Post on 25-Dec-2015
Increased purchase by some
customers
New customers
Lost Customers
Decreased purchase by some customers
Lost 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
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)
Transactional Marketing One transaction or a series of transactions does not
necessarily constitute a relationship Requires mutual recognition and knowledge between the
parties
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
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
Network Marketing: Common in b2b context where companies commit
resources to develop positions in network of relationships with stakeholders and relevant agencies
Relationship of partner
Actively recommends you
Supports you passively
Repeat business, but passive or negative attitude
Carried out one transaction
Potential customer
The Wheel of Loyalty
1. Build aFoundationfor Loyalty
2. Create LoyaltyBonds
3. Reduce Churn
Drivers
CustomerLoyalty
Be selective in acquisition
Conduct churn diagnostic Segment the market
Use effective tiering of service.
Deliver quality service.
Deepen the relationshipGive loyalty
rewards
Build higher level bonds
Implement complaint handling and service recovery
Address key churn drivers
Increase switching costs
Enabled through:
Frontline staff Account
managers Membership
programs CRM Systems
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
Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?
Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?
Lead
Iron
Gold
Platinum
Good Relationship Customers
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
0
20
40
60
80
100
1 2 3 4 5
Loyalt
y (
Rete
nti
on
)
VeryDissatisfied
Dissatisfied Neither Satisfied VerySatisfied
Satisfaction
Near Apostle
Zone of Defection
Zone of Indifference
Zone of Affection
Terrorist
Apostle
Source: Adapted from Thomas O. Jones and W. Earl Sasser, Jr., “Why Satisfied Customers Defect,” Harvard Business Review, November-December 1995, p. 91.
Excellent Service and Value
1. Financial Bond
2. S
ocia
l Bon
d
3. Customization Bond4.
Str
uctu
ral B
on
d
Volum
e &
Fre
quenc
y
Stable Pricing
Bundling & Cross SellingContinuous
Relationships
Pers
on
al
Rela
tion
sh
ips
Social Bonds
Am
ong
customers
Inte
gra
ted
Info
rmati
on
Sys
tem
s
Join
tIn
vestm
en
ts
Shared process
es and
equipments
Anticipation/Innovation
Mass customization
Customer Intimacy