CH 8 - Customer Relationship Management A Databased...

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Customer Relationship Management A Databased Approach V. Kumar Werner J. Reinartz Instructor’s Presentation Slides
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Chapter Eight Designing Loyalty Programs
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Topics Discussed Satisfaction-loyalty-profit chain Loyalty programs Key objectives of Loyalty Programs Examples of Loyalty Programs Design Characteristics of Loyalty Programs Reward Structure
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Satisfaction-Loyalty-Profit Chain Source : Strengthening the satisfaction-profit chain”, Eugene W Anderson, Vikas Mittal. Journal of Service Research , Nov 2000. Vol 3, Iss.2, p 107 Product Performance Service Performance Employee Performance Customer Satisfaction Retention / Loyalty Revenue / Profit
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Results of Customer Satisfaction-Profit Link Studies Direct link suggests, that as customers experience greater satisfaction with a firm’s offering, profits rise Improving customer satisfaction comes at a cost and once the cost of enhancing satisfaction is factored in, offering “excessive satisfaction” doesn’t pay Marginal gains in satisfaction decrease, while the marginal expenses to achieve the growth in satisfaction increase There is an optimum satisfaction level for any firm, beyond which increasing satisfaction does not pay
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The link between Satisfaction and Retention Source : “Strengthening the satisfaction-profit chain”, Eugene W Anderson, Vikas Mittal . Journal of Service Research , Nov 2000. Vol 3, Iss.2, p 114
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The link between Satisfaction and Retention (contd.) Link between satisfaction and retention is asymmetric: Dissatisfaction has a greater impact on retention than satisfaction Even if the level of satisfaction is high, retention is not guaranteed If customers are dissatisfied, other products become more enticing The link is nonlinear in that the impact of satisfaction on retention is greater at the extremes The flat part of the curve in the middle has also been called the “zone of indifference” Factors like the aggressiveness of competition, degree of switching cost, and the level of perceived risk influence the shape of the curve and the position of the elbows
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The link between Satisfaction and Retention The figure shows the variability in the relationship between satisfaction and retention across industries. Loyalty was measured as the customer’s stated intent to repurchase Source : “Why satisfied customers defect”, Jones, Thomas O, Sasser, W Earl Jr. Harvard Business Review. Boston: Nov/Dec 1995. Vol. 73, Iss. 6
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How Competitive Environment affects Satisfaction-Loyalty Relationship: Example In the very competitive automotive industry, Very high levels of satisfaction are necessary for a customer to repurchase the same brand again When utilising an airline: Consumers may incur considerable switching costs This cost might increase due to bonus point build-up in frequent flyer programs and due to limited airline choice at any given airport Thus, consumers tend to re-patronize an airline even though their satisfaction might only be moderate
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CH 8 - Customer Relationship Management A Databased...

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