Session 4: Long-term Relationships

I have adapted the text from Chapter 7 (Kotler Keller, 2012) into my own words for Session 4 as follows:

Companies can increase customer perceived value (CPV) by increasing total customer benefit and decreasing total customer cost.  An increase in total customer benefit can be achieved by improving functionality, efficiency or the customer's opinion of the company's promise.  A decrease in total customer cost can be done two ways, by reducing the buyer's non-monetary costs like time and energy, or by reducing the products money cost, for example saving on running costs and repairs.  The value proposition is a promise that doesn't necessarily affect the company's profits.

Satisfaction is linked to loyalty.  Therefore marketing encourages the 80-20 rule of ditching unprofitable customers with low Customer Lifetime Value (CLV) and building long-term profitable customers.  Focus should be switched to attract and keep loyal customers.  This is enhanced by effective customer profitability analysis using the ABC accounting technique to avoid misallocation of marketing effort - putting money where the best returns are.  The marketing funnel identifies blockages in building loyalty within the potential target market and facilitates reduction in defection by using strategies such as up-selling, cross-selling, special treatment and subsidizing direct and indirect network advantages from "free" customers.  Behavioural segmentation uses the marketing funnel to develop campaigns to convert buyer-readiness stage to the next level.  Companies also try to get customers hooked by locking them into rewards programs and software advantages that would be costly to exit.  Marketers can learn from the four loyalty statuses (hard-core loyals, split loyals, shifting loyals and switchers) to study strengths and weaknesses.

Customer Relationship Management (CRM) and data mining provides great information about individual needs, trends and segments.  However, privacy issues relating to observing online behaviour are prompting government regulators to question the need for legislation in this area.

To identify which customers to attract and retain, companies look at market segments to recognize customer differences.  In addition to the usual variables of geographic, demographic, psychographic and behavioural segmentation, business markets also address operating variables, purchasing approaches, situational factors and personal characteristics of the buyer.  Roger Best has devised a 7-step approach to needs-based market segmentation.  Segments must be measurable, substantial, accessible, differentiable and actionable.  Michael Porter's 5 Forces analyses the long-run attractiveness of a market segment.

I also enjoyed the 'cut loose' style review of our lecture with Dr Cullen Habel last week which debated the relevance of the 80-20 rule in business.  Arguing its existence is beside the point; companies should build on their success by redirecting their ongoing marketing efforts to the most attractive market segments where the results speak for themselves, while taking care not to miss new opportunities (Question Marks).  Guess it's another way of looking at the BCG matrix - getting rid of the dogs.  Progressive organisations learn to identify the 'weak link' and take action.  I'm not so sure that 'bad' customers should be given to our competitors though as some people would suggest...

In researching the definition of customer loyalty on-line, a good read was found in the 2009 blog trails by Don Peppers and Esteban Kolsky's experiment.