West, Ford, & Ibrahim

Strategic Marketing, 3rd edition

Chapter 7: Relational and

sustainability strategies

© Douglas West, John Ford, and Essam Ibrahim, 2015. All rights reserved.
 Learning Objectives
 Understand the importance of developing relationships with customers.
 Discover ways in which marketers can assess customer desirability and
rank customers in terms of customer value to the firm.
 Be able to identify the various ways in which marketers can build loyalty
with customers.
 Understand the importance of customer relationship management
systems and grasp the differences between CRM for consumer
marketers (B2C) and industrial marketers (B2B).
 Be aware of various approaches to the building of customer databases
with which to strategically address customer relationship building
strategies while also explaining the potential pitfalls inherent in ill-
designed and ill-conceived data mining approaches and relationship
management systems.
 Be able to explain the strategies that will help the firm to create long-
term relationships with its customers that can create competitive
advantage and which can be sustained.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Introduction
• Companies have moved their focus from transaction
based to relationship centered

• One time purchases alone do not keep companies in

business, repeat purchases are the key to success

• 80/20 rule does have merit

– 80% of the revenue comes from 20% of the customers
– 20% of the revenue comes from 80% of the customers

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Introduction

• Customer Lifetime Value

– Happy customers spend increasing amounts on the purchase of
a specific product/service over time
– CLTV is the present value of future profits that will accrue from
customers lifetime purchase
– Determine CLTV for each individual customer or group of
customers to determine the proper investments that will be
necessary to build meaningful relationships
– Customer relationship programs & strategies is a very hot topic
in the B2C world, B2B have been practicing it for over fifty years

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Relationship Marketing

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Relationship Marketing in the B2C
Context
• Long term and intimate relationships between buyers
and sellers
• Open communication and the ability to know the
customers
• Anticipate changes in wants & needs
• One of the best frameworks to discuss the nature of
different customers is the loyalty ladder, see Fig 7.1

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Figure 7.1 – Loyalty Ladder for B2C Marketers

Partners

Advocates

Supporters
Successively
Higher Levels Clients

of loyalty Customers

Prospects

Suspects

Source: Adapted from Raphel, M., “Ad Techniques Move Customers up the Loyalty Ladder,” Bank
Marketing (1980), 12 (11 November), pp. 37-8.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Suspects

• Not yet even mildly warm leads for the selling company
• Are not yet interested in your products or services
• Companies should not spend too much time or effort on
this group of consumers
• The firm must develop some kind of mechanism to
determine whether the suspect is worth spending time
with
• One such approach is customer equity as posited by
Blattberg and Deighton (1996)

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customer Equity

• Each customer’s expected contribution to offset the

company’s fixed costs over their expected lifetime
• Expected contributions to net present value are
discounted
• Add together all of the discounted expected contributions
across all of the company’s current customers
• From the customer equity standpoint, the suspect is
probably a poor candidate for the time and effort that
would be required for acquisition, and there would be
little guarantee of profitability (see Figure 7.2).

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Figure 7.2 – The Relationship Marketing Process
Past purchase
history Identify high-
Extent of cross- potential
buying customers
Depth of buying
Develop segment-
focused offerings
Develop customer
acquisition
Share information
strategy
Acquisition pricing
Differentiate Develop customer
between high and portfolio
low profit customers management Reprinted with permission
strategy from Marketing Management,
Create trust with published by the American
high profit Marketing Association,
customers Stanley F. Slater, Jakki J.
Maximise Mohr and Sanjit Sengupta ,
Increase share of customer equity 2009 (January/February), pp.
wallet with low profit 37- 44.
customers
West, Ford, & Ibrahim: Strategic Marketing, 3rd edition
 Prospects

• A better candidate would be found in a prospect

• This is warm lead
• Customer equity would be higher than for the suspect
• Interest is not a guarantee for purchase
• Too much time should not be spent on prospects

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customers
• He is one who has actually bought your
product/service
• The game is to increase his purchase frequency and
volume
• Are all customers are “good” customers?
• Compatibility management looks to minimize
exposure to inappropriate customers.
• Some companies adjust for different customers by
using different pricing and venues
• Zeithaml Rust and Lemon’s (2001) customer
profitability pyramid is an important approach to rank
& prioritize customers, on the bases of the impact of
the group of customers on the firm’s profitability

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Clients
• They are regular customers
• They have some level of trust in the seller
• Some clients may feel that they are hostages to the
seller
• Some clients may be “mercenaries”
• Some clients can act as terrorists if they become
unsatisfied
• Monitoring client satisfaction becomes important
• Frequency marketing
• After-marketing

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Supporters

• They buy everything you produce that they can use

• You can convert a client into a supporter through great
service
• Reward clients for their purchases and loyalty and move
them to supporters

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Advocates
• They buy the products and services and actively recruit others
to do the same
• They are the most valuable
• The company must try and keep them happy
• Loyalty schemes
– Loyalty schemes can neutralize competitors, broaden brand
distribution, enhance brand image and increase value
– Nunes and Dreze (2006) suggest that loyalty schemes can
reasonably be expected to do five things for the companies
that use them:
• (1) keep customers from defecting,
• (2) win a greater share of the wallet,
• (3) prompt customers to make additional purchases,
• (4) provide insight into customer behaviour and preferences,
and
• (5) create profit

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Partners

• Partnership is when the buyer and seller enter into a joint

position of commitment and the buyer often has to
modify the ways in which he/she works to accommodate
the seller
• Both parties have a vested interest in the partnership
owing to trust and commitment

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customer Love

Building Customer Love

It is no longer enough just to have a relationship with your
customer, you need to develop the “love” of your customer
There are seven important steps in building customer love (see
Figure 7.3)
The following are the benefits from achieving customer love
– Customers who love you take care of you
– Customers not only recommend you, they insist
– Customers forgive our mistakes
– They will give you candid feedback
– They will not take legal action against you
– They will pay more for what you offer

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Figure 7.3 – Customer Love

Engagement

Enlistment Enlightenment

Customer
Endearment Love Entrustment

Enchantment Empowerment

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Relationship Marketing in the B2B Context

When compared to B2C markets, B2B markets are characterized

as:
dealing with fewer customers,
larger transactions,
customized products,
negotiated prices,
values are often determined by usages,
and brands are not as critical as often as the relationships that
are built between the buyers and the sellers.
In this case, selling is far more complex as buyers may be
groups instead of individuals and selling teams may be
important, although often there is a key sales person who
deals with a key customer.
The problem is that using the same types of mechanisms as
are used in B2C markets to build relationships often are not
effective in B2B market situations.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Relationship Marketing in the B2B Context

Narayandas (2005) provides insight for B2B

marketers by suggesting a B2B loyalty ladder as
shown in Figure 7.4.
This ladder helps by providing strategic insight that
may not be gained from use of the B2C loyalty
ladder as shown in Figure 7.1.
Narayandas (2005) suggests that there are really
four kinds of buyers (see Figure 7.5), and their
position on the buyer matrix will suggest whether
they are good candidates for investment,
maintenance or divestiture.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Figure 7.4 – Loyalty Ladder for B2B Marketers

May Invest in You

Seeks to Collaborate on
New Product Development

Successively Is Willing to Pay Premiums

Higher Resists Competitors’
Levels of Blandishments

loyalty Endorses Products

Wants to Grow the

Relationship

From “Building Loyalty in Business Markets,” by Das Naryandas, Harvard Business Review,
September/2005. Reprinted with permission of Harvard Business Publishing. All rights reserved.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Figure 7.5 – B2B Buyer Matrix

From “Building Loyalty in Business Markets,” by Das Naryandas, Harvard Business Review,
September/2005. Reprinted with permission of Harvard Business Publishing. All rights reserved.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Commodity Buyers

They are only interested in basic offerings.

They are primarily interested in shopping the lowest
prices.
They tend to be large volume types of customers, and
the strategic focus should not be on trying to sell
them on high-value added services, but to strip
service costs to the bare minimum.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Underperformers

Those prestigious accounts that were acquired to build

credibility by luring them with very low cost or even
free services.
The hope is that by acquiring them with low fees that
they will later be able to trade them up, but this is not
usually the case.
The best way to deal with these accounts is to either try
to move them to commodity buyers by cutting the
level of services provided that are not essential, to
move them to partners by having them pay more for
services they need, to offer standard products, or to
divest them.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Partners

Customers who want everything provided for them since they

don’t have the in-house capability to handle these needs.
The key is to provide them the latest and best products
available, and price premiums will not be a problem for
them.
They can be helpful in new product development.
The issue is that these customers can become problematic if
the product evolutionary cycles are short (as in high-tech
offerings), and if the supplier doesn’t stay on the leading
edge of product innovation, these accounts can be lost.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Most Valuable Customers

These customers are loyal and do not cost as much to maintain as

the partners.
In these cases often the customer has taken over some of the
things originally provided by the supplier, but the customer is still
willing to pay premium prices for the offerings in honour of past
services provided.
These customers will also be strong proponents for the supplier.
One strategic imperative here is for the suppliers to consider
moving these customers to the partner category if new
technologies are created or new competitors enter the market
with the offering of new services

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Taxonomy of B2B Relationship Types

Wong et al., 2010 analysed extensive data involving buyers and

sellers in a B2B context and found that there were five distinct
clusters:
Disgruntled followers – 19% of all relationships studied –
competitive/opportunistic relations with buyer maintaining dominance with
larger, more frequent, standardised transactions involved. Average length –
13 years.
Manipulative leaders – 27% of all relationships studied – seller is dominant
and competitive/opportunistic.
Benevolent independent relationships – 17% of all relationships studied –
lower levels of opportunism with less communication involving easy to
replace products/service. Average length – 7.3 years.
Arm’s length relationships – 14% of all relationships studied – high on
opportunism and unbalanced power between partners – Average length –
4.9 years.
Close relationships – 25% of all relationships studied – high levels of mutual
benefit and high commitment and trust and little opportunism. Average
length – 11 years.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customer Relationship Management

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customer relationship management
• Customer retention is an important goal for any company
– It is more expensive to acquire a new customer as
opposed to keeping one
• The corporate solution is the creation of customer
relationship management (or CRM) system.
• CRM is a process by which a firm gathers information
about the wants and needs of its customers to enable it
to adjust its offerings to better fit those wants and needs
• It involves data gathering, storage and dissemination to
those who need it
• This becomes complex in a B2C situation, involving
large numbers of consumers

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Customer relationship management
• The foundation of the CRM is the development of a
customer information file.
• Winer (2004) suggests that these must contain:
– Basic customer descriptions
– Customer purchase histories
– Customer contact histories
– Customer response information
– Customer value
• Successful companies monitor all customer touch points
(Favilla 2004) and find ways to offer superior service.
• While touch points are important, Rawson et al.(2013)
suggest that the company should not lose sight of the
overall journey that the customer makes.
• The company must set up appropriate mechanisms for
data collection, which will allow the company to build
customer trust and ensure commitment.
West, Ford, & Ibrahim: Strategic Marketing, 3rd edition
 Customer relationship management

• Data mining is an important tool in customer relationship

management
• Data collected for the sake of data collection will do very
little
• The relationship must be carefully nurtured

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 CRM pitfalls to avoid

• Implementing CRM before a customer strategy is

developed
• Implementing a CRM program before the organization
has become customer focused
• The assumption that more CRM technology is always
preferred
• “Don’t stalk your consumer, woo them”

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Sustainability of Relationships and
Competitive Advantage

The key to relationships is to convert them into long-

term partnerships between the buyer and seller
whether B2C or B2B.
In this way the two parties become co-dependent upon
each other.
The hope is that the relationship will become so
comfortable that the commitment level will remain as
high as possible.
It is the hope that switching costs will increase over time
making dissolution of the relationship no longer a
possibility.
Of course this will require true trust, commitment and
confidence on the part of both partners.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Judging Sustainability

Ryu, Park and Min (2007) suggest that there has been a major
paradigm shift for B2B marketers and that now relationship
marketing has shifted from a short-term to a long-term focus to
be effective.
As a result, the measurement of the relationship management’s
LTO (long-term orientation) is vital for ensuring success.
Practice suggests that there can be no LTO without the existence
of trust.
Trust on the part of one partner is usually formed as a result of the
proven abilities of the other partner to offer proper solutions and
adapt to changing circumstances while also openly exchanging
information.
As a result, the supplier should regularly measure, share and also
manage all aspects of the exchange process (even what would
seem to be implicit instead of explicit) so that the buyer will want
to develop a long-term relationship.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 The Latest Thinking: Customer Effort Score

Customer Effort Score (CES)

Suggested by Dixon et al. (2010).
Studying 75,000 individuals in service relationships indicated that
delighting customers does not build loyalty.
What builds loyalty is reducing the effort that the customer has to
expend to receive the service.
89% of customer service managers indicated that there primary
strategy was to exceed customer expectations.
On the other side, 84% of customers reported that their
expectations had not been exceeded.
There is little direct connection between satisfaction and loyalty.
The real goal should be making things as effortless as possible for
customers.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 The Latest Thinking: 29 variations of
customer relationships in B2C settings
29 variations in B2C customer relationships
Suggested by Avery et al. (2014).
If you want to be able to build meaningful connections with your
customers in a B2C setting, you must understand the types of
relationships that are important to customers.
Some companies spend a fortune on CRM, but they have no deep
understanding of what drives relationships.
Assuming that one approach will fit all is not a good strategy.
Companies need to know what customers are looking for.
Actual relationship types range from old friends, colleagues,
buddies, team-mates, business partners, best friends, marriage
partners, next-door neighbours, close siblings, love-hate
relationships, ex-friends, former friends, marriage-on-the-rocks,
online friends to one-night stands, flings, secret affairs, enemies,
fleeting acquaintances, stalker-prey, dealer-addict, guru-disciple,
star-groupie, teacher-student, master-slave, and finally villain-
victim.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 The Latest Thinking: 29 variations of
customer relationships in B2C settings
29 variations in B2C customer relationships
There are two important steps to follow to properly understand your
customers and the types of relationships that they are looking
for:
Use surveys and interviews to understand the types of
relationships currently expected by your customers

Understand which rules when broken can destroy the

relationships

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Conclusion
• Once the company has gone through the process of
segmentation, processing and positioning they must look to
the creation of meaningful relationships with the customers.
• Customer acquisition is far more costly that customer
retention.
• Building an intimate relationship with the customer allows the
company to keep in step the changes in the customers needs
& wants.
• CRM is an important approach to managing customer
relationships.
• Committing to CRM requires careful preplanning and a
commitment throughout the organization to being customer
oriented.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition

 Group work

• You’re the Marketing manager of NSU MBA

program. Design the loyalty ladder for B2C
for your SBU? Hint: explain why and how for
each step.
• You’re the relationship manager of Prime
Bank. Design the 7 steps for developing and
maintaining Customer Love.

West, Ford, & Ibrahim: Strategic Marketing, 3rd edition