Reversing the Logic: The Path to Profitability through Relationship Marketing

Many firms have experienced greater success through implementing relationship marketing strategies. This is achieved by gaining knowledge about their own customers through database marketing and about the general marketplace through marketing research. Over time, this has led firms to adopt a general framework which we call the conventional path to profitability. This conventional framework suggests that new product innovation leads to acquisition, acquisition combined with a rich experience leads to satisfaction, satisfaction leads to loyalty and customer retention, and loyalty/retention leads to profitability. However, we show that some of the links in the framework are weak based on both academic research and marketplace realities. Consequently, we reverse the logic of the conventional path to profitability. We introduce a new approach that starts the customer relationship management strategy with customer profitability and the notion that different customers should be rewarded and satisfied differently. In addition, we outline a strategy that relationship marketing firms can implement, leading to higher levels of customer profitability and offer directions for future research.     

Timing customer reactivation initiatives

Firms operating in non-contractual settings apply customer reactivation initiatives such as email messages to stimulate customers who have become inactive temporarily or permanently to resume their transaction activities. Thus, firms need to know which customers are inactive, and when a customer becomes inactive. Existing approaches struggle to distinguish active from inactive customers and do not provide time-scale estimates of when to send reactivation mails. To address these shortcomings, we develop an approach to target and time the sending of reactivation mails. Building on control chart methods, we introduce a gamma–gamma control chart, modelling the average customer interpurchase time and the variation therein to determine activity boundaries. Crossing these boundaries signals a potential change in a customer’s purchasing activity, providing a signal to initiate customer reactivation. A field experiment in the greetings and gifts industry, supported by several additional analyses, illustrates the improved performance of our approach when it comes to signaling customer activity against a wide range of competing models. The improved performance of our method occurs particularly in settings where customers vary strongly in purchase and inactivity patterns.     

The impact of customer-specific marketing expenses on customer retention and customer profitability

We study the effects of customer-specific marketing expenses on customer retention and customer profitability in a business-to-business setting. Using data from a company providing hygiene services, we look at the impact of a hitherto unstudied type of expense targeted at individual customer relationships: the offering of free equipment to customers. The data allow tracking the activities performed in more than 4,500 customer relationships over a period of 4 years. Retention rates are higher for customers targeted with free equipment, but this effect results from an interaction with customer size. First-order dynamic panel data analyses show that the impact of targeted marketing expenses on customer dollar profit is positive for large customers, but there is no effect for smaller customers. Thus, targeted marketing expenses seem to be a tool for relationship maintenance rather than customer development: they help in retaining large customers that generate more profit, but they do not seem to work in developing new customers into larger, more profitable ones.     

Research Trends of Marketing: A Bibliometric Study 1990–2017

Abstract

Interest in the role of marketing has grown in recent decades due to its impact in brand value, value creation for customers, profitability of customer base, and organizational results. The paper shows an overall view on marketing research to explore the development of research trends, showing the high-frequency keywords at different time periods. Using bibliometric methods, the research analyzes publications between 1990 and 2017 found in the Web of Science and Scopus databases. The paper shows the evolution of keywords to reveal emerging topics as demonstrated in the connections network which includes “advertising,” “consumer behavior,” “trust,” “innovation,” and “customer satisfaction.”     

Mapping Out the Customer's Journey: Customer Search Strategy as a Basis for Channel Management

Many companies tailor their communication and interaction with customers by segmenting them into channel usage groups. This study argues that simply focusing on channels has limited effectiveness as increasingly customers today use multiple channels, the online channel contains many different forms, and channels are increasingly blended. We have identified several search strategies that reveal how customers find their way through a multichannel landscape during the various phases of a purchase. By explaining channel usage through these “search strategies,” we propose a clear and intuitive model that will support companies developing an effective multichannel strategy.     

The omnichannel continuum: Integrating online and offline channels along the customer journey

This paper provides a framework for conceptualizing omnichannel integration as a continuum, identifies phenomena that determine how firms should position along that continuum, and summarizes empirical research regarding these phenomena. The framework combines the customer journey (search to purchase to aftersales) and channel choice (online vs. offline). This generates a range of omnichannel strategies, anchored by “Unconnected” on one extreme and “Complete” on the other. In between, “Vertical” strategies integrate channels over the customer journey, while “Horizontal” strategies integrate across channels at a given stage in the customer journey. We draw on more than 200 articles to identify 10 consumer and marketing phenomena (“determinants”) that influence where a firm should position along the continuum. This however raises challenges. For example, empirical research surprisingly finds many customers belong to an offline-focused segment. This suggests a Vertical strategy linking offline channels. However, today's turbulent retail environment questions whether the offline-focused segment will endure. Should the retailer cater to offline-focused customers or facilitate their progression to “multichannelism”? Another finding is that consumers strongly prefer consistency across channels. This suggests a Horizontal strategy. However, consistency might create channel cannibalization. How can the retailer avoid this? We discuss these and several other findings regarding the impact of the 10 determinants on omnichannel continuum strategy. We identify issues researchers need to research and managers need to consider when developing omnichannel continuum strategy.     

Multichannel marketing: Mindset and program development

Individual consumers have quickly embraced the practice of using a variety of channels through which to make their purchases, as 65-70% of them are multichannel shoppers. Indeed, multichannel shoppers (defined as those who utilize a variety of different purchasing channels, including bricks-and-mortar stores, the telephone, and the Internet) are now in the majority, and spend significantly more than single-channel shoppers. Given this reality, it is critical that organizations adopt a multichannel mindset and effectively employ a multichannel marketing program, as these can enhance profitability, the customer experience, and customer satisfaction. It is the aim of this article to provide firms with guidance in developing an effective multichannel mindset and in designing a multichannel marketing program for serving end-consumers in business to consumer (B2C) situations.     

Does online relationship marketing enhance customer retention and cross-buying?

One characteristic of online consumer behavior is the low cost of searching for alternatives. Therefore, customer loyalty is more difficult to achieve in the online context than in the offline one. Although studies have discussed the effectiveness of relationship marketing, nearly all studies examining such constructs have been in the context of ‘offline’ consumer behavior. With regard to the ‘online’ context, the integration of Internet technology with the customer loyalty concept is rarely discussed in the relationship marketing literature. Furthermore, empirical research that integrates the actual purchase behavior of customer retention and cross-buying is relatively sparse. In response to this, the current study develops and empirically tests a model that examines the relations among relationship-bonding tactics, perceived relationship investment, perceived relationship quality, customer loyalty, customer retention, and cross-buying. Using survey data from 766 online customers of a securities corporation, the results demonstrate the effectiveness of relationship marketing as it positively influences online customers' perception, then their loyalty, and ultimately, their actual purchase behavior.     

Counting your customers from an ��always a share�� perspective

Models based on the Pareto/NBD framework are among the most popular for customer base analysis. The Pareto/NBD framework assumes that purchasing follows a Poisson process until the customers defect. Therefore, models based on this framework may systematically underestimate the number of future transactions from customers whose probability of returning is greater than zero. In this paper, we propose a new model which assumes that customers do not defect, but instead switch freely between an active and an inactive state. We call this model the ??interrupted Poisson process??. According to the model, customers purchase through a Poisson process when they are active and they do not purchase when they are inactive. Bayesian simulation methods for parameter estimation are developed and implemented via a Markov chain Monte Cacrlo (MCMC) simulation. Several useful expressions for customer base analysis are derived. Through simulation experiments, we show that the rate of customers moving from an inactive to an active state is an important factor determining the fit and predictive ability of the Pareto/NBD model and our model. An empirical analysis, using two real-life datasets, demonstrates the superior performance of the proposed model.     

Customer Retention Strategies of Fast-Food Outlets in South Africa: A Focus on Kentucky Fried Chicken (KFC), Nando's,and Steers

The primary aim of the research was to critically analyze and evaluate the different customer retention strategies being implemented by fast-food outlets such as Kentucky Fried Chicken (KFC), Nando's, and Steers in South Africa. The fast-food industry in South Africa is experiencing numerous market-related changes, which range from intense globalization forces to heightening competition levels. The pressure on businesses today is further increased by a market where the customer acquisition rate is slowing, customer loyalty is decreasing, and sales cycles are lengthening. In such an environment, losing a valuable customer to a competitor can have a significant impact on profitability and growth. As a result, many companies have shifted their focus from customer acquisition to customer retention. The research was primarily concerned with assessing customer relationship management, relationship marketing, and communication through technology as strategies to maintain intimate relationships with customers. Personal interviews and in-depth interviews with the help of questionnaires were used to collect primary data in the research. The results indicated that KFC, Nando's, and Steers adopt similar marketing strategies or use the same concepts to manage their relationships with both internal and external customers and other stakeholders. These strategies and concepts include customer relationship management, relationship marketing, and technological means of communication.     

Key Issues in Multichannel Customer Management: Current Knowledge and Future Directions

Multichannel customer management is “the design, deployment, and evaluation of channels to enhance customer value through effective customer acquisition, retention, and development” (Neslin, Scott A., D. Grewal, R. Leghorn, V. Shankar, M. L. Teerling, J. S. Thomas, P. C. Verhoef (2006), Challenges and Opportunities in Multichannel Management. Journal of Service Research 9(2) 95–113). Channels typically include the store, the Web, catalog, sales force, third party agency, call center and the like. In recent years, multichannel marketing has grown tremendously and is anticipated to grow even further. While we have developed a good understanding of certain issues such as the relative value of a multichannel customer over a single channel customer, several research and managerial questions still remain. We offer an overview of these emerging issues, present our future outlook, and suggest important avenues for future research.     

Segmentation based on customer profitability — retrospective analysis of retail bank customer bases

Segmentation continues to be an important marketing concept also in a relationship marketing context. Relationship marketing is, however, more interested in enhancing the existing customer relationships and this generates a need for a better understanding of the existing customer base. The paper argues that “retrospective” or historical analyses, that facilitate the calculation of customer relationship profitability, form an excellent starting point for segmentation of customer bases. Such segmentation is shown to be a strong analytical instrument as a basis for formulating marketing strategies. By using empirical data collected from two extensive case studies of retail banks in the Nordic countries the paper illustrates different ways of segmenting customer bases.     

Online channel adoption in supermarket retailing

Introducing a new online channel is a crucial decision for brick-and-mortar retailers that requires insight and forecasts into customers' adoption and subsequent behaviour. The aim of this study is to analyse the dynamics in the behavioural heterogeneity of (new) multichannel supermarket customers when the online channel is introduced. A Latent Class Analysis (LCA) was conducted on 1151 adopters of the new online channel of a supermarket retailer to segment customers. We employed an extended “Recency, Frequency and Monetary (RFM)” model that includes customers’ purchases prior to the introduction of the new channel. Results show that adopters of a new channel are not a homogenous group of customers displaying a similar behaviour: two segments – or 35% of the sample – quit the channel after using it for some time, another segment (5%) left the company altogether, the other four segments remained multichannel to different degrees, with one shifting shopping substantially to online. Based on these results, the paper provides directions to retailers for developing Customer Relationship Management (CRM) strategies to manage the different customer segments and support channel performance evaluation and channel management decisions in a multichannel context.     

Are your customers worth more than money?

This paper suggests that relationship marketing, with its focus on customer retention and managing the customer relationship over its lifetime, entails understanding the twin aims of what value means for the customer and also the value of the customer to the retailer. The emphasis in this paper is the latter as it is often assumed to be non-problematic. Different methods of assessing the value of customers in terms of profitability are evaluated and their shortcomings discussed. The paper goes on to propose that economic value, reflecting risk, is a better measure of the value of the customer. However, even economic value has a shortcoming: calculations of the total value of the customer should include relationship benefits as well as economic value. Strategies to maximise relationship benefits are discussed.     

Building Bridges: The Company-Customer Relationship

ABSTRACT

With increasing emphasis on relationship selling, a bond is often formed between the salesperson and each customer. When a salesperson leaves to work for a competitor, customers may follow. Small companies are particularly vulnerable since they lack the resources necessary for many sales force retention strategies. The suggestion is made that such companies can implement “bridging strategies,” company-level relationship strategies designed to supplement the relationship between the sales rep and the customer, with the distinct objective of retaining customers following salesperson defection. Using the three levels of relationship marketing described by Berry and Parasuraman (1991), specific bridging strategies are identified and analyzed. The pharmaceutical industry is discussed as an example.     

The Relationship Marketing View of the Customer and the Service Dominant Logic Perspective

Based on the concept of service-dominant logic as the emerging organizing logic of marketing that would replace the traditional goods-dominant view, Vargo and Lusch (2004) originally proposed that among several other approaches to research and marketing practice that had emerged, relationship marketing would be subsumed by this broader view. More recently, however, Vargo (2009) suggested that because relationship marketing focuses on increasing the series of on-going transactions with a customer, coupled with the goal of enhancing their long-term patronage, that relationship marketing extends the goods-dominant perspective, rather than transcending into the service-dominant logic. This article counters that the relationship marketing view of the customer has already transcended the goods-dominant view to the to service-dominant view based on the way that customers are brought into the relationship as active participants in the service creation, and act as “co-producers” of value. To address the apparent goods-dominant approach in two widely used relationship marketing practices and measures, customer relationship management and customer lifetime value, this article proposes that these tools can be used from a goods-dominant view, but they can also serve as essential steps towards the practice of relationship marketing from the service-dominant logic.     

Managing Complaints to Improve Customer Profitability

In this study, the authors aim to understand whether, to what extent, and under what circumstances, organizational responses to customer complaints improve customer profitability. To do so, they build upon the congruence approach and propose a contingency framework in which the effectiveness of three organizational responses to customer complaints (timeliness, compensation and communications) in improving customer profitability is contingent upon the strength of the relationship and the type of failure. The framework is tested empirically in the financial services industry applying latent class techniques to longitudinal data for a sample of complaining customers. The results reveal that: (1) different complaint-handling initiatives affect customer profitability differently for each of the four segments of complaining customers that are obtained; (2) these heterogeneous responses to complaint handling are explained by differences in the orientation of the relationship and in the failure context; and (3) complaint-handling initiatives are more (less) effective at improving customer profitability when the benefits they offer strongly (poorly) match the benefits sought by customers in each segment to recover from the failure. These results contribute to a better theoretical understanding of customers’ heterogeneous responses to complaint handling and offer managerial recommendations to allocate marketing resources across alternative complaint-handling strategies to improve profitability.     

Cannibalization or synergy? Consumers' channel selection in online–offline multichannel systems

This paper develops and empirically validates customer shopping motives taking account of customer channel selection in multichannel systems. As each channel is associated with certain advantages and disadvantages from a customer's perspective, we develop – based on behavioral considerations – a customer typology to classify different segments of customers. This enables us to empirically analyze the interrelationship between distinct shopping motives prior marketing research has suggested and cannibalization and synergetic effects in online–offline multichannel systems. Our results show that a higher degree of customers' convenience orientation in contrast to the degree of risk aversion and service orientation encourages the selection of the online channel over the offline channel. In addition, we develop and empirically analyze a typology of customers to classify distinct segments of consumers, highlighting the associated interrelationship of individual shopping motives and cannibalization and synergetic effects. Our results indicate that the desire for service, rather than risk aversion, could potentially cannibalize customers away from the online channel.     

The roles of multiple channels in predicting website visits and purchases: Engagers versus closers

In today’s online environment, consumers and sellers interact through multiple channels such as email, search engines, banner ads, affiliate websites and comparison-shopping websites. In this paper, we investigate whether knowing the history of channels the consumer has used until a point of time is predictive of their future visit patterns and purchase conversions. We propose a model in which future visits and conversions are stochastically dependent on the channels a consumer used on their path up to a point. Salient features of our model are: (1) visits by consumers are allowed to be clustered, which enables separation of their visits into intra- and inter-session components, (2) interaction effects between channels where prior visits and conversions from channels impact future inter-session visits, intra-session visits and conversions through a latent variable reflecting the cumulative weighted inventory of prior visits, (3) each channel attracts inter-session and intra-session visits differently, (4) each channel has different association with conversion conditional on a customer’s arrival to the website through that channel, (5) each channel engages customers differently (i.e., keeps the customer alive for a next session or for a next visit within a session), (6) the channel from which there was an arrival in the previous session can have an enhanced ability to generate an arrival for the same channel in the current session (channel persistence), and (7) parsimonious specification for high dimensionality in a low-velocity, sparse-data environment. We estimate the model on easy-to-collect first-party data obtained from an online retailer selling a durable good and find that information on the identities of channels and incorporation of inter- and intra-session visits have significant predictive power for future visitation and conversion behavior. We find that some channels act as “closers” and others as “engagers”—consumers arriving through the former are more likely to make a purchase, while consumers arriving through the latter, even if they do not make a purchase, are more likely to visit again in the future or extend the current session. We also find that some channels engage customers more than others, and that there are interaction effects between the channels visited. Our estimates show that the effect of prior inventory of visits is different from the immediate prior visit, and that visit and purchase probabilities can increase or decrease based on the history of channels used. We discuss several managerial implications of the model including using the predictions of the model to aid in selecting customers for marketing actions and using the model to evaluate a policy change regarding the obscuring of channel information.     

One firm,one product,two prices: Channel-based price differentiation and customer retention

Every multichannel retailer must decide whether and how to apply channel-based price differentiation. This study identifies channel-related price differentiation instruments and considers their effects on customer retention. It empirically tests hypotheses using a laboratory experiment and analytically investigates feasibility conditions. Results show that channel-based price differentiation positively affects customers through perceived value but harms retention through price unfairness and limited self-determination. The mobile communications retailer in this study would require 5.1% lower operating costs online to ensure its profitability. These results indicate that multichannel retailers with channel-based price differentiation should carefully select their price instruments and meet the feasibility conditions.