1. Build Customer Relationships
Chapter 7
Build Customer Relationships
Relationship Marketing
Relationship Value of Customers
Customer Profitability Segments
Relationship Development Strategies
Relationship Challenges
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Relationship Marketing
is a philosophy of doing business, a strategic orientation, that focuses on keeping current customers and improving relationships with them
does not necessarily emphasize acquiring new customers
is usually cheaper (for the firm)
keeping a current customer costs less than attracting a new one
thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

3. The “Bucket Theory of Marketing”

4. Customer Goals of Relationship Marketing

5. A Typology of Exchange Relationships
CUSTOMERS as STRANGERS
Those customers who are not aware of or, perhaps, those who have not yet had any transactions with a firm.
The primary goal is to attract and acquire
The primary marketing efforts directed toward such customer’s deal with familiarizing those potential customers with the firm’s offerings and, subsequently, encouraging them to give the firm a try.
2. CUSTOMERS as ACQUAINTANCES
Once customer awareness and trial are achieved, familiarity is established.
The primary goal for the firm for this stage of the relationship is satisfying
Offering value proposition to customers that is comparable with competitors.

6. A Typology of Exchange Relationships
3. CUSTOMERS as FRIENDS
Continues to make purchases from the company and receive value from the relationships.
The primary goal for firms at the friendship stage of the is customer retention.
4. CUSTOMERS as PARTNERS
A customer continues to interact with a firm, the level of trust often deepens and the customer may receive more customized service.
The key success in the partnership stage is the firm’s ability to organize and use information about individual customers more effectively that competitors.
The firm is concerned with enhancing the relationship

7. Benefits of Relationship Marketing
Benefits for Customers:
Receipt of greater value
Confidence benefits:
trust
confidence in provider
reduced anxiety
Social benefits:
familiarity
social support
personal relationships
Special treatment benefits:
special deals
price breaks
Benefits for Firms:
Economic benefits:
increased revenues
reduced marketing and administrative costs
regular revenue stream
Customer behavior benefits:
strong word-of-mouth endorsements
customer voluntary performance
social benefits to other customers
mentors to other customers
Human resource management benefits:
easier jobs for employees
social benefits for employees
employee retention

8. Profit Generated by a Customer Over Time

9. Profit Impact of 5 Percent Increase in Retention Rate
Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.

10. The Customer Pyramid

11. The Customer Pyramid Platinum Tier Gold Tier Iron Tier Lead Tier
Company’s most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm
Gold Tier
Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors.
Iron Tier
Essential customers that provide the volume needed to utilize the firm'’ capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment
Lead Tier
Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources.

12. Segmenting Customers Based on Commitment and Profitability
BUTTERFLIES
Good fit of company offering and customer needs
High profit potential
Action:
Aim to achieve transactional satisfaction, not attitudinal loyalty
Milk the accounts as long as they are active
Key challenge: cease investment once inflection point is reached
TRUE FRIENDS
Good fit of company offering and customer needs
Highest profit potential
Actions:
Consistent intermittently spaced communication
Achieve attitudinal and behavioural loyalty
Invest to nurture/defend/retain
High
(Behavioral Loyalty)
CLV
STRANGERS
Little fit of company offering and customer needs
Lowest profit potential
Action:
No relationship investment
Profitize every transaction
BARNACLES
Limited fit of company offering and customer needs
Low profit potential
Action:
Measure size and share-of-wallet
If share-of-wallet is low, specific up and cross-selling
If size of wallet is small, strict cost control
Low
Relationship Commitment
(Attitudinal Loyalty)
Low
High
W. Reinhartz & V. Kumar, "The Mismanagement of Customer Loyalty," Harvard Business Review 80 (July 2002), pp

13. Relationship Development Model

14. Strategies for Building Relationships
Core Service Provision:
service foundations built upon delivery of excellent service:
satisfaction, perceived service quality, perceived value
Switching Barriers:
customer inertia
switching costs:
set up costs, search costs, learning costs, contractual costs
Relationship Bonds:
financial bonds
social bonds
customization bonds
structural bonds

15. Levels of Relationship Strategies

16. “The Customer Is NOT Always Right”
Not all customers are good relationship customers:
wrong segment
not profitable in the long term
difficult customers