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Chapter 12 Managing Rlationship and Building Loyalty - Coggle Diagram
Chapter 12 Managing Rlationship and Building Loyalty
The Important Role Customer Loyalty
Increase purchases and/or account balances
Reduced operating costs
Referrals to other customers
Price premiums
The Life-Time Value (LTV) of a Loyal Customer
Acquisition revenues less costs:
Revenues (application fee + initial purchase)
Costs (marketing + credit check + account set up)
Projected annual revenues and costs:
Revenues (annual fee + sales + service fees + value of referrals)
Costs (account management + cost of sales + write-offs)
Value of referrals:
Percentage of customers influenced by other customers
Other marketing activities that drew the firm to an individual’s attention
Net Present Value:
Sum anticipated annual values (future profits)
Suitably discounted each year into the future
Why customers are loyal to a particular service firm?
Customers stay loyal when we create value for them
Value can be created for customers through use of technology to control quality
Confidence benefits
Confidence in correct performance
Ability to trust the provider
Lower anxiety when purchasing
Knowing what to expect and receive
Social benefits
Mutual recognition and friendship between service provider and customer
Special treatment
Better price
Discounts not available to most customer
Extra services
Higher priority when there is a wait
The Wheel of Loyalty
Build a Foundation for Loyalty
Create Loyalty Bonds
Reduce Churn Driver
Targeting the right customers
Targeting the right customers
Focus on number of customers served as well as value of each customer
“Right customers” are not always high spenders
deepen the relationship
Bundling/cross-selling services makes switching a major effort that the customer is unwilling to go through unless extremely dissatisfied with service provider
Reward Based Bonds
Financial bonds
Discounts on purchases, loyalty program rewards (e.g. frequent flier miles), cash-back programs
Non-financial rewards
Priority to loyalty program members for waitlists and queues in call centers; higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers
Intangible rewards
Special recognition and appreciation
Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
Social Bonds
Based on personal relationships between providers and customers
Harder to and takes a longer time to build, but also harder to imitate and thus, better chance of retention in the long term
Customization Bonds
Customized service for loyal customers
e.g. Starbucks
Customers may find it hard to adjust to another service provider who cannot customize service
Structural Bonds
Mostly seen in B2B settings
Align customers way of doing things with supplier’s own processes
Can be seen in B2C environment too
Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
Reducing customers defections
Deliver quality service
Reduce inconvenience and non-monetary costs
Have fair and transparent pricing
Industry specific drivers
Take active steps to retain customers
Implement Effective Complaint Handling and Service Recovery Procedures
Increase Switching Costs
Natural switching costs
Can be created by instituting contractual penalties for switching
CRM systems and delivering customized services and building loyalty
Common Objectives Of CRM Systems
Customer perspective:
Unified customer interface that delivers customization and personalization
Vast service improvement and increase customer value
Company perspective
Better segment, tier customer base and target promotion
Implement churn alert systems if customers are in danger of defecting
Common Applications of CRM Systems
Data collection
Data analysis
Sales force automation
Marketing automation
Call center automation
Strategy Development
Value Creation
Multi-channel Integration
Performance Assessment
Information Management
Unfortunately, there is a high failure rate for CRM implementations
Common reasons for failures
Viewing CRM as a technology Initiative
Lack of customer focus
Not enough understanding of customer lifetime value (CLV)
Inadequate support from top management
Failure to reengineer business processes
Underestimating the challenges in data integration