Transcript Managing Customer Relationships and Building Loyalty

Chapter 12-Lovelock
Chapter 7-Zeithaml
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Loyalty
Defector
Zero Defection
Rate
New customers
Increased purchase
by some
customers
Lost Customers
Lost Customers
Decreased purchase by some
customers
• Customers become more profitable the longer
they remain with a firm:
–Increase purchases and/or account balances
• Customers/families purchase in greater quantities as they
grow
–Reduced operating costs
• Fewer demands from suppliers and operating mistakes as
customer becomes experienced
–Referrals to other customers
• Positive word-of-mouth saves firm from investing money
in sales and advertising
–Price premiums
• Long-term customers willing to pay regular price
• Willing to pay higher price during peak periods
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Must not assume that loyal customers are
always more profitable than those making
one-time transactions
 Costs
▪ Not all types of services incur heavy promotional expenditures to
attract a new customer
▪ Walk-in traffic more important at times
 Revenue
▪ Large customers may expect price discounts in return for loyalty
▪ Revenues don’t necessarily increase with time for all types of
customers (depends on product life cycle)
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Transactional Marketing
 One transaction or a series of transactions does not necessarily constitute
a relationship
 Requires mutual recognition and knowledge between the parties
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Database Marketing:
 Includes market transaction and information exchange
 Technology is used to
▪ (1) identify and build database of current and potential
customers
▪ (2) deliver differentiated messages based on customers’
characteristics
▪ (3) track each relationship to monitor cost of acquiring that
customer and lifetime value of resulting purchases
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Interaction Marketing:
 Face-to-face interaction between customers and supplier’s
representatives
 Value is added by people and social processes
 Increasing use of technologies make maintaining meaningful
relationships with customers a marketing challenge
▪ For example, self-service technology, interactive websites, call centers
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Network Marketing:
 Common in b2b context where companies commit resources to
develop positions in network of relationships with stakeholders
and relevant agencies
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Relationship of partner
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Actively recommends you
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Supports you passively
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Repeat business, but
passive or negative attitude
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Carried out one transaction
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Potential customer
The Wheel of Loyalty
3. Reduce Churn
Drivers
Conduct churn diagnostic
Address key churn drivers
Enabled through:
 Frontline staff
 Account managers
 Membership
programs
 CRM
Systems
Implement complaint
handling and service
recovery
1. Build a
Foundation
for Loyalty
Segment the market
Be selective in acquisition
Use effective tiering of
service.
Customer
Loyalty
Increase switching
costs
Deliver quality service.
2. Create Loyalty
Bonds
Build higher level
bonds
Give loyalty
rewards
Deepen the
relationship
Searching for Value—Not Just Volume
• Focus on number of customers served as well as
value of each customer
– Heavy users who buy more frequently and in larger
volumes are more profitable than occasional users
– Avoid targeting customers who buy based on lowest
price
• Firms that are highly focused and selective in their
acquisition of customers grow faster
• “Right customers” are not always high spenders
– Can come from a large group of people that no other
supplier is serving well
• Different segments offer different value
Effective Tiering of Service
The Customer Pyramid
Good Relationship
Customers
Which segment sees high value in our
offer, spends more with us over time,
costs less to maintain, and spreads
positive word-of-mouth?
Platinum
Gold
Iron
Lead
Which segment costs us time,
effort, and money, yet does not
provide return we want? Which
segment is difficult to do business
with?
Poor Relationship
Customers
Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, “The Customer Pyramid: Creating and
Serving Profitable Customers,” California Management Review 43, no. 4, Summer 2001, pp.118–142.
The Customer Satisfaction
Loyalty Relationship
Loyalty (Retention)
100
Apostle
Zone of Affection
80
Near Apostle
Zone of Indifference
60
40
Zone of Defection
20
Terrorist
0
1
Very
Dissatisfied
2
3
4
Dissatisfied
Neither
Satisfied
Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr.,
“Why Satisfied Customers Defect,” Harvard Business Review,
November-December 1995, p. 91.
Satisfaction
5
Very
Satisfied
Stable
Pricing
4. Structural Bond
Shared
3. Customization Bond
processes
and
equipment
Anticipation/
s
Customer
Innovation
Intimacy
Mass
customization
Personal
Relationships
Excellent
Service and Value
2. Social Bond
Joint
Investments
1. Financial Bond
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Customer is not always right
The Wrong Segment
Not Profitable in the Long Term
Difficult Customers
 Personal
 Organizational