Chapter
Building Customer Relationships 7
• Relationship Marketing
• Relationship Value of Customers
• Customer Profitability Segments
• Relationship Development
Strategies
• Relationship Challenges
Relationship Marketing
• is a philosophy of doing business, a strategic orientation,
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
Provider Gap 1
When companies have strong relationships with
customers gap 1 is _________________
Customer
Expectations
Gap 1
Company Perceptions of
Consumer Expectations
Benefits of Relationship Marketing
• Benefits for
Customers:
– Receipt of greater value
– Confidence benefits:
• trust
• confidence in provider
• reduced anxiety
– Social benefits:
• familiarity
• social support
• personal relationships
– Special treatment
benefits:
• special deals
• price breaks
• Benefits for Firms:
– Economic benefits:
• increased revenues
• reduced marketing and
administrative costs
• regular revenue stream
– Customer behavior benefits:
• strong word-of-mouth
endorsements
• customer voluntary
performance
• social benefits to other
customers
• mentors to other customers
– Human resource management
benefits:
• easier jobs for employees
• social benefits for employees
• employee retention
Customer Loyalty
Relational Benefits for Customers
__________ benefits: feelings of trust or confidence
in the provider; comfort in knowing what to
expect
_________ benefits: familiarity; personal
relationship
_________________ benefits: preferential treatment
Benefits to the Organization
of Customer Loyalty
Economic Benefits
• Increasing customer purchases - loyal customers
tend to spend more with the organization over
time
• Lower costs - on average costs of relationship
maintenance are lower than new customer costs
Benefits to the Organization
of Customer Loyalty
Customer Behavior Benefits
Human Resource Management Benefits
Figure 7.3
Profit Impact of 5 Percent Increase in
Retention Rate
Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.
Effective Segmentation
Customer Profitability Segments
Not all customers are worth attracting and keeping
It is neither practical nor profitable to meet (and certainly not
to exceed) all customers expectations
Objective: company divides target market according
to current and/or future _______________
Figure 7.4
The Customer Pyramid
Most Profitable
Customers
Platinum
What segment spends more with
us over time, costs less to maintain,
spreads positive word of mouth?
Gold
Iron
Lead
Least Profitable
Customers
What segment costs us in
time, effort and money yet
does not provide the return
we want? What segment is
difficult to do business with?
Art of Attracting and Keeping
Profitable Customers
20-80-30 rule:
Top 20 percent of customers generate 80
percent of company’s profits, half of which
is lost serving the bottom 30 percent of
unprofitable customers
- William Sherden 1994
“The Customer Is NOT Always
Right”
• Not all customers are good relationship
customers:
– wrong segment
– not profitable in the long term
– difficult customers
Application
Build relationships with the most profitable
customers; “fire” the least profitable customers