Chapter 14 Flashcards
Introduction to Building Relationships
It is imperative for businesses to improve in their approach to managing their customers because of:
- environmental changes
- stronger competition
- more informed consumers
It has been ascertained that attracting a new customer costs five times as much as retaining an existing one.
As a result, there has been a shift from transaction marketing to relationship marketing.
In transaction marketing
- the focus is on enticing consumers to buy and such transactions are viewed as single transactions.
In Relationship marketing
- Focus is on building and continuously fostering relationships with consumers.
The marketing mix consists of the four Ps, which are the important elements or ingredients of a marketing programme.
The four Ps are the following:
Product.
- Something or an item produced by a business, for example toothpaste.
Price.
- The amount charged for the product, for example R20.
Promotion.
- Communication activities aimed at consumers, for example advertising and sales promotion.
Place.
- The location or area where the product is sold, for example retailers and wholesalers.
Relationship marketing
Relationship marketing is an integrated effort to identify, build and maintain a relationship with individual consumers, and continuously reinforce that connection to the benefit of both parties through interactive and individual contact that contributes to added value over an extended period.
Relationship marketing can, therefore, provide consumers with benefits, which handicap the competition and may increase loyalty levels.
Consumer or customer relationship management (CRM) is beneficial since it improves consumer retention and loyalty, which lead to:
- reduced cost of sales
- higher profitability
- lower costs in attracting consumers.
Before CRM can be implemented in any business, a total transformation of the business is required, particularly regarding the following:
- • teamwork and processes
- • support at executive level
- • consumer service
- • technology
The CRM programme was implemented as follows:
Management liaised with consumers to understand their consumer segment groups and the historic preferences each segment had.
It worked in teams to develop consumer profiles based on its assessments and profitability analysis, which resulted in listing opportunities.
Management then developed support tools for frontline staff and each product type was tailor-made.
The focus was on the specific needs of the different consumer groups and employees were appropriately briefed and trained to deal with customers in a satisfactory way.
Employees who had to phone consumers were given a script to use, strategies for professional and effective conversations with consumers were developed and implemented and a tracking system to record contact rates and rates of follow-up appointments were all part of the transformation policy.
The team held meetings every week with area and branch managers where they shared results, discussed the best practices and provided support.
The business made use of the latest state-of-the-art technology to better understand its customers and attend to their needs.
Technology: The faccilitator of the CRM
It is important to note that technology on its own cannot solve consumer service problems that the organisation may be experiencing; instead it helps to facilitate the implementation of CRM in conjunction with service employees.
Crucial role of technology
By today’s standards an organisation that wants to survive needs to be equipped with the latest technology to ensure successful implementation of relationship marketing.
Technology today also serves as a CRM enabler.
Understanding customers and their buying behaviour is essential and by using the latest technologies powered by the internet they hold many advantages for businesses.
This includes online marketing to advertise the business and to increase its ability to reach potential customers.
Technology is essential for building customer relationships and more specifically to
Enhance customer care and service by:
- identify the best customer
- establish the product or service that needs to be provided
- enhance capabilities
- manage costs and value of relationships
- function as a control mechanism
- customise products
- customise communication and interaction
Customer retention
Customer loyalty is achieved by developing strategies directed at consumer retention.
In order to design and implement loyalty strategies effectively it is important to know which aspects customers perceive as benefits that they get from their established relationship, since this will have a positive influence on customer loyalty.
The key to customer retention is customer satisfaction.
A highly satisfied customer:
- stays longer
- buys more
- accepts newly introduced products
- talks favourably about the business
- pays less attention to competitive brands and advertisements
- costs less to serve than new customers.
Some businesses require salespeople to write a report on each customer who they have lost to enable them to take appropriate steps to restore customer satisfaction.
Lifetime value
Customer lifetime value presents the future profit that a company expects to make from a customer’s lifetime purchases.
A CRM mindset is, therefore, essential in building long- term relationships with customers.
Another essential element in building a relationship with a customer is to speak his or her language.
Customer loyalty
A common goal businesses share is to gain loyal consumers through an occasional purchase of a brand.
This occasional purchase has the potential to result in a repeat purchase if the customer is satisfied.
Customer loyalty is of value to businesses since it is easier to retain a satisfied and content customer and it requires less marketing effort than attracting a new customer.
Businesses with a large, loyal customer base are, therefore, more profitable, since they attract more consumer spending, and loyal customers are cheaper to serve than non-loyal customers.
Limitations of implementing CRM
Thorough research is essential for successful CRM implementation.
Factors that can complicate such implementation are:
- low added value
- insufficient lifetime value
- high investment costs related to product design and development
- the inability to implement CRM.
The Individual Customer Approach
In CRM the focus is on individual customers and the aim is to develop loyalty strategies within each of the various categories that profitable customers are divided into.
Developing CRM Strategies
Businesses develop appropriate loyalty strategies for different consumer groups.
Before strategies can be formulated the business has to know how much it will cost to serve each customer and the lifetime value that can be generated.
As soon as the organisation has analysed the customer lifetime value and the projected duration of the customer’s relationship, the organisation can place various consumer groups or segments into one of the following categories or quadrants:
- butterflies
- strangers
- true friends
- barnacles.
These four quadrants help the business to formulate appropriate CRM strategies. A brief description of each category or quadrant is as follows:
• Butterflies • Strangers • True friends • Barnacles .
