Chapter 12 Developing and Maintaining LongTerm Customer Relationships

Chapter 12 Developing and Maintaining LongTerm Customer Relationships

Chapter 12 Developing and Maintaining LongTerm Customer Relationships 1 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in The Right Marketing Strategy Is not about creating a large number of transactions Is one that attracts and retains customers over the long-term Considers customer needs, wants, and expectations

Develops long-term relationships 2 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Relationship Management (CRM) A business philosophy aimed at defining and increasing customer value in ways that motivate customers to remain loyal CRM is about retaining the right customers. CRM Stakeholders

Customers Employees Supply chain partners External stakeholders (government, media, advocacy groups) 3 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Shift from Acquiring Customers to Maintaining Clients (Exhibit 10.1) 4 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Developing Relationships in Consumer Markets Goal is to move consumers through levels of

increasing relationship intensity Recognizes that not all customers have equal value to the firm (based on the lifetime value of customers) Focuses on building share of customer Fully serving the needs of current customers, rather than acquiring new customers Encourage current customers to do more business with the firm 5 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Stages of Customer Relationship

Development (Exhibit 10.2) 6 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Relationship Strategies (Exhibit 10.3) Financial Using financial incentives to increase customer loyalty Examples: Coupons, frequent customer programs Adv: Easy to use, effective in the short term Dis: Easy to imitate, hard to end once started Social

Incentives Bonding Using social and psychological bonds to maintain a clientele Examples: Membership programs, customer-only events Adv: Difficult to imitate, reduces brand switching Dis: Takes time, must build customer trust 7 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Relationship Strategies (Exhibit 10.3) (continued) Enhanced Customization

Using intimate customer knowledge to provide one-toone solutions or mass customization Examples: Reminder notices, personal shoppers Adv: Promotes brand loyalty, very hard to imitate Dis: Can be expensive, takes time to develop Structural Bonding Creating customized product offerings that create a unique delivery system for each client Examples: Contractual relationships; structured, lockstep programs

Adv: Ultimate reduction in brand switching 8 Dis: Time consuming and costly, customer resistance 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Developing Relationships in Business Markets Like CRM in consumer markets, involves moving buyers through increasing levels of relationship intensity Typically based on creating structural connections between partners Creates

win-win scenarios Is more involving and complex than CRM in consumer markets 9 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Changes in Business Relationships Change in Buyers and Sellers Roles Shift from competitive negotiation to collaboration Increase Creates solutions at lower costs Increase

in Global Sourcing Easier to find partners that meet exacting needs Increase in Sole Sourcing in Team-Based Buying Decisions Better decisions come from diverse expertise Increase in Productivity through Better Integration Reduces inefficiency and hard/soft costs; increases profitability

10 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in After firms rank their customers on profitability or lifetime value measures, highly profitable customers get special attention, while unprofitable customers get poor service or are fired. What are the ethical and social issues involved in these practices? Could CRM be misused? How and why? 11 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Understanding the Role of Quality Quality is a relative term that refers to the degree of superiority of a firms goods or services

The Core Product Satisfies the basic customer need Core product in services (people, processes, and physical evidence) Supplemental Goods or services that add value to the core product Symbolic Products and Experiential Attributes Usually based on image, prestige, or branding 12

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Components of the Total Product Offering (Exhibit 10.4) 13 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Delivering Superior Quality Most firms struggle with improving quality Customers have very high expectations Most products compete in mature markets Very little differentiation among product offerings

Keys to improving quality Understand customers expectations Translate expectations into quality standards Uphold quality standards Dont overpromise 14 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Understanding the Role of Value Value is the subjective evaluation of benefits relative to costs to determine the worth of a firms product offering relative to other product offerings.

Value can be used to guide marketing strategy. It balances the five types of utility. It includes the concept of quality, but is broader in scope. It takes into account every marketing program element. It can be used to explicitly consider customer perceptions. 15 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in The Value Formula A

simple formula for value (from Chapter 6): Perceived Value = A Customer Benefits Customer Costs more strategic formula for value: Perceived Value = Core Product Quality + Supplemental Product Quality + Experiential Quality Monetary Costs + Nonmonetary Costs 16 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in The Value Formula (continued) Core

Product, Supplemental Product, and Experiential Quality Firms can create unique combinations to drive value perceptions. Monetary Costs Transactional costs include the immediate financial outlay that must be made to purchase the product. Life-cycle costs include additional costs that will be incurred over the life of the product. Nonmonetary Costs

Time, effort, risk, and opportunity costs Not as obvious as monetary costs, so customers sometimes ignore them. 17 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Value and the Marketing Program (Exhibit 10.5) 18 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Satisfaction: The Key to Customer Retention Understanding Customer Expectations

Range of customer expectations Ideal expectations Normative expectations Experience-based expectations Minimum tolerable expectations Customer expectations can vary based on the situation Expectations increase during highly involving or important purchase situations.

Expectations decrease when customers are more tolerant of poor performance, when they have few alternatives, or when performance is beyond the control of the firm. 19 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Range of Customer Expectations (Exhibit 10.6) 20 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in The Zone of Tolerance The difference between the upper and lower end of the range of possible customer expectations The

width of the zone represents the degree to which customers recognize and are willing to accept variability in performance. Three potential outcomes Customer delight performance exceeds desired expectations Customer satisfaction performance falls within the zone Customer dissatisfaction performance falls below adequate expectations 21

2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in The Zone of Tolerance (Exhibit 10.7) 22 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Of the two types of customer expectations, adequate performance expectations fluctuate the most. Describe situations that might cause adequate expectations to increase, thereby narrowing the width of the zone of tolerance. What might a firm do in these situations to achieve its satisfaction targets? 23 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Managing Customer Expectations Why

are Customer Expectations Unrealistic? Typically, customers are not unrealistic. They only want the basics of performance. Should We Delight the Customer? May not be worth the effort if: It does not increase loyalty or retention. It lowers performance for other customers.

It increases expectations over time. Competitors can easily copy it. The firm should look for small ways to delight customers without it becoming an everyday occurrence. 24 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Satisfaction versus Quality versus Value Quality is narrowly defined and judged on an attribute-by-attribute basis. Value includes quality, but it also includes monetary and nonmonetary costs.

Satisfaction is based on expectations and is typically considered holistically. Satisfaction can be based on quality, value, or factors that have nothing to do with quality or value. Expectations and satisfaction can be affected by nonquality and nonvalue issues over which the firm has little control. 25 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Satisfaction and Customer Retention Understand Focus

what can go wrong on controllable issues Manage customer expectations Offer satisfaction guarantees Make it easy for customers to complain Create relationship programs Make customer satisfaction measurement an ongoing priority

26 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Examples of Customer Satisfaction Guarantees (Exhibit 10.8) 27 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Measuring Expectations and Performance (Exhibit 10.9) 28 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Customer Satisfaction Measurement Lifetime Value of a Customer (LTV)

Average Order Value (AOV) Customer Acquisition/Retention Costs Customer Conversion Rate Customer Retention Rate Customer Attrition Rate Customer Recovery Rate

Referrals Social Communication 29 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in Given the commoditized nature of many markets today, does customer relationship management and its associated focus on quality, value, and satisfaction make sense? If price is the only true means of differentiation in a commoditized market, why should a firm care about quality? Explain. 30 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in

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