978-1305405745 Chapter 14

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Chapter 14: Building Customer Relationships

CHAPTER 14: BUILDING CUSTOMER RELATIONSHIPS

CHAPTER OUTLINE

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1) What Is Customer Relationship Management?

LO1: Define customer relationship management (CRM) and explain its value to

small business.

i) Customer relationship management (CRM) is a “company–wide” business

strategy designed to optimize profitability, revenue, and customer satisfaction by

focusing on precisely defined customer groups.

ii) Focuses on customer rather than products

iii) Requires changes in company processes, systems, and culture

iv) All channels and media involved in marketing effort, from the Internet to field

sales

(1) Have students tell why they return to a business to purchase the same or

additional products. Then ask them if they have ever had a bad experience

with a purchase they have made from a business. Indicate you don’t want

them to tell the name of the business, but have them tell about what happened

and how the situation was resolved or not resolved.

a) Benefits of CRM to the Small Firm

i) Sales are either from a current customer or a new customer

ii) Both types of customer are important to the firm and should be carefully managed

(1) Emphasize CRM’s role in keeping existing customers and the economic

benefits of maintaining relationships with current customers: acquiring new

customers is expensive, long-time customers spend more, happy customers

make referrals to others, order-processing is cheaper for existing customers

and long-term customers will pay more for products.

b) Essential Materials For a CRM Program

i) Two vital aspects of CRM Program

(1) Outstanding relationships with customers

(2) Knowledge of consumer behavior

2) Outstanding Customer Relationships Through Extraordinary Service

LO2: Discuss the significance of providing extraordinary customer service.

i) Transactional relationship – an association between a business and a customer

that begins (or ends) with a purchase or a business deal

ii) Four basic beliefs underlie emphasis on providing exceptional customer service

(1) Small businesses possess greater potential for providing superior customer

service than do large firms

(2) Superior customer service leads to customer satisfaction

(3) Customer satisfaction results in a positive transactional relationship

(4) Positive transactional relationship lead to increased firm profits

a) Managing Customer Satisfaction

Chapter 14: Building Customer Relationships

i) Happy customers are loyal customers

(1) Companies control some factors that shape interactions with customers

(a) Product must meet basic expectations to satisfy customers and create

repeat business

(b) Customers expect assistance at purchase and after purchase if there are

problems

ii) Personal Attention

(1) Common signposts of extraordinary, persona, customer service:

(a) Doing business on a first-name basis

(b) Keeping in touch

(d) Customizing your service to meet customer preferences

(e) Addressing problems promptly

iii) Customer Experience Management

(1) CEM) – An approach that recognizes that, with every interaction, customers

learn something about a company that will affect their desire to do business

there in the future.

iv) Honest Relationships and Service After the Sale

(1) Research has shown that customers are significantly more satisfied and loyal

to a company and tend to give it even more future business if they receive

continued attention after a sale, and this is especially true if that contact is in-

person or via the telephone.

b) Evaluating a Firm’s Customer Service Health

i) Start with firm’s “customer service quotient” which indicates how well the firm is

currently serving its customers

ii) Exhibit 14-3 Customer Service Strategies lists some popular approaches to

creating customer service strategies

iii) Potentially small firms are able to respond to grievances quickly and achieve

greater customer satisfaction

iv) Exhibit 14-4 Consumer Options for Dealing with Product or Service

Dissatisfaction

v) Evaluating customer service is critical for any business

vi) Some forms of customer service are inexpensive or even free

3) Using Technology to Support a Customer Relationship Management

LO3: Understand how technology can be used to improve customer relationships

and the techniques used to create a customer database.

i) Many small companies keep track of their CRM number in a simple spreadsheet

that can be expanded and updated from time to time as the business grows.

ii) Selecting a software package is one thing; using it well is another.

(1) The list of tools supporting CRM grows larger every day.

a) Creating a CRM database

i) CRM databases will typically include the following seven categories of

information:

(1) Personal information

(2) Demographics

(3) Lifestyle and psychographic data

(4) Internet information

(5) Transaction data

(6) Profile of past responses

(7) Complaints

b) Using a CRM Database

i) An effective CRM program will do the following:

(1) Capture relevant customer data on interactions across important touch points

(2) Analyze that data to better understand customers

(3) Use those insights to better manage relationships with customers so that they

are satisfied, loyal to the company and its products or services, and more

willing to do business with it.

ii) Customer segmentation strategy involves the process of identifying customers

that fit into smaller, more homogeneous groups.

iii) 80/20 principle maintains that 80 percent of a company’s sales will come from 20

percent of its customers.

iv) Recency-frequency-monetary analysis reveals those who are most likely to buy

from you in the future because they have made purchases recently, frequently,

and in amounts that exceed some appropriate minimum.

v) Customer Lifetime Value (CLV) is the total profit you expect to get from all

future sales to a customer.

c) Data Use and Privacy Concerns

i) Because of the sharp escalation in data collection and use, online and offline

privacy practices are coming under increasing scrutiny.

4) Customers as Decision Makers

LO4: Explain how consumers are decision makers and why this is important in

understanding customer relationships.

Have students provide examples of each stage of this model using the purchase of a

product such as a car or a TV.

i) Consumer decision making flows through four stages:

(1) Need recognition

(2) Information search and evaluation

(3) The purchase decision

(4) Post-purchase evaluation

a) Need Recognition

i) Exhibit 14-6 Simplified Model of Consumer Behavior

ii) Consumer must recognize a problem before purchase behavior can begin

b) Information Search and Evaluation

i) Evaluative criteria – the features or characteristics of a product or service that

customers use for comparison

ii) Evoked set – a group of brands that a consumer is both aware of and willing to

consider as a solution to a purchase need

c) Purchase Decision

i) Decision must be made about how and where to purchase

ii) Choices available from non-store and store settings

d) Post-Purchase Evaluation

i) Exhibit 14-7 Post-Purchase Activities of Consumers

Chapter 14: Building Customer Relationships

ii) Cognitive dissonance – the anxiety that occurs when a customer has second

thoughts immediately following a purchase

(1) Ask students if they experienced cognitive dissonance after enrolling in the

class.

iii) Deal with issues and complaints ASAP

5) Understanding Psychological Influences on Customers

LO5: Identify certain psychological influences on consumer behavior.

The four psychological influences that have the greatest relevance to small businesses

are:

• Needs

• Perceptions

• Motivations

• attitudes

a) Needs

i) Often described as starting point for all behavior

ii) Never completely satisfied

b) Perceptions

i) the individual processes that give meaning to the stimuli confronting consumers

ii) Perceptual categorization – the process of grouping similar things so as to manage

huge quantities of incoming stimuli

iii) Affected by brand loyalty

(1) Discuss with students the following statement: “What we perceive to be true,

is true to us.”

c) Motivations

i) Goal-directed forces that organized and give direction to the tension caused by

unsatisfied needs

ii) Social, physiological, psychological, and spiritual needs

d) Attitudes

i) An enduring opinion, based on knowledge, feeling, and behavioral tendency

ii) May act as an obstacle or a driver to connect a customer to a product

(1) Ask students to relate their personal experiences with marketing appeals

(whether they were persuaded to buy or not). What psychological factors were

the foundations for those marketing efforts?

6) Understanding Sociological Influences on Customers

LO6: Recognize certain sociological influences on consumer behavior.

a) Cultures

i) Behavioral patterns and values characterizing a group of customers in a target

market

ii) Cultural norms create a range of product-related acceptable behaviors

(1) Mention some traditional sub-cultural classifications (e.g., religious

preference, ethnic orientation). Then, ask students to give examples of

products and life style distinctions that pertain to these groups.

b) Social Classes

i) Divisions within a society having different levels of social prestige

ii) Implications for marketing

iii) Different lifestyles correlate with different levels of social prestige

Chapter 14: Building Customer Relationships

c) Reference Groups

i) Small groups that an individual allows to influence his or her behavior

ii) Must understand why this influence occurs and how it can be used to promote the

sale of a product or service

iii) Five kinds of power recognized (Reward, coercive, referent, expert, and

legitimate)

d) Opinion Leaders

i) A group member who plays a key communications role

ii) Generally knowledgeable, visible, and exposed to mass media

iii) Enhance the business by identifying with these leaders

e) CRM leads to customer satisfaction

i) A satisfied customer is likely to be a repeat customer who will tell others about

your company

ADDITIONAL DISCUSSION QUESTIONS

1. Define customer relationship management. What is meant by the statement

“CRM is primarily a mindset?”

2. Does CRM put more emphasis on current or potential customers? Why?

3. What are the two essential building blocks of a successful CRM program? What

“materials” are used to construct these building blocks?

4. Why is a small business potentially in a better position to achieve customer

satisfaction than a large firm?

5. What types of information should be part of a customer database?

CRM databases will typically include the following seven categories of

6. How can a customer database be used to guide the marketing strategies of a

small business?

7. In what ways can a small business use technology to support its customer

relationship management efforts?

When it comes to analyzing and making use of customer data, a small business

8. Briefly describe the four stages of the consumer decision-making process. Why

is the first stage so vital to consumer behavior?

Stage 1: Need Recognition—this stage is occurring when a consumer realizes

that her or his current state of affairs is not the same as some ideal state. It can

9. List the four psychological influences on consumers that were discussed in this

chapter. What is their relevance to consumer behavior?

10. List the four sociological influences on consumers that were discussed in this

chapter. What is their relevance to consumer behavior?

SUGGESTED ANSWERS TO YOU MAKE THE CALL EXERCISES

Situation 1

1. What customer loyalty techniques would you recommend to Argyle?

2. What information would be appropriate to collect about customers in a

database?

3. What specific computer-based communication could be used to achieve

Argyle’s goal?

Situation 2

1. What are the advantages and disadvantages of the approaches Belkin has used

to assess customer experiences at his coffee shops? Which one would your

recommend?

license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14-8

2. Do you see any problem with offering a free cup of coffee as an incentive for

filling out a comment card? Would you suggest any other options for

encouraging customers to provide their feedback?

Timely feedback is important but it also has to provide value. There’s a good

3. Take a look at the comment card that Belkin has posted online. What are the

best features of the card? In what way(s) might it be improved?

Students answer will vary. As a suggestion, have students come up with a group

Situation 3

1. As a long-run strategy, will Goltz’s approach to superior customer service

quality be successful?

2. Would you want to work for a company with such policies? What would be the

pros and cons of working there?

Chapter 14: Building Customer Relationships

license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14-9

creative options that they may not have thought of. That would be fulfilling. On

the other hand, it may be difficult to work for Goltz. He doesn’t value his

employees and in return they won’t value him. Goltz’s priorities are wrong and

ultimately he’ll have a very unhappy group of employees who will work poorly

for him.

3. What suggestions would you have for Goltz and his system? Can you see any

ways to improve it?