Relationship Value Of Customer

Relationship value of a customer is a concept or calculation that looks at customers from the point of view of their lifetime revenue and profitability contributions to a company.This type of calculation is needed when companies start thinking of building long-term relationships with their customers.

Factors That Influence Relationship Value:

The Lifetime or relationship value of a customer is influenced by the length of an average "Lifetime" the average revenues generated per relevant time period over the lifetime,sales of additional products and services over time,referrals generated by the customer over time,and costs associated with serving the customer.

Estimating Customer Lifetime Value:

If companies knew how much it really costs to lose a customer,they would be able to accurately evaluate investments designed to retain customers.One way of documenting the dollar value of loyal customers is to estimate the increased value or profits that accrue for each additional customer who remains loyal to the company rather than defecting to the competition.

Linking Customer Relationship Value to Firm Value:

The emphasis on estimating the relationship value of customers has increased substantially in the past decade.Part of this emphasis has resulted from an increased appreciation of the economic benefits that firms accrue with the retention of loyal customers.

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Benefits for Customers and Firms

Both parties in the customer firm relationship can benefit from customer retention.This is,it is not only in the best interest of the organization to build and maintain a loyal customer base,but customers themselves also benefit from long term associations.

Benefits for Customers:

Assuming they have a choice,customers will remain loyal to a firm when they receive greater value relative to what they expect from competing firms.Value represents a trade off for the consumer between the components.

Confidence Benefits:

Confidence benefits comprise feeling of trust or confidence in the provider along with a sense of reduced anxiety and comfort in knowing what to expect.One customer described his confidence that resulted from having developed a relationship with a service provider.

Social Benefits:

Over time,customers develop a sense of familiarity and even a social relationship with their service providers.These make it less likely that they will switch,even if they learn about a competitor that might have better quality or a lower price.This customer's description of her stylist in a quote from the research just cited illustrates the concept of social benefits.

Special Treatment Benefits:

Special treatment includes getting the benefit of the doubt,being given a special deal or price,or getting preferential treatment as exemplified by the following quotes from the research.

Benefits for Firms:

The benefits to organization of maintaining and developing a loyal customer base are numerous.In addition to the economic benefits that a firm receives from cultivating close relationships with its customers,a variety of customer behavior benefits and human resource management benefits are also often received.

Economic Benefits:

Research reveals that over the long run,relationship-oriented service firms achieve higher overall returns on their investments than do transaction oriented firms.These bottom line benefits come from a variety of sources,including increased revenues over time from the customer,reduced marketing and administrative costs,and the ability to maintain margins without reducing prices.

Customer Behavior Benefits:

The contribution that loyal customers make to a service business can go well beyond their direct financial impact on the firm.The first and maybe the most easily recognized,customer behavior benefit that a firm receives from long term customers is the free advertising provided through world of mouth communication.

Human Resource Management Benefits:

Loyal customers may also provide a firm with human resource management benefits.First,loyal customers may,because of their experience with and knowledge of the provider,be able to contribute to the co-production of the service by assisting in service delivery.often the more experienced customers can make the service employees job easier.

 

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The Evolution of Customer Relationship

Scholars have suggested that marketing exchange relationships between providers and customers often have the potential to evolve from strangers to acquaintances to friends to partners.

1.Customers as Strangers:

Strangers are those customers who have not yet had any transactions with a firm and may not even be aware of the firm.At the industry level,strangers may be conceptualized as customers who have not yet entered the market,at the firm level,they may include customers of competitors.clearly the firm has no relationship with the customer at this point.Consequently,the firm's primary goal with these potential customers is to initiate communication with them in order to attract them and acquire their business.

2.Customers as Acquaintances:

Once customer awareness and trial are achieved,familiarity is established and the customer and the customer and the firm become acquaintances,creating the basis for an exchange relationship.A primary goal for the firm at this stage of the relationship is satisfying the customer.In the acquaintance stage,firms are generally concerned about providing a value proposition to customers comparable with that of competitors.For a customer,an acquaintanceship is effective as long as the customer is relatively satisfied and what is being received in the exchange is perceived as fair value.

3.Customers as Friends:

As a customer continues to make purchases from a firm and to receive value in the exchange relationship,the firm begins to acquire specific knowledge of the customer,s needs,allowing it to create an offering that directly addresses the customer's situation.The provision of a unique offering,and thus differential value,transforms the relationship from acquaintance to friendship.A primary goal for firms goal for firms at the friendship stage of the relationship is customer retention.

4.Customers as Partners:

As a customer continues to interact with a firm,the level of trust often deepens and the customer may receive more customized product offerings and interactions.The trust developed in the friendship stage is a necessary but not sufficient condition for a customer firm partnership to develop.That is the creation of trust leads to the creation of commitment and that is the condition necessary for customers to extend the time perspective of a relationship.

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What is Relationship Marketing?

Relationship marketing essentially represents a paradigm shift within marketing away from an acquistitions focus towards a retention focus.Relationship marketing is a philosophy of doing business,a strategic orientation,which focuses on keeping and improving relationships with current customers rather than on acquiring new customers.This philosophy assumes that many consumers and business customer prefer to have an ongoing relationship with one organization than to switch continually among providers in their search for value.Building on this assumption and another that suggests it is usually much cheaper to keep a current customer than to attract a new one,successful marketers are working on effective strategies for retaining customers.

"Relationship marketing is the process of creating,maintaining and enhancing strong value,laden,relationship with customer and other stockholders."-->Philip Kotler.

"The term relationship marketing is an organization effort to develop a long term cost effective like with individual customers for mutual benefit."-->Kevin&Herley.

Creating
Maintaining
Enhancing
Strong Value.

Finally we can say,Relationship marketing is the process of creating,maintaining and enhancing strong value,laden,relationship with customer and other stockholders.
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Service Encounters

We have just finished a discussion of customer perceptions,specifically customer satisfaction and service quality.As discussed in our strategy insight,companies today recognize that they can compere more effectively by distinguishing themselves with respect to service quality,satisfaction and loyalty.Next we turn to what have been termend the building blocks for customer pereptions service encounters or moments of truth.Service encounters are where promises are kept or broken and where the proverbial rubber meets the road.

From the customer's point of view,the most vivid impression of service occurs in the service encounter or moment of truth,where the customer interacts with the service firm.

For example: among the service encounters that a hotel customer experiences are checking into the hotel,being taken to a room by a bellperson,eating a restaurant meal,requesting a wake up call,and checking out.You could think of the linking of these moments of trush as a service encounter cascade.It is in these encounters that customers receive a snapshot of the organization service quality and each encounter contributes to the customer's overall satisfaction and willingness to do business with the organization again.From the organization's point of view,each encounter thus presents an opportunity to prve its potential as a quality service provider and to increase customer loyalty.

Some services have few service encounters and others have many.The Disney Corporation estimates that each of its amusement park customers experiences about74 service encounters and that a negative experience in any one of them can lead to a negative overall evaluation.

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What is Customer Satisfaction?

                   "Customer is the King"

Everyone knows what satisfaction is,until asked to give a definition.Then,it seems,nobody knows.This quote from Richard Oliver,respected expert and long time writer and researcher on the topic of customer satisfaction,expresses the challenge of defining this basic of customer concepts.

In less technical terms,we interpret this definition to mean that satisfaction is the customer's evaluation of a product or service in terms of whether that product or service has met the customer's needs and expectations.Failure to meet needs and expectations is assumed to result in dissatisfaction with the product or service.

Although consumer satisfaction tends to be measured at a particular point in time as if it were static,satisfaction is a dynamic,moving target that may evolve over time,influenced by a variety of factors.

Expectation > Reality = Dissatisfaction

Expectation = Reality = Satisfaction

Expectation < Reality = Delight

"Satisfaction is the customer's fulfillment response.It is a judgement that a product or service features,or the products or service it self,provides a pleasurable level of consumption related fulfillment."    

                                                                                 >> Oliver

"Customer satisfaction is a person feeling of pleasure or his appointment one of resulting from comparing a product perceived or performance in relation to his or her expectations."

                                                                             

                                                                                  >> Kotler

"Customer satisfaction is the feeling that a product has net or exceeded the customers expectations."

                                                             >>Lamb.Hair&Medoniel

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Perception in Service Marketing

As a marketer he/she should keep in mind that perceptions are always considered relative to expectations.Because expectations may also shift overtime from person to person and culture to culture.We will be focusing on the perceived service box in in the gaps model.What is considered quality service or the things that satisfy customers today may be different tomorrow.Also keep in mind that the entire discussion of quality and satisfaction is based on customers perceptions of the service.

"Customer perceive service in terms of the quality of the services and how satisfied they are overall with their experiences."   ==>Valarie,A Zeithaml & Mary Jo Bitner

"Perception is the process by which sensations are selected, organized and interpreted." ==> Solomon

"Perception is the process by which an individual selects organizes and interprets into a meaningful and coherent picture of the world." ==> Schiffman and Kanuk

Finally we can say,a marketer should keep in mind that perceptions are always considered relative to expectations.Expectation may also shift over time from person to person and from culture to culture.

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The Experience is Marketing

Service are high in experience and credence qualities relative to goods,thus how consumers evaluate the actual experience of the service is critical in their evaluation process and their decision to repurchase later.

"The experience is marketing"=>James Gritmore & Joseph Pine

In this section we describe elements of consumer behavior that are relevant to understanding service experiences and how customers evaluate them.Many subsequent chapters in this book will provide you with tools and approaches for managing specific elements of the customer experience the heart of services marketing and management.

Services as Processes:

Because services are actions or performances done for and with customers,they typically involve a sequence of steps,actions and activities.Consider medical services.Some of the steps in medical care involve customers interacting with providers,other steps may be carried out by the customers themselves taking and other steps may involve third parties.The combination of these steps and many others along the way,constitute a process,a service experience that is evaluated by the consumer.

In many cases,the customers experience comprises interactions with multiple,interconnected organizations,as in the case of medical services,automobile insurance,or home buying.Diverse sets of experiences across the network of firms will likely influence consumers overall impressions of their experience.

Service Provision as Drama:

The metaphor of a theater is a useful framework for describing and analyzing service performances.Both the theater and service organizations aim to create and maintain a desirable impression before an audience and recognize that the way to accomplish this is by carefully managing the actors and the physical setting of their behavior.

Service Roles and Scripts:

Roles are combinations of social cues that guide and direct behavior in a given setting.Just as there are roles in dramatic performances,there are roles in service delivery.

For example,the role of a hostess in a restaurant is to acknowledge and greet customers,find out how many people are in their group and then lead them to a table where they will eat.The success of any service performance depends in part on how well the role is performed by the service actor and how well the team of players the role set of both service employees and customers act out their roles.

Some services are more scripted than others.Customers would expect very expensive,customized services such as spa vacations to be less scripted than mass produced services such as movie theaters and airline travel.

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Philip Kotler: Marketing

America knows how to market itself, its products, and its ideas. For better or for worse, for richer or poorer, American marketing creativity, power, and prestige influence consumers the world over.

PhilipKotler, best known for the marketing principle of the four Ps—product, price, promotion, and place—takes us on a guided tour of American marketing, including its origins and trends, its relationship to economics, and its criticisms. 

His talk will include examples of exemplary marketing. Kotler is professor of marketing at Northwestern University's Kellogg School of Management, and his textbooks serve as the basis for graduate business programs worldwide.

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Consumer Choise

1.Need Recognition:

The process of buying a service begins with the recognition that a need or want exists.Although there are many different ways to characterize needs,the most widely known is Maslow's hierarchy,which specifies five need categories arranged in a sequence from basic lower level needs to higher level needs.

Physiological Needs-

The recognition of these basic needs is fairly straightforward.Recall the last time you were on vacation,perhaps sightseeing in a new place.At some point around lunchtime,you recognized that you were thirsty and hungry and needed to stop and have lunch.

Safety and Security Needs-

Consumers seek to provide for their own and their loved ones shelter,safety and  security through many types of services.Parents are particularly focused on services that provide for their children's security and later in life these same people are often faced with needing services that will provide for their own aging parents.

Social Needs-

Social needs are critical to all cultures but are particularly important in the east.In countries like Japan and China,consumers place a great deal of value on social and belonging needs.They spend more time their families and work colleagues than do westerners and therefore consumer more services that can be shared.

Ego Needs-

Individuals also seek to look good to others and to feel good about themselves because of what they have accomplished.Needs to improve oneself and achieve success are responsible for the growth of education,training and other services that increase the skills and prestige of consumers.

Self-actualization-

Consumers desire to live up to their full potential and enjoy themselves.Some consumers purchase experiences such as skydiving,jungle safaris and bungee jumping for the pure thrill of the experience.

Information Search:

Once they recognize a need,consumers obtain information about goods and services that might satisfy this need.Seeking information may be an extensive,formalized process if the service or good is important to the consumer or it represents a major investment.

Personal and Non-personal Sources:

When purchasing goods,consumers make use of both personal and non-personal sources because both effectively convey information about search qualities.However,when purchasing services,consumers seek and rely to a greater extent on personal sources for several reasons.

Evaluation of Service Alternatives:

One reason involves differences in retailing between goods and services.To purchase goods,consumers generally shop in retail stores that display competing products in close proximity,clearly demonstrating the possible alternatives.

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Describe Search,Experience and Credence Attributes

One framework for isolating difference in evaluation processes between goods an services is a classification of properties of offerings proposed by economists.

1.In Search Qualities:

Attributes that a consumer can determine before purchasing a product are search qualities.

Example: Cloth,Car,House Etc.

2.Experience Qualities:

Attributes that can be discerned only offer purchase on during consumption are experience qualities.

Example: Restaurants food,Hire cutting,Plays item Etc.

3.Credence Qualities:

Characteristics that the consumer may find impossible to evaluate ever after purchase and consumption are credence qualities.

Example:Low service,Doctor service,Tour service Etc.

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Classification forms of service

A.Service by profit seeking firm:

1.Housing

2.Household operation

3.Recreation and entertainment

4.Personal care

5.Medical and other health care

6.Private education

7.Business and other professional services

8.Insurance,banking and other financial services

9.Transportation

10.Communication

B.Service by non-profit organization:

1.Education

2.Cultural

3.Religious

4.Charitable and philanthropic

5.Social cause

6.Social

7.Health care

8.Political.

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Importance of Service

Services are activity,benefits or satisfactions which are offered for sale or provided in connection with the sale of goods.Importance of service are given below:

1.Creating employment opportunities

2.Improvement standard of living

3.Change in life-style

4.Improvement of technologies and equipment

5.Increasing leisure time

6.Increasing awareness about education,health&fairness

7.Investment, saving & security

8.Quick communication and exchange of information

9.Higher wages

10.Optimum utilization of unused resources

11.Expanding global marketing concept

12.Increasing per-capita income

13.Attractive wage.

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Describe the characteristics that affect the marketing of service

There is general agreement that differences between goods and services exits and that the distinctive characteristics discussed in this section result in challenges for managers of services.

Characteristics of Service

1.Intangibility:

The most basic distinguishing characteristic of services is intangibility.Because services are performances or actions rather than objects,they cannot be seen,felt,tasted or touched in the same manner that you can sense tangible goods.

Philip Kotler & Kevin Lane Keller says,"Service intangibility means that services can not be seen,tasted,felt,heard or smelled before they are bought."

• Visualization
• Association
• Physical representation
• Documentation

2.Inseparability: Philip Kotler & Kevin Lane Keller sand's,"Service inseparability means that services cannot be separated from their providers,whether the providers are people or machines."

3.Variability: Philip Kotler & Kevin Lane Keller says,"Service variability means that the quality of the service depends on who provides them as well as when,where and how they are provided."

4.Perishability:

Perishability refers to the fact that services cannot be saved,stored,resold or returned.A seat on an airplane or in a restaurant,an hour of a Jawyer's time or telephone line capacity not used or purchased cannot be reclaimed and used or resold at a later time.

Philip Kotler & Kevin Lane Keller says, "Service perishability means that services can not be stored for later sale or use."

a)On the Demand side:

• Differential pricing
• Non peak demand
• Complementary

b)On the Supply side: 

• Part time employee
• peak time efficiency
• Increased consumer participation
• Shared service
• Facilities for future expansion

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What is Service?

Service are identifiable,intangible activities that are the main object of a transaction designed to provide want-satisfaction to customers.Service are benefits,activities or satisfactions which are offered for sale or provided in connection with the sale of goods.

 

• "Service is a task or activity performed for a buyer or an intangible that can not be handled or examined before purchase."

                                                                                                                    < Zikmund & d'Amico

• "Service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything."

                                                                                                         < Philip Kotler & Gary Armstrong

 

• "Service is a deed performed by one party for another."

                                                                                                     < McCarthy & Perreault.

• "A service is an intangible product that provides benefits to consumers and often involves human or mechanical effort."

                                                                                                               < Steven J. Skinner.  

 

1.Service can not be seen

2.Can not be tasted in service

3.Service can not be stored for later sale or use.

4.Service can not be separated from their providers

5.Service can not be smelled.

Finally we can say that,Service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.

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