Chapter

Customer Relationship
Building Customer Relationships

 Relationship Marketing
 Relationship Value of Customers
 Customer Profitability Segments
 Relationship Development Strategies
 Relationship Challenges
 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 an existing customer costs less than to attract a
new one

 goal is to build and maintain a base of committed customers who are profitable for the
organization

 must be aware of the emotional content of relationships

 Thus, the focus is on the attraction, retention, and enhancement of customer relationships
A Loyal Customer is One Who. ..
Shows Behavioral Commitment
• buys mainly from one supplier, even though other
options exist
• increasingly buys more and more from that supplier
• provides constructive feedback/suggestions

Exhibits Psychological Commitment

• wouldn’t consider terminating the relationship--
psychological commitment
• has a positive attitude about the provider
• says good things about the provider
 Benefits of Relationship Marketing

Benefits for Customers Benefits for Firms

 Economic benefits
 Receipt of greater value
 Confidence benefits  increased revenues
 Trust  reduced marketing and administrative costs
 confidence in provider  regular revenue stream
 Customer behavior benefits
 reduced anxiety
 Social benefits  strong word-of-mouth endorsements
 Familiarity  customer voluntary performance
 social support  social benefits to other customers
 personal relationships  mentors to other customers
 Human resource management benefits
 Special treatment benefits
 special deals  easier jobs for employees
 price breaks  social benefits for employees
 employee retention
Profit Impact of 5 Percent Increase in Retention Rate
 The Customer Pyramid

Most What segment spends more

profitable Platinum with us over time, costs less to
customers maintain, spreads positive
Gold word-of-mouth?

Iron

Lead
What segment costs us in
Least time, effort and money yet
profitable does not provide the return
customers we want? What segment is
difficult to do business with?
 Relationship Development Model
Relationship Bonds
Financial bonds
Social bonds
Customization Customer Benefits
Strong Customer
bonds Confidence benefits
Relationship
Structural bonds Social benefits
(Loyalty)
Special treatment
benefits

Core Service Provision

Satisfaction
Perceived service
quality
Perceived value
Firm Benefits
Economic benefits
Customer behavior
benefits
Switching Barriers
Human resource
Customer inertia
management
Switching costs
benefits
Strategies for Building Relationships
Core Service Provision
 service foundations built upon delivery of excellent service
• satisfaction, perceived service quality, perceived value
Switching Barriers
 customer inertia
 switching costs
• set up costs, search costs, learning costs, contractual costs
Relationship Bonds
 financial bonds
 social bonds
 customization bonds
 structural bonds
Levels of Relationship Strategies
Stable
Volume and pricing Bundling
frequency and cross
rewards selling
1. Financial
Integrated Bonds Continuous
information relationships
systems
4. Excellent 2.
Joint Structural service Social Personal
investments Bonds and value Bonds relationships

Shared Social bonds

3. Customization
processes among
Bonds
and customers
equipment
Anticipatio Customer
n/ intimacy
Mass
innovation
customization
 “The Customer Is NOT Always Right”

Not all customers are good relationship customers:

o wrong segment
o not profitable in the long term
o difficult customers

When are relationships at risk?

Where does customer service fit into the creation and
maintenance of relationships?
“Emotional Satisfaction”

Wong
 Satisfaction with Service Encounters
 Involves cognitive and emotional components
 Inseparability factor injects the employee into the satisfaction equation
 Employees often drive positive emotional responses
 Why is emotion such a difficult concept to address?
 Perceived service quality affects customer satisfaction which, in turn, drives behavioural
intentions
 Much confusion over definitions of satisfaction and loyalty
 Emotions are often elicited during the purchase and consumption experience – related to
characteristics of service