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Strategies for Building Strong Customer Relationships

Understand relationship marketing goals, customer lifetime value estimation, and successful retention strategies. Learn why keeping loyal customers is key for profitability. Identify and target appropriate customer segments for effective relationship building.

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Strategies for Building Strong Customer Relationships

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  1. Chapter Building Customer Relationships 6 • Relationship Marketing • Relationship Value of Customers • Foundations for Relationship Strategies • The Customer Isn’t Always Right • Customer Profitability Segments • Levels of Relationship Strategies

  2. Objectives for Chapter 6:Building Customer Relationships • Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers. • Explain why and how to estimate customer lifetime value. • Specify the foundations for successful relationship marketing--quality core services and careful market segmentation. • Provide you with examples of successful customer retention strategies. • Introduce the idea that “the customer isn’t always right.”

  3. Relationship Marketing • is a philosophy of doing business that focuses on keeping current customers and improving relationships with them • does not necessarily emphasize acquiring new customers • is usually cheaper (for the firm) • keeping a current customer costs less than attracting a new one • thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

  4. Figure 6.1Customer Goals of Relationship Marketing

  5. Figure 6.2Profit Generated by a CustomerOver Time

  6. Figure 6.3Profit Impact of 5 Percent Increase in Retention Rate

  7. Table 6.1Lifetime Value of an Average Business Customer at Telecheck International, Inc.

  8. 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 provider • says good things about the provider

  9. Customer Loyalty Exercise • Think of a service provider you are loyal to. • What do you do (your behaviors, actions, feelings) that indicates you are loyal? • Why are you loyal to this provider?

  10. Underlying Logic of Customer Retention Benefits to the Organization Customer Satisfaction Customer Retention & Increased Profits Quality Service Employee Loyalty

  11. Benefits to the Organizationof 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

  12. 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

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

  14. Figure 6.4Steps 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:

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

  16. Figure 6.5The “80/20” Customer Pyramid Most Profitable What segment spends more with Customers us over time, costs less to maintain, Best Customers spreads positive word of mouth? Other Customers What segment costs us in time, effort and money yet does not provide the return we want? What segment is Least Profitable difficult to do business with? Customers

  17. Figure 6.6The Expanded Customer Pyramid Most Profitable What segment spends more with Platinum Customers us over time, costs less to maintain, spreads positive word of mouth? Gold Iron What segment costs us in Lead time, effort and money yet does not provide the return we want? What segment is Least Profitable difficult to do business with? Customers

  18. Figure 6.7 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

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