1. BUILDING CUSTORMER RELATIONSHIPS
Donna J. Hill

2. Relationship Marketing
Marketing is to establish, maintain,
enhance (usually but not necessarily
always long term) relationships with
customers and other partners, at
a profit, so that the objectives of the
parties involved are met. This is
achieved by a mutual exchange and
fulfillment of promises.
-Christian Gronroos

3. I describe loyal customers as those who will call me as a supplier immediately when they receive a visit from a competitor with a new product and feel that they have a unique relationship with me

4. 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 cheaper (for the firm)--to keep a current customer costs less than to attract a new one
goal = to build and maintain a base of committed customers who are profitable for the organization
thus, the focus is on the attraction, retention, and enhancement of customer relationships

5. Lifetime Value of a Customer
Assumptions
Income
Expected Customer Lifetime
Average Revenue (month/year)
Other Customers convinced via WOM
Employee Loyalty??
Expenses
Costs of Serving Customer Increase??

6. Calculating Lifetime Value
$spent per month x 12 months x average lifetime = lifetime value
$1500/month x 12 months/year x 10 years = $180,000

7. 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

8. Benefits to the Organization of Customer Loyalty
loyal customers tend to spend more with the organization over time
on average costs of relationship maintenance are lower than new customer costs
employee retention is more likely with a stable customer base
lifetime value of a customer can be very high

9. Benefits to the Customer
inherent benefits in getting good value
economic, social, and continuity benefits
contribution to sense of well-being and quality of life and other psychological benefits
avoidance of change
simplified decision making
social support and friendships
special deals

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

11. Strategies for Building Relationships
Foundations:
Excellent Quality/Value
Careful Segmentation
Bonding Strategies:
Financial Bonds
Social & Psychological Bonds
Structural Bonds
Customization Bonds
Relationship Strategies Wheel

12. Figure 6-1 Customer Goals of Relationship Marketing
Enhancing
Retaining
Satisfying
Getting

13. Customer Satisfaction
Figure 6-3 Underlying Logic of Customer Retention Benefits to the Organization
Customer Satisfaction
Customer Retention &
Increased Profits
Quality
Service
Employee Loyalty

14. Segmentation --- Goods versus Services
Most powerful difference --- need for compatibility in market segments
Services have a far greater ability to customize service offerings in real time

15. Figure 6-5 Steps in Market Segmentation and Targeting for Services
Identify
Bases for
Segmenting
the Market
Develop
Profiles of
Resulting
Segments
Develop
Measures
of Segment
Attractive-
ness
Select the
Target
Segments
Ensure that
Segments
Are
Compatible
STEP 1:
STEP 2:
STEP 3:
STEP4:
STEP 5:

16. Bases for Segmentation
Demographic (social statistics)
Geographic (geographic units)
Psychographic (social class, lifestyle, or personality)
Behavioral (knowledge, attitude, uses, or responses to a service)

17. Requirements for Effective Segmentation
Measurability (size and power an be measured)
Accessibility (can be reached and served)
Substantiality (large or profitable)
Actionability (design effective programs)

18. Mass Customization Designed to fit each individual’s needs
(segmenting to the individual level)
Joe Pine
customizing the service around a standardized core
creating customizable services
offering point-of-delivery customization
offering standard modules that can be combined in unique ways

19. Levels of Retention Strategies
Figure 6-6
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