Chapter 12
Chapter 12
Chapter 12
Managing Relationships
and Building Loyalty
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 1
Overview of Chapter 12
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The Search for
Customer Loyalty
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How Much Profit a Customer Generates
Over Time (Fig 12.2)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 4
Why Is Customer Loyalty Important to A
Firm’s Profitability?
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 6
Assessing the Value of a Loyal Customer
Tasks:
Determine costs and revenues for customers from different market
segments at different points in their customer lifecycles
Predict future profitability
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 7
Measuring Customer Equity:
Lifetime Value of Each Customer
Value of referrals
Percentage of customers influenced by other customers
Other marketing activities that drew the firm to an individual’s attention
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 9
Why are Customers Loyal? (2)
(Service Insights 12.1)
Social benefits
- Mutual recognition and friendship between service
provider and customer
Special treatment
- Better price
- Extra services
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 10
The Wheel of Loyalty
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The Wheel of Loyalty (Fig. 12.5)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 12
Building a Foundation
for Loyalty
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 13
Targeting the Right Customers and
Searching for Value, Not Volume
Target the right customer and match them to what firm can deliver
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?
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 14
Effective Tiering of Service
The Customer Pyramid (Fig 12.7)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 15
The Customer Satisfaction
Loyalty Relationship (Fig. 12.9)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 16
Strategies for
Developing Loyalty
Bonds with Customers
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 17
Strategies for Developing Loyalty Bonds
with Customers (1)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 18
Strategies for Developing Loyalty Bonds
with Customers (2)
Social Bonds
Based on personal relationships between providers and
customers
Harder to and takes a longer time to build, but also harder to
imitate and thus, better chance of retention in the long term
Customization Bonds
Customized service for loyal customers
- e.g. Starbucks
Customers may find it hard to adjust to another service
provider who cannot customize service
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 20
Strategies for Developing Loyalty Bonds
with Customers (4)
Structural Bonds
Mostly seen in B2B settings
Align customers way of doing things with supplier’s own
processes
- Joint investments in projects and sharing of information,
processes and equipment.
Can be seen in B2C environment too
- Airlines - SMS check-in, SMS email alerts for flight arrival
and departure times
Difficult for competition to draw customers away when they have
integrated their way of doing things with existing supplier
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 21
Strategies for Reducing
Customer Defections
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 22
Analyze Customer Defections and Monitor
Declining Accounts
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What Drives Customers to Switch?
(Fig 12.9)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 24
Address Key Churn Drivers
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Other Ways to Reduce Churn
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 26
CRM: Customer
Relationship
Management Systems
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 27
Common Objectives Of CRM Systems (1)
Customer perspective
Unified customer interface that delivers customization and
personalization
Vast service improvement and increase customer value
Company perspective
Better segment, tier customer base and target promotion
Implement churn alert systems if customers are in danger of
defecting
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 28
Common Applications Of CRM Systems (1)
(Service Insights 12.6)
Data collection
Customer data such as contact details, demographics, purchasing
history, service preferences, and the like
Data analysis
Data captured is analyzed and categorized
Used to tier customer base and tailor service delivery accordingly
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 29
Common Objectives Of CRM Systems (2)
(Service Insights 12.6)
Marketing automation
Mining of customer data enables the firm to target its market
Goal to achieve one-to-one marketing and cost savings, often in the
context of loyalty and retention programs
Results in increasing the ROI on its marketing expenditure
CRM systems also allows firms to judge effectiveness of marketing
campaigns through the analysis of responses
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 30
Comprehensive CRM Strategy (Fig 12.14)
Source: Adapted from: Adrian Payne and Pennie Frow, “A Strategic Framework for Customer
Relationship Management,” Journal of Marketing 69 (October 2005): 167-176.
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 31
Integrated Framework for CRM
Strategy Development
Strategy Development
Assessment of business strategy
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 32
Integrated Framework for CRM
Strategy – Value Creation
Value Creation
Translates business and customer strategies into specific
value propositions for both customers and firm
- Customers benefit from priority, tiered services,
loyalty rewards and customization
- Company benefits from reduced customer
acquisition and retention costs, and increased
share-of-wallet
Dual creation of value: customers need to participate in
CRM to reap value from firm’s CRM initiatives
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 33
Integrated Framework for CRM
Strategy – Multi-Channel Integration
Multi-channel Integration
Serve customers well across many potential
interfaces
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 34
Integrated Framework for CRM
Strategy – Performance Assessment
Performance Assessment
Is CRM system creating value for key
stakeholders?
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 35
Integrated Framework for CRM Strategy –
Information Management
Information Management
Collect customer information from all channels
Integrate it with other relevant information
Make useful information available to the
frontline
Create and manage data repository, IT
systems, analytical tools, specific application
packages
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 36
Common Failures in CRM Implementation
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 37
Key Issues in Defining a
Customer Relationship Strategy
Reward-based bonds
Social bonds
Customization bonds
Structural bonds
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 40
Summary of Chapter 12: Managing Relationships And
Building Loyalty (3)
Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 41
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