Customer relationship menagement

LECTURE OBJECTIVES

Understand relationship marketing.
Understand the differences between relationship marketing and transaction marketing. Understand customer relationship management
Identify the essential concepts on customer relations – customer satisfaction and customer loyalty

1. Understand Relationship Marketing
1.1 What is ‘Relationship Marketing’?

Marketing consists of actions taken to build and maintain desirable exchange relationships with target audience. They want to build strong economic and social relationships by consistently delivering superior value. Successful firms work to build long-term relationships with their customers and initiate relationship marketing strategy.

Relationship marketing is a strategy that maintains long-term partnerships with customers. It starts by understanding who your customers are what they value, what they want to buy. Companies then build relationships with customers by offering value that satisfied their customers.

Relationship marketing is also known as one-to-one marketing, which is about marketing to customers, individually, one at a time. It is grounded in the idea of establishing a learning relationship with each customer, starting with the most valuable ones. The customer tells the firm of some need, and the firm customize it’s product or service to meet it. Every interaction and  modification improves the ability to fits the firm’s product to this particular customer.

Successful firms have to be relationship oriented. They know that their customers – buyers who purchase promises of satisfaction – prefer to do business repeatedly with people and organizations they trust. They know that establish relationships with customers can increase long-run sales and reduce marketing costs.

Consequently, the term relationship management or relationship marketing communicates the idea that a major goal of a business enterprise is to engage in interactions with customers over the long term.

1.2 What is the difference between ‘Relationship Marketing’ and ‘Transactional Marketing’?

Transaction marketing viewed the customer in terms of one-off transactions.

Relationship marketing is based on the concept of developing a long-term relationship with a customer.

In broader sense, relationship marketing links the organization to its individual customers, employees, suppliers, and other partners for their mutual long-term benefits.

In order to conduct relationship marketing effectively, organization should be more familiar with the key principles of customer relationship management (CRM). They have to strive to develop meaningful relationship and manage customer relationships more professionally and proactively with key customers.

Class Activity

How do you understand the difference between transaction marketing and relationship marketing?

Customer relationship management (CRM) is a process for managing the company’s resources to create best possible experience and value for customers while generating the highest possible revenue and profit for the company.

To sustain the profitable CRM strategy, information technology is used to provide the enterprise with a comprehensive, reliable, and integrated view of its customer base so that all business processes and customer interactions help maintain and expand mutually beneficial relationships. A CRM strategy should help organizations improve the profitability of their interactions with current and potential customers while at the same time making those interactions appear friendlier through individualization and personalization.

Managing with information systems, the CRM system can enhance customer service, improve customer satisfaction, and ensure customer retention by aligning business processes with technology integration. An effective CRM system describes customer relationships in sufficient detail so that all aspects of the organization can access information, match customer needs with satisfying product offerings, remind customers of service requirements, know what other products a customer has purchased, and so forth.

For example:
(I) From firm’s perspective:
A bank’s CRM should give a service representative in its telephone call center the ability to retrieve a complete record of a customer’s company interactions seconds after the customer provides identification information.

(2) From customers themselves
Many CRM systems allow customers themselves to directly access information about their transactions with a company.

Many organizations experience difficulties in building information and
e-commerce initiatives because: (a) implementing the new technology requires a complex array of skills to capture data from dynamic process (b) organizations must balance the need for security with the goal of increasing personalization (c) people often find it difficult to change traditional approaches and to grasp the information needed to plan effective strategies

2. Understand Customer Satisfaction

Since every marketer wants loyal customers, a logical question to ask is “What affects customer loyalty?” Customer satisfaction plays in shaping customer loyalty at most.

Customer satisfaction is a measure of how products and services supplied by a company meet or surpass customer expectation.

There are three possibilities of meeting customer expectations: When service experience is Better than expected, customer delighted When service experience is As expected, customer satisfied .When service experience is Less than expected, customer dissatisfied

To understand how customers perceived the quality offered, customer satisfaction must be measured. Factors that drive satisfaction and delight should also be studied.

First identify the relationships between the performance of the various attributes and customer satisfaction and delight. Attributes will be maintaining satisfaction while others will be creating customer delights. Different approaches will need to be applied based on the nature of the relationship between attributes and overall satisfaction and delight. Satisfaction-maintaining attributes should be maintained at their current levels or at a level no less as good as the competitors. Delight-creating attributes are attributes of a product or service that are not expected and may not be in common services. Experiencing them create delight in the customer. Companies must strive to discover or create such attributes and offer them when economically feasible to high-value, targeted customers.

3.Customer Loyalty

There are considerable variation in the terms used to describe customer loyalty, they are: refers to a customer’s commitment or attachment to a brand, store, manufacturer, service provider or other entity based on favourable attitudes and behaviour responses, such as repeat purchases.

is the result of an organization creating a benefit for a customer so that they will maintain or increase their purchases from the organization. The customer becomes an advocate for the organization, without incentive. Loyalty is generally characterised as equality and mutual cooperation.

leads to increasing revenue. Loyalty can be attained, but the organization has to work at it, continuously, and it will not be possible with all customers. Customer loyalty is based on a win-win relationship because both the firm and its customers attain benefits.

Early academic research investigated the purchase behaviour of customers to identify and measure brand loyalty. In other words, brand loyalty is a behavioural response to an attitude toward a brand.

Behaviour, attitude and loyalty provide a framework for customer loyalty. Loyal customer should be high in repeat purchase behaviour and strong in attitude and they are theoretically the most desirable customers. They not only purchase a large amount of the product, but they may also advocate the product to others.

This behavioural brand loyalty approach explored how consistent customers were in repurchasing brands. If the customer bought Heinz brand ketchup every time he or she went to the store, the customer was said to be brand loyal

The attitude brand loyalty approach takes the view that loyalty involves much more than repeats purchase behaviour. This view holds that brand loyalty
must also include a favourable attitude that reflects a preference or commitment expressed over time.

3.1 Factors Affect Customer Loyalty

In figure 1 depicts some fundamental components that are expected to affect customer loyalty

Figure 1: What affects customer loyalty?

Following five components that influence customer loyalty in different ways:

3.1.1 Customer satisfaction is the post-purchase evaluation that results from a comparison between those pre-purchase expectations and actual performance. 3.1.2 Emotional bonding is the positive brand affect, which is an affinity with the brand, or they have a company attachment, which means they like the company. 3.1.3 Trust is the willingness of the customer to rely on the brand or an organization. It indicates the customers have strong belief that the marketer is reliable and has integrity.

3.1.4 Choice reduction & habit
Customers have a natural tendency to reduce choices to a manageable set, usually not more than three. Customer loyalty could be created from habits that are cultivated from the accumulated experiences with a brand or an organization.

3.1.5 Company history
Customer’s initial or regular experience with a product may be quite positive. One’s history with the company influences one’s habits.

Satisfaction, emotional bonding, and trust contribute to attitudinal loyalty.

Choice reduction and habit, including perceptions of risk and the history with the organization, contribute to behavioural loyalty.

Attitudinal and behavioural loyalty combines to then affect the degree of customer commitment and loyalty to products and organizations.

In all, loyalty indicates relationship commitment that is defined as an enduring desire to maintain a valued relationship. Strong commitment to a relationship develops if the relation is mutually beneficial to the parties. This is especially true in B2B relationships. 3.2 Four Categories Of Customers From Customer Loyalty

Using attitude loyalty and behaviour loyalty, a customer loyalty framework is developed by classifying four categories of customers. 3.2.1 No loyalty – customers have a week attitude and low repeat patronage behaviour

3.2.2 Inertia loyalty – customers are strong on repeat behaviour but weak on attitude

3.2.3 Latent loyalty – customers have strong attitudes but repeat purchase is low

3.2.4 Loyalty – customers are high in repeat purchase behaviour and strong in attitude

References:
M.Stone & N.Woodstock “Relationship marketing” ch.2 pp 28-49 Zikmund, G William, Mcleod Raymond, Jr & Gilbert Faye W. Customer Relationship Management integrating Marketing Strategy and Information Technology, Wiley 2003. Chapter 1 & 5