MODULE 2

CUSTOMER RELATIONSHIP: CUSTOMER SERVICE

Lesson 1: Managing Customer Relationships and Capturing Customer Value

MODULE OVERVIEW
Developing a relationship with your customers is one of the most effective strategies a
business can adopt. However, this part is also the one that companies put on the backburner.
In this lesson, students will be taught to understand, create, and keep customer relationships.

LESSON OBJECTIVES:
At the end of the lesson, you are expected to:

a. define relationship marketing;

b. relate to different customers and identify their needs and wants; and
c. develop techniques that can help maintain customer relationships.

ICE BREAKER ACTIVITY:

Discussion Board:
Can you tell me about a time when you received poor customer
service?

TOPIC 1: CUSTOMER RELATIONSHIP MANAGEMENT

Customer relationship management

is perhaps the most important concept of modern
marketing. In the broad sense, customer relationship
management is the overall process of building and
maintaining profitable customer relationships by
delivering superior customer value and satisfaction. It
deals with all aspects of acquiring, engaging, and growing
customers.

Relationship Building Blocks: Customer Value and Satisfaction. The key to building lasting
customer relationships is to create superior customer value and satisfaction. Satisfied
customers are more likely to be loyal customers and give the company a larger share of
their business.

Attracting and retaining customers can be a difficult task. Customers often face a
bewildering array of products and services from which to choose. A customer buys from
the firm that offers the highest customer-perceived value – the customer evaluation of
the difference between all the benefits and all the costs of a market offering relative to
those of competing offers. Importantly, customers often do not judge values and costs
“accurately” or “objectively.” They act on perceived value.
To some customers, the value might come in the form of the product offering at affordable
prices. However, to other consumers, the value might manifest in paying more to get more.

In essence, customer value entails extraordinary delivery of

four value-points or components known also as SQIP:

Service. The intangible value offered to customers.

Quality. Customer’s perception of how well a company’s
products and services meet expectations.
Image. Customer’s perception of the company or business they
interact with.
Price. The price a company can command for its products and
services that its customers are able and willing to pay.

In a nutshell, customer perceived value is neither just about the product alone nor the price
alone. Customers get the value they want by getting the products that are of quality and
sold at a price that customers are able and willing to pay. It is simply stated in a
mathematical equation: Benefits – Cost = Customer Perceived Value

Customer satisfaction happens depending on the product’s perceived performance relative

to the expectation of the buyer. If the product’s performance falls short of expectations, the
customer is satisfied. If performance exceeds the expectation of the buyer, they are highly
satisfied or delighted.

Companies go out of their way to keep valuable customers satisfied. There are studies that
show that higher levels of satisfaction lead to greater customer loyalty, which therefore
turns into better organizational performance.

Companies Relationship Levels and Tools. Companies scan-build customer relationships at

many levels, depending on the nature of the market. There are two extremes where a
certain type of customer relationship is appropriate.

1. Basic Relationships – Companies develop this kind

of relationship with many low-margin customers.
For example, P&G’s Tide detergent does not phone
or call on all of its consumers to get to know them
personally. Instead, Tide creates engagement and
relationships through product experiences, brand-
building advertising, websites, and social media.
2. Full Partnerships – Companies develop this kind of
relationship with few and high-margin customers. For example, P&G sales
representatives work closely with Walmart, Kroger, and other large retailers that
sell Tide.
Beyond offering consistently high value and satisfaction, marketers can use specific
marketing tools to develop stronger bonds with customers. For example, many companies
offer frequency marketing programs that reward customers who buy frequently or in large
amounts. Airlines offer frequent-flier programs, hotels give room upgrades to frequent
quests, and supermarkets give patronage discounts to “very important customers.”

TOPIC 2: CUSTOMERS ENGAGEMENT AND TODAY’S

DIGITAL AND SOCIAL MEDIA

The digital age has generated a list of tools to create

customer relationships. From websites, online ads and
videos, mobile ads and apps, and blogs to online
communities and the major social media.

Before, companies focused mostly on mass marketing

to broad segments of customers at arm’s length. But today, companies are maximizing the
use of online, mobile, and social media platforms to refine their targeting and engage
customers in deeper interaction. The old marketing involved marketing brands to
consumers. The new marketing is customer-engagement marketing – fostering direct
and continuous customer involvement in shaping brand conversations, brand experiences,
and brand community. Customer-engagement marketing goes beyond just selling a brand
to consumers. Its goal is to make the brand a meaningful part of consumers’ conversations
and lives,

TOPIC 3: CONSUMER-GENERATED MARKETING

One form of customer-engagement marketing is

consumer-generated marketing, by which
consumers themselves play role in shaping their
own brand experiences and those of others. This
might happen through uninvited consumer-to-
consumer exchanges in blogs, video-sharing
sites, social media, and other digital forums.

TOPIC 4: PARTNER RELATIONSHIP MANAGEMENT

When it comes to creating customer value and

building strong customer relationships, today’s
marketers know that they can’t go it alone. They must
work closely with a variety of marketing partners. In
addition, to be good at customer relationship
management, marketers must also be good at
partner relationship management – working closely with others inside and outside the
company to jointly engage and bring more value to customers.
Traditionally, marketers have been charged with understanding customers and
representing customer needs to different company departments. However, in today’s more
connected world, every functional area in the organization can interact with the customer.
The new thinking is that – no matter what your job is in a company – you must understand
marketing and be customer-focused. Rather than letting each department go its own way,
firms must link all departments in the cause of creating customer value.

Marketers must also partner with suppliers, channel

partners, and others outside the company. Marketing
channels consist of distributors, retailers, and others
who connect to their buyers. The supply chain
describes a longer channel, stretching from raw
materials to components to final products that are
carried to final buyers. Through supply chain
management, companies today are strengthening their
connections with partners all along the supply chain.
They know that their fortunes rest on more than just how well they perform. Success at
delivering customer value rests on how well their entire supply chain performs against
competitors’ supply chains.

ICEBREAKER ACTIVITY:
Discussion board: Questions/Instructions
What is the best customer service you have ever received? Why?

TOPIC 5: CREATING CUSTOMER LOYALTY

AND RETENTION

Good customer relationship management

creates customer satisfaction. In line with this,
customers who are satisfied and built a
connection with the company will remain loyal
and speak favorably to others about the
company’s products.

Keeping customers loyal makes good economic sense. Loyal customers spend more and
stay around longer. Research shows that it is cheaper to keep a customer than acquire a
new one. Conversely, customer defection can be costly. Losing a customer means losing
more than a single sale. It means losing the entire stream of purchases that the customer
would make over a lifetime patronage – customer lifetime value.
TOPIC 6: GROWING SHARE OF CUSTOMER

More than retaining customers to capture customer lifetime

value, customer relationship management can help
marketers to increase their share of the customer – the
portion of customer’s purchasing that a company gets in its
product categories.

TOPIC 7: BUILDING CUSTOMER EQUITY

Acquiring, keeping, and growing customers

are very important spots in the view of
customer relationship management.
Companies would not only want to capture
customers for profit but to also “own” them
for life and gain a greater share of their
purchases and capture their customer
lifetime value.

What is customer equity? The main goal of

customer relationship management is to
generate high customer equity. Customer equity is the total combined customer lifetime
values of all the company’s current and potential customers. It clearly states that the more
loyal the customers of the firm, the higher the customer equity. Customer equity can be a
measure of a firm’s performance compared to current sales or market share as both reflect
the past, customer equity forecasts the future.

Building the Right Relationships with the Right Customers. Customer equity should be
managed carefully. Companies should view customers as assets that need to be managed
and maximized. However, not all customers can be considered profitable, even loyal
customers can be good investments. There are some loyal customers that can be
unprofitable, and some of the disloyal customers can be profitable. So, question is, which
among these customers should the companies acquire and retain?

Customers can be classified according to their potential profitability and manage the
relationships appropriate for them.

Strangers – show low potential profitability and little projected loyalty. There is a little fit
between the company’s offerings and their needs. The relationship management strategy
for these customers is simple: Don’t invest anything in them; make money on every
transaction.

Butterflies – are potentially profitable but not loyal. There is a good fit between the
company’s offerings and their needs. However, like real butterflies, we can enjoy them for
only a short while, and then they are gone. An example is stock market investors who trade
shares often and in large amounts but who enjoy hunting out the best deals without
building a regular relationship with any single brokerage company. Instead, the company
should enjoy the butterflies for the moment. It should create satisfying and profitable
transactions with them, capturing as much of their business as possible in the short time
during which they buy from the company. Then it should move on and cease investing in
them until the next time around.

True Friends – are both profitable and loyal. There is a strong fit between their needs and
the company’s offerings. The firm wants to make continuous relationships and investments
to delight these customers and engage, nurture,
retain, and grow them. It wants to turn true friends
into true believers, who come back regularly and tell
others about their good experiences with the
company.

Barnacles – are highly loyal but not very profitable.

There is a limited fit between their needs and the
company’s offerings. An example is smaller bank
customers who bank regularly but do not generate
enough returns to cover the costs of maintaining
their accounts. Like barnacles on the hull of a ship,
they create drag. Barnacles are perhaps the most problematic customers. The company
might be able to improve their profitability by selling them more, raising their fees, or
reducing service to them. However, if they cannot be made profitable, they should be
“fired.”

The point here is that there are various types of customers that require appropriate
engagement and relationship management strategies. But in the end, the goal is to create
the right relationships with the right customers.

TOPIC 8: BENEFITS OF RELATIONSHIP MARKETING

In the business world, retaining customers has a lesser cost at least eight times compared
to acquiring new ones. Thus, this marketing capitalizes on the same fact and is beneficial to
the company in several ways.

1. Understanding customer characteristics - the company can segregate its customers

into groups based on their characteristics like purchasing power, frequency, and volume of
sale transactions. It also helps the company get valuable feedback from its customers and
understand their needs and expectations.
2. Delivery and meeting expectations - if the company knows what its customers’ needs
are, it will help reduce wastage due to trial and error methods. It is easier to create a
product if the features and specifications of the product are known.
3. Repeat Business - Sellers should maintain a good attitude toward the buyers. By doing
this, buyers will feel that they do not need to switch sellers.
4. Prevents negative transition - trust and loyalty go hand in hand and it is super
beneficial for all businesses. It will help prevent customers from turning to competitors.
5. Word-of-mouth marketing - a happy customer will always promote business by telling
ten other people about the amazing services or performance received from a company.
6. Increasing customer base – the satisfied existing customer is 100% more likely to
recommend a product/service to a prospective customer. Apart from customer, referrals,
there are several other ways to increase customer satisfaction by employing methods of
utilizing social networking websites, blogs, informal surveys, benefits on loyalty cards,
timely response to complaints and requests as a constant reminder of its presence around
and retention equity is improved by enhancing customer satisfaction.
7. Reduced marketing cost - Benefits also include lesser marketing costs and more value
creation. This can be explained by stating the following statistics: every 5% increase in
customer retention can increase a company’s annual profits from at least 25% to as much
as 125%, while simultaneously leading to a reduction of 10% in marketing costs. An
existing customer will spend 33% more than a new customer to buy a company’s
product/service.
8. Minimization of customer price sensitivity
- a happy customer will be willing to pay more
for a product if there is a guaranteed satisfaction
of products and after-sales services attached to
the price.
9. Identification with the company - the
benefits are reaped both by the company and the
customers. It helps customers identify more
with the company. Keeping your communication
lines open and keeping in touch with the customers makes them feel like they are being
valued. It will keep customers coming in and build brand equity for the company in the
long run.
10. Product Market Expansion - the company’s employees must be ready to deliver
beyond the company’s boundaries on customer demand.

ICE BREAKER ACTIVITY:

Discussion Board: Question/Instructions
AUDIO/VIDEO CONFERENCE:

References:
Kotler, P., & Armstrong, G. (2018). Principles of Marketing. Pearson Education.

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