Chapter

6 Building Customer
Relationships
• Relationship Marketing
• Relationship Value of Customers
• Foundations for Relationship Strategies
• The Customer Isn’t Always Right
• Customer Profitability Segments
• Levels of Relationship Strategies

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 Objectives for Chapter 6:
Building Customer Relationships
• Explain relationship marketing, its goals, and the benefits
of long-term relationships for firms and customers.
• Explain why and how to estimate customer lifetime value.
• Specify the foundations for successful relationship
marketing--quality core services and careful market
segmentation.
• Provide you with examples of successful customer
retention strategies.
• Introduce the idea that “the customer isn’t always right.”

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 Relationship Marketing
• is a philosophy of doing business that focuses on keeping
current customers and improving relationships with them
• does not necessarily emphasize acquiring new customers
• is usually cheaper (for the firm)
– keeping a current customer costs less than attracting a new one
• thus, the focus is less on attraction, and more on retention
and enhancement of customer relationships

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 Figure 6.1
Customer Goals of Relationship
Marketing

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 Figure 6.2
Profit Generated by a Customer
Over Time

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 Figure 6.3
Profit Impact of 5 Percent Increase in
Retention Rate

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 Table 6.1
Lifetime Value of an Average Business
Customer at Telecheck International, Inc.

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 A Loyal Customer is One Who...
• Shows Behavioral Commitment
– buys from only one supplier, even though other options exist
– increasingly buys more and more from a particular 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

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 Customer Loyalty Exercise

• Think of a service provider you are loyal to.

• What do you do (your behaviors, actions,
feelings) that indicates you are loyal?
• Why are you loyal to this provider?

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 Underlying Logic of Customer Retention
Benefits to the Organization

Customer Satisfaction

Customer Retention & Quality

Increased Profits Service

Employee Loyalty

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 Benefits to the Organization
of Customer Loyalty
• loyal customers tend to spend more with the
organization over time
• on average costs of relationship maintenance are
lower than new customer costs
• employee retention is more likely with a stable
customer base
• lifetime value of a customer can be very high

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 Benefits to the Customer

• inherent benefits in getting good value

• economic, social, and continuity benefits
– contribution to sense of well-being and quality of life
and other psychological benefits
– avoidance of change
– simplified decision making
– social support and friendships
– special deals

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 “The Customer Isn’t Always Right”

• Not all customers are good relationship

customers:

– wrong segment

– not profitable in the long term

– difficult customers

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 Figure 6.4
Steps in Market Segmentation and
Targeting for Services

STEP 1: STEP 2: STEP 3: STEP4: STEP 5:

Identify Develop Develop Select the Ensure that
Bases for Profiles of Measures Target Segments
Segmenting Resulting of Segment Segments Are
the Market Segments Attractive- Compatible
ness

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 Strategies for Building Relationships

• Foundations:
– Excellent Quality/Value
– Careful Segmentation
• Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Structural Bonds
– Customization Bonds
• Relationship Strategies Wheel
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 Figure 6.5
The “80/20” Customer Pyramid

Most Profitable
What segment spends more with
Customers us over time, costs less to maintain,
Best
Customers spreads positive word of mouth?

Other
Customers
What segment costs us in
time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
Customers difficult to do business with?

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 Figure 6.6
The Expanded Customer Pyramid

Most Profitable
Platinum What segment spends more with
Customers us over time, costs less to maintain,
spreads positive word of mouth?
Gold

Iron

What segment costs us in

Lead time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
difficult to do business with?
Customers

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 Figure 6.7
Levels of Retention Strategies
Stable
Volume and Pricing
Frequency Bundling and
Rewards Cross Selling

Integrated I. Financial Continuous

Information Bonds Relationships
Systems

IV.
Excellent
Quality II.
Joint Structural Personal
Investments and Social Relationships
Bonds
Value Bonds

Shared Social Bonds

Processes III. Customization Among
and Bonds Customers
Equipment

Anticipation/ Customer
Innovation Intimacy
Mass
Customization

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