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 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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