Developing and Maintaining Long-Term Customer Relationships - PowerPoint Presentation

Developing and Maintaining Long-Term Customer Relationships Chapter 12 1

Is not about creating a large number of transactionsIs one that attracts and retains customers over the long-termConsiders customer needs, wants, and expectationsDevelops long-term relationships The “Right” Marketing Strategy2

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) Customer Relationship Management (CRM) 3

Shift from Acquiring Customers to Maintaining Clients (Exhibit 10.1 )4

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 Developing Relationships in Consumer Markets 5

Stages of Customer Relationship Development (Exhibit 10.2)6

Financial IncentivesUsing financial incentives to increase customer loyalty Examples: Coupons, frequent customer programsAdv: Easy to use, effective in the short termDis: Easy to imitate, hard to end once startedSocial BondingUsing 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 Customer Relationship Strategies (Exhibit 10.3 ) 7

Enhanced CustomizationUsing intimate customer knowledge to provide one-to-one solutions or mass customization Examples: Reminder notices, personal shoppersAdv: Promotes brand loyalty, very hard to imitateDis: Can be expensive, takes time to developStructural BondingCreating customized product offerings that create a unique delivery system for each client Examples: Contractual relationships; structured, lock-step programs Adv: Ultimate reduction in brand switching Dis: Time consuming and costly, customer resistance Customer Relationship Strategies (Exhibit 10.3) (continued) 8

Like CRM in consumer markets, involves moving buyers through increasing levels of relationship intensityTypically based on creating structural connections between partners Creates win-win scenariosIs more involving and complex than CRM in consumer markets Developing Relationships in Business Markets 9

Change in Buyers’ and Sellers’ RolesShift from competitive negotiation to collaboration Increase in Sole SourcingCreates solutions at lower costsIncrease in Global SourcingEasier to find partners that meet exacting needs Increase 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 Changes in Business Relationships 10

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

Quality is a relative term that refers to the degree of superiority of a firm’s goods or servicesThe Core ProductSatisfies the basic customer need Core product in services (people, processes, and physical evidence)Supplemental ProductsGoods or services that add value to the core productSymbolic and Experiential Attributes Usually based on image, prestige, or branding Understanding the Role of Quality 12

Components of the Total Product Offering (Exhibit 10.4) 13

Most firms struggle with improving qualityCustomers have very high expectationsMost products compete in mature marketsVery little differentiation among product offerings Keys to improving qualityUnderstand customers’ expectationsTranslate expectations into quality standardsUphold quality standards Don’t overpromise Delivering Superior Quality 14

Value is the subjective evaluation of benefits relative to costs to determine the worth of a firm’s 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. Understanding the Role of Value 15

A simple formula for value (from Chapter 6):A more strategic formula for value:The Value Formula 16 Perceived Value = Customer Benefits Customer Costs Perceived Value = Core Product Quality + Supplemental Product Quality + Experiential Quality Monetary Costs + Nonmonetary Costs

Core Product, Supplemental Product, and Experiential QualityFirms can create unique combinations to drive value perceptions.Monetary CostsTransactional 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 . The Value Formula (continued) 17

Value and the Marketing Program (Exhibit 10.5) 18

Understanding Customer ExpectationsRange of customer expectations Ideal expectationsNormative expectationsExperience-based expectationsMinimum tolerable expectationsCustomer 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. Customer Satisfaction: The Key to Customer Retention 19

Range of Customer Expectations(Exhibit 10.6 )20

The difference between the upper and lower end of the range of possible customer expectationsThe width of the zone represents the degree to which customers recognize and are willing to accept variability in performance.Three potential outcomesCustomer delight – performance exceeds desired expectations Customer satisfaction – performance falls within the zoneCustomer dissatisfaction – performance falls below adequate expectationsThe Zone of Tolerance 21

The Zone of Tolerance(Exhibit 10.7) 22

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

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. Managing Customer Expectations 24

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.Satisfaction versus Quality versus Value25

Understand what can go wrongFocus on controllable issues Manage customer expectationsOffer satisfaction guaranteesMake it easy for customers to complainCreate relationship programs Make customer satisfaction measurement an ongoing priority Customer Satisfaction and Customer Retention 26

Examples of Customer Satisfaction Guarantees (Exhibit 10.8) 27

Measuring Expectations and Performance (Exhibit 10.9) 28

Lifetime Value of a Customer (LTV)Average Order Value (AOV)Customer Acquisition/Retention CostsCustomer Conversion Rate Customer Retention RateCustomer Attrition RateCustomer Recovery RateReferrals Social Communication Customer Satisfaction Measurement 29

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