1. Customer Relationship Management

2. Classifying Relationships with Customers
Type of Relationship--Firm and Customer
Nature of
Service Delivery
“Membership” No Formal Relationship
Continuous Cable TV Radio station
Insurance Police
College enrollment Lighthouse
Discrete Subscriber phone Pay phone
Transactions Theater subscription Movie theater
Warranty repair Public transport

3. Customer Loyalty
Customer loyalty is the engine that drives the service profit chain.

4. Customer Loyalty
Customer loyalty is what turns something as “soft” as service into something as “hard” as profits.

5. Superior Service
Produces customers so satisfied that they return again and again.
As they return they are building profits

6. Relationship Marketing
is a philosophy of doing business that focuses on keeping and improving current customers
does not necessarily emphasize acquiring new customers
is usually less expensive (for the firm)--to keep a current customer costs less than to attract a new one
goal is to build and maintain a base of committed customers who are profitable for the organization
the focus is on the attraction, retention, and enhancement of customer relationships

7. Customer Goals of Relationship Marketing

8. What Makes Loyal Customers More Profitable?
Tend to spend more as relationship develops
business customers may grow larger
may consolidate purchases from one supplier
Cost less to serve
their likes and dislikes, their needs, and their particular operations become known, which prevents costly errors.
the total cost of acquiring customers declines
less need for information and assistance
Recommendations win new customers for firm (act as unpaid sales people)
Long-established customers are less price sensitive.
Trust leads to willingness to pay regular prices vs. shopping for discounts

9. How Much Profit a Loyal Customer Generates over Time
Index
(Year 1=100)
350 –
300
250
200
150
100 50
Year 1
Year 2
Year 3
Year 4
Year 5
Credit card
Industrial laundry
Industrial distribution
Auto servicing
Based on data from Reichheld and Sasser

10. 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.

11. Lifetime Value of a Customer
To develop a sense of the lifetime value of
customers you must first start with assumptions:
Income
Expected Customer Lifetime
Average Revenue (month/year)
% of Other Customers convinced via WOM
Employee Loyalty??
Expenses
Costs of Serving Customer Increase??

12. A Loyal Customer is One Who...
Shows Behavioral Commitment
buys from only one supplier, even though other options exist
increasingly buys more and more from a particular supplier
provides constructive feedback/suggestions
Exhibits Psychological Commitment
wouldn’t consider terminating the relationship--psychological commitment
has a positive attitude about the supplier
says good things about the supplier

13. Benefits to the Organization of Customer Loyalty
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

14. Benefits to the Customer
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

15. 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

16. Levels of Retention Strategies
Stable Pricing
Volume and Frequency Rewards
Bundling and Cross Selling
I. Financial Bonds
Continuous Relationships
Integrated Information Systems
Excellent
Quality
and
Value
IV.
Structural Bonds
II.
Social Bonds
Joint Investments
Personal Relationships
Shared
Processes and Equipment
Social Bonds Among Customers
III. Customization
Bonds
Anticipation/ Innovation
Customer Intimacy
Mass Customization

17. Rewarding Most Valued Customers: Benefits Offered by British Airways
Travel insurance
Lounge access
Immunization (UK)
Upgraded check in
Dedicated/priority reservations
Advance notification of delays (UK)
Special services assistance
Bonus air miles (US)

18. Underlying Logic of Customer Retention Benefits to the Organization
Customer Satisfaction
Customer Retention &
Increased Profits
QualityService
Employee Loyalty

19. How Customers See Relational Benefits in Service Industries
Confidence benefits
less risk of something going wrong, less anxiety
ability to trust provider
know what to expect
get firm’s best service level
Social benefits
mutual recognition, known by name
friendship, enjoyment of social aspects
Special treatment benefits
better prices, discounts, special deals unavailable to others
extra services
higher priority with waits, faster service

20. Customer Loyalty Exercise
Think of a service provider to who you are loyal.
What do you do (your behaviors, actions, feelings) that indicates you are loyal?
Why are you loyal to this provider?
What factors have influenced the formation of your loyalty?

21. Most profitable customers Least profitable customers
The Customer Pyramid
Most profitable customers
What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?
Platinum
Gold
Iron
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?
Lead
Least profitable customers

22. “The Customer Isn’t Always Right”
Not all customers are good relationship customers:
wrong segment
not profitable in the long term
difficult customers

23. Jaycustomers
Thief: no intention of paying and sets out to steal goods and services
Rule breaker: ignores or deliberately breaks company rules or policies
Belligerent: red in the face and shouting angrily, or icy calm and mouthing insults, threats and obscenities
Feuders: people who get into arguments with other customers (family feuders)
Vandal: abuse physical facilities
Deadbeat: fail to pay for services they have received

24. The Problem of Customer Misbehavior:
Give examples of each of the following types of customer misbehavior
Thief
Rule breaker
Belligerent
Family Feuders
Vandal
Deadbeat
Can you think of others?
Make suggestions for handling customer misbehavior.