2ND SEMESTER, 2024-2025

SERVICES MARKETING
MKTG3017

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MANAGING CUSTOMER
RELATIONSHIPS

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BUILDING CUSTOMER RELATIONSHIPS

• RELATIONSHIP MARKETING

• RELATIONSHIP VALUE OF CUSTOMERS

• CUSTOMER PROFITABILITY SEGMENTS

• RELATIONSHIP DEVELOPMENT
STRATEGIES

• RELATIONSHIP CHALLENGES
Source: [Link]
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OBJECTIVES
• EXPLAIN RELATIONSHIP MARKETING, ITS GOALS, AND THE BENEFITS OF LONG-TERM
RELATIONSHIPS FOR FIRMS AND CUSTOMERS.

• EXPLAIN WHY AND HOW TO ESTIMATE CUSTOMER RELATIONSHIP VALUE.

• INTRODUCE THE CONCEPT OF CUSTOMER PROFITABILITY SEGMENTS AS A STRATEGY

FOR FOCUSING RELATIONSHIP MARKETING EFFORTS.

• PRESENT RELATIONSHIP DEVELOPMENT STRATEGIES—INCLUDING QUALITY CORE

SERVICE, SWITCHING BARRIERS, AND RELATIONSHIP BONDS.

• IDENTIFY CHALLENGES IN RELATIONSHIP DEVELOPMENT, INCLUDING THE SOMEWHAT

CONTROVERSIAL IDEA THAT “THE CUSTOMER IS NOT ALWAYS RIGHT.”
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RELATIONSHIP MARKETING
• A PHILOSOPHY OF DOING BUSINESS, A STRATEGIC
ORIENTATION, THAT FOCUSES ON KEEPING
CURRENT CUSTOMERS AND IMPROVING
RELATIONSHIPS WITH THEM

• NOT NECESSARILY EMPHASIZE ACQUIRING NEW

CUSTOMERS

• USUALLY CHEAPER FOR THE FIRM AS KEEPING A

CURRENT CUSTOMER COSTS LESS THAN ATTRACTING
A NEW ONE

• FOCUS LESS ON ATTRACTION, BUT MORE ON

RETENTION AND ENHANCEMENT OF CUSTOMER
RELATIONSHIPS
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BUCKET THEORY OF MARKETING

8 EXCHANGE RELATIONSHIPS

Stranger Friends

Acquaintances Partners
 A TYPOLOGY OF EXCHANGE RELATIONSHIPS
Customers as… Strangers Acquaintances Friends Partners
Product offering Attractive relative to On a par with industry Differentiated with Customized,
competitors standards adaptation to segments individualized offerings

Source of competitive Attractiveness Satisfaction Satisfaction + Trust Satisfaction + Trust +

advantage Commitment
Buying activity Interest, exploration, Reduced need for search Buying without perfect Commitment in the form of
(what customer does) trial information information sharing,
specific investments
Focus of selling Encouraging trial Familiarity and general Specific segment Specific knowledge,
activities (what firm facilitates initial selling knowledge knowledge idiosyncratic investments
does)
Relationship time None Short Medium: trust takes time Long: detailed
horizon to build knowledge,
interconnections
Sustainability of Low: must continue to Low: must build unique Medium: must understand High: depends on
competitive advantage attract, induce trial value into standard various customer needs uniqueness & effectiveness
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product of interconnections
Primary relationship Acquire customer’s Satisfy customer needs Retain customer’s business Enhance relationship with
marketing goal business customer
CUSTOMER GOALS OF
RELATIONSHIP MARKETING
• BUILD AND MAINTAIN A BASE OF COMMITTED
CUSTOMERS WHO ARE PROFITABLE FOR THE
ORGANIZATION.
• A CONTINUUM

satisfaction- trusted-base commitment-

based based
 CUSTOMER LOYALTY

Loyalty is …
“A DEEPLY HELD COMMITMENT TO RE-BUY OR RE-
PATRONIZE A PREFERRED PRODUCT OR SERVICE IN
THE FUTURE DESPITE SITUATIONAL INFLUENCES
AND MARKETING EFFORTS HAVING THE
POTENTIAL TO CAUSE SWITCHING BEHAVIOR.”

Source: Gary Hamel, “Strategy as Revolution.” Harvard Business Review,

July−August 1996, pp. 69–82.
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 CUSTOMER LOYALTY

Attitudinal Loyalty

Behavioral Loyalty

• ATTITUDINAL LOYALTY – CUSTOMER’S LONG-TERM COMMITMENT TO A BUSINESS THAT

CANNOT BE DEDUCED BY MEASURING THE CUSTOMER’S PURCHASE BEHAVIOUR.
• FAILURE TO ACCOUNT FOR ATTITUDINAL LOYALTY CAN LEAD TO MISLEADING 12
GAUGING OF CUSTOMER LOYALTY.
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BENEFITS OF RELATIONSHIP MARKETING
Receipt of greater value
Economic
• Increased revenues
Confidence • Reduced marketing and
administrative costs
• Trust
• Confidence in provider BENEFITS • Regular revenue stream
• Reduced anxiety FOR
Customer behavior
CUSTOMERS • Strong word-of-mouth
Social BENEFITS endorsements
FOR • Customer voluntary performance
• Familiarity • Social benefits to other customers
• Social support FIRMS • Mentors to other customers
• Personal relationships
HR management
Special treatment • Easier jobs for employees
• Social benefits for employees
• Special deals
• Employee retention
• Price breaks
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CUSTOMER LIFE CYCLE
 RELATIONSHIP VALUE OF CUSTOMERS
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• CUSTOMER LIFETIME
CONTRIBUTIONS TO A COMPANY
IN TERMS OF REVENUE AND/OR
PROFITABILITY .

IT IS INFLUENCED BY:
• LENGTH OF AVERAGE CUSTOMER “LIFETIME”
• ADDITIONAL SALES OVER TIME
• REFERRALS BY THE CUSTOMER OVER TIME
• COSTS ASSOCIATED WITH SERVING THE CUSTOMER
16 LIFETIME VALUE OF A CUSTOMER
+20% +20%
+20%

Repeat
Purchase

Cross-sell/
Up-sell

Reduced
Overhead
Referral
Sales
+23.0% +26.8% +31.8%
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THE CUSTOMER PYRAMID

CUSTOMER LOYALTY
PROGRAMME
• DIFFERENT BENEFITS FOR CUSTOMERS WITH
DIFFERENT SPENDING LEVELS
 THE CUSTOMER PYRAMID

Platinum Company’s most profitable customers, typically heavy users of the

product, not overly price sensitive, willing to invest in and try new
Tier offerings, and committed customers of the firm

Profitability levels are not as high, perhaps because customers want

Gold Tier price discounts that limit margins or are simply not as loyal. May be
heavy users who minimize risk by working with multiple vendors.

Essential customers that provide the volume needed to utilize the

Iron Tier firm'’ capacity but their spending levels, loyalty, and profitability are not
substantial enough for special treatment

Customers who are costing the firm money. They demand more
attention than they are due given their spending and profitability and
Lead Tier are sometimes problem customers—complaining about the firm to 19

others and tying up firm resources.

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CUSTOMER PROFITABILITY SEGMENTATION
• COMPANIES CAN IMPROVE THEIR PROFITABILITY WHEN THEY
INCREASE SHARES OF PURCHASES BY CUSTOMERS WHO
1) HAVE THE GREATEST NEED FOR THE SERVICE, OR
2) SHOW THE GREATEST LOYALTY.

CUSTOMERS IN LOWER PROFITABILITY TIERS

WHO RECEIVE LOWER LEVELS OF SERVICE MAY
RESIST OR RESENT THEIR UNEQUAL TREATMENT.

WHAT A CUSTOMER SPENDS TODAY, OR HAS

SPENT IN THE PAST, MAY NOT BE REFLECTIVE
OF WHAT THEY WILL SPEND IN THE FUTURE.
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RELATIONSHIP DEVELOPMENT MODEL
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RELATIONSHIP DEVELOPMENT STRATEGIES

Service Customer inertia Financial

Relationship Bonds
Core Service Provision

Switching Barriers
foundations built bonds
upon delivery of Switching costs:
excellent service: • set up costs,
• satisfaction, search costs, Social bonds
perceived learning costs,
service contractual
quality, costs Customization
• perceived bonds
value
Structural
bonds
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LEVELS OF RELATIONSHIP STRATEGIES
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“THE CUSTOMER IS ALWAYS RIGHT” ?

• NOT ALL CUSTOMERS ARE GOOD

RELATIONSHIP CUSTOMERS:
• THE WRONG SEGMENT

• NOT PROFITABLE IN THE LONG TERM

• DIFFICULT CUSTOMERS
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ENDING BUSINESS RELATIONSHIPS

• SHOULD FIRMS FIRE THEIR CUSTOMERS?