MKTG10001 Lecture Notes - Lecture 2: Leaky Bucket, Customer Switching, Satisficing
6 Jun 2018
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MKTG10001 - PRINCIPLES OF MARKETING
LECTURE 2 . 1 – RELATIONSHIP MARKETING & CUSTOMER LOYALTY:
WHY RELATIONSHIPS?
Logic of Relationship Marketing: focuses on the customer & relationship with the customer
• Recognition of market failure:
• Manufacturer idiosyncratic investments (inputs specific to a certain market / customers (e.g.
installing cable)), force businesses to pursue customers in their market (can’t just direct the
business wherever there’s profit)
• Customer switching costs make them not want to switch (hold them back from switching, even if
your business is better)
• Market is not well informed (customers don’t know everything about all the businesses in the
market, & they tend to stick with what they know
• Small number of suppliers / buyers (can’t just focus on gaining customers, must retain)
• Improved understanding of consumer behaviour:
• Use to believe:
• Microeconomic Model of Exchange: consumers are rational, they maximise utility, have
complete info on alternatives, & exchanges are relatively free from external influences
• Now understand that:
• Consumers are often irrational (bounded rationality: try to be rational, but aren’t always),
face incomplete & asymmetrical info, frequently satisfice (are ok that we won’t always be
rational & make the #1 best decision), & transactions don’t occur in isolation
• Improved understanding of the value chain: the series of internal departments that carry out value-
creating activities to design, produce, market, deliver, & support a firm’s products
• Understand that other stakeholders affect firm’s ability to create value, & good relationships with
them helps create customer value (cooperation is often more effective than competition)
• E.g. suppliers, employees, intermediaries, government, competitors
• Economics of customer loyalty: will do better as a business if you build
good relationships (diagram top right)
• Customer turnover is expensive (cost of
gaining new customers), much cheaper
to just retain them (e.g. a leaky bucket)
• Not all customers are profitable: goal
shouldn’t be 100% retention
LECTURE 2 . 2 – RELATIONSHIP MARKETING & CUSTOMER LOYALTY:
BUILDING LOYALTY
Drivers of customer loyalty: 1. Care about customers, 2. Communicate effectively (relationship is most
important, 3. Cost conscious, 4. Reliability, 5. Technical expertise
Framework for Assessing Loyalty: (diagram to right)
• Latent loyalty: like the business, but there’s an issue stopping them
from buying – if issue is fixed, will become loyal
• Spurious loyalty: dangerous as will quickly leave once a business
comes along that overcomes the barrier to switching
Customer loyalty ladder: Prospect. Customer. Supporter. Advocate. Apostle
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