RELATIONSHIP MARKETING IN
SERVICES
At the end of this module the learning
outcomes are
• What is the importance of relationship
marketing?
• What are the goals of relationship marketing?
• What are the benefits of relationship marketing
for customer and organizations?
• Concept of Lifetime value of customer
• What are the various levels of customer
retention strategies?
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RELATIONSHIP MARKETING IN
SERVICES
Services Marketing
By
Zeithaml and Bitner
2nd Edition, Chapter 6.
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RELATIONSHIP MARKETING IN
SERVICES
RELATIONSHIP MARKETING
• How to retain customers
• Building long-term relationship
• Using
– Quality
– Service
– Innovation
This is Relationship Marketing
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RELATIONSHIP MARKETING IN
SERVICES
Relationship Marketing Focus
• Towards retention/relationship
• Keeping and improving current customers rather
than focus on acquiring new customers.
• Consumers prefer ongoing relationship with one
organization than to switch continuously.
• Studies have shown that it is much cheaper to
retain an existing customer than to attract a new
customer.
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RELATIONSHIP MARKETING IN
SERVICES
Goals of Relationship Marketing
• To build maintain a base of committed
customers who are profitable for the
organization.
– Focus on
• Attraction
• Retention
• Enhancement of customer relationships
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RELATIONSHIP MARKETING IN
SERVICES
Attraction
– Seek those customers with whom there is
likely to be a long-term relationship.
– Market segmentation
– Select target markets
– Build relationship
– Loyal customers speak to others.
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RELATIONSHIP MARKETING IN
SERVICES
Retention
• Why will customers stay?
• Provided with quality goods and services
• Unlikely to go to competitors
• If organizations continuously innovate
• Companies investing in relationships
• Improve their product and product mix.
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RELATIONSHIP MARKETING IN
SERVICES
Enhancement
•
Loyal customers are even better customers.
•
They buy more products from the company over time.
•
Buy through their life time
•
Even their children buy
Example
ICICI Bank customers
•
Opens saving accounts.
•
If happy, applies for a loan.
•
Later applies for a ICICI credit card.
•
Buys range of products over time.
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RELATIONSHIP MARKETING IN
SERVICES
Benefits for customers and organizations
• Benefits for customers
– Confidence Benefits
– Social benefits
– Special treatment benefits
• Benefits for the organization
–
–
–
–
Increasing purchases over time
Free advertising through word of mouth
Lower costs
Employee Retention
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RELATIONSHIP MARKETING IN
SERVICES
Benefits for Customers
–
–
–
–
Receive greater value
Feel comfortable in the relationship
You know what to expect
Unusual requests will be taken care of.
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RELATIONSHIP MARKETING IN
SERVICES
a Confidence Benefits
•
Would you change your
•
•
•
•
•
•
•
•
•
•
Banker
Doctor
Insurance provider
Mobile service provider
Most of the times we will say no
We invest in relationships
Costs of switching higher
Build confidence
Reduces stresses
Better quality of life
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RELATIONSHIP MARKETING IN
SERVICES
b Social Benefits
•
•
•
•
Customer – company relationship
As it builds
Social relationship
Customers make organizations a part of their social
systems
Example
Customer’s Birthday
–
–
–
–
Celebrates
Invites his/ her doctor
Invites insurance agent
Become a part of the customer’s social circle.
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RELATIONSHIP MARKETING IN
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c Special Treatment Benefits
•
•
Long relationship
Provides special benefits
Example
American Express Credit Card
–
–
–
–
–
Customer for 15 years
Always paid on time
One payment not on time
Realizes not charged penalty
Benefit of lasting relationship
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RELATIONSHIP MARKETING IN
SERVICES
Benefits for the organization
a Increasing purchases over time
• As customers stay loyal
• Spend more in successive years
• Increase their purchases
• Higher profits.
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RELATIONSHIP MARKETING IN
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b Free advertising through word of
mouth
•
•
•
•
Complex products
Difficult to understand
Customers often look to others for advice
Loyal customers
–
–
–
–
Provide word – of – mouth
Strong endorsements
More effective advertising
Speak positive/good to friends, relatives.
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RELATIONSHIP MARKETING IN
SERVICES
Example
Mahindra Holidays
• Sell timeshare
• How
• Satisfied customers
• Speak to their
• friends
• relatives
• associates
• Based on trust
50% of their sales by word-of-mouth
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RELATIONSHIP MARKETING IN
SERVICES
c Lower Costs
• To attract initial customers
•
•
•
•
•
Huge costs
Profits take time
With loyal customers
•
•
•
Spend on promotion
Create infrastructure
Continuous relationships
Costs go down
Time and effort required to build relationship
goes down
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RELATIONSHIP MARKETING IN
SERVICES
d
•
•
•
•
•
•
•
Employee Retention
Benefit of customer retention
Employee retention
How
Loyal and happy customers
Makes employees happy
Better service quality
Cost of hiring employees goes down
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RELATIONSHIP MARKETING IN
SERVICES
LIFETIME VALUE OF A CUSTOMER
• How much potential profit you lose. If you
are not able to retain customers.
• Opportunity cost of loosing profitable
customers.
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RELATIONSHIP MARKETING IN
SERVICES
FEDERAL EXPRESS
• A customer of Federal Express
• 20 person Office
• Spends $1500 per month with Federal
Express
• Assume 10-year average lifetime for a
customer.
• Value of one customer to Federal Express
is 1500*12*10 = $1,80,000
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RELATIONSHIP MARKETING IN
SERVICES
FEDERAL EXPRESS CUSTOMERS
• If this happy creates at least one more customer
via word of mouth.
• Total amount is 1,80,000*2=$3,60,000
• Value of this company’s business for Federal
Express was about $3,60,000
• Federal Express handles 40 customers each
day.
• Total business handled = 3,60,000*40=$14400000
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RELATIONSHIP MARKETING IN
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FEDERAL EXPRESS
• If Federal Express retains 40 customers
for 10 years period then total business
accrued is $14,40,0000.
• Relationship Marketing attempts this by
retaining profitable customers.
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RELATIONSHIP MARKETING IN
SERVICES
Lifetime value
ITC – Classic Cigarette
• An average consumer spends Rs. 2000/ month
• Yearly Rs. 24000/• If he stays customer for 30 years
• Likely revenue
•
24000 x 30 = 7.2 lacs per customer
• Lifetime value of Customer is Rs. 7.2 lacs
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RELATIONSHIP MARKETING IN
SERVICES
• Classic has 2 lac customers
• Total potential revenue earned is
Rs. 7.2 lacs x 2 lacs = 14400 crores
• If Classic customers stay loyal, ITC will
earn a potential sale of Rs 14400 crores
• Retaining and maintaining loyalty critical.
• Plus profits from references.
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RELATIONSHIP MARKETING IN
SERVICES
Importance of lifetime value
• Importance of retaining customers
• Loss of potential sales and profits when
customers defect
• Strategic importance of retaining
customers.
• If you retain customers for the entire
lifetime, you have done an excellent job.
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RELATIONSHIP MARKETING IN
SERVICES
Retention Strategies
Four levels
• Level 1 – Financial bonds
• Level 2- Social bonds
• Level 3 – Customization bonds
• Level 4 – Structural bonds
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RELATIONSHIP MARKETING IN
SERVICES
Level 1- Financial Bonds
• Provide financial incentives
• Lower prices for higher volume purchases
• Used in most situations
Example
• Airlines
Frequent flier programs
• Telecom
Volume discounts
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RELATIONSHIP MARKETING IN
SERVICES
Financial Bonds
•
•
•
•
•
•
Most easy to imitate
Short terms gains
Do not provide long-term advantages
Easy for competitors to imitate
Customer tend to switch
Where they get the best deal on prices
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RELATIONSHIP MARKETING IN
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Level 2- Social bonds
• Price is important
• For long – term relationship
• Social bonds common
–
–
–
–
Lawyers
Accountants
Teachers
Family doctors
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RELATIONSHIP MARKETING IN
SERVICES
Example – Family Doctor
• Builds personal rapport
• Discuss any personal issues
• Becomes a part of your social circle
• Invited in the social gatherings
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RELATIONSHIP MARKETING IN
SERVICES
Social bonds
• Many not tie customers permanently
• More difficult for competitors to imitate
than financial bonds
• Can encourage longer relationship with
consumers
• With financial incentives become very
effective
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RELATIONSHIP MARKETING IN
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Level 3- Customization Bonds
Dell computers
•
•
•
•
Boeing a major customer
Large population of Dell computers
Mass customization
Each computer made according to requirement
of Boeing
• Dell sales and services personnel
• Deployed at various offices of Boeing
• To solve customer problems
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RELATIONSHIP MARKETING IN
SERVICES
Dell Computers
• Customer Meets
• Top officials of Dell participate
• Including Michael Dell, CEO
• Understand customers better
• Dell is the second largest PC seller in the
US
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RELATIONSHIP MARKETING IN
SERVICES
Customization Bonds
• Make your processes flexible
• Customized to individual requirements
• Two important aspects
• Mass customization
• Customer intimacy
Even more difficult to imitate than
financial and social bonds
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RELATIONSHIP MARKETING IN
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Level 4- Structural Bonds
• Look in to customers processes
• Suggest improvements
• Use of technology and expertise
• Most difficult to imitate
• Totally customized according to
requirements
• Improve customer processes
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RELATIONSHIP MARKETING IN
SERVICES
Dell Computers
• Dell services/ technical personnel at Boeing’s
offices
• Dell personnel suggest various process
improvements
• Boeing’s inventory holding came down by few
days of raw material
• Substantial cost savings for Boeing
Chances are Boeing may not look at other
suppliers
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