Customer Behavior and Customer Relationship Management

1
Customer Behavior and Customer Relationship
Management

• Who are we in business for?

2
Key Issues

• Different customer strategies
• Consumer behavior
• Business behavior
• Customer retention (i.e., the focus of customer
  relationship management, CRM)

3
Customer Strategies

• Get more customers (market share)
• Acquire profitable ones
• Keep customers longer
• Retain them
• Reduces costs of serving them
• 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
• Fire unprofitable customers
• 1-4 Frequently stated as an OBJECTIVE in the
  marketing planning process

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To fulfill customer objectives.

• have to understand customers

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What do customers expect?

• What are they?
• Do we meet them?
• Expectancy-Disconfirmation Model
• Applies to organizational and consumer markets

6
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.

7
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

8
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
9
What Influences Consumer Purchasing?

• External Influences
• Culture
• Social class
• Family
• Peers
• Situational Factors

• Internal Influences
• Economic Resources
• Time
• Cognitive Resources
• Motivation and needs
• Lifestyles
• Expectations

10
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?

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Model of Customer Participation
Antecedents
Consequences
Affective
Personalization
Brand Loyalty
Cognitive
Community
Behavioral
Task vs. Experiential Orientation Other
Personal Factors
Holland and Baker 2001
12
Lifestyles
VALS 2 Classification System Based on the idea
that lifestyle predicts consumer behaviors
2003 Prenticehall Kotler slide
13
Organizational Buying

• Compared to consumer markets, business markets
  have
• Fewer buyers
• Larger buyers
• Geographically concentrated buyers
• Closer relationships with suppliers/customers

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Purchasing/Procurement Process

• Eight Buyphases of Industrial Buying
• Problem Recognition
• General Need Description
• Product Specification
• Supplier Search
• Proposal Solicitation
• Supplier Selection
• Order Routine-Specification
• Performance Review

Key issues Know who is involved and how to
reach them at various stages of the process.
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Influences on Business Buyers
Figure 7-1 Major Influences on Business Buying
Behavior
2003 Prenticehall Kotler slide
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Influences on Business Buyers
Plastics.com offers buyers and sellers of
plastics a marketplace plus news and information
2003 Prenticehall Kotler slide
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Recall the Characteristics of Organizational
Buying

• Fluctuating demand
• Inelastic demand
• Leasing
• Professional purchasing
• Multiple buying influences
• Direct purchasing
• Reciprocity
• Derived demand
• Multiple sales calls

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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

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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?

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Organizational Buying
Fedmarket assists those businesses seeking to do
business with the federal government.
2003 Prenticehall Kotler slide
21
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

22
Discuss

• Businesses commonly lose 15-20 of their
  customers each year
• For what reasons do people defect?

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Types of defectors

• Price
• Product
• Service
• Market
• Technological
• Organizational
• Snob

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Benefits of C.R. from the Firms 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.

25
Discuss

• What is the 20/80/30 Rule? Why is it important
  to remember this rule?

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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

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Benefits of C.R. from the Customers Perspective

• Reduces risks
• Social benefits
• Contributes to a sense of well-being
• Efficiencies in ordering
• Sharing of information and transparency of
  processes

28
Increasing Importance of Customer Retention

• Markets are stagnant
• Increase in competition
• Rising costs of marketing
• Changes within the channels of distribution
• Customers have changed

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Also consider.

• If a firms goal is 15 growth
• At 95 retention customer acquisition rate must
  be 20
• At 80 retention customer acquisition rate must
  be 35

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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)

31
Creating Strong Customer Bonds

• Keys to Success

• Adding Structural Ties
• Create long-term contracts
• Charge less for ongoing purchases
• Link product to long-term service
• Examples?

• Adding Financial Benefits
• Frequency programs
• Club memberships
• Examples?
• Adding Social Benefits
• Personalize customer relationships
• Examples?

32
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
33
Other Retention Programs

• Cause marketing
• Data-base targeting/marketing
• Aftermarketing
• Service guarantees

34
Cause Marketing
http//www.yoplaitusa.com/breastcancer_commitment.
aspx
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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?contenttarget
5fcg5findex
36
Database Targeting

• Learns your preferences and caters to those
  preferences
• CDNow.com
• Amazon.com
• Hilton
• Coldwater Creek

37
Aftermarketing

• Follow-up after the sale
• Chevy Venture Warner Brothers Version
• DVDs, soccer blanket, bag, toys for kids, gift
  certificate to buy off of WarnerBrothers.com,
  service coupons
• Piano
• Metronome

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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/serviceguaran
tee.php
39
Retention Programs are Worthwhile When

• They neutralize the competition
• Broaden availability of service (increase market
  share)
• Directly enhance value
• But NOT when
• Its a me-too
• Reference Dowling and Uncles

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Customer Profitability Analysis
Prenticehall 2003 Kotler slide
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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.