The New Marketing Strategies - Term Paper Example

1 Introduction Today the marketing strategists are progressively more worried about increasing their s in the face of stiff competition. Their rivals in the market offer many similarities in the goods and services and it is often impossible to retain customers. Customer loyalty is no longer guaranteed as companies adopt several marketing ploys to snatch customers from each other, especially in matured and saturated markets. It is increasingly understood in business that both loyal customers and dependable suppliers are hard to come by and it is generally desired to retain them as the effort to get them should not end at one transaction only. It has been suggested after research that if 5% of existing customers are retained the net present value of customers increases between 25-85%, (Ahmad and Buttle, 2001). In effect, the small percentage has a multiplier effect on sales realization. This extra value of additional sales does not represent just the direct sales to them but is also the result of cross sales of other products as well as up-gradations and other services that go along with it. (Selnes, 1995). It is the same case with suppliers too. In a business to business relationship the retention of existing suppliers results in profitable transactions and reduction in costs. (Mudambi and Mudambi 1995). 2 Customer Retention Customer Retention (CR) has been defined as the continuation of the business relationship created between a supplier and a customer (Gerpott et al, 2001). The value of retention of both customers and suppliers is therefore paramount. Marketing strategies are now paying more attention to building on this relationship. From a short-term goal of a single transaction, the focus has shifted to building a long-term relationship. A new term of having a Customer Life-Cycle Value was coined by Grönroos, (1982) and was alternatively described as Time Life Value by Jackson, (1994) and Hwang et al, (2004). Customers should be evaluated by their potential spending power rather than maximizing on one single transaction entered into with them (Andersen, 2001). When value is determined in this manner it will encourage companies to give (CR) a prominent place in their marketing plans. It will give an entirely new perception to the marketing strategy as this becomes an important factor in the measurement of the potential and will be considered as a critical concern for management. This Life-Cycle has become the cornerstone of marketing strategy. 3 CR Methodology It has been rightly concluded that it is less costly to retain an existing customer than to entice an entirely new one. The new marketing strategies take into consideration the method of finding and measuring customer base for its CR value. It has been suggested by DeSouza (1992) that a company should consider the following steps to measure customer retention; interview former customers, analyze complaint and service data, and identify switching barriers. A better way of finding means for CR would be the use of Customer Relationship Management (CRM) software. Through the use of technology, customer preferences, usages, frequencies of transactions, demographic information and behavioral patterns CR values can be determined and even extended. All information about the customer is a valuable contribution towards gaining competitive advantage. For more effective completion of transactions and effective response to customer demands, CRM will assist immeasurably in offering of timely service and better knowledge of customer requirements CRM is a business strategy that helps organizations to deal with with three most urgent business imperatives; augmenting growth, achieving operational superiority and enhancing competitive dexterity. 4 CR and the Financial Sector The service sector is far more sensitive in comparison to the marketing of products. There is a higher personal involvement between the customer and the service provider. Such proximity brings emotional perceptions into play vis-à-vis the personal attention that is given prominence by the customer. The financial services sector is even more fragile in this respect as people are more conscious of value to be derived for their transactions. Unlike product sales, there is less impulsive buying and a higher awareness of possible loss. Parasuraman and Berry (1991), is of the opinion that effective measurement, management and improvement in service quality provides organizations with the ability to develop competitive advantage. As a result the service providers are rewarded with customer loyalty (Rust and Zahorik, 1993; It is interesting to note that service quality has been defined as the difference between expectations and the actual level of the service. (Parasuraman et al., 1985). There can be no set standard and competition continuously raises the bar of the service quality level. This is a dynamic feature that keeps the service provider always on his toes. In effect what the customer wants or perceives to be his desire is what sets the level of the service quality. (Kangis and Voukelatos, 1997). In the financial services sector the services or instruments of services are very similar and it is difficult for a customer to differentiate between them. The competition is so intense that there is little room for any measurable maneuverability or manipulation. The margins are so thin that it is impossible for any firm to offer a greater margin that the rival. Therefore what remains is the quality of service that they offer to the customer. This is indeed the sole factor that will bring the customer back. Companies spend millions just to push this through to the customers. Starting from the ambience of the place of business down to level of offering personalized and individualized services, the extent to which they can and need to go is determined and fuelled by their desire to get hold of high value clients. The competition is so intense that this market is virtually ruled by the customer’s whims and fancies. A wide and large base of loyal customer ensures as this contributes very significantly to the profitability of the financial service sector. (Reichheld, 1993). The effect of loyalty on profits is very visible in the services sector in general but it is especially noticeable in the banking sector (Dick and Basu, 1994). 5 Recommendations As importance of quality as a source of competitive advantage has been recognized to be the measure of success (Parasuraman and Berry, 1991), it is important to take steps to raise or recover service levels. While it is impossible to avoid service failures it is possible to achieve service recovery by better handling of consumer complaints. It has been proven that service recovery leads to positive responses from consumers and failure to do so will result in negative consumer response. Research has shown that the first step is to identify the type of failures. The critical incident technique was used to categorize a service failure model. (Bitner et al 1990). This has also been generally adopted by other researchers (Kelley et al. 1993). Under this there are three types of failures. A) Service Delivery Failures - unavailable service, slow service or other related service. B) Employee Response Failures - special customer needs, customer preferences, customer errors or other factors C) Employee Behavior - level of attention, unusual actions, cultural norms or adverse conditions In practice many consumers do not report failure of service, instead they engage in negative behavior like word-of-mouth publicity or changing service providers. As a result the organization looses the opportunity to go for service recovery. Day and Landon (1976) propose that the consumer normally decides to act or not to act. When he acts he does so either publicly or privately. Public action means he will ask for redressal from the retailer or take legal action or complain to public/private agencies. In case of Private action he will advise others of this failure or will boycott the retailer and go elsewhere. Customer complaints are a reliable method to gauge their satisfaction level and the organizations that shy from it will do so at their own peril. They must encourage customers to air their view through structured questionnaires and based on the same to frame policies directed towards customer satisfaction. 6 Conclusions Companies formulate strategies for competitive advantage. The objective is to attract customers towards their products or service. This is achieved through a transaction between them and the customer. But should the relationship that is created between them through this transaction continue? A satisfied customer is the best brand ambassador of a company and its products. It stands to reason that he should be encouraged to come back for more. In the company/customer scenario this is called loyalty and can be enhanced through loyalty programs. The market driven economy is conscious of the importance of a satisfied customer and is always looking for means to do so. Service Providers try to entice customers in various ways and try to guess his behavioral patterns but ignore the fact that the most fundamental way to gauge is through consumer complaints. For CR it is important to gauge buyer behavior and this is best done through assessing his satisfaction or dissatisfaction level. The former is done through CRM practices and the latter is done through checking and redressing complaint redressal. Both actions are highly recommended for a successful continuation of a financial services organization. 7 Biblography Ahmad, R., Buttle, F. (2001), “Retaining business customers through adaptation and bonding: a case study of HDoX”, Journal of Business and Industrial Marketing, Vol 16, No 7, pp. 553-573 Andersen, P.H. (2001), “A foot in the door: Relationship Marketing Efforts Towards Transaction Oriented Customers”, Journal of Market-Focused Management, 5, PP 01-108 Bitner, M. J., Booms, B. H. and Tetreault, M. S. 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