Customer Behavior and Customer Relationship Management Who are we in business for? Key Issues Different customer strategies Consumer behavior Business behavior Customer retention (i.e., the focus of customer relationship management, CRM) Customer Strategies 1. Get more customers (market share) Acquire profitable ones 2. Keep customers longer Retain them Reduces costs of serving them 3. Grow current customers into bigger customers (share of customer) Up-selling additional products for one problem Cross-selling other products for different problems Give them benefits for referrals 4. “Fire” unprofitable customers 1-4 Frequently stated as an OBJECTIVE in the marketing planning process To fulfill customer objectives…. have to understand customers What do customers expect? What are they? Do we meet them? Expectancy-Disconfirmation Model Applies to organizational and consumer markets Discuss Why do you think many firms do such a poor job of understanding the needs, wants, and expectations of their customers? Do they buy into the “better mousetrap” philosophy and believe that quality is the only necessary requirement of maintaining customer relationships? Explain. Satisfaction Metrics Where Satisfaction = Expectations – Perceptions: Financial Performance Marketing Performance Customer Retention rates Customer Attrition Rate Customer Recovery Rate Referrals Viral marketing (what they say on the Internet) Importance Performance Evaluations How do consumers decide what to buy? Key issues: Know who is involved and how to reach them at various stages of the process. 2003 Prenticehall Kotler slides What Influences Consumer Purchasing? External Influences Internal Influences Culture Economic Resources Social class Time Family Cognitive Resources Peers Motivation and needs Situational Factors Lifestyles Expectations Motivations and Needs Task motives Functional, get the job done Experiential motives Have fun while doing the activity Consider strategies used to create loyalty on the Internet Personalization Community building How effective would these be given the different consumer motives above? Model of Customer Participation Antecedents Consequences Affective Personalization Brand Loyalty Cognitive Community Behavioral >Task vs. Experiential Orientation >Other Personal Factors Holland and Baker 2001 Lifestyles VALS 2 Classification System Based on the idea that lifestyle predicts consumer behaviors 2003 Prenticehall Kotler slide Organizational Buying Compared to consumer markets, business markets have: Fewer buyers Larger buyers Geographically concentrated buyers Closer relationships with suppliers/customers Purchasing/Procurement Process Eight Buyphases of Industrial Buying 1. Problem Recognition 2. General Need Description 3. Product Specification 4. Supplier Search 5. Proposal Solicitation 6. Supplier Selection 7. Order Routine-Specification 8. Performance Review Key issues: Know who is involved and how to reach them at various stages of the process. Influences on Business Buyers Figure 7-1: Major Influences on Business Buying Behavior 2003 Prenticehall Kotler slide Influences on Business Buyers Plastics.com offers buyers and sellers of plastics a marketplace plus news and information 2003 Prenticehall Kotler slide Recall the Characteristics of Organizational Buying Fluctuating demand Inelastic demand Leasing Professional purchasing Multiple buying influences Direct purchasing Reciprocity Derived demand Multiple sales calls Organizational Buying The Business Market Includes For-Profit Companies and Two Specialized Groups: The institutional market Schools, hospitals, prisons, etc. with a “captive” audience Cost and quality standards drive purchases The government market Bidding process awards contracts Discussion Your firm is interested in targeting the government market. How might this decision influence the marketing mix? How is selling to the government market different from selling to other business markets? How do needs differ? Organizational Buying Fedmarket assists those businesses seeking to do business with the federal government. 2003 Prenticehall Kotler slide Customer Retention Focus Recognizes leaky bucket* Recognizes polygamous loyalty Directs marketing efforts to current customers (relationships) Opposite of conquest marketing Always offering discounts to get new customers Discuss Businesses commonly lose 15-20% of their customers each year For what reasons do people defect? Types of defectors Price Product Service Market Technological Organizational Snob Benefits of C.R. from the Firm’s Perspective Profits derived from sales Reducing defections by 5% can boost profits 25-85% Profits from reduced operating costs It is 3-5 times cheaper to keep a customer than recruit a new one Profits from referrals Positive effects of W.O.M. Discuss What is the 20/80/30 Rule? Why is it important to remember this rule? The 20-80-30 Rule 20% of your customers Generate 80% of your profit Half of your profit is lost serving the bottom 30% of your customer base Benefits of C.R. from the Customer’s Perspective Reduces risks Social benefits Contributes to a sense of well-being Efficiencies in ordering Sharing of information and transparency of processes Increasing Importance of Customer Retention Markets are stagnant Increase in competition Rising costs of marketing Changes within the channels of distribution Customers have changed Also consider…. If a firm’s goal is 15% growth: At 95% retention – customer acquisition rate must be 20% At 80% retention – customer acquisition rate must be 35% Defection Management Process Communicate to employees the importance of retaining customers Train employees Monitor the service delivery process Tie employee incentives to defection rates Consider creating switching barriers Be there when needed most (e.g., State Farm) Creating Strong Customer Bonds Keys to Success Adding Financial Adding Structural Ties Benefits Create long-term Frequency programs contracts Club memberships Charge less for ongoing Examples? purchases Link product to long-term service Adding Social Benefits Examples? Personalize customer relationships Examples? Creating Strong Customer Bonds The U.S. Harley Davidson site promotes the benefits of joining H.O.G. (Harley Owners Group) Prenticehall 2003 Kotler slide Other Retention Programs Cause marketing Data-base targeting/marketing Aftermarketing Service guarantees Cause Marketing Yoplait is Committed to Fighting Breast Cancer! For more than ten years, Yoplait has been committed to breast cancer and women’s wellness programs: •2003 marks the sixth anniversary of Save Lids to Save Lives, its signature pink-lid promotion •Yoplait has been the National Series Presenting Sponsor of the Susan G. Komen Breast Cancer Foundation’s Race for the Cure since 2001 •This year Yoplait has partnered with SELF magazine and the Komen Foundation to create “Yoplait 25 Champions in the fight against breast cancer,” a search to uncover 25 ordinary people doing extraordinary things in the fight against breast cancer http://www.yoplaitusa.com/breastcancer_commitment.aspx Cause Marketing When Target first opened, in 1962, it made a strong commitment to support and empower the communities its stores serve. Target follows up that commitment by giving back over $2 million each week to neighborhoods, programs and schools across the country. Target has store-based grant making that supports projects promoting the arts, education, and peace at home. Why? Because there is no better place to see a masterpiece than reflected in the eyes of a child; there is no greater return on investment than seeing a child excel; and because a happy home encourages a child to dream and achieve. http://target.com/common/page.jhtml?content=target%5fcg%5findex Database Targeting Learns your preferences and caters to those preferences…… CDNow.com Amazon.com Hilton Coldwater Creek Aftermarketing Follow-up after the sale… Chevy Venture Warner Brothers Version DVD’s, “soccer” blanket, bag, toys for kids, gift certificate to buy off of WarnerBrothers.com, service coupons Piano Metronome Service Guarantees Time Warner Cable – New York Capital Region •If you are not satisfied with our programming or service during your first month of cable service, upon request we will disconnect your service and promptly refund the monthly service fee. •We will be on time for your installation appointment or your installation is free. •We will be on time for your service appointment or you will receive a $20 credit on your next bill. •We will correct any billing problem the first time you call or you will receive a $20 credit on your next bill. We will credit your account for major service interruptions in excess of four hours. (New York state requires cable operators to issue service credits for outages of four hours or more consistent with Section 590.65 of NYS Public Service Commission Cable TV rules and regulations.) Posted Nov. 5, 2002 http://www.twalbany.com/customercare/serviceguarantee.php Retention Programs are Worthwhile When: They neutralize the competition Broaden availability of service (increase market share) Directly enhance value But NOT when It’s a “me-too” Reference: Dowling and Uncles Customer Profitability Analysis Prenticehall 2003 Kotler slide Marketing Opportunity Analysis – Customer Analysis Existing Customer Segment(s) - customer needs - demographic/psychographic profile - existing marketing strategies - significant opportunities - major threats - company resource match Potential Customer Segment(s) - potential needs - demographic/psychographic profile - significant opportunities - major threats - company resource match This is part of a potential outline for a marketing plan.
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