United Services Automobile Association (USAA) is a company built around developing long term customer relationships with its members. USAA provides insurance for current and former U.S. Military personnel and their families. The company manages more than $110 billion in assets and still manages to be ranked number 1 or 2 most years in BusinessWeek’s annual list of Customer Service Champs and on Fortune’s list of the 100 best companies to work for in America. USAA’s member retention figures approach 100 percent. Members stay members pretty much until they die.
USAA takes a comprehensive approach to training and keeping employees, centered on helping them drive member retention. Empathy for their members is emphasized as a major part of every employees’ work day. The company focuses on building long term relationships with members and employees, enabling USAA to Hit the Bullseye.
Table Of Contents
- Relationship Marketing
- Evolution of Customer Relationships
- Benefits for customers and firms
3.1 Benefits to customer
3.2 Benefits to firm
- Relationship development strategies
- Relationship challenges
1. Relationship Marketing
Relationship marketing is a facet of customer relationship management (CRM) that focuses on customer loyalty and long-term customer engagement rather than shorter-term goals like customer acquisition and individual sales. The goal of relationship marketing (or customer relationship marketing) is to create strong, even emotional, customer connections to a brand that can lead to ongoing business, free word-of-mouth promotion and information from customers that can generate leads.
It has been suggested that firms frequently focus on attracting customers but then pay little attention to what they should do to keep them. Ideas expressed in an interview by James L Schorr, then executive vice president of marketing at Holiday Inns, he was referring to the leaky bucket theory
The leaky bucket theory is the model that seeks to describe the process of customer gain and loss. In this we consider marketing to be a huge bucket and people come in via methods such a directs sales, indirect sales,promotion etc. As long and the programs are effective the buckets stay full,however there is an issue there is a small hole in the bucket and customers are leaving. Customer retention is one of the key concepts in relationship marketing. Most companies concentrate on recruiting new customers to replace customers who move on, rather than seeking to retain customers.
2. Evolution of Customer Relationships
Firms relationship with their customers, like other social relationship tend to evolve over time. It has been said that the relationship between provider and customers often have the potential to evolve from strangers to acquaintances to friends to partners.
- Customers as Strangers: Strangers are those customers who have not yet had any transactions with a firm and may not even be aware of the firm.At the industry level,strangers may be conceptualized as customers who have not yet entered the market,at the firm level,they may include customers of competitors.clearly the firm has no relationship with the customer at this point.Consequently,the firm’s primary goal with these potential customers is to initiate communication with them in order to attract them and acquire their business.
- Customers as Acquaintances: Once customer awareness and trial are achieved,familiarity is established and the customer and the customer and the firm become acquaintances,creating the basis for an exchange relationship.A primary goal for the firm at this stage of the relationship is satisfying the customer.In the acquaintance stage,firms are generally concerned about providing a value proposition to customers comparable with that of competitors.For a customer,an acquaintanceship is effective as long as the customer is relatively satisfied and what is being received in the exchange is perceived as fair value.
- Customers as Friends: As a customer continues to make purchases from a firm and to receive value in the exchange relationship,the firm begins to acquire specific knowledge of the customer,s needs,allowing it to create an offering that directly addresses the customer’s situation.The provision of a unique offering,and thus differential value,transforms the relationship from acquaintance to friendship.A primary goal for firms goal for firms at the friendship stage of the relationship is customer retention.
- Customers as Partners: As a customer continues to interact with a firm,the level of trust often deepens and the customer may receive more customized product offerings and interactions.The trust developed in the friendship stage is a necessary but not sufficient condition for a customer firm partnership to develop.That is the creation of trust leads to the creation of commitment and that is the condition necessary for customers to extend the time perspective of a relationship.
3. Benefits for customers and firms
Both parties in the customer-firm relationship can benefit from customer retention. That is, it is not only in the best interest of the organization to build and maintain a loyal customer base, but customers themselves benefit from long-term association.
3.1 Benefits to customer
- Confidence Benefit: It comprise of feelings of trust or confidence in the provider along with a sense of reduced anxiety and comfort in knowing what to expect.
- Social Benefit: Over time customer develops a sense of familiarity and even a social relationship with their service provider.
- Special Treatment Benefit: This includes being given the benefit of the doubt, being given special treatment, offers etc
3.2 Benefits to firm
As alluring as customer acquisition may seem, the truth is that it is important to invest time, effort and resources in maintaining a relationship once the customers are on board. Customer loyalty and brand loyalty initiatives facilitate companies to retain customers, beginning from the first contact one has with the company and endures throughout the period of the relationship.
- Economical Benefit: Increasing customer retention helps boost profits simply because loyal customers already have trust in your brand and therefore are likely to spend more. According to the research referenced above, increasing retention by just 5% through customer loyalty programs can boost revenue up to 90%.
- Customer Behavior Benefit: A comprehensive, personalized loyalty program will make your customers feel like they have an emotional connection with your brand and will increase customer patience in case of mishaps.
- Human Resource Management Benefit: Loyal customers may also provide a firm with human resource management benefits. For example, a regular patient of a medical service provider is likely to know how the system works; she would know to bring her medication with her on a visit, to plan on paying by debit card.
4. Relationship development strategies
In order to succeed in the market, there should be a good product, good relationship marketing strategies and setting up of distribution channels. For some companies sales process is completed with the sale and guarantee terms.
- Core service provision: Retention strategies will have little long-term success unless the firm has a solid base of service quality and customer satisfaction on which to build.
- Switch Barriers: When considering a switch in service provider, a customer may face a number of barriers that make it difficult to leave one service provider and begin a relationship with another.
- Relationship Bonds: Firms can engage in activities that encourage customers to remain in the relationship because they “want to”- thus creating a relationship bond.
5. Relationship challenges
- Wrong Segmentation: A company cannot target its service to all customers, some segments are more appropriate than others
- Not profitable in the long term: In the absence of ethical or legal mandates, organizations will prefer not to have long term relationships with unprofitable customers
- Difficult customers: Customer is not always right, no matter how frequently we say “The customer is always right”.
In this chapter we focused on the rational for, benefits of, and strategies for developing long-term relationship with customers. The segment of your customer base who regularly buys from you could be the biggest asset your company has. By adjusting your marketing spend so that you target not only new customers but also nurture your existing audience, you could enjoy far greater profitability.