1. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-1 CHAPTER FIVE SUCCEEDING USING DATABASE AND RELATIONSHIP MARKETING Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans

2. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-2 CHAPTER OBJECTIVES Contrast relationship marketing with transaction- based marketing Identify and explain each of the core elements of relationship marketing Outline the steps in the development of a marketing relationship and the different levels of relationship marketing Explain the role of databases in relationship marketing Compare the different types of partnerships and explain how they contribute to relationship marketing

3. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-3 CHAPTER OBJECTIVES Relate to concepts of co-marketing and co- branding to relationship marketing Describe how relationship marketing incorporates electronic data interchange, vendor-managed inventories, and national account selling Discuss the value of strategic alliances to a company’s relationship-marketing strategy Identify and evaluate the most common measurement and evaluation techniques within a relationship-marketing program

4. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-4 THE SHIFT FROM TRANSACTION- BASED MARKETING TO RELATIONSHIP MARKETING Relationship marketing: The development and maintenance of long-term, cost-effective relationships with individual customers, suppliers, employees, and other partners for mutual benefit © PhotoDisc

5. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-5 Figure 5.1: Forms of Buyer-seller Interaction

6. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-6 Abebooks.Com Web Site Helps to Develop Relationships by Allowing Visitors to Search Their Data Base to Locate Book Stores in Specific Locations Copyright © 2001 by Harcourt, Inc. All rights reserved.

7. 5-7 Another Abebooks.Com Web Page Allows Visitors to Browse Their Data Base by Subject Matter to Locate Books in Inventories of Over 5700 Independent Booksellers From Around the Globe. Copyright © 2001 by Harcourt, Inc. All rights reserved.

8. 5-8 THE SHIFT FROM TRANSACTION- BASED MARKETING TO RELATIONSHIP MARKETING Transaction-based marketing: Involves buyer and Seller exchanges characterized by limited communications and little or no ongoing relationship between the parties © PhotoDisc

9. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-9 Table 5.1: Comparing Transaction-Based Marketing and Relationship-Marketing Strategies CharacteristicTransaction MarketingRelationship Marketing Time orientationShort-termLong-term Organizational goalMake the saleEmphasis on retaining customers Customer service priority Relatively lowKey component Customer contactLow to moderateFrequent Degree of customer commitment LowHigh Basis for seller- customer interactions Conflict manipulation What Is Relationship Marketing?

10. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-10 Figure 5.2: Relationship-Marketing Orientation

11. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-11 Promises in Relationship Marketing Most promises are made to potential customers through external marketing – efforts that a company directs toward customers, suppliers, and others outside of the firm. These promises convey what a customer can expect from the firm’s good or service Making Promises © PhotoDisc

12. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-12 Figure 5.3: Making a Promise to Customers The small print promises that Gore-Tex outwear is “Guaranteed to Keep You Dry”

13. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-13 Eckerd Making Promises to Customers Copyright © 2001 by Harcourt, Inc. All rights reserved.

14. 5-14 Promises in Relationship Marketing Making Promises Enabling Promises A firm must enable these promises through internal marketing – by recruiting talented employees and providing them with the tools, training, and motivation they need to do their jobs effectively The company structure must facilitate, not hinder, this enabling effort © PhotoDisc

15. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-15 KPMG, One of the “Big 5” Accounting Firms Maintains This Web Site to Recruit Talented Employees. Once Hired they continue the “Enabling Promises” by extensive training online and offline Copyright © 2001 by Harcourt, Inc. All rights reserved.

16. 5-16 Promises in Relationship Marketing Making PromisesEnabling Promises Keeping Promises The exchange, the third stage in the buyer-seller relationship following exter- nal and internal marketing, defines the point at which a firm keeps its promises The exchange also provides the place where long-term relationships develop between buyers and sellers © PhotoDisc

17. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-17 LL Bean, Known for Keeping It’s Promises of Absolute Satisfaction or Your Money Back (Without Hassle) Does a Superior Job of Developing Long-term Relationships With Its Customers. This is their Customer Service Page. Copyright © 2001 by Harcourt, Inc. All rights reserved.

18. 5-18 Figure 5.4: The Dimensions of Marketing Relationships

19. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-19 The Four Dimensions Marketing Relationships Bonding: two parties must bond to one another in order to develop a long-term relationship In other words, mutual interests or dependencies between the parties must be strong enough to tie them together

20. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-20 The Four Dimensions Marketing Relationships Empathy: the ability to see situations from the perspective of the other party Empathy is another key emotional link in the development of relationships

21. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-21 Kemper Empathy: A Key Dimension in Relationship Marketing Copyright © 2001 by Harcourt, Inc. All rights reserved.

22. 5-22 The Four Dimensions Marketing Relationships Reciprocity: every long-term relationship includes some give- and-take between the parties This process, termed reciprocity, becomes a web of commitments among the parties in the relationship– binding them ever closer together

23. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-23 The Four Dimensions Marketing Relationships Trust: reflects the extent of one party’s confidence in another party’s integrity When parties follow-through on commitments, they enhance trust and strengthen relationships When parties do not follow- through on commitments, the opposite is true

24. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-24 Table 5.2: Three Levels of Relationship Marketing CharacteristicLevel 1 Primary bondFinancial Degree of customization Low Potential for sustained competitive advantage Low ExamplesAmerican Airlines’ AAdvantage program The Relationship Marketing Continuum

25. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-25 Chi-Chi’s Using Financial Incentives Characterizes the First Level of Relationship Marketing Copyright © 2001 by Harcourt, Inc. All rights reserved.

26. 5-26 Table 5.2: Three Levels of Relationship Marketing CharacteristicLevel 1Level 2 Primary bondFinancialSocial Degree of customization LowMedium Potential for sustained competitive advantage LowModerate ExamplesAmerican Airlines’ AAdvantage program Harley- Davidson’s Harley Owners Group (HOG) The Relationship Marketing Continuum

27. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-27 Figure 5.5: Developing a Social Relationship With Customers American Airlines’ custom published magazine communicates with its customers

28. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-28 Jeep Camp Jeep: Developing a Social Relationship with Buyers Copyright © 2001 by Harcourt, Inc. All rights reserved.

29. 5-29 Table 5.2: Three Levels of Relationship Marketing CharacteristicLevel 1Level 2Level 3 Primary bondFinancialSocialStructural Degree of customization LowMediumMedium to high Potential for sustained competitive advantage LowModerateHigh ExamplesAmerican Airlines’ AAdvantage program Harley- Davidson’s Harley Owners Group (HOG) Federal Express’ PowerShip program The Relationship Marketing Continuum

30. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-30 FedEx FedEx Develops Third-Level Relationships with Customers Copyright © 2001 by Harcourt, Inc. All rights reserved.

31. 5-31 MEASURING CUSTOMER SATISFACTION Figure 5.6: Three Steps to Measure Customer Satisfaction

32. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-32 BUYER-SELLER RELATIONSHIPS AND CONSUMER GOODS AND SERVICES MARKETS Many customers are seeking ways to simplify their lives, and relationships provide a way to do this Customers find comfort with brands that have become familiar through their ongoing relationships with companies Such relationships often lead to more efficient decision-making my customers and higher levels of customer satisfaction © PhotoDisc

33. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-33 Figure 5.6: Promoting a Buyer-Seller Relationship Sears ad points out the benefits of exclusive discounts that Sears offers customers that are members of its Pulse Card Program

34. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-34 The Rewards of Retaining Customers Retaining customers as far more profitable than losing them Customers typically generate more profits for firm with each additional year of the relationship It has been noted that a 5 percent gain in customer retention can lead to an 80 percent increase in profits © PhotoDisc

35. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-35 Affinity Programs Affinity programs: a marketing effort sponsored by an organization that solicits responses from individuals who share common interests and activities With affinity programs, extra value is created for members and stronger relationships are encouraged Credit cards, with the sponsor’s a name on the card itself and elsewhere, are a popular form of this marketing technique © PhotoDisc

36. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-36 Figure 5.9: Using a Database to Personalize Service

37. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-37 Frequent-buyer and Frequent-user Programs Frequency marketing: frequent-buyer or user marketing programs that reward customers with cash, rebates, merchandise, or other premiums Perhaps the most popular means to practicing relationship marketing Popular programs include airline and hotel frequent-user programs and retail frequent- customer programs © PhotoDisc

38. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-38 Marriott Rewards Marriott Advertising It’s Frequency Marketing Program Copyright © 2001 by Harcourt, Inc. All rights reserved.

39. 5-39 Starwood Hotel Group’s Preferred Guest Site: Their program encompasses six renowned brands the world over: Westin Hotels & Resorts, Sheraton Hotels & Resorts, St. Regis, The Luxury Collection, Four Points Hotels by Sheraton, Caesars and W Hotels Copyright © 2001 by Harcourt, Inc. All rights reserved.

40. 5-40 Staples.Com “Dividend$ Program” Rewards Its Frequent Buyers with Discounts and Coupons Copyright © 2001 by Harcourt, Inc. All rights reserved.

41. 5-41 Database Marketing Database marketing: software that analyzes marketing information, then identifies and targets messages toward specific groups of potential customers Benefits of databases include Selecting the best customers Calculating the lifetime value of their business Creating a meaningful dialogue that builds genuine loyalty © PhotoDisc

42. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-42 American Express Uses Its Gold Card Member Database to Send Their Frequent Travelers Highly Targeted Marketing Messages Offering “Prime Tickets to the Nation’s Hottest Entertainment Events... “ Copyright © 2001 by Harcourt, Inc. All rights reserved.

43. 5-43 BUYER-SELLER RELATIONSHIPS IN BUSINESS-TO-BUSINESS MARKETS Business-to-business marketing involves an organization’s purchase of goods and services to support company operations or the production of other products Buyer-seller relationships between companies involve working together to provide advantages that benefit both parties Advantages might include the lower prices, quicker delivery, improved quality and reliability, customized product features, and more favorable financing terms © PhotoDisc

44. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-44 Recent Global Alliances of Selected U.S. and Japanese Auto Manufacturers ISUZU TOYOTA IBC Vehicles Limited (UK) New United Motor Manufacturing (Incl. NUMMI) SUZUKIGM Supplies Finished Small Cars 3.5% Investment 37.% Investment Supplies Fin. Sm. Cars, Sm. & Med. Trucks & Parts 40% Investment60% Investment 50% Investment Makes Vans in the UK Makes Small Cars in U.S. 50% Investment Copyright © 2001 by Harcourt, Inc. All rights reserved.

45. 5-45 Corbis, a Firm That Sells Pictures to Commercial Artists and Other Business Users or Encourages Users to Join the Corbis Club by Offering Special Benefits to Club Members Copyright © 2001 by Harcourt, Inc. All rights reserved.

46. 5-46 Sheraton’s Four Points Hotels “Convention Connections” Site Copyright © 2001 by Harcourt, Inc. All rights reserved.

47. 5-47 Building and Maintaining Business Partnerships Partnership: an affiliation of two or more companies to assist each other in the achievement of common goals Benefits of forming partnerships include Protection or improvement of positions in existing markets Gaining access to new domestic or international markets Expansion of a product line Resource sharing, cost reduction, avoiding the costs of future competition, raising or creating barriers to entry, and learning new skills © PhotoDisc

48. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-48 Froedtert Memorial Lutheran Hospital Forming a Partnership to Achieve a Common Goal Copyright © 2001 by Harcourt, Inc. All rights reserved.

49. 5-49 Figure 5.10: A Partnership Based on Common Goals

50. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-50 Choosing Business Partners Locate firms that can add value to the relationship Organizations must share similar values and goals Many business relationships are designed to achieve a specific purpose © PhotoDisc

51. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-51 Types of Partnerships Buyer In a buyer partnership, a firm purchases goods and services from one or more providers for example, a company may contract with all of manage- ment to consulting firm to improve its screening procedures when the hiring new employees © PhotoDisc

52. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-52 Figure 5.11: Example of a Buyer Relationship

53. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-53 Buyer Seller Seller partnerships set up long-term exchanges of goods and services in return for cash or other valuable consider- ation Most sellers prefer long-term relationships with their partners Sellers also want prompt payment Types of Partnerships © PhotoDisc

54. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-54 Types of Partnerships Buyer Seller Internal The importance of internal partnerships is widely recognized The classic definition of the word customer as the buyer is now more carefully defined in terms of external customers However, customers within an organization also have their own needs Internal partnerships are the foundation of an organization and its ability to meet its com- mitments to external entities © PhotoDisc

55. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-55 Buyer Seller Internal Lateral Collateral partnerships include strategic relationships such as co-marketing and co-branding alliances, global strategic alliances, of with not-for-profit organizations, and research alliances with universities and colleges. In each case, the relationship reaches external into please, and involves a no buyer or seller interactions Types of Partnerships © PhotoDisc

56. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-56 Oracle & Hewlett Packard Co-Marketing by Oracle and Hewlett Packard Copyright © 2001 by Harcourt, Inc. All rights reserved.

57. 5-57 Co-Marketing and Co- Branding Co-marketing: Formal links between two or more businesses to jointly market each other’s products Example: A computer manufacturer who puts “Intel Inside” labels on their units Co-branding: Partnership between two or more companies that closely links their brand names together for a single product Example: Whirlpool appliances labeled “Kirkland Signature by Whirlpool” made for and sold in Costco’s Outlets © PhotoDisc

58. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-58 AOL and VISA Co-Branding Copyright © 2001 by Harcourt, Inc. All rights reserved.

59. 5-59 LINKS BETWEEN BUYERS AND SELLERS AND THE BUSINESS-TO- BUSINESS MARKETS Organizations that know how to find and nurture partner relationships can enhance revenues and increase profits Partnering often leads to lower prices, better products, and improved distribution This, in turn, results in higher levels of customer satisfaction © PhotoDisc

60. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-60 AOL and RTS Wireless Nurture a Partner Relationship That Can Enhance Revenues and Increase Profits for Both Firms Copyright © 2001 by Harcourt, Inc. All rights reserved.

61. 5-61 The Use of Databases Databases are indispensable tools in relationship marketing Databases are also used in business-to-business situations © PhotoDisc

62. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-62 Electronic Data Interchange Electronic Data Interchange (EDI) involves computer-to-computer exchanges of invoices, orders, and other business documents EDI is rapidly gaining popularity because it allows firms to reduce their cost and to improve their efficiency and competitiveness Quick-response strategies can be implemented by retailers a using EDI. Quick response strategies reduce the time that a merchandise is held in inventory and result in substantial cost savings © PhotoDisc

63. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-63 Utilizing the quick-response systems, Calvin Klein monitors its merchandise and is able to replenish stores with its cK suits.

64. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-64 Washington Publishing Company (WPC) Specializes in Managing and Distributing Electronic Data Interchange (EDI) Information Copyright © 2001 by Harcourt, Inc. All rights reserved.

65. 5-65 EDI-TIE: A Global Firm Delivering Business-to-business Ecommerce Solutions in the Internet Era. Copyright © 2001 by Harcourt, Inc. All rights reserved.

66. 5-66 National Account Selling Manufacturers use a technique called national account selling to serve their largest, most profitable customers They assemble a team to service a single major account, and thus demonstrate the depth of their commitment to the buyer The buyer-seller relationship is thus strengthened Rather than an adversarial relationship, buyers and sellers work together to find solutions that benefit both parties © PhotoDisc

67. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-67 Vendor-Managed Inventory Vendor-Managed Inventory (VMI): is an inventory-management system in which the seller–based on existing agreement with a buyer– determines how much of a product is needed New supplies are then automatically shipped to the buyer © PhotoDisc

68. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-68 Managing of the Supply Chain Supply (Value) Chain: sequence of suppliers that contributes to the creation and delivery of a good or service © PhotoDisc

69. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-69 Figure 5.11: Dell Computer’s Supply Chain

70. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-70 Managing of the Supply Chain © PhotoDisc Effect in supply-chain management can result in Increased innovation Decreased cost Improved conflict resolution within the chain Improved communication and involvement among members of the chain

71. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-71 Strategic Alliances Strategic alliance: a partnership formed to create a competitive advantage These more formal long-term partnership arrangements improved each partner supply-chain relationships and enhance flexibility Strategic alliances include businesses on all sizes, all kinds, and in many locations What each partner can offer to other partners is what is important © PhotoDisc

72. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-72 Compaq & RadioShack Compaq and RadioShack: A Vertical Strategic Alliance Copyright © 2001 by Harcourt, Inc. All rights reserved.

73. 5-73 Table 5.3: Resources and Skills That Partners Contribute to Strategic Alliances Skills Patents Product lines Brand equity Reputation - For product quality - For customer service - For product innovation Image - Company wide - Business unit - Product line/brand Knowledge of product-market Customer base Marketing resources - Marketing infrastructure Sales force size Established relationship with: - Suppliers - Marketing intermediaries - End-use customers Manufacturing resources - Location - Size, scale economies, scope economies, excess capacity, newness of plant and equipment Information technology and systems Marketing Skills - Innovation and product development - Positioning and segmentation - Advertising and sales promotion Manufacturing Skills - Miniaturization - Low-cost manufacturing - Flexible manufacturing Planning and implementation skills R&D skills Organizational expertise, producer learning, and experience effects Resources

74. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-74 Structuring Relationships Managing Relationships for Superior Performance Measure- ment & Evaluation Assessing Costs & Benefits Copyright © 2001 by Harcourt, Inc. All rights reserved.

75. 5-75 Identify and compare assets, both tangible and intangible Because customers are assets, a company can analyze its marketing and communication investments similar to the way it evaluates capital equipment investments Assessing Costs & Benefits Managing Relationships for Superior Performance

76. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-76 Structuring Relationships Partners should examine existing company systems involved in delivering customer service Should use databases to identify the prospects with the best profit potential Assessing Costs & Benefits Managing Relationships for Superior Performance

77. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-77 Structuring Relationships Lifetime value of customer: the revenues and intangible benefits that a customer brings to the seller over an average lifetime, less the amount of money which must be spent to acquire, market to, and service the customer Measure- ment & Evaluation Assessing Costs & Benefits Managing Relationships for Superior Performance

78. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-78 RELATIONSHIP MARKETING Additional techniques used to evaluate relationship programs include Tracking rebate requests, coupon redemptions, credit-card purchases, and product registrations Monitoring complaints and returned products and analyzing why customers leave Reviewing reply cards, common forms, and surveys © PhotoDisc

79. Copyright © 2001 by Harcourt, Inc. All rights reserved. 5-79 Hampton Inn Promises: “If You're Not Completely Satisfied, We'll Give You Your Night's Stay for Free” How Does This Exemplify “Relationship Marketing?” Class Discussion Copyright © 2001 by Harcourt, Inc. All rights reserved.