Customer Relationships: The Key Ingredient Part 4 Focusing on the Customer: Marketing Growth Strategies

Looking Ahead After studying this chapter, you should be able to: Define customer relationship management (CRM) and explain its importance to a small firm. Discuss the significance of providing extraordinary customer service. Illustrate how technology, such as the Internet, can improve customer relationships. Describe the techniques for creating a customer profile. Explain how consumers are decision makers and why this is important to understanding customer relationships. Describe certain psychological influences on consumer behavior. Describe certain sociological influences on consumer behavior. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Customer Relationship Management Customer relationship management (CRM) is a marketing strategy of maximizing shareholder value through winning, growing, and keeping the right customers. The central message of every CRM program is “Court customers for more than a one-time sale.” CRM is primarily a mind-set—the implementation of customer-centric strategies, which put customers first so that the firm can increase profits. A CRM program recognizes the importance of keeping current customers satisfied to ensure their loyalty, given the costs associated with attracting a new customer. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Building an Effective CRM Constructing a CRM program requires a plan so that the entrepreneur will know what people, processes, and so on, he or she needs. Two vital building blocks of any CRM program are outstanding transactional relationships with customers and knowledge of consumer behavior. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Extraordinary Customer Service To be successful in the long run, small firms must provide outstanding service in order to develop and maintain loyal customers, as it costs far more to replace a customer than to keep one. Extraordinary service is the factor that small firms are in a unique position to offer. Providing exceptional customer service can give small firms a competitive edge, regardless of the nature of the business. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Extraordinary Customer Service (cont’d.) Establishing an effective customer service program begins with determining the firm’s “customer service quotient,” which indicates how well the firm is currently providing service to its customers. The way customer service problems are most commonly recognized is through customer complaints. Managers can also learn about customer service problems through personal observation and other research techniques. Although many types of customer service cost very little, there are definite costs associated with superior levels of customer service. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Improving Customer Relationships Long-term transactional relationships are built with information gathered from positive customer contacts. CRM technology helps companies gather all customer contact information into a single data management program. Web-based marketers, in particular, are attracted to CRM technology. CRM focuses on such sales functions as accurate and prompt order filling, follow-up contacts to ensure customer satisfaction, and the use of a user-friendly call center to handle all inquiries, including complaints. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Improving Customer Relationships (cont’d.) Having ample support resources for CRM information technology can be a concern for a small firm, and this concern has led some entrepreneurs to outsource certain applications. Hosted call centers require lower deployment costs than do comparable in-house centers, a crucial consideration for many cash-strapped small firms. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Creating Customer Profiles In a very small business, customer profiles are developed in the entrepreneur’s head during conversations with customers. Customer profiles are essential to a successful CRM program, as they represent building material for the required knowledge of customers. Four categories of customer profile information are transactions, customer contacts, descriptive information, and responses to marketing stimuli. Formal interviews with customers provide another way to gather customer profile information. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Consumer Decision Making Consumer decision making involves four stages that are closely tied to ultimate customer satisfaction. Problem recognition (stage 1) occurs when consumers realize that their current state of affairs differ significantly from some ideal state. The second stage in consumer decision making involves consumers’ collection and evaluation of appropriate information from both internal and external sources. Once consumers have evaluated brands in their evoked set and made their choice, they must still decide how and where to make the purchase (stage 3). Post-purchase evaluation (stage 4) may lead to cognitive dissonance, negatively influencing customer satisfaction with the product or service. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Psychological Influences on Consumer Behavior The four psychological influences that have the greatest relevance to small businesses are needs, perceptions, motivations, and attitudes. Needs are often the starting point for all behavior. Perception encompasses those individual processes that ultimately give meaning to the stimuli confronting consumers. Motivations are goal-directed forces that organize and give direction to tension caused by unsatisfied needs. An attitude is an enduring opinion, based on a combination of knowledge, feeling, and behavioral tendency. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Sociological Influences on Consumer Behavior Among the sociological influences are culture, social class, reference groups, and opinion leaders. In marketing, culture refers to the behavioral patterns and values that characterize a group of customers in a target market. Social classes are divisions within a society having different levels of social prestige. Reference groups are those smaller groups that an individual allows to influence his or her behavior. According to widely accepted communication principles, consumers receive a significant amount of information through opinion leaders, who are group members playing a key communications role. Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.

Key Terms customer relationship management (CRM) transactional relationship customer profile evaluative criteria evoked set cognitive dissonance needs perception perceptual categorization motivations attitude culture social classes reference groups opinion leader Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved.