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

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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

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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
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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