9/25/2018

Service Marketing

Session- 8

Prof. Ravi Shekhar Kumar

XLRI- Xavier School of Management, Jamshedpur
ravishekhar@xlri.ac.in

Satisfaction & Loyalty Relationship

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Loyalty
 Emotional loyalty: A true form of loyalty & driven by personal
identification with real or perceived values & benefits
 Price loyalty: Driven by rational economic behaviour & main
motivations are cautious management of money or financial necessity.
 Incentivized loyalty: Refers to promiscuous buyers those with no
one favourite brand who demonstrate through repeat experience
value of becoming loyal.
 Monopoly loyalty: where a consumer has no purchase choice owing
to a national monopoly. It, therefore, is not a true form of loyalty.

Loyalty Ladders

Partners
Relationship

Members
Marketing

Advocates

Clients

Repeat Customer

1st Time Customer

Traditional
Marketing

Prospects
Suspects
Kotler 1997

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Benefits of Customer Loyalty

To Firm To Customer

 loyal customers tend to spend  inherent benefits in getting good

more with firm over time
 on average costs of relationship
maintenance are lower than
new customer costs
 lifetime value of a customer can
be very high
 Safeguards against competition
 employee retention is more
likely with a stable customer
base
value
 economic, social, & continuity
benefits
– contribution to sense of well-
being & quality of life and
other psychological benefits
– avoidance of change
– simplified decision making
– social support & friendships
– special deals

Relationship Marketing

Marketing with the conscious aim to develop and manage

long-term and/or trusting relationships with customers,
distributors, suppliers, or other parties in the marketing
environment.

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Relationship Marketing
 Characteristics:
– Focus on Relational Exchange rather than Discrete
Transactions
– A philosophy of doing business that focuses on keeping
current customers & improving relationships with them

 Elements:
– All marketing activities directed towards establishing,
developing & maintaining successful relational exchanges.
– Goal is to earn the position of preferred supplier by
developing trust in customers over a period of time.

Relationship Marketing

Mutual Relationship Marketing:

interdependence
Perspective based on
cooperation in order to
facilitate a mutual creation of
value
Relationship
Marketing

Competition Mutual
& Conflict cooperation

Transaction
Marketing Transaction marketing:
Perspective based on the
exchange of ready-made
value of money
Independence

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Customer Goals of Relationship Marketing

Why Relationship marketing

The “Bucket Theory of Marketing”

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Why Relationship marketing

Customer Life Cycle Effect

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Study on Firm Value & Customer Value

 Study found that a 1% improvement in retention, margin or
acquisition cost improves firm value by 5%, 1% and .1%
respectively.
 Study found that a 1% improvement in retention has almost 5
times greater impact on firm value than a 1% change in
discount rate or cost of capital

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Measure of Relationship Marketing

 Customer Lifetime Value (CLV): The net present value of
future profits generated from a customer over his or her life
of business with the firm.

 Customer equity: The total of the discounted lifetime values

summed over all of the firm's current and potential
customers.

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Measure of Relationship Marketing

 CLV Defined…
Year 1 Year 2 Year 3
m1 x r1 m2 x r1 x r2 m3 x r1 x r2 x r3
………
CLV = + + +
(1 + d) (1 + d)2 (1 + d)3
m = profit margin
r = customer retention rate
d = discount rate (cost of capital)

mxr
Current Customers CLV =
(1 + d – r )

mxr
Potential Customers CLV = – AC
(1 + d – r )

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CLV: Exercise
 Post-paid cellular mobile phone subscription:
– Monthly payment: Rs 250,000
– Cost of Goods Sold (COGS): Rs 150,000
– Retention rate 50%
– Discount rate 10%

 Calculate the CLV

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CLV: Exercise

mxr
Current Customers CLV =
(1 + d – r )

CLV = 100,000 x (0.5/(1-0.4))

= 100,000 x 0.83333
= Rs 83,334

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Marketing Action to Firm Value

Financial Value Firm Value

Customer Customer
Profitability Equity

Drivers of Customer Customer Customer

Customer Value Acquisition Retention Development

Firm’s
Action Marketing Programs

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How to Practice Relationship Marketing

Relationship
termination Acquiescence
costs + +

Relationship + Relationship
- Propensity to
benefits commitment leave

+
+
Shared + Cooperation
values
+

+ + Functional
Communication Trust
conflict

-
-
Opportunistic Uncertainty
behaviour
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Strategies/Actions for Building Relationships

 Foundations:
– Excellent Quality/Value
– Careful Segmentation
 Bonding Strategies:
– Financial Bonds
– Social & Psychological Bonds
– Customization Bonds
– Structural Bonds
 Relationship Strategies Wheel

The “80/20” Customer Pyramid

What segment spends more with

Most Profitable us over time, costs less to
Customers maintain, spreads positive word
Best of mouth?
Customers

Other
Customers What segment costs us in time,
effort and money yet does not
provide the return we want?
What segment is difficult to do
Least Profitable business with?
Customers

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The Expanded Customer Pyramid

What segment spends more with

Most Profitable us over time, costs less to
Customers maintain, spreads positive word
Platinum
of mouth?

Gold

Iron

What segment costs us in time,

effort and money yet does not
Lead
provide the return we want?
What segment is difficult to do
Least Profitable business with?
Customers

“The Customer isn’t Always Right”

 Building long term relationship is important…. But,

 Not all customers are good relationship customers:

– wrong segment
– not profitable in the long term
– difficult customers

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Levels of Retention Strategies

Stable
Volume & Pricing
Frequency Bundling &
Rewards Cross Selling
I.
Integrated Financial Continuous
Information Bonds Relationships
Systems

IV. Excellent II.

Joint Structural Quality Personal
Investments
Social Relationships
Bonds & Value Bonds

Shared Social Bonds

III. Among
Processes &
Equipment Customization Customers
Bonds
Anticipation Customer
/ Innovation Intimacy
Mass
Customization

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Customer Relationship Management (CRM)

• CRM is a discipline in marketing combining database &
computer technology with customer service & marketing
communications.
• CRM seeks to create more meaningful one-on-one
communications with customer by applying customer data
to every communication vehicle.
• A holistic process of identifying, attracting, differentiating, &
retaining customers

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CRM: RFM Analysis

Recency Frequency
1. Over 12 months 1. Once in more than every six months
2. Within last 12 months 2. Every six months
3. Within last six months 3. Every three months
4. Within last three months 4. Every two months
5. Within last one month 5. Monthly

Monetary Value (in Rs)

1. Less than Rs 1000
2. Rs 1000 – Rs 2000
3. Rs 2000 – Rs 5000
4. Rs 5000 – Rs 10000
5. More than Rs 10,000

Social CRM

Social CRM is the integration of social media channels

alongside traditional channels into CRM platforms so
that customers can interact with businesses via their
preferred channels.

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Social CRM
• Social CRM is much more diffusive than traditional CRM
• Integration of Two Domains
– CRM dimensions: Acquisition, Maintenance, Termination
– Social Media dimension: Engagement

• Companies rely on Social CRM to collect data on customers,

engage with customers and build customer loyalty.

• Prominent use cases of Social CRM

– 360-Degree Customer View by bringing together direct and indirect
communication
– To listen to the voice of the Brand (Social Listening)
– To involve Brand in general conversation (Social Engagement)
– To handle complaints that can potentially lead to brand crises

Social CRM
• Traditional objective of CRM has been to maximize CLV

• Social CRM is more of a strategy for customer engagement

to increase Customer Engagement Value (CEV).
– CEV is the total value provided by customers who value the brand
such that they engage with the firms through their multiple behavior
(purchase, referral, WOM, idea sharing)

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