Building Customer

Relationships
 ABSTRACT
This article is about ongoing efforts to come to grips
with the question: Does relationship marketing pay? The
question is discussed under the umbrella concept return
on relationships. Much of what is being done in
relationship marketing and customer relationship
management has a bearing on both business-to-business
and business-to-consumer marketing, and on
manufacturing as well as services. Although there is a
shortage of empirical research and proven practice, the
article aims to show current efforts to generate
knowledge of return on relationships, with particular
emphasis on business-to-business environments.
 CRM: The Business Focus
Supports an Integrated and
Collaborative Relationship Between
a Business and it’s Customers
Customer Acquire Enhance Retain
Life Cycle

Direct Marketing Cross-sell and Up-sell Proactive Service

CRM
Functional
Solutions Sales Force Automation Customer Support

The Internet
Shared Collaborative
CRM Customer Data Service
Integrated
Solution
Partner Company Customer
CRM: The Business Focus
CRM is a Cross-Functional Enterprise System
CRM: The Business Focus
CRM Uses IT to Create a Cross-
Functional Enterprise System
Marketing and
Fulfillment Customer
Service and
Support
Fax e-Mail
Sales Prospect or
•Cross-Sell Employee
Telephone Web Retention
•Up-Sell and Loyalty
Programs
Contact and
Account
Management
CRM: The Business Focus
Benefits and Challenges of CRM
• Identify and Target the Best Customers
• Customization and Personalization of
Products and Services
• Track Customer Contacts

CRM Failures
• 50% of Applications Fail to Meet
Expectations
• 20% of the Time CRM Damaged Customer
Relationships
• Lack of Understanding and Preparation is
Blamed
Relationship Marketing
 is a philosophy of doing business that focuses on
keeping current customers and improving
relationships with them
 does not necessarily emphasize acquiring new
customers
 is usually cheaper (for the firm)
 keeping a current customer costs less than attracting a new
one
 thus, the focus is less on attraction, and more on
retention and enhancement of customer relationships
Customer Goals of Relationship
Marketing
 Benefits of Relationship Marketing
 Benefits for Customers:
 Receipt of greater value
 Confidence benefits:
▪ trust
▪ confidence in provider
▪ reduced anxiety
 Social benefits:
▪ familiarity
▪ social support
▪ personal relationships
 Special treatment benefits:
▪ special deals
▪ price breaks
 Benefits for Firms:
 Economic benefits:
▪ increased revenues
▪ reduced marketing and
administrative costs
▪ regular revenue stream
 Customer behavior benefits:
▪ strong word-of-mouth endorsements
▪ customer voluntary performance
▪ social benefits to other customers
▪ mentors to other customers
 Human resource management benefits:
▪ easier jobs for employees
▪ social benefits for employees
▪ employee retention
Relationship Value of Customers
 Lifetime Value or Profitability
 Average revenues, sales of additional products/services,
referrals, costs of serving the customer
 Estimating Lifetime Value of Average Customer
▪ Increased revenue of core product
▪ Declining per-unit service costs
▪ Increasing revenues from a new product
▪ Profit from referrals
Profit Generated by a Customer
Over Time
Relationship Strategies

 Quality in Core Service

 Market Segmentation & Targeting
 One-to-one marketing
 Monitoring Relationships
Strategies for Building Relationships

 Foundations:
 Excellent Quality/Value
 Careful Segmentation
 Bonding Strategies:
 Financial Bonds
 Social & Psychological Bonds
 Structural Bonds
 Customization Bonds
“The Customer Isn’t Always Right”

 Not all customers are good relationship customers:

 wrong segment

 not profitable in the long term

 difficult customers
 The “80/20” Customer Pyramid

Most Profitable
Customers What segment spends more with
us over time, costs less to maintain,
Best spreads positive word of mouth?
Customers

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

Most Profitable
Platinum What segment spends more with
Customers us over time, costs less to maintain,
spreads positive word of mouth?
Gold

Iron

What segment costs us in

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