Chapter 13 Customer Loyalty

Chapter 13: Building Customer Loyalty: Customer Relationship Management and Service Strategies

Learning Objectives

LO1: Define Customer Relationship Management (CRM)

  • Customer Relationship Management (CRM) is defined as a business philosophy and a set of strategies, programs, and systems that focus on identifying and building loyalty with a retailer's most valued customers.
  • CRM involves collecting customer data, analyzing customer data and identifying target customers, developing CRM programs, and implementing CRM programs.

LO2: Examine How Retailers Determine Who Their Best Customers Are

  • Retailers focus on encouraging customer visits across various platforms (stores, catalogs, websites) but are increasingly providing more value to their best customers to increase share of wallet.
  • Share of Wallet: This term refers to the percentage of a customer's total spending within a category that goes to a particular retailer.

LO3: Explore How Retailers Can Build Customer Loyalty and Increase Their Share of Wallet

  • Customer loyalty involves more than repeat visits and satisfaction. It comprises a commitment to purchasing merchandise and services which leads customers to resist competitors' offerings.
  • The objective of CRM is establishing a strong bond with customers.
  • Retail strategies to build loyalty include frequent shopper programs, personalized service, and creating a sense of community among customers.

LO4: Discuss How Customer Service Can Build Competitive Advantage

  • Customer service is defined as the activities and programs developed by retailers to enhance the shopping experience of customers, making it unique and rewarding.
  • Characteristics evaluated by customers for service quality include reliability, assurance, tangibility, empathy, and responsiveness.

LO5: Determine the Types of Activities a Retailer Undertakes to Provide High-Quality Customer Service

  • Activities aimed at enhancing customer service include hiring trained service staff, maintaining a pleasant store atmosphere, implementing loyalty programs, providing extensive product information, and offering personalized services.
  • For example, a five-star hotel like Ritz-Carlton greets customers by name and recognizes their preferences to ensure a personalized experience.

LO6: Review How Retailers Can Recover from a Service Failure

  • Effective service recovery involves listening to customers, providing fair solutions, resolving issues quickly, and maintaining transparent communication.

Discussion Questions

  • Do you mind sharing your information with “Big Business”? Why or why not?
  • Are customers fatigued with loyalty programs? What changes would you propose?

Customer Service Characteristics

  • Reliability: The accuracy of billing and meeting promised delivery dates.
  • Assurance (Trust): Guarantees and warranties along with return policy.
  • Tangibility: The appearance of the store and sales personnel.
  • Empathy: Providing personalized services and recognizing customers by name.
  • Responsiveness: The ability to return calls and emails promptly and to give immediate service.

The CRM Process

  • Iterative Steps:
    1. Collecting customer data
    2. Analyzing customer data and identifying target customers
    3. Developing CRM programs
    4. Implementing CRM programs
  • The objective of these steps is to convert customer data into customer loyalty.

Collecting Customer Data

  • A customer database, also known as a customer data warehouse, is the foundation for CRM activities and should ideally include:
    • Transactions
    • Customer contacts
    • Preferences
    • Descriptive information
    • Responses to marketing activities
  • Retailers utilize various methods to gather this information, particularly through POS systems during transactions.

Identifying Best Customers

  • Lifetime Customer Value (LTV): It defines the expected contribution from a customer to the retailer's profits over the course of their relationship.
  • The 80/20 Rule (Pareto Principle): 80% of a retailer's sales or profits come from 20% of customers.

Developing CRM Programs

  • After segmenting customers based on profit potential, retailers can develop varied programs tailored to different customer segments.
  • Common strategies for customer retention are frequent shopper programs, special customer services, personalization strategies, and community building.
  • Only 8% of loyalty program consumers feel they are receiving better offers for sharing their information.

Frequent Shopper Reward Programs

  • Recommendations for designing frequent shopper reward programs include:
    • Using tiered structures for rewards
    • Providing choices
    • Rewarding all transactions
    • Ensuring transparency and simplicity
    • Offering VIP options
  • 75% of consumers engage more with loyalty programs they can access via smartphones.

Issues with Frequent Shopper Programs

  • Challenges include high costs, the difficulty in program adjustment, questionable loyalty impact, and easy duplicability.

Strategies for Improving Customer Engagement

  • Cross-Selling: Selling complementary products during a transaction (e.g., a printer with a computer).
  • Add-On Selling: Offering additional services to existing customers (e.g., dry cleaning services in supermarkets).
  • SoLoMo (Social, Local, Mobile): Applications that push notifications to customers nearby.
  • Gamification: Applying game theory methods to enhance customer experience.

Dealing with Unprofitable Customers

  • The bottom tier of customers might bear a negative LTV, leading retailers to lose money on sales to them. Strategies to mitigate losses include:
    • Offering cost-effective solutions for lead customers
    • Charging fees for services that are abused.

Implementing CRM Programs

  • Implementation challenges involve aligning different organizational functions and managing customer relationship actions. Key departments include MIS, front-line service staff, and marketing. Most retailers need to shift from a product-centric to a customer-centric approach.

Customer Service Approaches

  • Personalized Approach: Emphasizes tailoring service to meet individual customer needs, often resulting in superior but inconsistent service due to reliance on employees' capabilities.
  • Standardization Approach: Focuses on having a set of defined rules and procedures to consistently deliver service.
  • Good service generates repeat visits and encourages positive word-of-mouth communication.

Customer Evaluation of Service Quality

  • Customer satisfaction arises when perceived service meets or exceeds expectations, leading to loyalty.
  • Examples of exceeding expectations include unexpected benefits like providing taxi services for customers who overindulge in alcohol.

The Gaps Model for Improving Retail Service Quality

  • The gaps model identifies the need to align service perceptions with customer expectations, emphasizing four critical gaps:
    • Knowledge Gap
    • Standards Gap
    • Delivery Gap
    • Communication Gap
  • Successful strategies involve recognizing these gaps and systematically reducing them to enhance service quality.

Solutions to Service Problems

  • The emphasis is on being innovative in overcoming service challenges, established through continuous improvement and feedback mechanisms. Technology, such as kiosks, helps in managing routine service tasks and enhancing overall customer experience.

Conclusion and Summary

  • CRM and high-quality customer service depend on understanding customer needs, setting service standards, creating methods for effective communication, and addressing service quality gaps. \n- Retailers striving to meet and exceed customer expectations will significantly enhance their brand loyalty and competitive advantage.