978-0078112102 Chapter 6 Lecture Note

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CHAPTER 6:

BUILDING CUSTOMER RELATIONSHIPS

CHAPTER TOPICS

Relationship Marketing

Relationship Value of Customers

Customer Profitability Segments

Relationship Development Strategies

Relationship Challenges

Technology Spotlight: Customer Information Systems Help Enhance the Customer Relationship

Global Feature: Developing Loyal Customers at Airbnb

Strategy Insight: “The Customer Is Always Right”: Rethinking an Old Tenet

CHAPTER OBJECTIVES

1. Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and

customers.

2. Explain why and how to estimate customer relationship value.

3. Introduce the concept of customer profitability segments as a strategy for focusing relationship

marketing efforts.

4. Present relationship development strategies – including quality core service, switching barriers, and

relationship bonds.

5. Identify challenges in relationship development, including the somewhat controversial idea that “the

customer is not always right.”

LECTURE TIPS & AIDS

1. Figure 6.5 summarizes various retention strategies discussed in the chapter. One way to cover

this material in class would be to divide the class into four groups and have each group be

responsible for providing examples (beyond those in the textbook) of firms that are creating each

of these types of bonds with their customers. In addition to discussing the advantages of each

type of bond, students might also be asked to discuss the drawbacks of each type of bond from

both the customer’s and the service provider’s point of view.

2. To drive home the importance of relationships with customers, have students calculate the

lifetime value of a customer in various services industries. Student could be divided into teams of

2-4 persons and asked to calculate the lifetime value of a customer to a typical firm in whatever

industry they choose (or are assigned) using the questions listed below as a framework. Students

may need to make assumptions in order to do this, but one of the questions asks students to

explicitly state those assumptions. Students could work through the following questions on a

worksheet and, after completing them, be asked to present and defend the calculations (and

assumptions) to the class:

1. Who is the “customer” you are focusing on? Describe the average customer using relevant

characteristics.

2. What is the average “lifetime” of a customer in this industry? Explain your response.

3. Do the customer’s spending patterns change over a lifetime? Why or why not?

4. What would be a relevant time period to use in calculating customer revenue? What is the

typical revenue (per loyal customer) over this time period?

5. Are there costs involved in serving the loyal customers? If so, what are these? Should these

costs be considered in the lifetime value calculations? Why or why not?

6. What is the likely number of referrals that come directly as a result of the lifetime customer’s

recommendations? (Be realistic.) Explain your response.

7. What assumptions are you making in order to do your calculations? List all assumptions that

are applicable. (It is very likely you will be making multiple assumptions for each number

you use in your calculations.)

8. Use all of the relevant numbers (based on your assumptions) together to calculate the Lifetime

Value of a customer in this industry.

9. Based on your calculations and assumptions, what is the lifetime value of a customer to an

organization in this industry?

3. One topic that students may disagree with is “the customer isn’t always right.” Students who have

taken several business (particularly marketing) classes may have been overwhelmed with the notion

THE CUSTOMER IS ALWAYS RIGHT. In order to generate lively class discussion, the instructor

might get a sense of whether the class agrees or disagrees with this statement and then take an

adversarial point of view. One way to introduce the topic would be to bring in a video clip from a

television show of a particularly poorly executed service encounter or one where the customer may

not be right (sitcoms and movies are often good sources). (Several such clips are listed later in this

section for Chapter 6.) After viewing the clip, students could discuss who is right, the customer or

the service provider.

QUESTIONS TO USE WITH CHAPTER OPENING VIGNETTE

Chapter 6: USAA

1. Based on the information in the opening vignette, describe some of the strategies and tactics that

USAA uses to build long-term relationships with its customers.

2. Now, research the company online through its social media presence and on its website. What

evidence can you find on these sites that further demonstrates USAA’s emphasis on building

relationships with its customers? Be as specific as you can.

3. Could other service providers benefit from having their employees engage in an intense

empathy-building program similar to that used by USAA? Which ones? Why?

ACTIVE LEARNING ACTIVITIES

1. Think of a service organization to which you are loyal. What does it mean to be a loyal customer in

the context you are thinking of? That is, what are your thoughts, attitudes, and actions with respect to

this business? Why are you loyal to this organization?

2. What impact have the Internet and the World Wide Web had on the ability of companies to

individualize both their communications and their product offerings? Give specific examples. Do

you think this leads to greater customer loyalty? Why or why not?

POTENTIAL VIDEO CLIPS TO USE IN ILLUSTRATING CHAPTER 6 CONCEPTS

“1Jerry Maguire” – At the beginning of the movie, Jerry Maguire (Tom Cruise) writes a

mission statement that suggests focusing on customers. The movie dialog include this quote: “the

key to this business is personal relationships.” This clip could be used to emphasize the importance

of relationship marketing.

“Pretty Woman” – Julia Roberts, playing a hooker, enters a plush clothing store in

Hollywood, only to be asked to leave. In a later scene she returns, having spent an enormous amount

of money in another store, to tell the clerk (who works on commission) that not serving her was a

“big mistake!” This clip can be used to illustrate relationship marketing and the relationship value of

a customer.

“As Good As It Gets” – Jack Nicholson, play an eccentric writer, is extremely rude to a

couple who is sitting at his regular table at this regular restaurant. In a later scene, after being rude to

the “new” waitress (not his “regular” one), he is asked to leave the restaurant by the manager and to

never return. This clip could be used to illustrate that perhaps the customer is NOT always right.

“Falling Down” – The main character (Michael Douglas) enters a fast-food restaurant and

orders breakfast 3 minutes after the firm stopped serving breakfast. The employees tell him he must

order from the lunch menu, leading him to state that “the customer is always right.” He eventually

pulls out a machine gun and demands breakfast (but, eventually, changes his mind and decides to get

lunch).

“Summer Rental” – Early in the movie a family of five is waiting in line at a restaurant in a

summer tourist town. The father (John Candy) gets upset when his family, who has been waiting

quite a while for a table, is told they will get the next table—only to be bypassed by another group of

five. This group includes a very prominent, local businessman—obviously a preferred customer of

the restaurant. This clip can be used to illustrate the concepts of customer profitability segments and

profitability tiers. It could also be used to supplement a discussion of the article Business Week

article, “Why Service Stinks.” [Brady, Diane (2000), “Why Service Stinks,” Business Week, October

23, 118-128.]

“The Jerk” – In the middle of the movie, the main character Navin (Steve Martin) takes his wife to an

expensive restaurant. He asks the waiter for some “good” Champaign (new stuff, not the “old” stuff).

Then he notices that there are snails on his wife’s plate (he did not know that “escargot” means

snails). He immediately decides that having the snails on her plate is not appropriate, even though

wife ordered escargot. He makes a big scene and disrupts others in the restaurant…this clip is an

illustration of the idea that the customer is NOT always right.

“Up in the Air” (2009). Chapters: Customer Motions, Customer Loyalty Hotel/Air, and Customer

Loyalty Reward. A loyal American Airlines customer (George Clooney) is shown in the airport

moving through it. The clip shows how easy the airline has made traveling for its most loyal

customers. This customer has a goal in the movie to become the seventh person ever to reach 10

million miles. Illustrates customer loyalty, customer and firm benefits, and customer profitability

segments.

POSSIBLE WEB SITES FOR CHAPTER 6

Company Location

Airbnb www.airbnb.com

Cardinal Health www.cardinal.com

Caterpillar www.caterpillar.com

FedEx www.fedex.com

Harley Davidson www.harley-davidson.com

Hilton Hotels www.hilton.com

Quicken www.quicken.com

USAA www.usaa.com

APPROPRIATE CASES FOR CHAPTER 6

From previous Zeithaml, Bitner, and Gremler Services Marketing text:

Zappos.com 2009: Clothing, Customer Service, and Company Culture [included in the sixth

edition of this text: Zeithaml, Bitner, and Gremler (2013) Services Marketing: Integrating

Customer Focus Across the Firm, New York, NY: McGraw-Hill Companies]

Merrill Lynch: Supernova [included in the sixth edition of this text: Zeithaml, Bitner, and

Gremler (2013) Services Marketing: Integrating Customer Focus Across the Firm, New York,

NY: McGraw-Hill Companies]

ISS Iceland [included in the sixth edition of this text: Zeithaml, Bitner, and Gremler (2013)

Services Marketing: Integrating Customer Focus Across the Firm, New York, NY: McGraw-Hill

Companies]

Giordano: Positioning For International Expansion [included in the fifth edition of this text:

Zeithaml, Bitner, and Gremler (2009) Services Marketing: Integrating Customer Focus Across

the Firm, New York, NY: McGraw-Hill Companies]

Virgin Mobile USA: Pricing for the Very First Time [included in the fifth edition of this text:

Zeithaml, Bitner, and Gremler (2009) Services Marketing: Integrating Customer Focus Across

the Firm, New York, NY: McGraw-Hill Companies]

Custom Research Inc. (A) [included in the fourth edition of this text: Zeithaml, Bitner, and

Gremler (2006) Services Marketing: Integrating Customer Focus Across the Firm, New York,

NY: McGraw-Hill Companies]

General Electric Medical Systems – [included in the fourth edition of this text: Zeithaml, Bitner,

and Gremler (2006) Services Marketing: Integrating Customer Focus Across the Firm, New

York, NY: McGraw-Hill Companies]

Starbucks: Delivering Customer Service [included in the fourth edition of this text: Zeithaml,

Bitner, and Gremler (2006) Services Marketing: Integrating Customer Focus Across the Firm,

New York, NY: McGraw-Hill Companies]

Chartered Bank of Canada [included in the first edition of this text: Zeithaml and Bitner (1996)

Services Marketing, New York, NY: McGraw-Hill Companies]

From other sources:

Canyon Ranch [Harvard Business School Case 9-805-027, 2005]

Carnival Cruise Lines [Harvard Business School Case 9-806-015, 2005]

Hilton HHonors Worldwide: Loyalty Wars [Harvard Business School Case 9-501-010, 2005]

 “Are Some Customers More Equal Than Others?” by Paul F. Nunes and Brian A. Johnson, HBR

Case Study, in November 2001, Harvard Business Review, 37-50.

Building Brand Community on the Harley-Davidson Posse Ride [Harvard Business School Case

9-501-015, 2000; Teaching Note 5-501-052; Video 9-501-801]