CHAPTER FIVE SUCCEEDING USING DATABASE AND RELATIONSHIP MARKETING

CHAPTER FIVE SUCCEEDING USING DATABASE AND RELATIONSHIP MARKETING Text by Profs. Gene Boone & David Kurtz Multimedia Presentation by Prof. Milton Pressley The University of New Orleans 1 Copyright © 2001 by Harcourt, Inc. All rights reserved.

CHAPTER OBJECTIVES • • • Contrast relationship marketing with transactionbased marketing Identify and explain each of the core elements of relationship marketing Outline the steps in the development of a marketing relationship and the different levels of relationship marketing Explain the role of databases in relationship marketing Compare the different types of partnerships and explain how they contribute to relationship marketing 2 Copyright © 2001 by Harcourt, Inc. All rights reserved.

CHAPTER OBJECTIVES • • Relate to concepts of co-marketing and cobranding to relationship marketing Describe how relationship marketing incorporates electronic data interchange, vendor-managed inventories, and national account selling Discuss the value of strategic alliances to a company’s relationship-marketing strategy Identify and evaluate the most common measurement and evaluation techniques within a relationship-marketing program 3 Copyright © 2001 by Harcourt, Inc. All rights reserved.

THE SHIFT FROM TRANSACTIONBASED MARKETING TO RELATIONSHIP MARKETING • Relationship marketing: The development and maintenance of long-term, cost-effective relationships with individual customers, suppliers, employees, and other partners for mutual benefit 4 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 1: Forms of Buyer-seller Interaction 5 Copyright © 2001 by Harcourt, Inc.

Abebooks. Com Web Site Helps to Develop Relationships by Allowing Visitors to Search Their Data Base to Locate Book Stores in Specific Locations 6 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Another Abebooks. Com Web Page Allows Visitors to Browse Their Data Base by Subject Matter to Locate Books in Inventories of Over 5700 Independent Booksellers From Around the Globe. 7 Copyright © 2001 by Harcourt, Inc. All rights reserved.

THE SHIFT FROM TRANSACTIONBASED MARKETING TO RELATIONSHIP MARKETING • Transaction-based marketing: Involves buyer and Seller exchanges characterized by limited communications and little or no ongoing relationship between the parties 8 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

What Is Relationship Marketing? Table 5. 1: Comparing Transaction-Based Marketing and Relationship-Marketing Strategies Characteristic Transaction Marketing Relationship Marketing Time orientation Short-term Long-term Organizational goal Make the sale Emphasis on retaining customers Customer service Relatively low Key component priority Customer contact Low to moderate Frequent Degree of customer Low High commitment Basis for sellercustomer interactions Conflict manipulation Basis for seller-customer interactions Conflict manipulation 9 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 2: Relationship-Marketing Orientation 10 Copyright © 2001 by Harcourt, Inc. All rights

Promises in Relationship Marketing Making Promises • Most promises are made to potential customers through external marketing – efforts that a company directs toward customers, suppliers, and others outside of the firm. • These promises convey what a customer can expect from the firm’s good or service 11 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 3: Making a Promise to Customers The small print promises that Gore-Tex

Eckerd Making Promises to Customers 13 Copyright © 2001 by Harcourt, Inc. All rights

Promises in Relationship Marketing Making Promises Enabling Promises • A firm must enable these promises through internal marketing – by recruiting talented employees and providing them with the tools, training, and motivation they need to do their jobs effectively • The company structure must facilitate, not hinder, this enabling effort 14 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

KPMG, One of the “Big 5” Accounting Firms Maintains This Web Site to Recruit Talented Employees. Once Hired they continue the “Enabling Promises” by extensive training online and offline 15 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Promises in Relationship Marketing Making Promises Enabling Promises Keeping Promises • The exchange, the third stage in the buyer-seller relationship following external and internal marketing, defines the point at which a firm keeps its promises • The exchange also provides the place where long-term relationships develop between buyers and sellers 16 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

LL Bean, Known for Keeping It’s Promises of Absolute Satisfaction or Your Money Back (Without Hassle) Does a Superior Job of Developing Long-term Relationships With Its Customers. This is their Customer Service Page. 17 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 4: The Dimensions of Marketing Relationships 18 Copyright © 2001 by Harcourt,

The Four Dimensions Marketing Relationships • • Bonding: two parties must bond to one another in order to develop a long-term relationship In other words, mutual interests or dependencies between the parties must be strong enough to tie them together 19 Copyright © 2001 by Harcourt, Inc. All rights reserved.

The Four Dimensions Marketing Relationships • • Empathy: the ability to see situations from the perspective of the other party Empathy is another key emotional link in the development of relationships 20 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Kemper Empathy: A Key Dimension in Relationship Marketing 21 Copyright © 2001 by Harcourt,

The Four Dimensions Marketing Relationships • • Reciprocity: every long-term relationship includes some give-and -take between the parties This process, termed reciprocity, becomes a web of commitments among the parties in the relationship– binding them ever closer together 22 Copyright © 2001 by Harcourt, Inc. All rights reserved.

The Four Dimensions Marketing Relationships • • • Trust: reflects the extent of one party’s confidence in another party’s integrity When parties follow-through on commitments, they enhance trust and strengthen relationships When parties do not follow-through on commitments, the opposite is true 23 Copyright © 2001 by Harcourt, Inc. All rights reserved.

The Relationship Marketing Continuum Table 5. 2: Three Levels of Relationship Marketing Characteristic Primary bond Degree of customization Potential for sustained competitive advantage Examples Level 1 Financial Low American Airlines’ AAdvantage program 24 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Chi-Chi’s Using Financial Incentives Characterizes the First Level of Relationship Marketing 25 Copyright ©

The Relationship Marketing Continuum Table 5. 2: Three Levels of Relationship Marketing Characteristic Primary bond Degree of customization Potential for sustained competitive advantage Examples Level 1 Financial Low Level 2 Social Medium Low Moderate American Airlines’ Harley. AAdvantage Davidson’s program Harley Owners Group (HOG) 26 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 5: Developing a Social Relationship With Customers American Airlines’ custom published magazine

Jeep Camp Jeep: Developing a Social Relationship with Buyers 28 Copyright © 2001 by

The Relationship Marketing Continuum Table 5. 2: Three Levels of Relationship Marketing Characteristic Primary bond Degree of customization Potential for sustained competitive advantage Examples Level 1 Financial Low Level 2 Social Medium Level 3 Structural Medium to high Low Moderate High American Airlines’ Harley. AAdvantage Davidson’s program Harley Owners Group (HOG) Federal Express’ Power. Ship program 29 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Fed. Ex Develops Third-Level Relationships with Customers 30 Copyright © 2001 by Harcourt, Inc.

MEASURING CUSTOMER SATISFACTION Figure 5. 6: Three Steps to Measure Customer Satisfaction 31 Copyright

BUYER-SELLER RELATIONSHIPS AND CONSUMER GOODS AND SERVICES MARKETS • • • Many customers are seeking ways to simplify their lives, and relationships provide a way to do this Customers find comfort with brands that have become familiar through their ongoing relationships with companies Such relationships often lead to more efficient decision-making my customers and higher levels of customer satisfaction 32 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 6: Promoting a Buyer-Seller Relationship Sears ad points out the benefits of exclusive discounts that Sears offers customers that are members of its Pulse Card Program 33 Copyright © 2001 by Harcourt, Inc. All rights reserved.

The Rewards of Retaining Customers • • • Retaining customers as far more profitable than losing them Customers typically generate more profits for firm with each additional year of the relationship It has been noted that a 5 percent gain in customer retention can lead to an 80 percent increase in profits 34 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Affinity Programs • • • Affinity programs: a marketing effort sponsored by an organization that solicits responses from individuals who share common interests and activities With affinity programs, extra value is created for members and stronger relationships are encouraged Credit cards, with the sponsor’s a name on the card itself and elsewhere, are a popular form of this marketing technique 35 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 9: Using a Database to Personalize Service 36 Copyright © 2001 by

Frequent-buyer and Frequent-user Programs • • • Frequency marketing: frequent-buyer or user marketing programs that reward customers with cash, rebates, merchandise, or other premiums Perhaps the most popular means to practicing relationship marketing Popular programs include airline and hotel frequent-user programs and retail frequentcustomer programs 37 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Marriott Rewards Marriott Advertising It’s Frequency Marketing Program 38 Copyright © 2001 by Harcourt,

Starwood Hotel Group’s Preferred Guest Site: Their program encompasses six renowned brands the world over: Westin Hotels & Resorts, Sheraton Hotels & Resorts, St. Regis, The Luxury Collection, Four Points Hotels by Sheraton, Caesars and W Hotels 39 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Staples. Com “Dividend$ Program” Rewards Its Frequent Buyers with Discounts and Coupons 40 Copyright

Database Marketing • • Database marketing: software that analyzes marketing information, then identifies and targets messages toward specific groups of potential customers Benefits of databases include • Selecting the best customers • Calculating the lifetime value of their business • Creating a meaningful dialogue that builds genuine loyalty 41 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

American Express Uses Its Gold Card Member Database to Send Their Frequent Travelers Highly Targeted Marketing Messages Offering “Prime Tickets to the Nation’s Hottest Entertainment Events. . . “ 42 Copyright © 2001 by Harcourt, Inc. All rights reserved.

BUYER-SELLER RELATIONSHIPS IN BUSINESS-TO-BUSINESS MARKETS • • • Business-to-business marketing involves an organization’s purchase of goods and services to support company operations or the production of other products Buyer-seller relationships between companies involve working together to provide advantages that benefit both parties Advantages might include the lower prices, quicker delivery, improved quality and reliability, customized product features, and more favorable financing terms 43 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Recent Global Alliances of Selected U. S. and Japanese Auto Manufacturers SUZUKI Supplies Finished Small Cars 3. 5% Investment GM 37. % Investment ISUZU Supplies Fin. Sm. Cars, Sm. & Med. Trucks & Parts 40% Investment IBC Vehicles Limited (UK) 60% Investment Makes Vans in the UK 50% Investment TOYOTA New United Motor Manufacturing (Incl. NUMMI) 50% Investment Makes Small Cars in U. S. 44 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Corbis, a Firm That Sells Pictures to Commercial Artists and Other Business Users or Encourages Users to Join the Corbis Club by Offering Special Benefits to Club Members 45 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Sheraton’s Four Points Hotels “Convention Connections” Site 46 Copyright © 2001 by Harcourt, Inc.

Building and Maintaining Business Partnerships • • Partnership: an affiliation of two or more companies to assist each other in the achievement of common goals Benefits of forming partnerships include • Protection or improvement of positions in existing markets • Gaining access to new domestic or international markets • Expansion of a product line • Resource sharing, cost reduction, avoiding the costs of future competition, raising or creating barriers to entry, and learning new skills 47 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Froedtert Memorial Lutheran Hospital Forming a Partnership to Achieve a Common Goal 48 Copyright

Figure 5. 10: A Partnership Based on Common Goals 49 Copyright © 2001 by

Choosing Business Partners • • • Locate firms that can add value to the relationship Organizations must share similar values and goals Many business relationships are designed to achieve a specific purpose 50 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Types of Partnerships Buyer • In a buyer partnership, a firm purchases goods and services from one or more providers • for example, a company may contract with all of management to consulting firm to improve its screening procedures when the hiring new employees 51 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 11: Example of a Buyer Relationship 52 Copyright © 2001 by Harcourt,

Types of Partnerships Buyer Seller • Seller partnerships set up long-term exchanges of goods and services in return for cash or other valuable consideration • Most sellers prefer long-term relationships with their partners • Sellers also want prompt payment 53 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Types of Partnerships • The importance of internal Buyer Seller Internal partnerships is widely recognized • The classic definition of the word customer as the buyer is now more carefully defined in terms of external customers • However, customers within an organization also have their own needs • Internal partnerships are the foundation of an organization and its ability to meet its commitments to external entities 54 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Types of Partnerships Buyer Seller Internal Lateral • Collateral partnerships include strategic relationships such as co-marketing and co-branding alliances, global strategic alliances, of with not-for-profit organizations, and research alliances with universities and colleges. • In each case, the relationship reaches external into please, and involves a no buyer or seller interactions 55 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Oracle & Hewlett Packard Co-Marketing by Oracle and Hewlett Packard 56 Copyright © 2001

Co-Marketing and Co. Branding • • Co-marketing: Formal links between two or more businesses to jointly market each other’s products • Example: A computer manufacturer who puts “Intel Inside” labels on their units Co-branding: Partnership between two or more companies that closely links their brand names together for a single product • Example: Whirlpool appliances labeled “Kirkland Signature by Whirlpool” made for and sold in Costco’s Outlets 57 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

AOL and VISA Co-Branding 58 Copyright © 2001 by Harcourt, Inc. All rights reserved.

LINKS BETWEEN BUYERS AND SELLERS AND THE BUSINESS-TOBUSINESS MARKETS • • • Organizations that know how to find and nurture partner relationships can enhance revenues and increase profits Partnering often leads to lower prices, better products, and improved distribution This, in turn, results in higher levels of customer satisfaction 59 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

AOL and RTS Wireless Nurture a Partner Relationship That Can Enhance Revenues and Increase

The Use of Databases • • Databases are indispensable tools in relationship marketing Databases are also used in business-to-business situations 61 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Electronic Data Interchange • • • Electronic Data Interchange (EDI) involves computer-to-computer exchanges of invoices, orders, and other business documents EDI is rapidly gaining popularity because it allows firms to reduce their cost and to improve their efficiency and competitiveness Quick-response strategies can be implemented by retailers a using EDI. Quick response strategies reduce the time that a merchandise is held in inventory and result in substantial cost savings 62 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Utilizing the quick-response systems, Calvin Klein monitors its merchandise and is able to replenish

Washington Publishing Company (WPC) Specializes in Managing and Distributing Electronic Data Interchange (EDI) Information

EDI-TIE: A Global Firm Delivering Business-to-business Ecommerce Solutions in the Internet Era. 65 Copyright

National Account Selling • • Manufacturers use a technique called national account selling to serve their largest, most profitable customers They assemble a team to service a single major account, and thus demonstrate the depth of their commitment to the buyer The buyer-seller relationship is thus strengthened Rather than an adversarial relationship, buyers and sellers work together to find solutions that benefit both parties 66 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Vendor-Managed Inventory • • Vendor-Managed Inventory (VMI): is an inventory-management system in which the seller–based on existing agreement with a buyer– determines how much of a product is needed New supplies are then automatically shipped to the buyer 67 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Managing of the Supply Chain • Supply (Value) Chain: sequence of suppliers that contributes to the creation and delivery of a good or service 68 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Figure 5. 11: Dell Computer’s Supply Chain 69 Copyright © 2001 by Harcourt, Inc.

Managing of the Supply Chain • Effect in supply-chain management can result in • Increased innovation • Decreased cost • Improved conflict resolution within the chain • Improved communication and involvement among members of the chain 70 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Strategic Alliances • • Strategic alliance: a partnership formed to create a competitive advantage These more formal long-term partnership arrangements improved each partner supply-chain relationships and enhance flexibility Strategic alliances include businesses on all sizes, all kinds, and in many locations What each partner can offer to other partners is what is important 71 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Compaq & Radio. Shack Compaq and Radio. Shack: A Vertical Strategic Alliance 72 Copyright

Table 5. 3: Resources and Skills That Partners Contribute to Strategic Alliances Skills Resources Patents Product lines Brand equity Reputation - For product quality - For customer service - For product innovation Image - Company wide - Business unit - Product line/brand Knowledge of product-market Customer base Marketing resources - Marketing infrastructure Sales force size Established relationship with: - Suppliers - Marketing intermediaries - End-use customers Manufacturing resources - Location - Size, scale economies, scope economies, excess capacity, newness of plant and equipment Information technology and systems Marketing Skills - Innovation and product development - Positioning and segmentation - Advertising and sales promotion Manufacturing Skills - Miniaturization - Low-cost manufacturing - Flexible manufacturing Planning and implementation skills R&D skills Organizational expertise, producer learning, and experience effects 73 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Managing Relationships for Superior Performance Assessing Costs & Benefits Measurement & Evaluation Structuring Relationships

Managing Relationships for Superior Performance • Assessing Costs & Benefits • Identify and compare assets, both tangible and intangible Because customers are assets, a company can analyze its marketing and communication investments similar to the way it evaluates capital equipment investments 75 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Managing Relationships for Superior Performance • Assessing Costs & Benefits • Structuring Relationships Partners should examine existing company systems involved in delivering customer service Should use databases to identify the prospects with the best profit potential 76 Copyright © 2001 by Harcourt, Inc. All rights reserved.

Managing Relationships for Superior Performance • Assessing Costs & Benefits Measurement & Evaluation Structuring Relationships Lifetime value of customer: the revenues and intangible benefits that a customer brings to the seller over an average lifetime, less the amount of money which must be spent to acquire, market to, and service the customer 77 Copyright © 2001 by Harcourt, Inc. All rights reserved.

RELATIONSHIP MARKETING • • Additional techniques used to evaluate relationship programs include Tracking rebate requests, coupon redemptions, credit-card purchases, and product registrations Monitoring complaints and returned products and analyzing why customers leave Reviewing reply cards, common forms, and surveys 78 © Photo. Disc Copyright © 2001 by Harcourt, Inc. All rights reserved.

Class Discussion Hampton Inn Promises: “If You're Not Completely Satisfied, We'll Give Your Night's Stay for Free” How Does This Exemplify “Relationship Marketing? ” 79 Copyright © 2001 by Harcourt, Inc. All rights reserved.