CHAPTER OUTLINE

Marketing is a people business. It increasingly involves addressibility, or knowing the individual customers address and purchase history. Interactions between business and customers are a central and important feature of marketing. The view is espoused that marketing management must look beyond single transactions and consider how the marketing organisation offers superior value over a period of time hence 1 emphasis upon relationships. Relationships are discussed from the perspective of relationships with all key stakeholders employees, customers, and other businesses.
Customer value and satisfaction

Customers form expectations of value and act upon them. Expectations are drawn from past experience, marketing stimuli and influencers such as family and friends. The expectations customer have the value they expect affects their satisfaction and repurchase behaviour.
Customer value

Customers buy from the company that they perceive offers the highest customer value. Customer value is based on what the consumer expects to get from different purchase outcomes.
Customer satisfaction

Customer satisfaction with a purchase depends on the products performance relative to a buyers expectations. Influences of customer satisfaction include how well they thought the product or service performed. This may be difficult as some products (wine) and services (financial planning) are difficult to evaluate. Satisfaction judgments can be influenced by the following: Customer past buying experiences. Information and promises made by marketing organisations and their competitors. What consumers think is fair value based on the price they paid. While dissatisfied customers are more likely to switch, satisfaction alone isnt enough to ensure repurchase. A study of the automobile industry in the U.S found that 85-90% of customers report that they are satisfied, but only 30-40% rebought from the previous model. Customer centred company: A company that focuses on customer developments in designing its marketing strategies (p. 43). The aim of these companies is to add more value to the core product. To achieve this marketers must track customer satisfaction. However, as these measures are only meaningful in a competitive context, marketers must also monitor their own and competitors satisfaction performance. Returning to the central theme of this text, that company success depends upon customer and business value, it is reiterated that the purpose of marketing is to generate customer value profitably and that marketing organisations must deliver a high level of customer satisfaction while at the same time delivering at least acceptable levels of satisfaction to the firms stakeholders.
Retaining Customers

Relationships are central to retaining customers. However, it is argued that the relationship between customer satisfaction and loyalty varies greatly across industries

and competitive situations. While attracting new customers has been the focus of 2 many marketing theories, retaining customers is also a key activity and is of greater concern as markets become more competitive. The reality is that a firms first line of defence lies in customer retention the best approach is to deliver high customer satisfaction and value that result in strong customer loyalty and well-developed business relationships (p. 48).
Customer satisfaction and customer loyalty

Figure 2.1, p. 48, shows the relationship between customer satisfaction and customer loyalty in five different markets. Not surprisingly as satisfaction increases so does loyalty. This is especially so in highly competitive markets such as computers and automobiles. There is a great deal of difference between the loyalty of satisfied customers and completely satisfied customers. Even a slight drop from complete satisfaction can create an enormous drop in loyalty. Therefore high or low levels of customer satisfaction levels have long-term implications for retention.
Relationships in marketing

The importance of customer retention has lead to an interest in what has come to be called relationship marketing, proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers (p. 49). The aim is of relationship marketing is to build loyalty with key customers. Not every customer wants a relationship with an organisation, however. Shoppers conducing routine purchases and/or buying on impulse may not be interested to form a relationship with an organisation that markets these goods.
Customer relationship management

Customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. This practice has evolved from customer database management. Relationships defined: Marketing has become a concerned with retaining those customers who are most profitable to the marketer termed key customers (consumer markets) and key accounts (business markets). As stated earlier, relational orientations differ among customers. For those with high relational orientations, trust and commitment are likely to be mediators for effective relationships. This is, however, not necessary true for those with low relational orientations. A key idea is that understanding the relational orientations of customers will enable organisations to determine the extent to which they need to utilize relationship building practices. 3
The notion of relationship levels

The level of relationship a company seeks is influenced by how best the company can satisfy and retain customers and maximise business value. Levels of relationships appear to be differentiated by the degree to which the customer is relied upon to maintain the relationship. The different levels of relationship are identified as:

Basic: sell product with no follow up. Reactive: sells product and encourages customer to call if problems occur. Accountable: salesperson actively follows up the sale and solicits feedback about the product performance and possible improvements. Proactive: customer is kept informed of product updates/improvements or new products that may fulfil needs of customer. Partnership: Company works closely with customer to discover ways to deliver better value. When to use what type of relationships strategy is identified in Figure 2.4. The marketer can use specific tools to facilitate relationship building financial benefits, social benefits, and structural ties. Financial benefits: these are benefits aimed at offering some form of discount (real or in-kind) and include activities such as frequent flyer, frequent buyer and club marketing programs. The limitation of these activities is that competitors can easily copy them. Social benefits: these are activities aimed at identifying individual customer needs and preferences. Examples are such things as referring to guests by name, providing specific features that suit the customers preferences. Structural ties: these are structures that help to bind the customer to that company and include such things as specialised equipment, computer linkages and ordering systems.
Retention and customer profitability

A marketing organisation should not try to pursue and satisfy every customer. Nor should companies try to satisfy every customer whim. Knowing which customers provide the greatest business value, in terms of profit and (the potential for) long-term commitment, is the key to identifying which customers the company should retain and the strategies used to retain them. Thus, the concept of customer lifetime value becomes important. Customer lifetime value: The amount by which revenues from a given customer over time will exceed the companys costs of attracting, selling to and servicing that customer (p. 53).
Customer lifetime value in repertoire and subscriber markets

In some markets (such as the arts) lead consumers are not retained through the marketing effort of the organisation, but rather the subscribers themselves. It is 4 argued that there is a difference between subscriber and repertoire markets in this regard. The subscriber is contractually obligated to stay with the marketing solution provider, as there are often penalties for churns during the contract period. In non-subscriber (repertoire) markets revenues drive the lifetime value of a customer rather than loyalty customers with high revenue are always preferable, regardless of lifetime. A solution may be to institute penalty fees to reduce churning in repertoire markets.
Customer orientation in people and processes

Internal marketing is also a key component of customer retention of profitable customers. In this section the concept of value is extended to employees and employees who themselves offer customer value (through effective interactions with

customers) are also worth retaining. The integration of all those who contribute to customer value is a key theme in this section.
Internal marketing

Internal marketing refers to one part of a marketing organisation marketing its capabilities to another part of the organisation (p. 56). Internal marketing programs deal with orienting employees to customers so that they can provide customer value. Including and providing opportunities for personal and professional growth are part of internal marketing. Concern with internal marketing and its impact upon business success is illustrated in Marketing Highlight 2.3. Service quality is a group effort: Internal marketing seeks to ensure that there is a common purpose among those who work together. A clearly formulated mission statement and/or statement of values assist in the communication of a common purpose as do the following: Newsletters Face-to-face transactions Testing external communications with employees before committing to them Training and retraining on teamwork Agreed performance indicators with agreed review dates and compensation/reward arrangements Clearly defined decision-making responsibility and scope. Two key areas of focus are service delivery and service quality.
Service delivery: this refers to when customers and representatives of an organisation interact with one another (p. 58). Retaining valuable employees

As stated previously, it is important to retain valuable employees and emphasis is placed upon reward systems to do so. These reward systems can include monetary or in-kind (i.e. meals or discount vouchers) reward, opportunities for personnel and career growth, and official recognition through employee of the month and certificates of appreciation. 5
Processes in delivering customer value

So far people have been emphasised, but processes are equally important to the delivery of customer value. Processes aimed at delivering customer values may include use of the value chain, benchmarking and service blueprinting. Value chain: this is a major tool identifying ways to create more customer value (p. 58). Using this tool, the company can undertake benchmarking and service blueprinting to asses itself against competitors and/or world leaders in specific areas. Benchmarking: this refers to the comparison of a companys performance and processes with its competitors and with best practice companies using specific measures such as scrap levels, power costs, process waste, order-processing cycle times and productivity measures (p. 58). Service blueprinting: this includes the customers actions in the flow diagram of the service delivery operation (p. 59).

To ensure effective integration (a key concept) and smooth management of core business processes, companies may include assessment of the following: Product development process Inventory management process Order-to-payment process Customer service process Mastering these core business processes gives the company a successful competitive edge.
Value delivery networks

To gain a competitive advantage an individual company needs to look beyond its own value chain and into the value chains of suppliers. These are called customer value delivery networks. Customer value delivery networks: this refers to marketing channels in which each channel member adds value for the customer (p. 60). It is argued that technology can assist with streamlining operations, augmenting products and improving reliability in the service delivery process. Companies like Wal-Mart and Zaras use just in time inventory and close relationships with suppliers to reduce costs and provide better quality products.
Implementing total quality marketing

Higher levels of quality result in greater customer satisfaction, while at the same time supporting higher prices (p. 61). The definition used here is broader than the usual fitness for use definitions used. This broader definition has implications for the ideas contained in the text. A marketing organisation that satisfies most of its customers needs most of the time is a quality organisation. 6 Quality in this context refers to the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs (p 61).
Total quality management

TQM has been used in various ways over the last 30 years. Returning to the theme of this chapter, total quality is the key to creating customer value and satisfaction.
Customer retention and total quality

The notion of quality extends to marketing programs. The marketer must constantly uphold the standard of giving the customer the best solution and integration of all activities is the key to doing so.

Conclusion Customer retention is the activity that a selling organization undertakes in order to reduce customer defections. Successful customer retention starts with the first contact an organization has with a customer and continues throughout the entire lifetime of a relationship. A companys ability to attract and retain new customers, is not only related to its product or services, but strongly related to the way it services its existing customers and the reputation it creates within and across the marketplace. Customer retention is more than giving the customer what they expect, its about exceeding their expectations so that they become loyal advocates for your brand. Creating customer loyalty puts customer value rather than maximizing profits and shareholder value at the center of business strategy.[1] The key differentiator in a competitive environment is more often than not the delivery of a consistently high standard of customer service. Customer retention has a direct impact on profitability. Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers returns a revenue gain of 3.4 times the norm.