ERASMUS PROGRAMME- TEACHER s MOBILITY march 2013 RELATIONSHIP MARKETING IN SERVICES: Customer LTV and Retention Strategies Prof. Dr. LINA ANASTASSOVA Center for Business Studies BURGAS FREE UNIVERSITY www.bfu.bg
1.Traditional/orthodox marketing MARKETING is the analysing, organising, planning and controlling of the firm s resources, policies, and activities with a view to satisfying the needs and wants of chosen consumer/customer groups at a profit. Ph.Kotler, Marketing Management, 1967 The main framework for solving the marketing problems of the company is the concept for the four Ps.
Figure 1: The Orthodox/ Classical Marketing Mix Concept
Other concepts of the MARKETING MIX: The Marketing Mix of the 5 Ps (Charles Koffman) PRODUCT, PRICE, PROMOTION, PLACE, PEOPLE
Other Marketing Mix concept: The 7 Ps: Product Price Promotion Place Physical environment (very important for the customer experience- IKEA, Apple Computers, Marriott Hotels.. Processes
The fundamental concept of the marketing mix still applies today but We need to remember that these original frameworks for marketing actions were developed in an unique environment: They emerged from the United States during a period of growth and prosperity and focused on fast-moving consumer goods.
But since the 90ies the markets are totally different! During the closing years of the 20 th century some of these basic tenets of marketing were increasingly being questioned. 2. What changes in the consumer behaviour and the markets occure in the 90ies?
Consumers and customers became more sophisticated and less responsive to the traditional marketing pressures- particularly advertising. Brand loyalty is weaker than it used to be in the 7oies and 8oies because satisfied consumers does not more mean loyal consumers. Brand Satisfaction Brand Loyalty
As a result: many articles and papers are along the lines of Is marketing dead? In addition clients become more and more pretentious: the characteristic of a product/service which they perceived 5 years ago for an exceptional is now perceived as normal standard.
The consumer focus is not more on the functional characteristics of the product but on additional benefits and especially positive experience and feelings; Consumers and customers exchange knowledge and information not only among them but they communicate directly with the producers and traders as well;
RELATIONSHIP MARKETING in Services The marketing in the 21 st century is compressed: the cycle between the product launch and the product death is very short; The business environment and the competition became very unpredictable due to the dynamic technological changes;
So due to the changed markets and the changed consumer behaviour a need for new marketing paradygm emerged: and this marketing philosophy is called RELATIONSHIP MARKETING
The transactional approach has increasingly been replaced by a relationship marketing approach: From the focus on a single transaction profit to the focus on long-term relationship with customers!
Figure 3: Change from Transactional marketing to Relationship marketing Emphasis on Customer Retention Relationship marketing Emphasis on Customer Acquisition Transactional marketing Functionalitybased marketing Cross-functionally based marketing
3. THE PARADYGM of RELATIONSHIP MARKETING 3.1. The fundamental principles of relationship marketing: MAXIMISING THE CUSTOMER LIFETIME VALUE IS A FUNDAMENTAL GOAL and PRINCIPLE OF RELATIONSHIP MARKETING; Definition of Customer Life Time Value (LTV): The future flow of revenues/or net profit expected of every customer for defined time period.
The companies must recognise that not all customers are equally profitable and that they must develop/design strategies to enhance the profitability of those customers they seek to target. In essence, companies, need to tailor and customise their relationship marketing strategies even to the extent of so called one-to-one marketing.
Approaches for defining LTV: LTV gives an opportunity to quantify the marketing aims of the company. For instance to increase the LTV of the customer with 10%. In practice, increasing the LTV means to set 3 aims: To increase the period when the clients buy from the company (to increase the customer life cycle To increase the amounts spent for every purchase; To decrease the time between two purchases ;
Таble 1: Increasing LTV of the customer by achieving 3 goals Indicators Basic data After 10% increase/decrease of the indicators Average amount spent by a single purchase Average time period between the purchases Average duration of the customer relationship with the company 50.0 EU 55.0 EU 90.0 days 81.0 days 10 years (3650 days) Общо 50x 3650/90 = 2027.5 Eu 11 years (4015 days) 55x 4015/81= 2255.0 Eu 2255.0-2027.5 / 2027.5 x 100.0= 11.2 % increase of the LTV
Another approach for calculating the LTV: According to another concept for the essence of LTV the calculation of the LTV must include: (+) The volume of all customer expenses for buying company products during customer s live time cycle (S1); (+) Company revenue from attracted new customers through this customer (S2); (-) company expenses for the product production for this customer (Epp);
RELATIONSHIP MARKETING in servic es (-)marketing expenses for attracting this customer and for retaining him (Emrk); (-)company expenses for the discounts offered to this customer (Edisc); LTV = S1 + S2 Epp Emrk Edisc
Relationship marketing in services We have to divide this value by a discount rate to get the present value of the expected revenues! The discount rate is needed because future revenue and profits are not worth as much in today s money D= [1 + (i x rf )]ⁿ where D=dicount rate, i-interst rate, rf- the risk factor and n- number of years that company has to wait; Example: D=[1 + (0.08 x 2)]² D= 1.35
Relationship marketing in services There are some software for LTV CLTV tools http://blog.kissmetrics.com/wpcontent/uploads/2011/08/calculatingltv.pdf Starbucks cafe example
Two important reasons for determining the LTV of customers 1.One is to identify different valuations for customers with different characteristics. 2. Another could be the goal of influencing the behaviour of different customers and consequently changing their LTV;
Retaining the right customer over time has a strong impact on company profitability: According to Harvard Business School research articles: Extended life cycle of customers: increases the profit from increased purchases (cross selling); increases profit from reduces operating costs; Increases profit from refferals;
Some examples of services sector: Mobil TeL case: Mobil Tel- Bulgaria offers different opportunities for extending the live time cycle of its customers by offering different tariff plans and to increase the revenues received per customer. They give many bonuses for bigger monthly spending and for subscription of more than 2 years. For example: for 200 collected points the customer gets 6 months per 30 gratis SMS or for 2 years subscription the customer gets the cheapest tariff plan, some times mobile phone as gift, home telephone gratis etc..
The Case of HAPPY BAR AND GRILL and some other restaurants. The Loyalty Card provides many benefits for the regular customers: preferred table, special discounted menu, home delivery, reserved parking place etc.
THE SECOND FUNDAMENTAL PRINCIP OF RELATIONSHIP MARKETING IS THE CONCEPT OF FOCUSING MARKETING ACTION ON MULTIPLE MARKETS: For the conventional marketing the only market is the customer market (consumer and industrial markets) but according to RM there is a multiple market model. There are 6 important markets to deal with if a company wants to be successful and to retain the most valuable clients:
FIGURE 4: RELATIONSHIP MARKETING: THE SIX MARKETS MODEL Customers Suppliers Employees (to treat the employees as customers) Distributors Alliance partners Influencers
THE THIRD KEY PRINCIPLE of RELATIONSHIP MARKETING IS THAT IT MUST BE CROSS-FUNCTIONAL; MARKETING IS TOO IMPORTANT TO BE LEFT ONLY TO THE MARKETING DEPARTMENT David Packard, co-founder of Hewlett Packard This is a call to bring marketing out of its functional silo and distribute some functions and tasks to other departments. All employees must be involved in and devoted to the activities for establishing long-term relations with customers.
3.2. Characteristics of Relationship marketing Emphasises a relationship, rather than a transactional approach to marketing; extends the principles of traditional marketing to a range of diverse market domains, not just customer markets; recognises that quality, customer service and marketing need to be much more closely integrated;
Figure 5: Bringing together customer service, quality and marketing QUALITY MARKETING CUSTOMER SERVICE
understands the economics of customer retention and so that resources are appropriately allocated between the two tasks of retaining and attracting customers; highlights the critical role of internal marketing in achieving external marketing success;
ensures that marketing is considered in a cross- functional context; switch from focus on market share (volume) to share from the wallet of the customer;
4. The benefits of retaining satisfied customers: Researchers and management consultants found that retained customers are more profitable than new customers for the following reasons: - the cost of acquiring new customers can be substantial. A higher retention rate implies that fewer customers need be acquired more cheaply;
- established customers tend to buy more; - regular customers place frequent, consistent orders and, therefore, usually cost less to serve; - satisfied customers often refer new customers to the supplier at virtually no cost;
- satisfied customers are often willing to pay premium prices for a supplier they know and trust; - retaining customers makes market entry or share gain difficult for competitors;
5. From transaction to relationships with customers Relationship marketing paradygm differs from transactional marketing in a number of important ways.
Table 2: Transactional marketing v/s Relationship marketing Transactional marketing Focus on volume Emphasises product features Short timescale Relationship marketing Focus on profitable retention Emphasises customer value Longer-term timescale Little emphasis on customer service Moderate customer contact Primary concern with product quality High customer service emphasis High customer contact Concern with relationship quality
Conclusion: As the old model of transactional marketing is inadequate to cope with today s business environment, marketing has entered a new era. In an environment characterised by increasing global competition and overcapacity, the focus has to switch from volume growth to profit growth.
6. STRATEGIES FOR RETENTION AND DEVELOPMENT OF CUSTOMERS One of the strategic aims of the Relationship marketing is to retain the valuable customers which means that the company first have to take the decision: which customers are valuable and deserve to be retained and loved.
6. POSITIVE RETENTION STRATEGIES 6.1. Satisfying and exceeding customer expectations In order to satisfy the customer expectations and desires the company must listen to the clients and understand them. The company must know well which are the priorities in the customer expectations and to deliver them.
Means/tools for collecting and analysing the data for the customers; -market research (primary and secondary information) ; -customer reports; - data base with customer profiles; - panel research; -interactive web sites (forums, feed back section); - online survey; -direct contacts with the customers etc.
Important: Exceeding customer expectations means delighting the customer. Some efforts for delighting the customer may be not the appropriate ones : for instance to deliver a service faster not always means better. Proactive Approach to Exceeding Customer Expectations Understand market and customer expectations;
Segment customers based on multidimensional criteria; Define customer service strategies and goals based on customer segments; Define core business processes that support service strategies;
Develop metrics which are quantifiable and actionable; Build organizational support and capability; Implement strategies and action plans; Measure, analyze and interpret information;
6.2. Discovering ways to add value Schemes for rewarding the loyalty: The successful schemes provide 5 types of value for the participants: Cash value: what is the size of the bonus in cash compared to the amount spent for getting it; Value of the choice: how big is the variety of offered bonuses;
Desired value: to what extend the client wants the bonus; Relative value: how accessible are the bonuses; Value of convenience: how easy is the collection of points/credits in order to get the amount required for the concrete bonus;
EXAMPLES FOR GOOD PRACTICES in Relationship Marketing of BULGARIAN COMPANIES in hotel, restaurant and retail sector POSITIVE RETENTION STRATEGIS STRATEGY ADDING VALUE by using the second method in its frame: PRORGRAMMES FOR AWARDING THE LOYALTY: HOTEL CHAIN SHARLOPOV : S- CLUB CARD: The club card offers a variety of benefits for the loyal customers including:
- 10% discount of the prices on reception; -10% discount in the restaurants and bars of the hotel chain; - 10% discount in the Spa-Center - Priority for the reservations; - Choice of favourable room;
Additional bonuses: free weekends, free dinners, free short trips, gifts; Free bulletin of the chain with news, new offers and promotions; Effects: increased revenues from the loyal customers by 12-15%; increased customer life-time value
GRAND HOTEL POMORIE (Award of IHRA 2008 The Best Hotel on the Balkans ) GHP VIP CLUB The loyalty card guarantees a variety of benefits for the regular customers including: -10% discount of the prices on reception; -10% discount in the sky bar, winter garden and the main restaurant;
- 10% discount in the Spa-Center - Priority for the reservations; - Choice of favourable room; - Additional bonuses: free nights, free dinners, free sightseeing of important cultural sites around, gifts;
RELATIONSHIP MARKETING in tourism and services Examples from the international chains: The international hotel chains offer for their loyal customers different club cards: Hyatt- Gold passport with three levels; The Marriott club card has also 3 levels: Exceptional bonuses, Platinum cards, Dyamond cards;
LOYALTY CARDS in the RESTAURANTS in Bulgaria There are many restaurants in Bulgaria providing for their regular clients the so called Loyalty cards which guarantee between 5 and 10% discounts of every order: Restaurant California - Burgas Cafeterias Face - Burgas
Relationship marketing in services RM with partners: Strategy of Co-branding: 1. MOBILE operator GLOBUL and banks or book shops: When customers of Globul use the credit card of a partner bank, they get a bonus- discount of the monthly bill.
Relationship marketing in services 2. Globul and book shop Helikon in Bulgaria Depending of the customers turnover over POS-terminal he can receive up to 500 minutes in the Globul network.
Example from retail sector: SUPER MARKETS PICCADILLY (14 years successful history of the chain): PICCADILLY CLUB is a loyalty programme for accumulating points during shopping every 5 leva is aqual to 1 point. www.piccadilly.bg
They are valid for the period of one year and can be transferred to another card if they are not less than 20. THE COMPANY STAFF treated as an internal customer (staff care, not only customer care!)
Induction training; Every year courses and seminars for professional dvlp; Since 2005- Center for Training and Qualification: yearly over 200 associates trained;
Relationship marketing in services 7. Strategies for winning back the lost clients Compensation strategy: the default products are replaced by other not defected products and the client gets a small gift or discount for other products;
Relationship marketing in services Stimulating strategy: this strategy is similar with the strategy for winning new clients (the company uses sales promotions and different types of discounts for winning back the disappointed and lost clients; Improving strategy: this strategy includes actions for repairing default products, for improving services or solving some problems of unsatisfied clients
Relationship marketing in services 8. TYPES OF RELATIONSHIPS in the B2B context Social bonds: The social bonds are in essence the positive interpersonal relations between the customers and the suppliers. The main characteristic of the social bonds is the trust: not everything in the business connectionis written down, sometimes there can be a verbal promise which is with the same power like contract.
Relationship marketing in services Structural bonds: Their characteristic is that one company invests in activities of the other or both companies invest in each other s activities: Financial bonds: when the vendor offers financial incentives for retention of the company-client; Legal bonds: when both companies- supplier and client have a contract, co-ownership which connects them for joint activities and joint competitive advantage;
Relationship marketing in services Technological bonds: when the technologies of both companies are connected and synchronized: for instance electronic data exchange, software for CRM; Material bonds: when both companies invest in a joint offering in order to prepare a competitive offer for the customers (for instance some suppliers of retail shops for food invest in the shop equipment but with the aim to improve the customer service;
Relationship marketing in services Software support for Relationship marketing in B2B: CRM tool: The CRM systems provide access to the entire history of every customer or prospect; enables the company to analyse the marketing effectiveness of the campaigns and relationships; MAXIMIZER CRM software, http://www.maximizer.com/
Conclusion: The Relationship marketing is not an universal panacea although it works in most cases: especially in all kinds of services, in the hotel and restaurant sectors, in professional services, in hypermarkets, in B2B sector etc.
Thank you very much for your attention and welcome to BULGARIA!