BUILDING CUSTORMER
RELATIONSHIPS
Donna J. Hill
MTG 410
Fall 2000
Relationship Marketing
Relationship
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
 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
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
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??
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
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
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
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
“The Customer Isn’t Always Right”
 Not all customers are good relationship
customers:

wrong segment

not profitable in the long term

difficult customers
Strategies for Building Relationships
 Foundations:
 Excellent Quality/Value
 Careful Segmentation
 Bonding Strategies:
 Financial Bonds
 Social & Psychological Bonds
 Structural Bonds
 Customization Bonds
 Relationship Strategies Wheel
Figure 6-1
Customer Goals of
Relationship Marketing
Enhancing
Retaining
Satisfying
Getting
Figure 6-3
Underlying Logic of Customer
Retention Benefits to the
Organization
Customer Satisfaction
Customer Retention &
Increased Profits
Employee Loyalty
Quality
Service
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
Figure 6-5
Steps in Market Segmentation and
Targeting for Services
STEP 1:
Identify
Bases for
Segmenting
the Market
STEP 2:
Develop
Profiles of
Resulting
Segments
STEP 3:
STEP4:
STEP 5:
Develop
Measures
of Segment
Attractiveness
Select the
Target
Segments
Ensure that
Segments
Are
Compatible
Bases for Segmentation
 Demographic (social statistics)
 Geographic (geographic units)
 Psychographic (social class, lifestyle, or
personality)
 Behavioral (knowledge, attitude, uses, or
responses to a service)
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)
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
Figure 6-6
Levels of Retention Strategies
Volume and
Frequency
Rewards
Bundling and
Cross Selling
Continuous
Relationships
I. Financial
Bonds
Integrated
Information
Systems
Joint
Investments
Stable
Pricing
IV.
Structural
Bonds
Shared
Processes
and
Equipment
Excellent
Quality
and
Value
II.
Social
Bonds
III. Customization
Bonds
Anticipation
/ Innovation
Personal
Relationships
Social Bonds
Among
Customers
Customer
Intimacy
Mass
Customization