Relationship U-Turn Bachelorarbeit

Bachelorarbeit
Kerstin Helmes
Relationship U-Turn
Approaches to Increase the Value
of an Unprofitable Customer
Bachelor + Master
Publishing
Kerstin Helmes
Relationship U-Turn
Approaches to Increase the Value of an Unprofitable Customerl
Originaltitel der Abschlussarbeit: Relationship U-Turn: Approaches to Increase the Value
of an Unprofitable Customer
ISBN: 978-3-86341-559-4
Druck Diplomica® Verlag GmbH, Hamburg, 2011
Zugl. Freie Universität Berlin, Berlin, Deutschland, Bachelorarbeit, 2010
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Table of Contents
Figures and Tables
List of Abbreviations
1. Introduction .............................................................................................................1
2. Relationship Marketing ...........................................................................................2
2.1
Customer Relationship Management (CRM)..............................................3
2.1.1
Relationship U-Turn ...........................................................................5
2.2
Customer Valuation ....................................................................................6
2.2.1
Customer Profitability Analysis .........................................................7
2.2.2
Customer Lifetime Value Analysis ....................................................10
2.3
Customer Segmentation ..............................................................................12
3. Approaches ..............................................................................................................13
3.1
Approaches for customers with no future potential ....................................14
3.1.1
Less Service ........................................................................................14
3.1.2
Raising the Price .................................................................................16
3.1.3
Outsourcing ........................................................................................18
3.2
Approaches for customers with future potential .........................................19
3.2.1
Self-Service ........................................................................................19
3.2.2
Unbundling .........................................................................................22
3.2.3
Cross-Selling ......................................................................................24
3.2.4
Word of Mouth ...................................................................................27
3.3
Special Approaches .....................................................................................29
3.3.1
Renegotiations ....................................................................................30
3.3.2
Changing Your Business Model.........................................................32
4. Conclusion ...............................................................................................................34
5. Limitations and Further Research ...........................................................................37
6. Discussion ...............................................................................................................37
Bibliography.................................................................................................................40
Figures and Tables
Figures
Figure 2.1
The Whale Curve of Cumulative Profitability........................................ 9
Figure 2.2
Approaches to Manage Unprofitable Customers................................. 13
Figure 3.1
The importance of price. ...................................................................... 16
Tables
Table 2.1
High and low cost-to-serve behavior ..................................................... 8
Table 2.2
Calculating customer lifetime value .................................................... 11
Table 4.1
Approaches to manage unprofitable customers in B2C and B2B
markets ................................................................................................ 35
List of Abbreviations
B2B
Business-to-Business
B2C
Business-to-Consumer
CLV
Customer Lifetime Value
CPA
Customer Profitability Analysis
CRM
Customer Relationship Management
CRV
Customer Referral Value
EBIT
Earnings before Interest and Taxes
SST
Self-service Technology
WOM
Word-of-Mouth
1.
Introduction
Angel or devil? These are the types of customers the computer electronic retailer
Best Buy deals with. Best Buy's angels are the ideal customers who boost profits by
purchasing premium items like high-definition televisions without waiting for
markdowns or rebates. The devils are the store’s worst customer and the company’s
nightmare. They wreck economic havoc by purchasing loss-leading products and
returning merchandise. Best Buy estimates that one-fifth of its 500 million yearly
customer visits are undesirable (McWilliams, 2004). The question is what to do with
the unprofitable customer, the so called “bad egg”. Most of the current literature
discusses the option of exit management, i.e. simply dissolving the relationship with
an unprofitable customer (Alajoutsijärvi, Möller, & Tähtinen, 2000; Haenlein &
Kaplan, 2009). This phenomenon of simply “firing” the unwanted customers can
also be seen in the real world. The telephone company Sprint Nextel did exactly that.
It sent letters to 1000 high-maintenance customers telling them they would no longer
be receiving service because they complained too much (Mittal, Sarkees, &
Murshed, 2008). However, what about the other option of keeping the customer on
board? From an economic standpoint it wouldn’t be worthwhile to maintain the
relationship, if there wasn’t a positive trade-off between the costs and benefits.
Yet, there is the possibility of reversing the relationship, “Relationship UTurn”, and making it profitable. After all, it is cheaper to retain an existing customer
than to acquire a new one (Ryals & McDonald, 2008, p.115). The value of an
unprofitable customer can be increased, so he becomes more profitable for a firm, if
a successful marketing approach is chosen. The main focus shall be on customer
retention and less on acquisition and recovery. The paper is structured as follows:
First, relationship marketing and “Relationship U-Turn” are introduced. Second,
customer value and methods of measuring customer value are discussed. The body
of this paper concentrates on different approaches that try to turn unprofitable
customer relationships into profitable ones. Examples from business-to-business
(B2B) and business-to-consumer (B2C) markets are given for each approach and
discussed. The paper concludes with ideas for future research and a discussion.
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