RELATIONSHIP FUNDAMENTALS
A relationship is composed of a series of interactive
episodes between dyadic parties over time.
Enquiring about a product
Purchase
Making a sales call
INTERACTION
Negotiating terms
ACTION
Dealing with complaints
RESPONSE
Resolving an invoice issue
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RELATIONSHIP FUNDAMENTALS
There needs to be some emotional content to the
interaction.
This implies some type of affective connection,
attachment or bond.
A relationship exist only when the parties move from a state of
independence to dependence or interdependence.
when a supplier is investing in building a
higher-level partnership with the customer,
ZONE OF DELUSION but the customer is merely interested in the
basic transaction
It is where the buyer would like to partner
but the supplier is focused only on the next
ZONE OF FRUSTRATION transaction
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CHANGE IN RELATIONSHIP
AWARENESS
EXPLORATION
EXPANSION
COMMITMENT
DISSOLUTION
3
TRUST
Trust is focused.
Although there may be a generalized sense of confidence and
security, these feelings are directed.
One party may trust the other party’s:
BENEVOLENCE
HONESTY
COMPETENCE
4
COMMITMENT
Commitment is shown by ‘a partner believing that an ongoing
relationship with another is so important as to warrant
maximum effort to maintain it; that is, the committed party
believes the relationship is worth working on to ensure that
it endures indefinitely’.
Commitment arises from trust, shared values and the belief that partners
will be difficult to replace.
Commitment motivates partners to cooperate in order to preserve
relationship investments.
Commitment means partners forgo short-term alternatives in favour of
more stable, long-term benefits associated with current partners.
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WHY CUSTOMERS WANT COMMITMENT ?
The fundamental reason that companies want to build relationships with
customers is economic.
Companies generate better results when they manage their customer base
in order to identify, acquire, satisfy and retain profitable customers.
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EXAMPLE
Churn rates vary considerably.
Energy utilities supplying electricity and gas typically
have enjoyed very low churn levels because of their
monopoly positions.
However, industry deregulation changed that. In the
UK about 25 per cent of utility customers changed
suppliers within two years of industry deregulation.
The industry had been expecting 5–10 per cent
churn, and were surprised at the actual levels.
Most switchers were looking for better prices and to
achieve a dual-fuel (gas and electricity) discount. 7
RELATIONSHIP MANAGEMENT
There is little merit in growing the customer base aimlessly.
The goal must be to retain existing customers, and recruit new
customers, who have future profit potential.
Not all customers are of equal importance.
Some customers may not be worth recruiting or retaining at
all, for example those who have a high cost-to-serve, are
debtors, late payers or promiscuous in the sense that they
switch frequently between suppliers.
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WHY COMPANIES WANT RELATIONSHIPS?
REDUCED MARKETING COSTS
Improving customer retention reduces a company’s marketing costs.
In addition to reducing the costs of customer acquisition,
costs-to-serve existing customers also tend to fall over time.
BETTER CUSTOMER INSIGHT
As customer tenure lengthens, suppliers are able to develop a better
understanding of customer requirements and expectations.
Customers also come to understand what a supplier can do for them.
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WHY COMPANIES WANT RELATIONSHIPS?
Consequently, suppliers are better placed to identify & satisfy customer
requirements profitably, selling more product & service to the retained customer.
As relationships deepen, trust & commitment between the parties is likely to grow.
Under these circumstances, revenue and profit streams from customers become
more secure.
One study, for example, shows that the average online clothing
customer spends 67% more, and grocery customers spend 23%
more, in months 31–36 of a relationship than in months 0–6.
McKinsey has found that retained customers are
significantly less likely to shop around for a new auto
insurance policy than newly recruited customers.
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THE CUSTOMER JOURNEY
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THE CUSTOMER JOURNEY
This is the result of
Prevent customers from the overall customer
2. AWARENESS abandoning the buying experience.
process and provide a
Message to be consistent great experience. 6. LOYALTY
across the channel.
Discrepancy will lead to 4. EXPERIENCE
customer confusion and
dissatisfaction.
5. ENGAGEMENT
1. NEED A two-way interaction leads
3. INTERACTION to a long-term relationship.
Create a need and align
product and services. Make conversations
Organisations should fruitful. Customers need to
make it a seamless feel important.
process. 13
WHEN MIGHT COMPANIES NOT WANT RELATIONSHIPS WITH
CUSTOMERS?
LOSS OF CONTROL
EXIT COSTS
RESOURCE COMMITMENT
OPPURTUNITY COSTS
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Relationship in Marketing
“Marketing is a set of process for creating, communicating and delivering
value to customers and for managing customer relationships to benefit the
organization and its stakeholders”
“Relationship marketing is a strategy designed to foster customer loyalty,
interaction and long-term engagement.
It is designed to develop strong connections with customers by providing
them with information suited to their needs and interests”
It emphasizes customer retention and satisfaction rather than sales transactions.
It builds customers' loyalty for the long-term, rather than the
short-term marketing of a particular product or service.
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Prior Considerations for Relationship Marketing
PRIOR CONSIDERATIONS DESCRIPTION EXAMPLE
Increase in Digital
Consumers
Relationship Identify the Customer Segment
likely to benefit from a RM Penetration of 4G and
Potential programme reduction in Smartphone
(Company)
price
Valid reason for the customer for
engagement.
Interest in Relationship The firm needs to analyze the
(Customer) “value factors” to enhance
relationship.
Rise of Millennials
Not mandatory to be created for
Scope & Content of all customer segments. Capturing the Digital
Relationship Understand segment preference Lifestyle Ecosystem
& gain greater loyalty.
SBI Rewardz
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CSAT, CUSTOMER LOYALTY AND BUSINESS PERFORMANCE
Satisfaction increases
As customer satisfaction This in turn influences actual
because customer insight
rises, so does customer purchasing behaviour that
allows companies to
intention to repurchase and has an impact on business
understand their customers
loyalty. performance.
better.
An important rationale for CRM is that it improves business
performance by enhancing customer satisfaction and driving up
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customer loyalty.
CUSTOMER SATISFACTION
It is the customer’s fulfilment response to a customer
experience, or some part thereof.
Customer satisfaction is a Dissatisfaction is an
pleasurable fulfilment unpleasurable fulfilment
response. response.
The ‘experience, or some PRODUCT
part of it’ suggests that the
satisfaction evaluation SERVICE
can be directed at any or all PROCESS
elements of the
customer’s experience, such as; EXPERIENCE
MANAGEMENT
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CUSTOMER SATISFACTION
The most common way of operationalizing satisfaction is to compare the
customer’s perception of an experience, with their expectations.
This is known as the expectations–disconfirmation model of customer
satisfaction.
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THE SERVICE RECOVERY PARADOX
It is a situation where a customer thinks
more highly of a company after the
company has corrected a problem with
their service.
…compared to how they
would regard the company
if non-faulty service had
been provided.
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FACTORS CONTRIBUTING TO CUSTOMER SATISFACTION
Quality of Experience understand the customer personas and then cater to them
accordingly. By tracking all identity and behavioural
data, CRM helps understand the customer better.
Omni-channel It helps improve the communication experience of the
customer. Identifying and communicating via different
communication channels seamlessly is important.
Personalization There is no better way to personalize communication than
using a CRM for understanding and segmenting
customer records based on their preferences.
Customer Service With better customer service, you can also cross-sell and
improve the CLV (customer lifetime value).
Better management of With CRM, businesses can have better visibility into
demands and can forecast sales accordingly.
purchases
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EXAMPLE
The Tesco Clubcard is Tesco’s way of rewarding its most loyal customers. For
every pound you spend online or in-store, you’ll get a point. These points,
when accumulated, can be traded in for Tesco Clubcard ‘vouchers’ (for
instance, 150 points gets you a £1.50 voucher).
A voucher can then be traded in for rewards, such as an afternoon at
Cineworld with the kids (a timeless experience), or an evening at Pizza
Express (enjoy it while you can).
Clubcard holders can also collect points at Tesco fuel stations, and by filling
out feedback surveys online.
What’s in it for Tesco? Returning customers that are invested in the brand, and
whose opinion Tesco can leverage to continue improving its growing basket of
offerings. 22
CUSTOMER LOYALTY
There are two major approaches to defining and measuring loyalty, one
based on behaviour, the other on attitude
Behavioural loyalty is measured by Attitudinal loyalty is measured by reference
reference to customer purchasing to attitude such as beliefs, feelings and
behaviour. purchasing intention. Those customers who
Loyalty is expressed in continued have a stronger preference for, involvement
patronage and buying in or commitment to a supplier are the more
loyal in attitudinal terms.
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EXAMPLE
If you’ve ever used iTunes (Apple’s online music streaming service), you’ll
have an Apple ID – and if you’ve ever used an Apple device, you’ll have had to
register it using an Apple ID, too.
These unique IDs synchronise across devices, remember music and film
selections, and provide personalised recommendations based on what’s
you've been watching or listening to.
For the user, it offers convenience. And for Apple, it’s a constantly updating
data set, telling the company exactly what its customers like and allowing for
effortless, targeted marketing.
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DBS – Creating SPARKS…!!!
2006 2019
“Living, Breathing Asia” “Live More, Bank Less”
Comprising 10 episodes, Average cost per view for episodes
inspired by true customer across platform: 0.57 INR!
stories (advertising cost/No of video views)
SPARKS allowed DBS to go 11% of queries on SME product & 10%
beyond the functional aspects on wealth products came from people
of financial services who had watched the Sparks Story
The episodes humanized both Various Digital platforms used for the
bankers and banking. mini-series were YouTube, Facebook,
WeChat, and the DBS website.
OBJECTIVE – To reinvent
Marketing, to put customers The videos amassed over 250 million
back at the heart of what we do views & 24 million digital engagements
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[Link]
CLV -
Viewing customers not as
“independent” transactions but a
lifetime income stream
What are the usual matrix for success
• Customer Profitability
• Market Share
• Customer Satisfaction or NPS
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Goal of Customer Management
• Grow the business profitabily by acquiring, retaining and developing the
right customers
• CLV – Customer Lifetime Value - allows you to drill down into each
customer’s profitability or lifetime value
• CLV is the amount of value a customer contributes to your business over his
lifetime – which starts from the customers first purchase or contract and
ends with the “moment of churn”
• CLV is the Present day value of ALL THE MARGINS earned from a
relationship from a relationship with a customer or a customer segment
What is CLV/LTV
• It is the value of all future contributions to profit and
overheads we expect from that customer during their
‘lifetime’, i.e. the period they remain the customer with my
organization.
• Matrics such as market share consider volume or revenue
which usually ignore costs
• Contribution is Focus is on net margins rather than gross
margins (if ABC accounting is not followed – you can use gross
margins. Net margins include cost of acquisition, cost of
retention directly associated back to the customer)
• Lifetime could vary depending on the type of product/service
you sell, the company’s objectives, or market stability
• Value needs to be discounted back to today’s value
What are the factors that go into
computing CLV
• What are the costs of acquisition/ Cost to serve?
• What are the potential revenues?
• What is the retention rate?
• What is the discounting factor?
Calculation in
• How much if the lifetime?
separate file
HOW CLV HELPS ?
VND = VIETNAMESE DONG
RELEVANCE OF CLV
Helps in measuring the Helps change the way we think about
financial impact marketing in terms of creating loyalty
of marketing campaigns. objectives.
Helps find balance in terms Encourages better decision making by
of short-term and teaching marketers to spend less time
long-term marketing goals. acquiring customers with lower value.
Effective management of your customers relationships, which
leads to increased profitability
INDICATIONS
•Average monthly transactions
•Average amount spent per transaction
•Average number of months your customers remain loyal
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THE VALUE OF KNOWING CLV
1. How much you can spend to acquire a similar customer and still
have a profitable relationship ?
2. What kinds of products customers with the highest CLV want ?
3. Which products have the highest profitability ?
4. Who your most profitable types of clients are ?
Together, these types of decisions can significantly boost your
business’ profitability.
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IMPROVING CUSTOMER LIFETIME VALUE
Make it easy for customers to return items or get instant refund.
Set expectations regarding delivery dates, aiming to under-promise
and over-deliver.
Create a rewards program to encourage repeat purchases.
Use up-selling/cross-selling to increase the average value of a
customer transaction, such as McDonald’s asking, “Do you want
fries with that?”
Stay in touch. Long-time customers want to know you haven’t
forgotten them.
Make it easy for customers to reach out as well.
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COMPONENTS OF CLV
The acquisition cost of Total promotional spend/No of
customer new customers
The annual profit of revenue generated by a
customer customer over a year minus
the cost of serving the
customer
Lifetime of the customer to the average length of customer’s
firm relationship with the firm or
brand
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HOW CLV HELPS ?
VND = VIETNAMESE DONG
Quadrant I – Switchers (Low CLV, Quadrant II – Keepers (High CLV, Short
Short LOS) LOS)
•40% of subscribers •12% of subscribers
•15% of revenue •25% of revenue
•LOS < 36 months •LOS < 36 months
•CLV < 45,000 VND •CLV > 45,000 VND
•Churn rate: 40% (highest) •Churn rate: 10%
Meaning: Meaning:
These customers use the service for These new customers are already
a short time, spend less, and leave generating high value despite being
quickly. recent users.
They are the least profitable and Implication:
hardest to retain. Focus on early retention strategies,
Implication: onboarding, special benefits.
Company should avoid spending These customers have potential to
too much money trying to retain move into the "High Value" segment.
them.
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Quadrant III – Development Quadrant IV – High Value / Loyal
(Low CLV, Long LOS) (High CLV, Long LOS)
•28% of subscribers •20% of subscribers
•16% of revenue •44% of revenue (biggest share)
•LOS > 36 months •LOS > 36 months
•CLV < 45,000 VND •CLV > 45,000 VND
•Churn rate: 15% •Churn rate: 2% (lowest)
Meaning: Meaning:
They have stayed for a long time Most valuable
but contribute little value. customers—long-term, loyal, and
Often passive, low-usage profitable.
customers. Implication:
Implication: Give best service, loyalty programs,
Use cross-selling, up-selling, premium offers.
engagement campaigns to These customers drive the
increase their spending. company’s revenue and stability.
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