Companies want not only to create profitable customers, but to “own” them for life, capture their customer lifetime value, and earn a greater share of their purchases. Show What Is Customer Equity? Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. Clearly, the more loyal the firm’s profitable customers, the higher the firm’s customer equity. Customer equity may be a better measure of a firm’s performance than current sales or market share.
Building the Right Relationships with the Right Customers Not all customers, not even all loyal customers, are good investments. Figure 1.5 classifies customers into one of four relationship groups, according to their profitability and projected loyalty. “Strangers” show low potential profitability and little projected loyalty. The relationship management strategy for these customers is simple: Don’t invest anything in them. “Butterflies” are potentially profitable but not loyal. The company should use promotional blitzes to attract them, create satisfying and profitable transactions with them, and then cease investing in them until the next time around. “True friends” are both profitable and loyal. There is a strong fit between their needs and the company’s offerings. The firm wants to make continuous relationship investments to delight these customers and retain and grow them. “Barnacles” are highly loyal but not very profitable. There is a limited fit between their needs and the company’s offerings. Important point: Different types of customer require different relationship management strategies. The goal is to build the right relationships with the right customers. THE CHANGING MARKETING LANDSCAPE This section looks at five major developments: the uncertain economic environment, the new digital age, rapid globalization, the call for more ethics and social responsibility, and the growth in not-for-profit marketing. The Uncertain Economic Environment Beginning in 2008, the U.S. and world economies experienced an economic meltdown, unlike anything since the Great Depression of the 1930s. After a decade of overspending, “frugality has made a comeback,” announced one analyst. A troubled economy can present opportunities as well as threats. The Digital Age The recent technology boom has created a digital age. The most dramatic digital technology is the Internet. Beyond competing in traditional marketplaces, companies now have access to exciting new marketspaces. The Internet has now become a global phenomenon. The number of Internet users worldwide now stands at almost 1.4 billion and will reach an estimated 3.4 billion by 2015. Online marketing is now the fastest growing form of marketing. In addition to the “click-only” dot-coms, most traditional “brick-and-mortar” companies have now become “click-and-mortar” companies. Some 70 percent of American online users now use the Internet to shop Rapid Globalization Marketers are now connected globally with their customers and marketing partners. Almost every company, large or small, is touched in some way by global competition. American firms have been challenged at home by the skillful marketing of European and Asian multinationals. McDonald’s now serves 52 million customers daily at more than 30,000 restaurants worldwide—some 57 percent of its revenues come from outside the United States. Today, companies are buying more supplies and components abroad. Sustainable Marketing – The Call for More Ethics and Social Responsibility Marketers are being called upon to take greater responsibility for the social and environmental impact of their actions, to develop sustainable marketing practices. Corporate ethics and social responsibility have become hot topics for almost every business. Forward-looking companies view socially responsible actions as an opportunity to do well by doing good. This model should not be used as an excuse for poor customer service towards "low value" customers, nor should it be used to justify focusing only on the cash cows of the customer world. Rather, this perspective of customer relationship management looks at how to prioritize investments in customer relationships, marketing activities, and beyond. This should serve as a guide for how to segment customers on a broad basis. Breaking customers into these 4 customer relationship groups and then segmenting further within these groups is far wiser than immediately segmenting regardless of customer lifetime value or potential profitability. Who Is a Butterfly customer?"Butterfly customers" are defined by O'Dell and Pajunen to be people that flit from one store or supplier to another, always searching for a lower price or a different shopping experience. They have no loyalty to any particular store, and are always in search of a better deal or a new promotion.
Which of the following customer relationship groups is characterized by low profitability and high loyalty?Barnacles: high loyalty, low profitability. Butterflies: low loyalty, high profitability. True Friends: high loyalty, high profitability.
Are potentially profitable but not loyal customers?“Butterflies” are potentially profitable but not loyal. The company should use promotional blitzes to attract them, create satisfying and profitable transactions with them, and then cease investing in them until the next time around.
Is the customer relationship groups that show profitable but not loyal?Better than strangers are Butterflies for the company. These are at least potentially profitable, although not loyal. What does it mean? Butterflies have needs that fit the company's offerings, that is, the company's offerings are in line with the needs of butterflies.
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