Professional Documents
Culture Documents
Managing Relationships
and Building Loyalty
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 1
Four Stages of Brand Loyalty in a Consumer
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 2
Loyalty is Important to Profitability :
Index of Customer Profits over Time (Fig. 12.1)
(Year 1=100)
350 –
300
250
200
150
100
50
0
Year 1 Year 2 Year 3 Year 4 Year 5
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 3
What Makes Loyal Customers More Profitable?
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 4
Analyzing Why Customers Are More Profitable
over Time (Fig. 12.2)
1 2 3 4 5 6 7
Year Source: Reichheld and Sasser
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 5
Measuring Customer Equity:
Calculating Life Time Value of Each Customer
Value at Acquisition
revenues (application fee + initial purchase)
Less costs (marketing +credit check + account set up)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 7
Types of Relationships with Customers (Table 12.1)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 8
Basic Segmentation Issues:
Building an Appropriate Customer Portfolio
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 9
Service-Relevant Segmentation Variables
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 10
Identifying and Selecting Target Segments
(Mgt Memo 12.2)
User characteristics
demographics
psychographics
geographic location
benefits sought
User behavior
when, where, how services used
quantity/value of purchases
frequency of use
profitability of relationship
sensitivity to marketing variables
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 11
Portfolio of Professional Assignments (Fig. 12.4)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 12
The Customer Pyramid (Fig. 12.5)
Good Relationship
Customers
Which segment sees high value in
our offer, spends more with us over
Platinum time, costs less to maintain, and
spreads positive word-of-mouth?
Gold
Poor Relationship
Customers
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 13
How Customers See Relational Benefits in
Service Industries (Research Insights 12.1)
Confidence benefits
less risk of something going wrong, less anxiety
ability to trust provider
know what to expect
get firm’s best service level
Social benefits
mutual recognition, known by name
friendship, enjoyment of social aspects
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 14
The Customer Satisfaction-Loyalty Relationship
(Fig. 12.6)
Apostle
100
Zone of Affection
80
Loyalty (Retention)
Near Apostle
60 Zone of Indifference
40 Zone of Defection
20
Terrorist 0
1 2 3 4 5
Very Neither Very
dissatisfied Dissatisfied satisfied Satisfied Satisfied
nor dissatisfied
Satisfaction
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 15
The Wheel of Loyalty (Fig. 12.7)
3. Reduce 1. Build a
Churn Drivers Foundation
for Loyalty
Conduct churn diagnostic
Segment the market
Address key churn drivers
Be selective in acquisition
Enabled through:
Implement complaint
handling & service Use effective tiering
Frontline staff of service.
Account
recovery Customer
Increase switching Deliver quality
managers
Membership costs
Loyalty service.
programs
CRM
Systems 2. Create Loyalty
Bonds
Build higher Deepen the
level bonds relationship
Give loyalty
rewards
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 16
Rewarding Value of Use, Not Just Frequency at
British Airways (Best Practice in Action 12.2)
Dedicated reservations
Reservations assurance
Priority waitlist and standby
Advance notification of delays
exceeding 4 hours
Upgraded check-in
Preferred boarding
Special services assistance
Bonus air miles
Upgrade for two
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 17
Drivers of Service Switching (Fig. 12.9)
Service
ServiceFailure
Failure/ /Recovery
Recovery Value
ValueProposition
Proposition
Core Service Failure
• Service Mistakes Pricing
• Billing Errors • High Price
• Service Catastrophe • Price Increases
• Unfair Pricing
Service Encounter Failures • Deceptive Pricing
• Uncaring
• Impolite Service Inconvenience
• Location/Hours
• Unresponsive
• Unknowledgeable Switching • Wait for Appointment
• Wait for Service
Response to Service Failure
• Negative Response
Competition
• No Response • Found Better Service
• Reluctant Response
Others
Others
Involuntary Switching Ethical Problems
• Customer Moved • Cheat • Unsafe
• Provider Closed • Hard Sell • Conflict of Interest
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 18
Common CRM Applications (Mgt Memo 12.2)
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 19
Customer Relationship Strategies with CRM
Systems: Key Questions
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 20