Core Attributes of High-Quality Relationships

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Questions and Answers

What is one of the primary reasons companies want to establish relationships with their customers?

To reduce marketing costs for new customers

To focus solely on cross-selling opportunities

To better understand customer requirements and expectations (correct)

To increase customer churn

What is a benefit of reduced customer churn for companies?

Increased marketing costs to replace defected customers

A larger customer base with shorter average customer tenure

A decrease in customer loyalty

Better understanding of customer requirements and expectations (correct)

What is one advantage of customer loyalty for customers themselves?

Lower promotion costs for companies

Lower management costs for companies

Reduced cross-selling opportunities

Lower costs for customers (correct)

What is the impact of a 10% churn rate on customer numbers compared to a 5% churn rate?

The customer base will grow slower with a 10% churn rate Signup and view all the answers

What is a resulting benefit of connecting customer retention to customer tenure?

Fewer dollars spent replacing churned customers Signup and view all the answers

What is one organizational benefit of managing customer retention?

Better customer insight and understanding Signup and view all the answers

What is customer lifetime value comprised of?

The sum of all past net margins compounded to today's value and all future net margins discounted to today's value Signup and view all the answers

What is a key outcome when suppliers understand customer needs?

Selling more products and services to retained customers Signup and view all the answers

Why might a customer appear less profitable once costs are taken into account?

Because of high costs to serve the customer Signup and view all the answers

What is one of the causes of profit margin growth over time?

Lower cost-to-serve for existing customers Signup and view all the answers

What is the typical result of deepening relationships between customers and suppliers?

More secure revenue and profit streams Signup and view all the answers

What is a key concept in CRM?

Customers are a potential income stream Signup and view all the answers

What is the characteristic of a 'Loyal customer'?

They are resistant to switching suppliers and have a strong positive attitude Signup and view all the answers

What is required to compute customer lifetime value?

Insight into future buying behavior, margins earned from products, periodic costs of customer management, and discount rate Signup and view all the answers

What is the primary goal of identifying a customer's target market profile?

To assess if the customer fits the supplier's target market Signup and view all the answers

What is the final stage of the customer journey?

Advocate Signup and view all the answers

When do B2B companies not want relationships?

When they fear loss of control Signup and view all the answers

What is the primary benefit of gaining a 'Majority customer'?

Your company occupies a significant place in the customer's portfolio Signup and view all the answers

Study Notes

Customer Lifetime Value (CLV)

The total present-day value of a customer is the sum of all past net margins compounded to today's value and all future net margins discounted to today's value.
The potential value of a customer is all future net margins discounted to today's value.

Four Causes of Profit Margin Growth over Time

Revenues grow over time as customers buy more.
Cost-to-serve is lower for existing customers, as both supplier and customer understand each other.
Higher prices are paid by existing customers than new customers.
Value-generating referrals are made by existing, satisfied customers through their unpaid advocacy.

Computing CLV

Insight into future buying behavior probabilities of buying products over the next x time periods.
Margins earned from those products.
Periodic costs of customer management.
Costs of customer acquisition (for new customers).
Discount rate.

Building Relationships

Companies want relationships with customers to identify, satisfy, and retain profitable customers.
Benefits of relationships include:
- Reduced customer churn
- Larger customer base
- Longer average customer tenure
- Reduced marketing costs to replace defected customers
- Better understanding of customer requirements
- More cross-selling opportunities
- Customer loyalty

Attributes of High-Quality Relationships

Core attributes:
- Trust
- Commitment
Additional attributes:
- Relationship satisfaction
- Mutual goals
- Cooperative norms

Advantages of Customer Loyalty

For companies:
- Lower management costs
- Lower promotion costs
- Constant and increasing incomes
- Positive word of mouth
- Cross-selling
- Innovative and customized offered mix
- Premium price
- Stimulated staff
For customers:
- Unitary profit per customer

Impact of Churn on Customer Numbers

Companies with lower churn rates (e.g., 5% churn) retain more customers over time compared to companies with higher churn rates (e.g., 10% churn).

Connecting Customer Retention to Customer Tenure

As customer retention rates increase, average customer tenure also increases.

Organizational Benefits from Managing Customer Retention

Reduced marketing costs
Better customer insight
Suppliers are able to develop a better understanding of customer requirements and expectations.

The Customer Journey

Suspect: potential customer who fits the target market profile
Prospect: customer being approached for the first time
First-time customer: customer makes a first purchase
Repeat customer: customer makes additional purchases
Majority customer: your offer plays a minor role in the customer's portfolio
Loyal customer: customer is resistant to switching suppliers and has a strong positive attitude to your company or offer.

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Description

This quiz covers the essential attributes of strong relationships, including trust, commitment, and mutual goals. Learn how companies benefit from managing customer relationships effectively.