UNIT-4 Listening To Customer Requirements

I. Elements in Effective Marketing Research For Service:

II. Relationship Marketing:
- Relationship Marketing represents a paradigm shift within marketing-away from an acquisition/transaction focus toward a
relationship/retention focus.
- Relationship Marketing (or Relationship Management) is philosophy of doing business, a strategic orientation that focuses on
keeping & improving relationships with current customer rather than on acquiring new customers.
- The philosophy assumes that many consumers & business customer prefer to have an on going relationship with one
organization than to switch continually among providers in search for value.
- Building on this assumption & the fact that it is usually much cheaper to keep a current customer than to attract a new one,
successful marketers are working on effective strategies for retaining customer.
- It has been suggested that firm frequently focuses on attracting customer (the “first act”) but pay little attention to what they
should do to keep them (the “2nd act”).
III. Goal of Customer Relationship Marketing/Management:
- Primary goal is to build & maintain base of committed customers who are profitable for organization.
- The overriding goal is to move customers up the ladder (i.e., along the relationship continuum) from the point at which they
are strangers that needed to be attracted through to the point at which they are highly valued.
- From the customer’s problem solving perspective: satisfaction trust & commitment to willingness to engage in an exchange
relationship as an acquaintance, friend & partner respectively.
- From firm’s resource allocation perspective: customer make transition satisfaction based acquaintanceships to trust based
friendship to commitment based partnership on both value received & the level of cooperation.
- Fig: CRM Goal
Enhancing
Retaining
Satisfying
Acquiring
Relationship Ladder
IV. Benefits of Customer Relationship Marketing/Management:
- Parties, the customer & the firm can benefit from CRM.
- That is, it is not only in the best interest of the organization to build & maintain a loyal customer base but also customer also
benefit from long-term associations.
a) Benefit for Customer:
- Customer have a choice, customer will remain loyal to a firm when they receive greater value relative to what they expect
from competing firm.
- Value represents trade-off for the consumer between “the give” & “the get’ components.
- Consumers are more likely to stay in a relationship when they get (quality, satisfaction. Special benefits) exceed the give
(non/monetary costs).
- When firms can consistently deliver value from customer’s point of view clearly the customer benefits & has an incentive to
stay in relationship.
- Beyond the specific inherent benefits of receiving service value consumer also benefit in other way from long term
associations with firm.
- Sometimes these benefits keep customers loyal to a firm more than the attributes of core service. They are:
 Confidence Benefits: comprise feelings of trust or confidence in the provider along with a sense of reduced anxiety &
comfort in knowing what to expect.

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  Social Benefits: i.e., personal relationship: Over the time customer develops a sense of familiarity & even social relationship
with their service provider. These ties make it less likely that they will switch even if they learn about a competitor that might
have better quality/ lower price.
 Special Treatment Benefit: includes getting the benefit of the doubt, being given a special deal or price or getting
preferential treatment. It is not/important but can be critical for customer loyalty.
b) Benefits for Firms:
- There are numerous benefits to organization by maintaining & developing a loyal customer base.
- Beside economic benefit, firm can get HR benefit & Customer behavior benefit.
 Economic Benefit:
- Relationship-oriented service firm achieve higher overall return on their investment than do transaction-oriented firm which
comes from various sources like increased revenue overtime from the customer, reduced marketing & administrative costs &
the ability to maintain margins without reducing price.
- As customer get to know a firm & are satisfied with the quality of its services relative to that of its competitors, they tend to
give more for their business to the firm.
- Another economic benefit is lower costs. Some estimates suggest that repeat purchases by established customers’ require as
much as 90 percent less marketing expenses.
- Even ongoing relationship maintenance costs are likely to drop overtime.
 Customer Behavior Benefits: The contribution that loyal customers make to a service business can go well beyond their
direct financial impact on the firm.
- 1st recognized customer behavior benefit that a firm receives from long term customer is the free WOM-advertising.
- 2nd Customer Voluntary Performance: self servicing own tables, reporting messy restroom, picking up trash in parking lot,
self managing while parking vehicles etc.
- 3rd Social Benefits: in form of encouragement & friendship.
- Finally, loyal customer may serve as mentor & because of their experience with the provider, help other customers
understand the explicitly or implicitly stated rules of conduct.
 HR Benefits:
- 1st Loyal customer may, because of their experience with and knowledge of the provider be able to contribute to the co-
production of the service by assisting in service delivery; often the more experienced customer can make the service
employees’ job easier.
- 2nd Social Benefit
- 3rd Employee Retention: It is easier for a firm to retain employees when it has a stable base of satisfied customer. People like
to work for the firm whose customer is happy & loyal.

V.Customer Segmentation:
- There are several factors that influence the development of strong customer relationships, Segmentation of Customer that is
valuable
- Firm may want to treat all customers with excellent service, but they generally find that customer differ in their relationship
value & that it may be neither practical nor profitable to meet (and certainly not to exceed) all customers’ expectation.
 Profitability Tiers: The consumer pyramid
- Fed-Ex: The good(enhance relation), The Bad (move/turn good) & The Ugly ( avoid/discourage)
- “80/20” Rule: In this version 20% of loyal customers are more valuable than 80% infrequent.
- Four Tier: divided into four level
The Platinum: describes the firm’s most profitable customer, typically those who are heavy users of the product, are not
price sensitive, are willing to invest in & try new offering & are committed toward a firm.
The Gold: differs from platinum tier in that profitability levels are not as high as, perhaps because the customers want price
discounts that limit margins or are not as loyal. May be heavy users who minimize risk by working with multiple vendors
rather than just the focal firm.
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 The Iron: contains essential customers who provide the volume needed to utilize the firm’s capacity but their spending
levels, loyalty & profitability are not substantial enough for special treatment.
The Lead: consists of customers who are costing the firm money. They demand more attention than they are due given
spending & profitability and are sometimes problem customers-complaining about the firm to others & tying up the firm’s
resources.
 The Customer’s View of Profitability Tiers:
- Profitability tiers may make sense at firm’s point of view but customers are not always understanding nor do they appreciate
being categorized.
- Therefore, it is increasingly important that firms communicate with customers so they understand the level of service they
can expect & what they would need to do or pay receive faster or more personalized service.
 Making Business Decisions Using Profitability Tiers:
- It is always not correct that what customer spends today or has spent in past may not necessarily be reflective of what s/he
will do (or be worth) in future.

VI.Retention Strategies
 Customer Relationship Bonds:
- Relationship marketing can occur at different levels and that each successive level of strategy results in ties that bind the
customer a little closer to the firm.
- At each successive level, the potential for sustained competitive advantage is increased.
 Level 1-Financial Bonds:
- At level 1, the customer is tied to the firm particularly through financial incentive lower prices for greater volume purchases
or lower prices for customer who have been with the firm long time.
- Ex: Frequent Flyer Program,(similar in hotels & car rental), Volume discounts & other price incentive in Telecom business.
- It helps to retain market share & build loyal customer base.
- These financial incentives do not generally provide long term advantages to a firm because unless combined with another
relationship strategy because it is easy to initiate & do not differentiates from competitors in long term.
- Other types of retention strategies that depend primarily on financial reward are focused on bundling & cross selling.
- Sometimes firm aim to retain their customer by simply offering most loyal customers that assurance of stable prices or at
least lower price increased than paid by other new customer.
- These strategies are not likely to be successful unless they are structured so that they truly lead to repeat or increased usage
rather than serving as means to attract new customers & potentially causing endless switching among competitor.
 Level 2-Social Bond:
- Level 2 strategies bind customers to the firm through more than financial incentive.
- Level 2 strategies build long term through social & interpersonal as well as financial bonds.
- Social bonds are common among professional service provider & their clients.
- By bringing personal details like (occupation, family, interest & problem history) into conversation the professional reveals
his/her genuine interest in the patient as an individual & builds social bonds.
- Interpersonal bonds are also common in B2B.
- Sometimes relationships are formed with the organization because of social bonds that develop among customer (C2C) rather
B2C, mostly in club, education, golf/country club etc.
- Social bonds may not tie the customer permanently to the firm, but they are much different for competitors to imitate than are
price incentives.
- In the absence of strong reason to shift to another provider; interpersonal bonds can encourage customer to stay in a
relationship.
- Combined with financial incentives, social bonding strategies may be very effective.
 Level 3- Customized Bond:
- It involves more than financial & social incentives, although there are common elements of level 1&2 strategies encompassed
within a customization & vice versa.
- 2 common terms fit within the customization bonds approach; mass customization and customer intimacy.
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 - Both these strategies suggest that customer loyalty can be encouraged through intimate knowledge of individual customer &
through the development of 1-2-1 solution that fit individual customer’s need.
- Mass customization does not mean providing customers with endless solution or choices that only make them wok harder for
what they want; rather it means providing them through little effort on their past with tailored services to fit individual needs.
 Level 4-Structural Bonds:
-Structural bonds are most difficult to imitate; they involve structural as well as financial, social & customization bonds
between the customer & firm.
-Structural bonds are created by providing services to the client that are frequently designed right into the service delivery
system for that client.
-Often structural bonds are created by providing customized service to the client that are technology based & make customer
more productive.
-But there is also a potential downside to this arrangement from the customer’s perspective. Customer may fear that tying
themselves too closely to 1 provider may not allow them to take advantage of potential price savings from other providers in
the future.
 Switching Barriers:
-When considering a switch in service provider, a customer may face number of barriers that make it difficult to leave one
service provider and begin a relationship with another.
-Switching barriers influence consumer’ decision to exit from relation with firm and therefore help to facilitate customer
retention. That are
 Customer Inertia:
-One reason is that a certain amount of effort may be required to change firm.
-Breaking relationship need them to reconstruct their life- to develop new habits of living, refashion old relation and to find new
ones i.e. people do not like to change behavior.
-To retain customers, firm might consider increasing the perceived effort required on the part of the customer to switch service
provider.
 Switching Costs:
- Because of cost involved in changing to and purchasing from different firm makes customer loyal to organization.
- These costs, both real & perceived non/monetary are termed switching cost.
- Set-up Cost: such as requirement of new tests while changing doctors.
- Learning Cost: are those costs associated with learning the idiosyncrasies of how to use a product/service.
- Search cost: may be required to obtain suitable information about alternative service.
- Contractual Cost: arise when the customer is required to pay penalty to switch providers.