Chapter 5 Building customer service relationships Learning objectives This chapter gives an overview of the main issues involved in the direct marketer’s management and development of customer relationships.

Critical introduction 1.Distinguish between different degrees of customer loyalty.Distinguish between different degrees of customer loyalty. 2.Assess the lifetime value of a cusomer.Assess the lifetime value of a cusomer. 3.Discuss tactics to increase the sales and profitability of each customer contact.Discuss tactics to increase the sales and profitability of each customer contact. 4.Consider the role of individual service encounters in building customer relationships.Consider the role of individual service encounters in building customer relationships. 5.Describe the different aspects of the order fulfilment process.Describe the different aspects of the order fulfilment process. 6.SummarySummary

Distinguish between different degrees of customer loyalty. Prospect Customer Client Suppporter Advocate Figure 5.2 The customer loyalty pyramid Emphasis on new customers (customer catching) Emphasis on developing and enhancing rellationships (customer keeping)

A hot prospect — good petential customer —is one who has the: money to buy authority to make a purchase, and the need right now. Distinguish between different degrees of customer loyalty.

Definition Liftime value of customer is the present value of the future cash flows attributed to the customer relationship. Companies can caculate the average liftime value of a particular type of customer by tracking their average monthly cash flow and termination rates over a reasonable length of time. Assess the lifetime value of a cusomer.

Spreadsheets can also be used to sort segments according to a number of factors likely to influence the response rate, including: time since last mailing the contact medium the package the offer economic conditions competitive marketing efforts. Assess the lifetime value of a cusomer.

Back end marketing Back end marketing covers the tasks and activities that have to be done within the organisation in order to ensure that relationships with prospects and customers proceed smoothly — a lot of planning and coordination has to be done to make sure that marketing systems function correctly to develop and implement all of your strategies and campaigns. Front End Marketing is the external activities you carry out in the marketplace to attract and hold customers.

Some of the objectives of back end marketing are to:  qualify prospects  convert prospects into loyalty client  segment the client base so that you know who your most profitable clents are for the various products and services you offer  reassure customers that they made a wise buying decision  maintain relationships through good customer service  ensure continued sales to new customers  increase size and/or profitability of orders. Back end marketing

Convert the order into sales  SEND EXTRA ORDER FORMS  ACCESSORIES AND RELATED ITEMS  UPGRADED ITEMS FROM THE LINE  INCENTIVES FOR REFERRALS  PACKAGE AND STATEMENT INSERTS PACKAGE AND STATEMENT INSERTS  OFFERING ITEMS FROM OTHER COMPANIES OR SUPPLIERS OFFERING ITEMS FROM OTHER COMPANIES OR SUPPLIERS  LOADING UP CUSTOMERS LOADING UP CUSTOMERS

Convert the order into sales PACKAGE AND STATEMENT INSERTS  Inserts are usually one page pieces that will fit into the envelope with a statement without incurring extra postage charges.  An insert for a product that will appeal to this target market should do well even if it is not related to the item they have just bought. BACK

Convert the order into sales OFFERING ITEMS FROM OTHER COMPANIES OR SUPPLIERS  You may be able to set up reciprocal arrangements with a number of non competing firms whose target customer profiles match yours closely. BACK

Convert the order into sales LOADING UP CUSTOMERS  A quantity discount offer may be attractive as customers can get a lower price per unit — this is called loading up customers.

Continuity offers The negative option Preferred customer discount clubs Preferred customer deals Loyalty schemes Follow up contacts Tactics to begin longer term relationships

Continuity offers A typical continuity offer might be to offer the first of a series of collectible plates, music CDs, books or other items on the understanding that the rest of the series will be made available in later mailings. Tactics to begin longer term relationships

The negative option There are a wide number of variations on this basic theme. Often specific items are shipped by the company each month and customers have the option of rejecting them by sending them back and/or asking for an alternate selection before a deadline expires. Sometimes items must be selected from this month’s list of merchandise. Tactics to begin longer term relationships

Preferred customer discount clubs Discount clubs are used by many retail outlets. Including a card or certificate stating that customers are entitled to a discount may cause many of them to at least consider getting what they need from you instead of going straight to another supplier when the need arises. Tactics to begin longer term relationships

Loyalty Schemes Loyalty schemes require customers to make a number of purchase in order to obtain something desirable. The scheme may reward customers after they have bought a number of items or their purchase have reached a particular dollar. Tactics to begin longer term relationships

Follow up contacts Direct marketers should attempt to ‘mine’a list for all possible customers. Each campaign should include more than one contact with the customers. If your lists are good, people who have not responded to an initial contact still offer good opportunities for activation. They probably fit the same profile as people on the same list who did respond, so they may be better prospects than you might be able to obtain otherwise. Tactics to begin longer term relationships

Some reasons for non response Possible strategy Mislaid the materials  Send a reminder message package  Include a ‘ no postage ’ response vehicle Other more pressing matters occurred  Send a reminder message package  Include a ‘ nopostage ’ response vehicle Change in circumstances affected their need for the product  Promote products more suited to new  circumstances and/or re-categorise name on databases Poor service in the past  Contact people who no longer do business with you and ask the reason  Show how you have dealt with the problem and ask for another trial Table 5.1 Devise strategies for non respondents

Poor perception of direct marketing firms  Do not invoice the client until after goods received  Warrantees  Testimonials  Endorsement from well known clients and firms  Include Direct Marketing Association ethical guidelines Include Direct Marketing Association ethical guidelines  Point out the benefits of remaining in conact  Target with other product lines Price Point out benefits of remaining in contact- you frequently have special deals and buying from you is convenient Table 5.1 Devise strategies for non respondents (Cont ’ d)

Service encounters are moments of truth Anything bought has elements of both a physical product and a service. A purchase by a customer consists of a chain of service encounters with your organization’s people and system.

Figure 5.3 perception of quality depengs on what actually happens compared to expectations Service encounters are moments of truth What customer expected What customer received

What is involved in order processing and fulfilment Fulfillment refers to a range of activities involved in between receiving customers’ orders and getting goods to them. It involves order preparation, order transmission, order entry, order filling and order tracking. Information generated during this process is passed to the company’s marketing, sales, accounting, inventory, purchasing, forecasting, planning and control systems.

Figure 5.7 Typical order processing and fulfillment system Order preparation Requesting products or services Order transmission Transferring order information from customer to company internal systems Order entry Check accuracy Check stock availability Check credit Do back order or cancel order if an item is out of stock Prepare copies of order for company systems Billing and invoicing Order filling  Obtain necessary stock  Pick and pack order for shipment  Arrange delivery  Prepare shipping documents Order tracking and status reporting  Query company system on order progress, etc  Communicate with customer on order status

Inventory issues The levels of inventory held and how frequently it is topped up depend on:  Customers ’ service expectations  How smooth and predictable demand is  How long it takes to obtain fresh supplies  How reliable suppliers are  costs

Costs associated with inventory include:  Procurement costs It include the administrative work involved in placing an order, inbound transport and materials handling.  Carrying costs In effect some of the inventory it can be borne by suppliers.  Out of stock costs The total procurement cost is lower if fewer, larger orders are placed. Administrative costs are the same for a large or a small order.

Total cost Carrying costs Procurement costs $ Quantity FIGURE 5.9 Inventory cost trade offs

Inbound dock Bulk storage Order picking area Order assembly Outbound dock Material flow FIGURE 5.10 Basic warehouse design

Chapter 6 The “ how ” of creating and executing an effective offer For an offer to be effective, it has to cause something to happen. Remember what you offer is what you live with. ——ANON

Learning objectives  This chapter gives an overview of what positioning is and why it is important in direct marketing, how products are positioned in terms of benefits or attributes that satisfy needs and the process involved in developing a positioning strategy.

What is Positioning?  Positioning means to create an image in the minds of the target audience that your product or service will fulfill their needs better than any competitors ’ product or service. This is done by developing a marketing mix that will create and communicate such an image.

What is The Offer?  One of the key elements of direct marketing, the offer is that part of the strategy that is designed to get action. This may be in the form of the sale or in some form of response leading to further action steps, such as seeking more information, requesting a visit from a company representative, or giving a donation for a nonprofit organization.

Elements of an offer  Positioning  Pricing  Future commitment  Delivery & handle  Payment terms  Risk reduction elements  Urgency prompts  Incentives  Other optional elements: Optional product features Quantities of unit per offer Restricting access to an offer

Elements of an offer Incentives Urgency prompts Payment terms Delivery and handing Positioning Pricing Elements of offer Future commitment Risk reduction elements

Steps in developing a positioning strategy Identify the competitors Determine how the competitors are perceived and evaluated Determine the competitors’ positionings Analyse the target market Select the desired segment Implement the positionings Implement the positioning strategy and monitor its effectiveness 5 6 7

MCPUD Meaningful: the position must mean something to the target market. Credible: the position must be credible. Pre-emptive: don ’ t leave your product/service in a position where a competitor can improve on the position. Unique: the position you want to hold is one that cannot be confused with any of your competitor, or similar products. Durable: you want the position you hold to stand the test of time.

Variety of media available  Database options  Newspapers  Magazines  Television  Radio  Other useful media

Variety of media available Incentives Other useful media Radio Magazines Database options Variety of media available Newspapers

Creative ideas defined  Present an attention grabbing and interest generating representation of the branded product  Be detailed enough to be effectively activated and measurable  Be acceptable for several executions in most cases.

The creative strategy  Key selling concept  Primary marketing problem  Desired action  message strategy  corporate/divisional requirements

The creative strategy Key selling concept Primary marketing problem Desired action Message strategy Corporate/divisional requirements

Company Logo High involvement brand attitude Using an expert, objective presenter Trying an approach refuting the claims of a competitor if the target audience is Negatively predisposed Employing an explicit comparative approach If you are a small brand Taking on a larger Entrenched competitor Low involvement brand attitude Two sets of tactics must be considered. Creative execution