Managing Profitable Customer Relationship

Many people think that marketing works only selling and telling. We assume with TV commercial, catalog and e-mail pitches. But, truthfully as a marketing we need to understand the customer needs and wants to make them satisfied.

Marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value with others. (Kotler and Armstrong, 2012)

To ensure that marketing is not only selling and telling, there are 5 steps of marketing process. In the marketing process need to understanding the marketplace and consumer needs, designing customer-driven marketing strategy, preparing a marketing plan, building customer relationships and last is capturing value from customers.

Firstly, understanding the marketplace and consumer needs. There are 5 core to understand customer needs: (1) customer needs, wants, and demands; (2) market offering; (3) customer value and satisfaction; (4) exchanges and relationships; and (5) markets.

Customer needs, wants an demands. Basically, human needs are physical (food, clothing, drinking), social (friendship and affection), and individual (knowledge and self-expression) but marketers did not create these needs, they are basic part of a human makeup. They conduct research and analyze of customers data at all level. For example, many teenager in Jakarta use LINE for chatting their friends, parents today spend their time to read a newspaper.

Market offerings. Consumers’ needs and wants are fulfilled through market offerings. Market offerings are offering physical products and services activities or benefits offered for sale. For example, hotel, tax, airline and home repair service.

Customer value and satisfaction are key building blocks for developing and managing customer relationship. Satisfied customer attracted to buy again and tell the other about the market offer good experience.

Marketing consists of actions taken to build and maintain desirable exchange relationship with target audiences involving product, service, idea, or other object for attracting customers and creating transactions.

A markets is the set of actual and potential buyers of a product or service. These buyers share a particular need or want that can be satisfied through exchange relationships.

Secondly, designing customer-driven marketing strategy. We define marketing management as the art and science of choosing target markets and building profitable relationships with them. There is two important questions for marketing management : what customers will we serve (what our target market)? and How can we serve these customers best (what’s our value proposition)?

Selecting customers to serve. For selecting customers, marketing management must choose which customer they need to target and on level, timing and nature of their demand. Marketing management is customer management and demand management.

Choosing a value proposition.  A brand’s value proposition is a values or benefits that please customers need. They answer the customer question, “Why should I buy your brand rather than a competitor’s?” companies provide the greatest reward in their target markets.

Marketing management orientation. There are five concept under which organizations design and carry out their marketing strategies: the production, product, selling, marketing, and societal marketing concepts.

The production concept is the idea that consumer will favor products that are available and highly affordable and that the organization should therefore focus on improving production and distribution efficiency. For example, computer maker Lenovo influence the highly competitive, price sensitive Chinese PC market with low labor costs, high production efficiency, and mass distribution.

The product concept is the idea that consumers will favor products that offer the most quality, performance, and features and that the organization should therefore devote its energy to making continuous product improvements. For example, some manufacturers assure if they can “build a better mouse trap, the world will beat a path to their doors.” But buyers more choose for a better solution like chemical spray, a house cat, or a better solution than mousetrap. So, a better mousetrap will not sell unless the manufacturers design, packages, and price attractively; and convince buyers that it is a better product.

The selling concept is the idea that consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion effort. This concept focuses on building sales transaction rather than on building long-term, profitable customer relationships.

The marketing concept is a philosophy that holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. Marketing concept react on customers’ desires and obvious needs.

The Production and Marketing Concepts Contrasted

(This source taken from http://www.newthoughts.cn.com/1.asp )

The societal marketing concept is the idea that a company’s marketing decisions should consider consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests. For example, UPS seeks more than just short-run sales and profits. Its three-substation corporate sustainability mission stresses economic prosperity (profitable growth through a customer focus), social responsibility (community engagement and individual well-being) and environmental stewardship (operating efficiently and protecting the environment).

(This source taken from http://marketingbasicconcept.blogspot.com/2011/10/societal-marketing-concept.html)

Thirdly, preparing a marketing plan. The marketing program creates customer relationships by turned the marketing strategy into action. It composes of the firm’s marketing mix that classified into four broad groups, called four Ps of marketing: product, price, place, and promotion.

Fourthly, building customer relationships. In this step is explained for building profitable customer relationships.

Customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, keeping, and growing customers.

To build customer relationships is to establish superior customer value and satisfaction. Customer-perceived value is the customer’s evaluation of the difference between all the benefits and all the cost of a marketing offer relative to those of competing offers. Several customers assume value is sensible product at affordable price and another customers might mean paying more to get more. Customer satisfaction is the extent to which a product’s perceived performance matches a buyer’s expectations. Higher levels of customer satisfaction lead to a customer loyalty because of the company performance.

Companies can create relationships depend of the nature. At one extreme, a company with low margin customers may seek to develop basic relationship. For example, Nike does not phone or call to identify them individually. Instead, Nike creates relationships through brand-building advertising, public relations, and its website (www.Nike.com). Marketers can use specific marketing tools to establish powerful bonds with customers. For example, many companies offer frequency marketing programs that reward customers who buy frequently or in large amounts.

The changing nature of customer relationships are occurring in the ways in which companies are relating to their customers.

Relating with more carefully selected customers, it means only target fewer, more profitable customers. Marketers do not want relationship with every possible customer. In fact, a company might want to “fire” customers that cost more to serve than to lose.

Relating more deeply and interactively, companies now relating with chosen customer with interactive approach that help build target.

Two-way customer relationships. New technologies have transformed the ways in which people interact to one another. New technologies create relationship-building opportunities for marketers . the marketing world is now encompassing not only customer relationship management, but also customer-managed relationships, customer-managed relationships is marketing relationships in which customers, empowered by today’s new digital technologies, interact with companies and with each other to shape their relationship with brand.

Consumer-generated marketing is brand exchanges created by consumers themselves- both invited and uninvited- by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers. For example, Coca-Cola’s Vitaminwater brand recently create a Facebook app to receive consumer suggestion for a new flavor, promosing to manufacture and sell the winner (“Vitaminwater was our idea; the next one will be yours.”).

Partner relationship management is working closely with partners in other company department and outside the company to jointly bring greater value to customers. So, marketers can’t working by themselves, they need partner either it from outside or inside the department to bring greater value to customers.

Partner inside the company. Today, marketers can connected to customer with electronically. Marketers are letting all department for creating customer value. For example, P&G assigns customer development team that consists of sales and marketing people, operating specialist, market and financial analyst, and others toward helping the retailer.

Market partners outside the firm. Most companies relying on partnership with other firms and strengthening their connection with partners all along the supply chain. The supply chain describe a longer channel, stretching from raw materials to components to final products that are carried to final buyers. For example, the supply chain for PCs consists of suppliers of computer chips and other components, the computer manufacturer, and the distributors, retailers, and other who sell the computers.

Fifth, capturing value from customers. In this step is discussed about customer loyalty and retention, share of market and share of customer, and customer equity.

Creating customer loyalty and retention. The aim of customer relationship management is to create a customer satisfaction and customer delight. Companies today more shape their value proposition even more carefully and treat their profitable customers well. For example, the illustration of customer lifetime value is the value of the entire stream of purchases that the customer would make over a lifetime of patronage. Stew Leonard, who operate four-store supermarket in Connecticut and New York, says he sees $ 50,000 flying out of his store when he sees a sulking customer. Why? Because his average customer spends about $100 a week and if the customers has an unhappy experience, they will go to another supermarket. So Stew Leonard’s create costumed characters, scheduled entertainment, a petting zoo, and animatronics through-out the store.

Share of customer is the portion of the costumer’s purchasing that a company gets in its product categories. For example, Amazon.com now offers customers music, video, gifts, toys, consumer electronics, office products, home improvement items, lawn and garden products, apparel and accessories, jewelry, tools, and even groceries. So, Amazon.com captures a greater share of each customer’s spending budget because Amazon.com recommends related products that might be of interest.

Building customer equity. Customer equity is the total combined customer lifetime values of all of the company’s customers. Companies want to create profitable customers and “own” them for life to earn a greater share of their purchases, and capture their lifetime value.

Actually share of a customer and customer equity have their own concept and important to marketers.

Share of customer is the portion of the costumer’s purchasing that a company gets in its product categories. This concept can offer greater variety to current customers or create program to cross-sell and up-sell to market more products and services to existing customers. For example, Amazon.com increase share of each customer’s purchases with offers variety products to capture a greater share of each customer’s spending budget.

Customer equity is the total combined customer lifetime values of all of the company’s customers. The more loyal the firm’s. The more loyal the firm’s profitable customers, the higher its customer equity. Customer equity can measure of a firm’s performance than current sales or market share, customer equity suggest the future. So, with manage customer equity, it increase customer lifetime value and customer equity

zara

(This source taken from http://threadsluxury.com/2014/07/21/zara-aw14-collection/ )

I decide for buying clothe, but I want clothes from Zara. I estimate my lifetime value for using Zara’s clothe is after 20 years old. I buy it for every half year which is Rp 500,000. So, for calculating how much money will I spend through Zara’s clothe is the total combined customer lifetime values of all of the company’s customers.

20 years : 0.5 year= 40 times

40 times x Rp 500,000= Rp 20,000,000

So, I will spend 20 millions rupiah for after 20 years for using Zara’s clothe.

Factors that I need to consider for using Zara’s clothe are price of the goods, number of consumption of the product, and frequency for using the product.

So, with that factors make me stand for using Zara. For increasing my lifetime value, Zara can maintain the quality of the product and increase customer satisfaction with their performance.

Reference

Kotler and Armstrong. (2012). Principles of Marketing. London.

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