What is relationship?
-a relationship is a bond or connection between a firm and its customers
-it may be strong, weak, or nonexistent
-it can be intellectual, emotional or both
-two categories of relationship
1. type
2. involvement
Relationship type
-continuum ranging from communal to exchange based
-can online firms build emotional, social or psychological benefits into the exchange process?
-lack of personal interaction makes it difficult, but not impossible
Relationship involvement
-defined as the degree to which a relationship is relevant to the consumer-the extent to which it relates to consumers’ values, interests, or needs.
-involvement is a function not only of product characteristics, but also of the purchase situation and the consumer’s personal needs
Why do firms want relationships with customers?
The long standing buyer-seller relationship might lead the customer to:
-anticipate the positive feelings from remaining loyal to the seller
-trust that the seller will provide good value
-feel that the brand represents who they are
-promote the seller to friends, family and acquaintances
-seek out and actively read the seller’s promotional material
Understanding the value of customer relationships
Two basic reasons why customer relationships increase profitability:
1. costs of serving existing customers are lower
2. existing customers are willing to pay higher prices
Measuring a customer’s value
-relationship depth, as reflected by the frequency and magnitude of purchases, is a critical component of customer profitability
-questions to ask when measuring the lifetime value of customers:
-active and inactive customers
-customer’s net-present value
The stage of a relationship
1. Awareness
2. Exploration and Expansion
1. attraction
2. relationship norms
3. trust
4. power relations
5. satisfaction
3. Commitment
4. Dissolution
The 2 I’s: Why the web is unique at creating customer relationships
1. interactivity: defined as the extent on which a two-way flow if communication occurs between the firm and the customer
2. individualization: reflects the degree to which firm-customer interactions are tailored or customized to the individual user
The economics of pricing
Key variables of basic demand-curve pricing
-price
-substitute offerings/prices
-complementary offerings/prices
-income
-market size
-taste
-marginal revenue
-marginal cost
Basic pricing strategies
-cost plus
-target profit growth
-target-return pricing
-prestige pricing
-price as a sign of quality
-cyclical promotional pricing (hi-lo)
-everyday low pricing
-fairness in pricing
-promotional low-cost pricing
Dynamic pricing strategies
-dynamic pricing is one of the most significant contributions the internet and the 2 I’s have made to pricing strategy
-the internet has enhanced dynamic pricing in two ways:
1. decreased menu costs
2. interactivity
Auction types
-English auctions
-reverse-priced English auction
-Dutch auctions
-first place sealed-bid auctions
-reverse first price sealed-bid auctions
-group buying
-exchanges
Advanced pricing strategies
-price discrimination
-first degree, second degree and third degree
-volume discount pricing
-two part pricing
-bundling
-price discrimination over time
-frenzy pricing
Strategic responses to competitor price cuts
1. enhance the value proposition
2. battle
1. cross-parry attack
2. targeted response
3. fighter brands
3. justify the price differential
Pricing process
1. set pricing goal
2. differentiate value relative to substitute products
3. strategically select target customer segments
4. strategic pricing/competitor reaction
5. select a pricing structure and price point
How the internet affects communications
-competition and expectations
-transformation of communication
-the 2 I’s
Importance of integrated communication
-goal of marketing and communication if to convey relevant messages to the right consumers at the right time
-synergy between messages is integrated communications
-traditional and interactive marketing methods are converging
Communication types:
Marketing levers
-marketing commutations, which include all the points of contact that a firm has with its customers, can be grouped into four categories:
1. mass offline
-broadcast media: television, radio, outdoor and PR
-print media: newspapers, magazines, yellow pages, brochures, newsletters
-point of purchase displays
2. personal offline
-telemarketing, direct mail, statement stuffers, customer service
3. mass online
-basic online tools: banners, interstitials, search engines, point of purchase displays
-applications of basic online tools: partnerships and affiliate programs, sponsorships, chat rooms, serial marketing
4. personal online
-personal commercial websites
-e-mail marketing: viral marketing, loyalty programs, customer service
Implementation across the 4 relationship stages
Relationship stage (marketing levers)
Awareness (online levers: online billboards, search engines, e-mail, viral marketing; offline levers: TV, magazines, radio, yellow pages, billboards outdoor)
Exploration/expansion (online levers: online billboards, search engines, e-mail, viral marketing, website, permission marketing, serial marketing; offline levers: TV, radio, newspapers, packaging)
Commitment (online lever: targeted email, permission marketing, personalized pages; online/offline levers: loyalty programs, customer service; offline levers: telemarketing, direct mail permission marketing with personalized offers)
Dissolution (personalized pages, termination)
How interactivity and the individual affect product development
-the 2I’s allow a company to learn more about it customer, personalize a product to meet customer preferences, and offer CRM tools to provide more value for customers and cut costs for product sellers
-websites which require customers to register to use the site have access to numerous tools to interact with the user as an individual
Basic product development levers
Basic product
-packaging
-attributes and features
-customer-specified attributes and features
-mass-customized product
New product development
New product development is impacted by:
1. customer needs
2. production needs and capabilities
3. research and development
4. competitors and marketplace forces
Aggregated portfolio management
A strong product development portfolio generally includes:
1. new product development
2. enhancements and line extensions of current products and services
3. development of existing products
4. support of current products and services
Actual product development
1. idea generation
2. screening ideas
3. product design
4. prototype development
5. business analysis
6. test marketing
7. commercialization
How product enable customer relationships
Relationship state (levers)
Awareness (packaging)
Exploration/Expansion (packaging, product attributes and features, fulfillment capabilities, customer experience, availability of complementary products, customer specified attributes and features, mass customization, advanced internet functionality)
Commitment (upgrades, customer specified attributes and features, mass customization, post sales support, loyalty programs, customer experience, enabling community, customer relationship management)
Dissolution (customer care)