12. MANAGING RELATIONSHIPS AND BUILDING LOYALTY
The Search for Customer Loyalty
Why Is Customer Loyalty Important to A Firm’s Profitability?
Customers become more profitable the longer they remain with a firm:
- Increase purchases and/or account balances
- Reduced operating costs
- Referrals to other customers
- Price premiums
Assessing the Value of a Loyal Customer
- Must not assume that loyal customers are always more profitable than those making one-time transactions
Measuring Customer Equity: Lifetime Value of Each Customer
- Acquisition revenues less costs
- Projected annual revenues and costs
- Value of referrals
- Net Present Value
Why are Customers Loyal?
- Customers stay loyal when we create value for them through social benefits and special treatment
The Wheel of Loyalty
Building a Foundation for Loyalty
Targeting the Right Customers and Searching for Value, Not Volume
- Target the right customer and match them to what firm can deliver
- Focus on number of customers served as well as value of each customer
- “Right customers” are not always high spenders
Strategies for Developing Loyalty Bonds with Customers
- Deepening the relationship
- Reward Based Bonds
- Social Bonds
- Customization Bonds
- Structural Bonds
5 Strategies for Reducing Customers Defections
Address Key Churn Drivers
- Deliver quality service
- Reduce inconvenience and non-monetary costs
- Have fair and transparent pricing
- Industry-specific drivers
- Take active steps to retain customers
Other Ways to Reduce Churn
- Implement Effective Complaint Handling and Service Recovery Procedures
- Increase Switching Costs
CRM: Customer Relationship Management Systems
Comprehensive CRM Strategy
Integrated Framework for CRM Strategy Development
- Strategy Development
-- Assessment of business strategy
-- Business strategy guides development of customer strategy
- Value Creation
-- Translates business and customer strategies into specific value propositions for both customers and firm
- Multi-channel Integration
-- Serve customers well across many potential interfaces
-- Offer a unified interface that delivers customization and personalization
- Performance Assessment
- Information Management
-- Collect customer information from all channels
-- Integrate it with other relevant information
-- Make useful information available to the frontline
Common Failures in CRM Implementation
-- Viewing CRM as a technology Initiative
-- Lack of customer focus
-- Inadequate support from top management