Sauce Shoelaces Office Supplies Hotels Airlines Autos Hotels Airlines Autos Professional Services Sports Teams Luxury Items Professional Services Sports Teams Luxury Items Discrete Functional Unemotional Discrete Functional Unemotional Continuous Relational Emotional Continuous Relational Emotional Exchange Continuum

There Are Three Levels of Relationship Marketing Level 1: relies primarily on pricing incentives. Aim at customers at far left. Level 2: relies primarily on social bonds involving customization and personalization. Level 3: bonds are established by structural solutions

Choosing a Loyalty Strategy

Four Types of Customers 1.Loyalists: the most satisfied become apostles for your company. 2.Mercenaries: only loyal to low prices and are transaction specific with no intentions of ever establishing a relationship. 3.Hostages: “stuck” with you for a variety of reasons. Complainers and prima donnas. 4.Defectors: various types of dissatisfied former customers.

Customers Can Also Be Arrayed Based on Relationship Strength Intimate relationships: doctor and patient Face-to-face relationships: customer and retail store Distant relationships: interactions over phone or online No relationships: manufacturers with final customers who buy through middlemen

“I Can’t Get No Satisfaction” Overall or cumulative satisfaction vs. transaction satisfaction But satisfaction as a measure does not predict purchase behavior The variables trust and commitment are introduced

A Model of a Long-Term Relationship Long term orientation in a buyer-seller relationship – F(mutual dependence, trust) – Trust=f(credibility of vendor, benevolence) – Credibility of vendor=f(reputation for fairness, satisfaction with outcomes) – Reputation for fairness=f(reliable and consistent behavior over time) – Benevolence=f(caring and making sacrifices for the channel partner, satisfaction with outcomes)

Relationship Marketing and CRM CRM is a set of business practices designed to put an enterprise into closer and closer touch with its customers, in order to learn more about each one and to deliver greater and greater value to each one with the overall goal of making each one more valuable to the firm. Peppers and Rogers

Relationship Marketing Will Make Marketing More Effective by: Enabling marketers to learn more about individual customers and develop customized products and services Allowing customers to help design and develop the product/service Minimizing negative images of marketing

Relationship Marketing Will Make Marketing More Efficient by: Enabling companies to retain customers and drive profits Reducing mass marketing wastes Having customers do much of the marketers’ work, including order processing, product design, etc.

Are Marketers Losing Ground in Their Ability To Be the Company Focal Point for Customers? Marketing can no longer be confined to a single department. – Line managers developed their own customer databases. – They began to work directly with direct marketers to develop programs and testing. – These efforts led to the CRM systems of today.

Is Marketing Loosing Ground? Companies today are being organized across functional lines that decentralizes the marketing function. TQC, ERP, in-house venture groups all develop new products and services. Product and brand managers focus on “push” marketing, HOEs, POP, and sales promotion to sell. These are the complete antithesis of what is needed to build class 1:1 relationships based on dialogues. Enter the customer manager. The U.S. recession in the 1990s put a focus on mass media spending. IT-supported approaches to direct marketing were less expensive and could reach masses of people individually with measurable results. The mass media has fragmented and results are still not measurable.

CRM Systems Can Provide Added Value for Customers by: Saving time Providing convenience Allowing for customization Providing a positive experience

Have the 4 Ps Outlived Their Usefulness? Some new suggestions: – 4 P’s: People, preferences, permission, and precision – 4 C’s: Content, context, collaboration, and community – 4 C’s: Customer value, lower costs, better convenience, and better communications

Organizing for Relationship Marketing Companies organized around products and markets are not built around one-to-one relationships. No dialogue with the masses. Customer service reps, however, do have dialogues. Some suggest companies organize around customers in the form of customer portfolios run by segment managers. The rise of the CRM department?

One Scenario of the Future Marketing/CRM Interface How to connect the customer with the – Product – Service delivery – Financial accountability systems? Marketing owns the customer-product connection and is responsible for product strategy, branding strategy, price, and promotion.

One Scenario of the Future Marketing/CRM Interface CRM is responsible for the relationship between the customer and – Service delivery function: CRM responsible for improving satisfaction and loyalty through management of loyalty programs – Financial accountability system: CRM responsible for managing customer profitability through data mining and determining the profitability of marketing initiatives

Questions?