Week 8: Managing Customer Relationships

Question 1

LO1: Explain importance of customer retention in service industries.

Answer 1

1. Opportunities to Cross sell other company services
2. Reduced Operating Costs:
3. Increased Purchases
4. Positive Word of Mouth Advertising

Question 2

LO2: Explain the economics of customer retention.

Answer 2

Profit stream from loyalty is more likely significant when:

• Marketing expenses required to get a new customer are high,
• Admin expenses to “enter” a new customer in system are high,
• Servicing costs are relatively low (e.g., as in retail banking),
• There are reasonable profit margins on sales,
• There is a high sales volume per customer,

Question 3

LO3: Outline strategies to develop, manage, and retain customer relationships. (Segments of Relational Markets- Diamond of Loyalty)

Answer 3

– Loyals:
– Habituals:
- Multibranders:
– Switchers:

Question 4

LO4: Describe foundations of successful customer retention.

Answer 4

• Begins with a good fit between the customers’ needs and the firms offerings
• Retention Strategy 1: Create Loyalty Bonds
• Retention Strategy 2: Build Switching Barriers
• Retention Strategy 3: Reduce Churn

Question 5

LO5: Understand customers’ loyalty motives.

Answer 5

1. Confidence benefits
2. Social Benefits
3. Special-Treatment Benefits
4. Reward based bonds
5. Customer Engagement