BGS

Customer Relationship Management

Chapter 3
Relationship Marketing and Customer
Relationship Management

Thomson Publishing 2007 All Rights Reserved

Transaction vs. Relationship
Marketing
 Transaction vs. Relationship
Marketing
• Short term focus • Long-term focus
• Marketing mix • Interactive marketing
• Price sensitive customers • Less price sensitive customers
• Product quality dominates • Interaction quality dominates
• Market share • Share of wallet focus
• Ad hoc satisfaction studies • Measurement of commitment
• Little interdepartmental • Interdepartmental focus
interface
• Little internal marketing • Extensive internal marketing
There is a Paradigm Shift in Marketing
• The 4-P paradigm • The relationship marketing
involves marketing to paradigm in:
anonymous masses of – industrial marketing
– services marketing
customers
– managing channel
– strategic alliances
– consumer packaged goods
marketing deals with
now deals with identifiable
customers.
 Six Key Aspects of a Successful
Relationship Marketing Strategy

STRATEGIC ISSUES
• Service business orientation
• Process management perspective
• Partnership/network formation
TACTICAL ISSUES
• Direct customer contacts
• Customer databases
• Customer-oriented service system
 Today the Concept of Product Must Be
Expanded to the Extended Product Model

• Today’s companies must enhance value around their

core product. This includes service and commitment
components.
Relationship Marketing (RM)
 The Meaning of
Relationship Marketing
Relationship marketing means identifying, establishing,
maintaining, and enhancing relationships with customers
and other stakeholders at a profit, so that the objectives of
all parties involved are met; this is done by a mutual
exchange and fulfillment of promises.
 Key Aspects of Relationship
Marketing
1. Getting customers and creating transactions
2. Maintaining and enhancing ongoing
relationships with customers, distributors,
suppliers, networks of cooperating partners,
etc.
3. Replacing products with personnel,
technology, knowledge, and time
 Existing Typology of Marketing
Strategies and Tactics

Existing Markets New Markets

• Existing products • Existing products
-Market penetration – Market development
• Modified products • Modified products
-Reformulation
– Market extension
• New products
• New products
• Product-line extension
• Horizontal diversification -Mkt segment/prod
differentiation
• Concentric diversification
• Conglomerate diversification
 Roots of Relationship Marketing
• Technological advances in IT
• Continued growth of direct marketing
• Using B2B relationship building models in a B2C
environment
• Published findings of consultants
What is Relationship Marketing All
About?
• RM consists of initiating, enhancing, and maintaining
relationships with one’s “customers” and dissolving
them when appropriate.
• RM has three basic features:
– Relational databases
– Integrated marketing communications
– Capabilities for dialogue
 Relationship Marketing is Applicable
on at Least Ten Different Levels
1. Goods suppliers
2. Service providers
3. Competitors as in strategic alliances
4. Nonprofit organizations
5. Government entities as in joint R&D
6. Ultimate customers
7. Intermediate customers:
• franchisees
• channel members
8. Functional departments
9. Employees
10. Other company business units
 Will Relationship Marketing Benefit
Every Company?

Exchange Continuum
Discrete Continuous
Functional Relational
Unemotional Emotional

Meat Sauce Hotels Professional Services

Shoelaces Airlines Sports Teams
Office Supplies Autos Luxury Items
 There Are Three Levels of
Relationship Marketing
Level 1: relies primarily on pricing incentives.
Aim at customers at far left.
Level 2: relies primarily on social bonds involving
customization and personalization.
Level 3: bonds are established by structural
solutions
 Choosing a Loyalty Strategy

Short Term Long-Term

Customers Customers
High Profit Butterflies True Friends
Low Profit Strangers Barnacles
 Four Types of Customers
1. Loyalists: the most satisfied become apostles for your
company.
2. Mercenaries: only loyal to low prices and are
transaction specific with no intentions of ever
establishing a relationship.
3. Hostages: “stuck” with you for a variety of reasons.
Complainers and prima donnas.
4. Defectors: various types of dissatisfied former
customers.
 Customers Can Also Be Arrayed
Based on Relationship Strength
• Intimate relationships: doctor and
patient
• Face-to-face relationships: customer
and retail store
• Distant relationships: interactions over phone or
online
• No relationships: manufacturers with final
customers who buy through middlemen
 “I Can’t Get No Satisfaction”
• Overall or cumulative satisfaction vs. transaction
satisfaction

• But satisfaction as a measure does not predict purchase

behavior

• The variables trust and commitment are introduced

A Model of a Long-Term Relationship

Long term orientation in a buyer-seller relationship

– F(mutual dependence, trust)
– Trust=f(credibility of vendor, benevolence)
– Credibility of vendor=f(reputation for fairness,
satisfaction with outcomes)
– Reputation for fairness=f(reliable and consistent behavior
over time)
– Benevolence=f(caring and making sacrifices for the
channel partner, satisfaction with outcomes)
 Relationship Marketing and CRM

CRM is a set of business practices designed to put an

enterprise into closer and closer touch with its
customers, in order to learn more about each one and
to deliver greater and greater value to each one with
the overall goal of making each one more valuable to
the firm.
Peppers and Rogers
 Relationship Marketing Will Make
Marketing More Effective by:
• Enabling marketers to learn more about individual
customers and develop customized products and
services
• Allowing customers to help design and develop the
product/service
• Minimizing negative images of marketing
 Relationship Marketing Will Make
Marketing More Efficient by:
• Enabling companies to retain customers and drive
profits
• Reducing mass marketing wastes
• Having customers do much of the marketers’ work,
including order processing, product design, etc.
 Are Marketers Losing Ground in Their
Ability To Be the Company Focal Point for
Customers?
• Marketing can no longer be confined to a single
department.
– Line managers developed their own customer databases.
– They began to work directly with direct marketers to develop
programs and testing.
– These efforts led to the CRM systems of today.
 Is Marketing Loosing Ground?
• Companies today are being organized across functional lines that
decentralizes the marketing function.
• TQC, ERP, in-house venture groups all develop new products and
services.
• Product and brand managers focus on “push” marketing, HOEs,
POP, and sales promotion to sell.
• These are the complete antithesis of what is needed to build class
1:1 relationships based on dialogues. Enter the customer manager.
• The U.S. recession in the 1990s put a focus on mass media
spending.
• IT-supported approaches to direct marketing were less expensive
and could reach masses of people individually with measurable
results.
• The mass media has fragmented and results are still not
measurable.
 CRM Systems Can Provide Added
Value for Customers by:

• Saving time
• Providing convenience
• Allowing for customization
• Providing a positive experience
 Have the 4 Ps Outlived Their
Usefulness?
Some new suggestions:
– 4 P’s: People, preferences, permission, and precision
– 4 C’s: Content, context, collaboration, and
community
– 4 C’s: Customer value, lower costs, better
convenience, and better communications
 Organizing for Relationship
Marketing
• Companies organized around products and markets
are not built around one-to-one relationships. No
dialogue with the masses.
• Customer service reps, however, do have dialogues.
• Some suggest companies organize around customers
in the form of customer portfolios run by segment
managers.
• The rise of the CRM department?
 One Scenario of the Future
Marketing/CRM Interface
• How to connect the customer with the
– Product
– Service delivery
– Financial accountability systems?
• Marketing owns the customer-product connection
and is responsible for product strategy, branding
strategy, price, and promotion.
 One Scenario of the Future
Marketing/CRM Interface
• CRM is responsible for the relationship between the
customer and
– Service delivery function: CRM responsible for improving
satisfaction and loyalty through management of loyalty
programs
– Financial accountability system: CRM responsible for
managing customer profitability through data mining and
determining the profitability of marketing initiatives
Questions?