Home >Documents >Lovelock PPT Chapter 12

Lovelock PPT Chapter 12

Date post:19-Nov-2014
Category:
View:174 times
Download:28 times
Share this document with a friend
Transcript:

Chapter 12:

Managing Customer Relationships and Building Loyalty

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 1

Overview of Chapter 12 The Search for Customer Loyalty Understanding the Customer-Firm Relationship The Wheel of Loyalty Building a Foundation for Loyalty Creating Loyalty Bonds Strategies for Reducing Customers Defections CRM: Customer Relationship Management

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 2

The Search for Customer Loyalty

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 3

Why Is Customer Loyalty Important to a Firms Profitability? Customers become more profitable the longer they remain with a firm: Increase purchases and/or account balances Customers/families purchase in greater quantities as they grow

Reduced operating costs Fewer demands from suppliers and operating mistakes as customer becomes experienced

Referrals to other customers Positive word-of-mouth saves firm from investing money in sales and advertising

Price premiums Long-term customers willing to pay regular price Willing to pay higher price during peak periodsSlide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 4

How Much Profit a Customer Generates Over Time (Fig 12.1)(Year 1=100)350 300 250 200 150 100 50 0

Year 1Credit card

Year 2

Year 3

Year 4

Year 5Auto servicing

Industrial laundry

Industrial distribution

Source: Based on reanalysis of data from Fredrick R. Reichheld and W. Earl Sassar, Jr., Zero Defections: Quality Comes from Services, Harvard Business Review 68 (Sep.-Oct. 1990), pp. 105111. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 5

Why Customers Are More Profitable Over Time (Fig 12.2)Profit from price premium Profit from references Profit from reduced op. costs Profit from increased usage Base Profit/Loss Loss 1 2 3 4 Year 5 6 7

Source: Why Are Customers More Profitable Over Time from Fredrick R. Reichheld and W. Earl Sassar, Jr., Zero Defections: Quality Comes from Services, Harvard Business Review 73 (Sep.Oct. 1990): p. 108. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 6

Assessing the Value of a Loyal Customer (1) Must not assume that loyal customers are always more profitable than those making one-time transactions Costs Not all types of services incur heavy promotional expenditures to attract a new customer Walk-in traffic more important at times

Revenue Large customers may expect price discounts in return for loyalty Revenues dont necessarily increase with time for all types of customers

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 7

Assessing the Value of a Loyal Customer (2) Profit impact of a customer varies according to stage of service in product life cycle For example referrals and negative word-of-mouth have a higher impact in early stages

Tasks Determine costs and revenues for customers from different market segments at different points in their customer lifecycles Predict future profitability

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 8

Measuring Customer Equity: Lifetime Value of Each 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 individuals attention

Net Present Value Sum anticipated annual values (future profits) Suitably discounted each year into the future

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 9

Gap Between Actual and Potential Customer Value What is current purchasing behavior of customers in each target segment? What would be impact on sales and profits if they exhibited ideal behavior profile of: (1) buying all services offered by the firm, (2) using these to the exclusion of any purchases from competitors, (3) paying full price?

How long, on average, do customers remain with firm? What impact would it have if they remained customers for life?

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 10

Understanding the CustomerFirm Relationship

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 11

Relationship Marketing (1) Transactional Marketing One transaction or a series of transactions does not necessarily constitute a relationship Requires mutual recognition and knowledge between the parties

Database Marketing: Includes market transaction and information exchange Technology is used to (1) identify and build database of current and potential customers (2) deliver differentiated messages based on customers characteristics (3) track each relationship to monitor cost of acquiring that customer and lifetime value of resulting purchases

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 12

Relationship Marketing (2) Interaction Marketing: Face-to-face interaction between customers and suppliers representatives Value is added by people and social processes Increasing use of technologies make maintaining meaningful relationships with customers a marketing challenge For example, self-service technology, interactive websites, call centers

Network Marketing: Common in b2b context where companies commit resources to develop positions in network of relationships with stakeholders and relevant agenciesSlide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 13

Relationships with Customers (Fig 12.1)Type of Relationship between the Service Organization and Its Customers Nature of Service Delivery Continuous Membership Relationship Cable TV Insurance policy College enrollment Discrete Transactions Subscriber phone Theater subscription Warranty repair No Formal Relationship Radio station Police Lighthouse Pay phone Movie theatre Public transport

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 14

The Wheel of Loyalty

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 15

The Wheel of Loyalty

(Fig 12.4)

3. Reduce Churn Drivers Conduct churn diagnostic Address key churn driversEnabled through: Frontline staff Account managers Membership programs CRM Systems

1. Build a Foundation for Loyalty Segment the market

Implement complaint handling and service recovery Increase switching costs

Be selective in acquisition Use effective tiering Customer of service. Deliver quality Loyalty service.

Build higher level bonds

2. Create Loyalty Bonds Give loyalty rewards

Deepen the relationship

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 16

Building a Foundation for Loyalty

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 17

Customer Needs and Company Capabilities Identify and target the right customers How do customer needs relate to operations elements? How well can service personnel meet expectations of different types of customers? Can company match or exceed competing services that are directed at same types of customers?

Should result in a superior service offering in the eyes of those customers who value what firm has to offer

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 12 - 18

Searching for ValueNot Just Volume Focus on number of customers served as well as value of each customer Heavy users who buy more frequently and in larger volumes are more profitable than occasional users Avoid targeting customers who buy based on lowest price

Firms that are highly focused and selective in their acquisition of customers grow faster Right customers are not always high spenders Can come from a large group of people that no other supplier is serving well

Different segments offer different valueSlide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 12 - 19

Effective Tiering of Service The Customer Pyramid (Fig 12.5)Good Relationship Customers Platinum Gold Iron Lead Poor Relationship CustomersWhich segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with? Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?

Source: Valarie A Zeithaml, Roland T Rust, and Katharine N. Lemon, The Customer Pyramid: Creating and Serving Profitable Customers, California Management Review 43, no. 4, Summer 2001, pp.118 142. Services Marketing 6/E Chapter 12 - 20

Slide 2007 by Christopher Lovelock and Jochen Wirtz

The Customer Satisfaction Loyalty Relationship (Fig 12.7)Apostle100

Zone of Affection

Loyalty (Retention)

80

Zone of Indifference

Popular Tags:

Click here to load reader

Embed Size (px)
Recommended