Chapter-06

Marketing Metrics and Return on Relationship

Qs- 01. Definition of Marketing Matrix Md.

Before knowing the Marketing matrix at first we know marketing, matrix then we know marketing
matrix.

Shortly marketing means managing profitable customer relationships. Broadly marketing is the
process by which companies create value for customers and build strong customer relationships in
order to capture value from customer in return.

Generally matrix is the term of mathematic which is express X and Y. But in case of marketing,
matrix shows the relationships from different variable with vertical and horizontal ways.

A marketing matrix is essentially a plot on a two dimensional plane according to how well they
meet customers key requirements.

For example: Ansoff matrix, Boston Consulting Group Matrix (BCG), General Electric Matrix
(GE)

Qs-02.What is return on relationship (ROR)?

Return on Relationship… simply put the value that is accrued by a person or brand due to
nurturing a relationship. ROI is simple currency and currency. ROR is the value (both perceived
and real) that will accrue over time through loyalty, recommendations and sharing.

A business hoping to build a company defined by loyal customers who are willing to support the
organization via word of mouth marketing needs a high level of ROR. According to Rubin, return
on relationship is all about organic engagement, sentiment monitoring, and community
management.

ROR applies to the value that you get out of nurturing connections with customers. This value
comes in the form of:

 Recommendations and referrals

 Social media engagement
 Followers and fans
 Loyalty and repeat business
 Social sharing
If you want to continue to reach your market in this social media age, the marketing focus needs
to be on building relationships, and metrics need to expand beyond ROI (Return on Investment)
to include ROR ( Return on Relationship).

Qs-03.How do you build and strengthen relationships with your audience (as a
whole, and as individuals) to increase your ROR?

1. Listen

If you want to be heard above the growing social media “noise,” you need to first listen to your
consumers so when you do speak, you get it right. What are they saying, what are they feeling,
what are their pain points, what solutions do they need?

2. Make it be about them

First think about and first address what matters most to your audience. Give them a platform to
show you what they need, want, are interested in, and expect. Whatever matters most to them
should become what matters most to you! We marketers like to think that social media is primarily
a set of tools for our marketing purposes, but in reality, social media is also a strong set of tools our
consumers use to share and influence opinion about our brand

3. Ask “How can I serve you?”

Run polls to find out what kind of content your audience is interested in. Let people know you
want to help them.

4. Aim for Ongoing Engagement

Building relationships is about starting meaningful dialogue and taking the time to thoughtfully
and genuinely engage in ongoing conversation. Relationships focus on getting to know your
consumer and giving them reasons to stay engaged — not just getting them to react.

5. Know the People in Your Audience

Short and simple: if you are only focused on the money, you risk completely overlooking the
people. Don’t make that mistake! If you don’t know who your people are, you might as well toss
your marketing money down the drain.
6. Remember the “social” part of social media
Don’t just publish content, respond to your followers and engage in their discussions.

7. Be consistent
Always follow up to queries promptly, and let your people know that you’re there for them.

Relationships ARE the new currency – honor them, invest in them, and start measuring your
ROR!

Qs- 04. Customer satisfaction, loyalty, value and ROR

Customer satisfaction, a term frequently used in marketing, is a measure of how products and
services supplied by a company meet or surpass customer expectation. Customer satisfaction is
defined as "the number of customers or percentage of total customers, whose reported experience
with a firm, its products, or its services (ratings) exceeds specified satisfaction goals. Customer
satisfaction as a ‘person’s feeling of pleasure or disappointment, which resulted from comparing
a product’s perceived performance or outcome against his/her expectations’

Customer satisfaction = f (perceived performance, buyer’s expectations)

Here, customer satisfaction is a function of perceived performance and expectations. Perceived

performance is the consumer’s belief about the product or service experience. Buyer’s
expectations, on the other hand, are influenced.

Performance of the product in the recent past

 Word of mouth, recommendations or testimonials

 Reviews
 What competitors say about the product or service
 What its own marketers promise

Example: customer service include remembering and appreciating repeat customers, forging a
local connection with shoppers, putting your product knowledge to good use, and more. Read on
below to discover what you can do to level up your customer strategies.

Customer loyalty:
Customer loyalty is every business's dream, it's the fruit of customer success efforts and strategies.
What would a business need more than a stable customer base that doesn't only guarantee future
revenue with high lifetime value, but also works as a marketing media, reduces CAC, and supports
the business towards scaling fast and steady?

Customer loyalty is a measure of a customer’s likeliness to do repeat business with a company or

brand. It is the result of customer satisfaction, positive customer experiences, and the overall value
of the goods or services a customer receives from a business.

Example: Lively. Fashion brand lively is examples of a loyalty program that make their most loyal
customers feel special. It rewards members with points on their birthday, when they refer a friend
and if they follow lively on social media.

Qs- 05. Relationship Profitability Model

Relationship profitability Model shows how stages and properties of the relationships between

Figure: A Relationship Profitability Model

Suppliers and customers are linked together. Starting from the left, perceived value is defined as
the outcome of customer-perceived quality and the customer’s sacrifice (cost in a wide sense). The
perceived value is an antecedent to customer satisfaction, which in turn influences customer
commitment, bonds to the supplier and relationship strength. The higher the relationship strength
and the customer’s feeling of loyalty towards the supplier, the fewer the perceived alternatives;
when there is a monopoly, however, the customer is a prisoner.
The number of alternative suppliers and their attractiveness impact on relationship longevity,
which is also influenced by the positive, negative or indifferent interaction with the supplier
(critical episodes). A long and beneficial relationship may lead to increased concentration of the
purchases from a single supplier and share of customer goes up. A single-sourcing strategy pursued
by the customer gives the supplier a 100 per cent share and maximum revenue. The length and
strength of the relationship also affects the types of interactions that form the relationships (episode
configuration), which in turn determines costs. Finally, relationship revenue minus relationship
cost establishes the customer relationship profitability or ROR.

Today we could add the S-D logic and stress the co-creation of value and the customer’s work to
actualize the service proposition. Companies may dry out because business has become constant
firefighting and eventually there is no water left to throw on the fire. RM promotes long-term
thinking, but sometimes today’s business has to be saved before the long-term aspects can be
addressed. Certain decisions must be taken out of strategic necessity; they are market investments
and cannot be financially assessed with simple indicators. They do not belong in the short-term
profit and loss statement. You either do it, and stand a chance to survive, or you don’t and you risk
to disappear from the market. Declining customer loyalty often builds up in small steps which may
not be discernible until it is too late to reverse the vicious circle. The tipping point appears as a
surprise.

Q6.The Relationship Marketing ladder of loyalty

Customer Loyalty Ladder:

Customer Loyalty Ladder is a systematic way of classifying customers of an organization into five
different categories depending upon the business level engagement of customers with the
organization. Customer loyalty ladder helps customers to identify potential customers who can
remain engaged with their business for a long time and also become loyal to their brand.

The concept of Customer Loyalty Ladder comes under relationship marketing and brand
management which deals with establishing long term relations with customers. It is said that the
cost of attracting new customers is 4-6 times more than that of doing business with existing
customers. Hence it is worth for any organization to keep its existing customers happy and satisfied
in order to do a more profitable business.

Customer Loyalty Ladder thus helps an organization plan engagement strategy wisely so that the
customers would be tempted to move up the ladder.

Customer Loyalty Ladder Categories and Examples

Customer Loyalty Ladder classifies the people related to the product based on their engagement.
People are classified as suspects, prospects, customers, clients and advocates. The below
mentioned diagram shows the customer loyalty ladder:

The five different categories under Customer Loyalty Ladder are:

1. Suspects
They are the potential customers for an organization. They may be aware of the promotional
campaigns of the organization but are currently doing no business with that organization.

For example: A person who is happy with the cab services right now but is aware of all the car
options available in the budget.

2. Prospects
They are the ones who have been impressed with the organization’s promotions and are in serious
consideration of buying products of the organization. The organization must treat them cordially
and solve all of their doubts.
An example can be a customer looking to buy a car and places 5 particular cars in the consideration
set. This person becomes a prospect for all the 5 companies as he or she would mostly buy 1 of
these 5 options.

3. Customers
They have bought products of the organization for the first time and are currently using them. The
organization must extend them all possible after-sales assistance in order to pacify their concerns.
These customers can be engaged with a loyalty program or a loyalty discount.

For Example, A buyer of a car or a buyer of a smartphone is a customer

4. Clients
They are doing business repetitively with the organization and are willing to foster the engagement
in future. Clients if well engaged can help boost business with their brand loyalty. These can also
become key accounts.

For Example, a client of a software company doing multiple projects in different technologies
and domains

5. Advocates

They are not only doing repetitive business with an organization but are also recommending the
organization to their own acquaintances. They are the most valuable players and the organization
must treat them royally with the highest priority.

For Example, a person after buying the car of a company is so content that he or she tells people
about it indirectly helping the brand.

Q7.Duration, retention and defection

Loyalty and ROR can be tied to several key indicators. Among them are:

1. the duration of a relationship,

2. the retention rate ,
3. and the defection rate

1.The duration of a relationship: how long the customers remain customers,

As for example a customer would buy Coca cola for the last 2 years. Here the duration of relation
between customer and Coca Cola Company is 2 years.
2. The retention rate: This is the percentage of customers who remain after 1 year, 2 years,
etc.

3. The defection rate: This is the percentage of customers who leave a supplier.
Customer retention is a strategic process to keep or retain the existing customers and not letting
them to diverge or defect to other suppliers or organization for business and this is only possible
when there is a quality relationship between customer and supplier. Usually a customer is tended
toward sticking to a particular brand or product as far as his basic needs are continued to be
properly fulfilled

The customer retention is the process of engaging existing customers to continue buying products
or services from your business

Example: You have 50,000 customers at the start of a calculation period of two months. During
those two months, you acquire 1000 customers and at the end of the period, you have 40,000
customers. Here retain customer is 40,000.

We’ll subtract 100 from 50,000 to get rid of customers acquired during the testing period. That’s
leave us 49,000. Now, we’ll divide 40,000 by 49,000 to get .81. If we multiply that number by
100, we get a customer retention rate of 81 percent.

A central question in RM is how much should be spent on retaining existing customers and
increasing the duration of the relationship, and how much should be spent on getting new
customers. A study in the United Kingdom showed that 80 percent of the managers of service
operations felt that they spent excessive resources on attracting new customers and 10 per cent that
existing customers occupied too much of their resources. Only 10 per cent were happy with the
balance between resources spent on new and existing customers.

Market share is a traditional indicator in marketing management, showing the percentage of a

total market or market segment that a supplier serves. Fewer and more select customers, each
buying more during a longer period, could be a superior way to profits as compared to more
customers with a small volume and shorter relationships. Share of customer (also called share of
wallet) is recommended as an alternative ratio to market share.

Example: Milliken Company, a leader in textiles and winner of the Baldrige Quality Award,
monitors share of customers. Taco Bell is a successful and rapidly growing fast-food chain with
Mexican cuisine. The company does not measure market share but ‘share of stomach’, thereby
establishing how much of the customer’s intake is delivered by Taco Bell.

The old concept of LTV has been revived by CRM. It usually refers to the net value of an individual
consumer ’ s purchases over his or her lifetime, sometimes widened to the whole family, even to
both private and professional consumption. LTV in B2B is somewhat more ambiguous: What is
the life cycle and lifetime of a company?

Customer equity as ‘the total of the discounted LTVs of all its customers’. Customer equity is the
combined outcome of value equity (defined as relatively cognitive, objective and rational
customer perceptions of quality, price and convenience),

Brand equity (perceptions of a supplier that are relatively emotional, subjective and irrational)
retention equity (repeat purchases).

According to the authors: ‘Customer Equity is the key to the long-term profitability of any firm,
and analyzing the key drivers of Customer Equity provides an overall framework for effectively
focusing strategic resources.’

Customer defection: The service provider has to define ‘defection’ for his business. A customer
may not avail the services of provider each time he needs the services but he still needs to use the
provider’s service a reasonable number of times to be labelled as loyal.

For example: As soon as family starts going to other restaurants half the time they go out to eat,
the family should be labelled as a defected customer by the restaurant who is interested in keeping
the family as its customer.

Q8.Improving Customer retention

Customer retention refers to the ability of a company or product to retain its customers over some
specified period. High customer retention means customers of the product or business tend to
return to, continue to buy or in some other way not defect to another product or business, or to
non-use entirely. Customer retention starts with the first contact an organization has with a
customer and continues throughout the entire lifetime of a relationship and successful retention
efforts take this entire lifecycle into account.

Because of the dramatic impact that improved customer retention can have on business
profitability and the fact that many organizations continue to place too much emphasis on
acquiring customers at the expense of keeping them, organizations clearly need to adopt a
structured approach to enhancing their customer retention and profitability levels. There are three
major steps in such an approach: measuring customer retention, identifying root causes of
defection and key service issues, and developing corrective action to improve retention.

Step 1: Measuring customer retention

Measuring retention rates for existing customers is the first step towards improving customer
loyalty and profitability. It involves two major tasks: measuring customer retention rates and
analyzing profitability by segment.

To measure customer retention, organizations need to analyses a number of dimensions in detail.

These include measuring customer retention rates over time, by market segment, and in terms of
the product or service offered. If customers buy from a number of suppliers, share of wallet should
also be identified.

As a result of this first step, companies should be able to define customer retention clearly, measure
present customer retention rates and understand the existing and future profit potential for each
market segment.

Step 2: Identifying causes of defection and key service issues

This step involves identifying the underlying reasons why consumers leave the company.
Traditional marketing research into customer structured approach to enhancing their customer
retention and profitability levels. Satisfaction does not always provide accurate answers as to why
customers abandon one supplier for another. All too often customer satisfaction questionnaires are
poorly designed, superficial and fail to address the key issues, forcing respondents to tick pre-
determined response choices.

Companies need to identify clearly and understand the root causes of customer defection before
they can begin to implement a successful customer retention programmer. Highly experienced
market researchers are often required to undertake this task.

Step 3: Corrective action to improve retention

The final step in the process of enhancing customer retention involves taking remedial action. At
this point, plans to improve retention become highly specific to the organization concerned and
any actions taken will be particular to the given context. Some key elements include: marshalling
top management commitment; ensuring employees are satisfied and dedicated to building long-
term customer relationships; utilizing best practice techniques to improve performance; and
developing a plan to implement a customer retention strategy.

Increasingly, organizations recognize that enhanced customer satisfaction leads to better customer
retention and profitability. Many organizations are now reviewing their customer service strategies
to find ways to boost retention rates as a means of improving their business performance.
Achieving the benefits of long-term customer relationships requires a firm commitment from
everyone in the organization to understanding and serving the needs of customers.
Customer retention and its economics
Writers and researchers have suggested that it costs around five times more to win a new customer
than it does to keep an existing one. Yet, as we have pointed out, many companies have
traditionally focused their marketing activity on acquiring new customers, rather than retaining
existing customers. This may be due to the historical convention in many companies that rewards
customer acquisition to a much greater extent than customer retention, or it may be caused by a
lack of understanding of why customer retention can be such a boon to commercial profitability.

The impact of retention on profitability

While most companies recognize that customer retention is important, relatively few understand
the economics of customer retention within their own firm. Until fairly recently, there was little
research that critically evaluated the relative financial benefits of customer acquisition versus
customer retention.

Why should retention have such a great effect on profitability? Reichheld and Sasser6 suggested
a number of reasons to explain their findings:

 Acquiring new customers involves costs that can be significant and it may take some years
to turn a new customer into a profitable customer.
 As customers become more satisfied and confident in their relationship with a supplier,
they are more likely to give the supplier a larger proportion of their business, or ‘share of
wallet’.
 As the relationship with a customer develops, there is greater mutual understanding and
collaboration, which produces efficiencies that lower operating costs. Sometimes
customers are willing to integrate their IT systems, including planning, ordering and
scheduling, with those of their suppliers, and this further reduces costs.
 Satisfied customers are more likely to refer others, which promotes profit generation as
the cost of acquisition of these new customers is dramatically reduced. In some industries
customer advocacy can play a very important role in acquiring new customers, particularly
when there is a high risk involved in choosing a supplier?
 Loyal customers can be less price-sensitive and may be less likely to defect due to price
increases. This is especially true in business-to business markets where the relationship
with the supplier becomes more valued and switching costs increase.

A framework for developing a segmented service strategy

We now outline a framework for developing a segmented service strategy. This framework utilizes
the customer segment and profit potential approaches discussed above as well as some frameworks
from the customer service literature. It integrates these elements into a structured approach to
relationship marketing that aims to deliver both increased value to the customer and increased
value to the organization.

Step 1: Define the market structure

In order to segment the market properly you need to define the market structure clearly. ‘Market
mapping’ is a technique that can help clarify the market structure and relationships between
suppliers, intermediaries and customers. A market map defines the distribution and value added
chain between the suppliers and final users.

Market maps can be used to show the percentage of turnover and the percentage of profit made
through each distribution channel and to illustrate the current and future importance of that
channel.

Step 2: Segment the customer base and determine segment value

Step 2 involves segmenting the customer base using appropriate segmentation criteria and
estimating the value of the customer segments. In the electricity company example above, we
described four segments. These segments were identified using criteria such as behavioral, usage
and lifestyle characteristics. Where the segments identified contain large numbers of customers, it
may be appropriate to segment them further into micro segments. Companies also need to consider
channel implications for each segment, derived from the market map.

For example, a pharmaceuticals distributor we have worked with segmented its customer base by
product usage, strength of relationship, and complexity of decision-making unit. Its analysis of the
potential value of segments led to it placing new emphasis on its emerging web sales channel and
de-emphasizing its traditional catalogue sales channel.

This process involves:

 Determining the profit projections in each segment.

 Determining the realistic opportunity for increasing customer retention in each segment
and how this may vary across the time period under consideration. (An example of this is
shown in the electricity company example above.)
 Identifying the potential increase in projected ‘gross’ profits for each period and in lifetime
profitability, as a result of improved customer retention.

Step 3: Identify segments’ service needs

Step 3 is concerned with investigating the service needs, expectations and performance levels
within each customer segment. Companies need to identify performance levels for both themselves
and their competitors. Service needs and performance can be determined by a range of market
research techniques such as focus groups and in-depth interviews with customers. Tools such as
conjoint or trade-off analysis can be used to analyses the results. Using this research, companies
can then identify segments with similar service priorities.

Step 4: Implement segmented service strategy

The final step involves implementing a segmented service strategy based on the existing and
potential value of the different customer segments and the organization’s service capabilities and
strengths, relative to its competitors. This step involves three stages:

1. Reviewing existing segment performance to identify areas of over-performance and under-

performance

If the company does not know which dimensions the customer values, it runs the risk of wasting
resources through ‘service over-performance’ – that is, placing too much emphasis on a service
dimension that the customer regards as relatively unimportant. Equally, the company needs to
know where there is ‘service under-performance’ – dimensions where it places little emphasis, but
which are important to the customer.

Clearly the company needs to pay most attention to those areas that are most important to the
customer and where the company’s own performance is weak compared to the competition.

2. Identifying costs of selectively improving service levels and fit with the company’s
capabilities

Based on the segment data the company has identified, it will need to consider five broad
strategies:

I. For the most attractive existing segments, where there is a strong fit with the company’s
capabilities and overall good performance, the decision on where to invest should be clear.
II. Investment should be directed at segments which are not very profitable at present but
where there is potential to increase their value.
III. Some segments are of secondary importance, so while strategies may be developed for
maintaining the relationship there may be little reason to invest in customer service.
IV. In segments where there is low or negative profitability and a poor match with the
organization’s capabilities the company may elect to divest or deter customers.
V. For potentially high profit segments, which do not match existing capabilities of the firm,
the strategy may not be clear.

3. Finalize segmented service strategy plan

The outcome of the process outlined in this framework should be a detailed segmented service
strategy plan that identifies:

 The choice of strategic position in terms of the organization’s ‘offer’ and the rationale for
it;
 Which segments are to be emphasized within each channel;
 The overall lifetime profit improvement opportunity based on selective improvement of
service and resulting customer retention;
 Clear and detailed metrics so that future performance of the relationship marketing strategy
is continually monitored and reviewed.

A key element is calculation of the net lifetime value profit potential from implementing a
segmented service strategy for each segment.