1. András BauerMarketing Management1 Customer Relationship Management Basic Assumptions for this paradigm: 1. There is a lifetime-profitability correlation 2. Profits increase over time 3. Serving long-term customers is less costly 4. Long-life customers pay higher prices

2. András BauerMarketing Management2 Price Premium Referrals Cost Savings Revenue Growth Base Profit Acquisition Cost Years 1 2 3 4 5 6 7 Graphical representation of consumer/profit development PROFITPROFIT

3. András BauerMarketing Management3 Some explanations Acquisition costs: depending on the category, it could be quite substantial. In fast growing businesses, firms are willing to spend upfront in hope of future recovery. Cellphones are prime examples. Average acquisition cost in the US: $ 300. However high churn rates may not justify this. (There is a market segmentation reason)

4. András BauerMarketing Management4 Further explanations Base profit: the average margin Revenue growth: retained customers might buy more from the company (partly because of cross-selling partly, because of they are happy) Operating costs: it is less costly to serve loyal customers

5. András BauerMarketing Management5 More explanations Referrals: satisfied customers make recommendations (however if you force them they become suspicious) Price premium: loyalty makes blind and customers are willing to pay higher prices (though it could just be inertia)

6. András BauerMarketing Management6 Discussion If the basic assumptions hold, firms should pursue loyalty building strategies Loyalty strongly depends on customer satisfaction However, if the basic assumptions do not hold, caution is advised

7. András BauerMarketing Management7 The Customer Satisfaction Branch Customer Satisfaction is usually approached based on the expectancy-disconfirmation theory: Looking at the match of expectations and experience

8. András BauerMarketing Management8 Customer satisfaction Is a multidimensional construct based and measured on many dimensions. Usual dimensions: response, info exchange personal service, price, availability, attributes Need for own measures: customersat.com

9. András BauerMarketing Management9 Customer satisfaction measures Behaviour (based on data) Surveys Lost customer analysis Mystery shopping Benchmarking for competitors

10. András BauerMarketing Management10 The impact of market segmentation Not all customers are equal, therefore pursuing loyalty in general, is not a good strategy Even highly satisfied customers switch There could be some free-riding Membership (contract) and non- membership business can be different

11. András BauerMarketing Management11 Low Lifetime Revenue High Long Lifetime Length Short Lifetime Profit: 51 Mailing cost:.128 Ave.Price: 47.7 Lifetime Profit 289 Mailing Cost:.063 Ave.Price: $ 58.4 Lifetime Profit: 51 Mailing Cost:.142 Ave Price: 47.8 Lifetime Profit 258 Mailing Cost.065 Ave. Price: $ 63.5 Source:Reinartz & Kumar

12. András BauerMarketing Management12 Interpretation This is a non-contractual business In this business (direct marketing) rewarding long lifetime with the company is counterproductive It might be different in contractual relations

13. András BauerMarketing Management13 Industry approaches Industries might follow different approaches to customization such as one-to- one, mass customization etc. Measurement is more and more possible, though industry specific Could be very important in B2B

14. András BauerMarketing Management14 Some examples High-value customers receive better treatment Can use more services Receive more rewards Low value customers are treated badly « Customer apartheid ? »

15. András BauerMarketing Management15 Customer relationship management as an application CRM is about identifying, winning, retaining and expanding customer relationships; in the most profitable way, across the complete spectrum of point to contact with the customer. It includes, sales force, call-center, the Internet A technology enabled dialogue

16. András BauerMarketing Management16 The Dell model Dell captures more customer value in its model than its competitors through differentiation in customer knowledge and therefore better problem solving This leads to higher selling prices

17. András BauerMarketing Management17 When is CRM a good tool ? In businesses with complexity and high value. This is where the customer value can be driven by differentiation and tailorability to the customer

18. András BauerMarketing Management18 Beyond CRM...  Consumers are co-producers, not just users  We can manage consumer by marketing and HR tools Customer Efficiency Management

19. András BauerMarketing Management19 Simple profit model: satisfied employees Firm Employees Customer Satisfied employees Satisfied employees make customers happy Satisfied customers increase company profit

20. András BauerMarketing Management20 A more rational profit model: based on a process view Firm Employees Customers Company systems allow employees to provide consistently better services Well supported employees provide consistently better services Satisfied customers improve their relationship with the firm

21. András BauerMarketing Management21 The efficient customer profit model Firm Employees Customer Company systems support employees and customers to become more efficient Well supported employees provide better services Satisfied customers have better relationship with the company and with other customers, as well. Efficient customers use company systems better and create better serv ices