Chapter 12 - 1
Overview of Chapter 12
The Search for Customer Loyalty Understanding the Customer-Firm Relationship The Wheel of Loyalty
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Price premiums
Long-term customers willing to pay regular price Willing to pay higher price during peak periods
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 4
Year 1
Credit card
Year 2
Industrial laundry
Year 3
Year 4
Year 5
Auto servicing
Industrial distribution
Source: Based on reanalysis of data from Fredrick R. Reichheld and W. Earl Sassar, Jr., Zero Defections: Quality Comes from Services, Harvard Business Review 68 (Sep.-Oct. 1990), pp. 105111. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 5
Source: Why Are Customers More Profitable Over Time from Fredrick R. Reichheld and W. Earl Sassar, Jr., Zero Defections: Qu ality Comes from Services, Harvard Business Review 73 (Sep.Oct. 1990): p. 108. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 6
Revenue
Large customers may expect price discounts in return for loyalty Revenues dont necessarily increase with time for all types of customers
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Tasks
Determine costs and revenues for customers from different market segments at different points in their customer lifecycles Predict future profitability
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Value of referrals
Percentage of customers influenced by other customers Other marketing activities that drew the firm to an individuals attention
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Chapter 12 - 11
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
Chapter 12 - 12
Network Marketing:
Common in b2b context where companies commit resources to develop positions in network of relationships with stakeholders and relevant agencies
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(Fig 12.4)
Customer Loyalty
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Can company match or exceed competing services that are directed at same types of customers?
Should result in a superior service offering in the eyes of those customers who value what firm has to offer
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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
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Platinum
Gold
Iron
Lead Poor Relationship Customers
Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?
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.118142. Services Marketing 6/E Chapter 12 - 20
Zone of Affection
Loyalty (Retention)
80
Zone of Indifference
60
Near Apostle
40
Zone of Defection
20
Terrorist
0 1 2 3 4 5
Neither
Satisfied
Very Satisfied
Satisfaction
Services Marketing 6/E Chapter 12 - 21
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Non-financial rewards
Priority to loyalty program members for waitlists and queues in call centers: higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers
Intangible rewards
Special recognition and appreciation, tiered loyalty programs
Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
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Customization Bonds
Customized service for loyal customers
e.g., Starbucks
Customers may find it hard to adjust to another service provider who cannot customize service
Source: PAL Library; Asset ID: AAFHKTO0 Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 25
Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
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Dont lose sight of broader goals of offering high service quality, nor allow service to other customers to deteriorate
Slide 2007 by Christopher Lovelock and Jochen Wirtz
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Timing
Send customers periodic updates on account status and progress towards particular milestones
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Value Proposition
Pricing
High Price Price Increases Unfair Pricing Deceptive Pricing
Service Switching
Inconvenience
Location/Hours Wait for Appointment Wait for Service
Competition
Found Better Service
Others
Involuntary Switching
Customer Moved Provider Closed
Slide 2007 by Christopher Lovelock and Jochen Wirtz
Ethical Problems
Unsafe Cheat Hard Sell Conflict of Interest
Services Marketing 6/E Chapter 12 - 31
Source: Adapted from Susan M. Keaveney, Customer Switching Behavior in Service Industries: An Exploratory Study, Journal of Marketing 59 (April 1995), pp. 7182.
Reactive measures
Save teams: Specially trained call center staff to deal with customers who want to cancel their accounts Be careful about how save teams are rewarded
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Value Creation
Process
Source: Adapted from: Adrian Payne and Pennie Frow, A Strategic Framework for Customer Relationship Management, Journal of Marketing 69 (October 2005): pp.167176. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 35
Strategy Development
Assessment of business strategy Business strategy guides development of customer strategy
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Value Creation
Translates business and customer strategies into specific value propositions for both customers and firm
Customers benefit from priority, tiered services, loyalty rewards, and customization Company benefits from reduced customer acquisition and retention costs, and increased share-of-wallet Dual creation of value: Customers need to participate in CRM to reap value from firms CRM initiatives
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Multi-Channel Integration
Serve customers well across many potential interfaces Offer a unified interface that delivers customization and personalization
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Performance Assessment
Is CRM system creating value for key stakeholders? Are marketing and service standard objectives being achieved?
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Information Management
Collect customer information from all channels Integrate it with other relevant information Make useful information available to the frontline Create and manage data repository, IT systems, analytical tools, specific application packages
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Data collection
Customer data such as contact details, demographics, purchasing history, service preferences, and the like
Data analysis
Data captured is analyzed and categorized Used to tier customer base and tailor service delivery accordingly.
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Marketing automation
Mining of customer data enables the firm to target its market Goal to achieve one-to-one marketing and cost savings, often in the context of loyalty and retention programs Results in increasing the ROI on its marketing expenditure CRM systems also enable the assessment of the effectiveness of marketing campaigns through the analysis of responses
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Summary of Chapter 12: Managing Customer Relationships and Building Loyalty (1)
Customer loyalty as an important driver of profitability for service firms so firms need to
Assess value of loyal customer Narrow gap between actual and potential customer value
To understand the customer-firm relationship, firms should establish a relationship with customers by creating membership relationships Four types of marketing
Transactional marketing Database marketing Interaction marketing Network marketing
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Summary of Chapter 12: Managing Customer Relationships and Building Loyalty (2)
Wheel of Loyalty shows how firms can:
Build a foundation of loyalty Create loyalty bonds reduce churn drivers
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Summary of Chapter 12: Managing Customer Relationships and Building Loyalty (3)
Customer loyalty bonds include:
Reward-based bonds Social bonds Customization bonds Structural bonds
Bonds can also be created through membership relationships and loyalty programs Strategies for reducing customer defections include:
Analyzing customer defections and monitoring declining accounts Addressing key churn drivers Implementing effective complaint-handling and service recovery procedures Increasing switching costs
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Summary of Chapter 12: Managing Customer Relationships And Building Loyalty (4)
Customer relationship management (CRM) is a whole process by which relations with customers are built and maintained. An integrated CRM system includes
Strategy development process Value creation process Multichannel integration process Performance assessment process
Cresting a successful CRM program requires understanding common failures in CRM implementation and knowing how to get it right
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