Shared Flashcard Set


Week 8
Relationship Marketing
Undergraduate 1

Additional Business Flashcards




What is Relationship Marketing
Proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers.
- involves a change in focus from the single sales encounter in an attempt to develop a relationship with the customer and to increase customer retention
- These profitable customers are often referred to as ‘key customers’ in consumer markets and ‘key accounts’ in business markets.
Customer Relationship Management Definition
- Has been defined narrowly as a customer data management activity. By this definition, it involves managing detailed information about individual customers and carefully managing customer ‘touchpoints’ in order to maximise customer loyalty.

- More recently, CRM has been seen in a broader sense in which it is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping and growing customers
Relationship Constructs
1. Creation (Attracting, establish, getting)
2. Development (Enhancing, strengthening, enhance)
3. Maintenance (Sustaining, stable, keeping)
4. Interactive (Exchange, mutually, cooperative)
5. Long term (Lasting, permanent, retaining)
6. Emotional content (Commitment, trust, promises)
7. Output (Profitable, rewarding,, efficiency)
Five levels of Customer Relationships
1. Basic - The marketing organisation salesperson sells the product but doesn’t follow up in any way.

2. Reactive – The salesperson sells the product and encourages the customer to call whenever they have any questions or problems.

3. Accountable – The salesperson phones the customer a short time after the sale to check whether the product is meeting the customer’s expectiations. The salesperson also solicits from the customer any product improvement suggestions and details of any specific disappointments. This information helps the marketing organisation to improve its offer constantly

4. Proactive – The salesperson or others in the marketing organisation phone the customer from time to time with suggestions about improved products use or helpful new products
5. Partnership – The marketing organisation works continuously with the customer and with other customers to discover ways to deliver better value.
What are the elationship levels as a function of profit margin and number of customers
Marketing organisation’s relationship marketing strategy will depend on how many customers it has and their individual profitability.

For example companies with many low margin customer will practice basic marketing. - At the other extreme, in markets with few customers and high margings, most sellers will move towards partnership marketing.

What specific marketing tools can a marketing organisation use to develop stronger customer bonding and satisfaction?
It can adopt any of three customer-value- building approaches: financial, social and structural.
Financial Benefits value-building approach
- The first value-building approach relies primarily on adding financial benefits to the customer relationship. For example, airlines offer frequent-lfyer programs, hotels give room upgrades to frequent guest, and supermarkets sometimes give discounts on less-busy days.
- Such programs are very expensive to run, however, and will beneficial to companies only if they add value encouraging customers to spend more
Social Benefits value-building approach
- The second approach is to add social benefits as well as financial benefits
- Here marketing organisation personnel work to increase their social bonds with customers by learning individual customers’ needs and wants and then individualising and personalising their products and services in order to meet them.
Structural Tiles value-building approach
- The third approach to building strong customer relationships is to add structural ties as well as financial and social benefits.
- For instance, a business marketer might supply customer with special equipment or computer linkages that help them manage their orders, payroll or inventory
- Customer firms can use their computers to check the status of their own deliveries or those that they ship to their customers, and to manage other aspects of their shipping process
Are the largest, middle or smallest customers the most profitable?
- The largest customers sometimes demand greater levels of service and receive the deepest discounts, thereby reducing the marketing organisation’s profit level
- The smallest customers pay full price and receive less service, but the cost of transacting with small customers reduces their profitability
- In many cases, mid-size customers who pay close to full price and receive good service are the most profitable
Measuring and Managing Return on Marketing
- Many companies now view marketing as an investment, rather than an expense
- In response, marketers are developing better measures of return on marketing investment
- Return on Marketing Investment (ROMI, or marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment
Measuring Lifetime Value of Customers
If a company can work out the lifetime value of a customer, it has the potential to offer its most valuable customers a higher level of service, and therefore make it more likely that they will stay with the company.
- Once the organisation has calculated the lifetime value of its customers, it has the ability to spend more or less on customers
First, the copany needs to decide on a time period for analysis. It then needs information on a number of factors:
• The customer’s frequency of purchase in each period
• The average profit contribution from a purchase of this brand
• The most recent brand chosen by the customer
• The customer’s estimated probability of choosing each brand on the next purchase
• The company’s cost of capital
• The cost of maintaining the relationship with this type of customer
• The likely future purchase pattern of this type of customer
What do marketers mean by Customer Lifetime Value
Where the revenue from each customer (whether a personal or business customer) is calculated over the entire length of that relationship.
- Understanding the lifetime value of a customer is important, because it can helps marketers to decide which customers are worth keeping
- It is sometimes suggested that long-tern customers are more profitable, because they are said to be more loyal, less price sensitive and lower cost to serve
Example of profitability analysis

- Customers make up the columns of the figure, and products or services make up the rows.
- Each cell contains a symbol for the profitability or selling a given product or service to a given customer
- Customer C1 is very profitable – they buy three profit making products, prodcuts P1, P2 and P3.
- Customer C2 yields mixed profitability, buying one profitable produce and one unprofitable product.
- Cusomter C3 generates losses by purchasing one profitable product and two unprofitable ones (‘loss leaders)
- What can the company do about consumers like C3? First, it should consider eliminating or raising the prices of its less profitable products. Second, the company can try to cross-sell it profit making products to its unprofitable customers
- IF these actions cause customer C3 to defect, it may actually be beneficial for the company.
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