BUSI 372 Week 4 Discussion Board Forum 2 Example

Discussion Board Forum 2: Customer Relationship Management

BUSI 372 Marketing and Sales, Discussion Board Forum 2 Thread and Replies

Thread by [Student Name]

The forum prompt and the classmates' threads are composites; the research cited is real.

In my view, a dealership keeps customers mainly by earning their emotional commitment through service and fair treatment; loyalty points and reminder mailers help only at the margins, so retention spending should follow each customer's expected future value.

Research separates these sources of loyalty. Verhoef (2003) studied the customers of a financial services company and found that customers' affective commitment, their emotional attachment to the company, was positively related to both retention and the share of their business they gave the firm. Loyalty programs had a modest effect on customer share, and direct mailings had only a small effect on retention. In a dealership, a customer who trusts the service adviser and felt fairly treated at purchase is far more likely to return than one who simply receives coupons. Commitment of that kind is built slowly, through dozens of small interactions, and it can be lost in one bad experience, which is why it is hard for competitors to copy and easy for a careless store to waste.

The customer equity framework helps a dealer decide where to spend. Rust et al. (2004) proposed treating customers as assets, with marketing judged by how much it increases the total value of a firm's customer base through value, brand and relationship equity. Applied to a dealership, the question becomes which investments raise the lifetime value of customers most: better service experiences, fair pricing that builds trust, or programs that create reasons to return. The framework also discourages spending the same amount on every customer, since a family that buys a vehicle every three years and services all of them at the store is worth far more than a one-time buyer who never returns.

The service department is where the relationship is decided. Bolton et al. (2000) showed that how customers rated their service encounters, including the handling of problems, influenced both their decision to stay and how much they bought. For a dealership, the service drive is where the next sale is won or lost.

Three practices follow. First, track each customer's history across sales and service so staff can recognize and serve returning customers by name and by vehicle. Second, invest most in moments that shape commitment: delivery, the first service visit and how complaints are handled, because customers remember those moments long after they forget the price. Third, use programs such as prepaid maintenance plans and service reminders to support, not replace, those experiences. A dealer that spends on rewards while treating customers poorly at the service desk will find that points cannot buy back trust. The most valuable retention tool may simply be a service adviser who remembers a customer's name and explains repairs honestly.

Reply to Destiny

Destiny, your thread argued that the dealership's longest-standing customers deserve the most attention, and loyalty to them reflects good values. Research suggests a caution worth adding, though. Reinartz and Kumar (2000) studied customers of a catalog retailer and found that long-lived customers were not necessarily more profitable than short-lived ones; some long-time customers bought little, required costly marketing or expected discounts. In a later study, Reinartz and Kumar (2003) found that the characteristics of the relationship, such as how much and how often customers bought and through which channels, predicted how long customers stayed profitable.

For a dealership, that means loyalty should be measured by future value, not just by years. A customer who has bought three vehicles and services every one at the store is very valuable. A customer who bought one car ten years ago and services it elsewhere may not respond to expensive retention efforts, while a newer customer who services every vehicle at the store may be the better investment even with a shorter history. Recency and frequency of contact often say more about future value than the date of the first purchase.

This does not mean neglecting anyone. Everyone deserves fair treatment and good service, and your instinct to honor long relationships is a good one for a store's culture. But marketing dollars, such as targeted offers, should go where they change behavior. How would you identify which long-time customers are most likely to buy again in the next year or two, using the records a dealership already keeps?

Reply to Owen

Owen, your thread suggested that dealers should think of their customer base as an asset, and I agree. Research offers a practical way to do that, and it is simpler than it sounds. Gupta et al. (2004) showed how to estimate the value of a firm's customers from data on acquisition, retention and margins, and found that improving retention had a much larger effect on customer value than comparable improvements in acquisition cost or discount rate.

A dealership already holds much of the data needed for this kind of estimate in its service and sales records, even if it rarely puts the pieces together. If a store knows how many customers return for service each year, how much gross profit each visit produces and how often service customers buy their next vehicle from the store, it can estimate what raising retention by a few percentage points would be worth. Rust et al. (2004) make the same point from a different angle, arguing that marketing's worth lies in what it adds to the lifetime value of the customer base, not in this quarter's sales.

The calculation would also help a dealer compare retention spending with advertising spending on equal terms, which is rarely done. Do you think most dealers have the data organized well enough to do this, or would they need a better system first? Many stores keep sales and service records in separate software, which makes it hard to see a customer's whole relationship with the store, and fixing that may be the first retention investment worth making.

References

Bolton, R. N., Kannan, P. K., & Bramlett, M. D. (2000). Implications of loyalty program membership and service experiences for customer retention and value. Journal of the Academy of Marketing Science, 28(1), 95-108. https://doi.org/10.1177/0092070300281009

Gupta, S., Lehmann, D. R., & Stuart, J. A. (2004). Valuing customers. Journal of Marketing Research, 41(1), 7-18. https://doi.org/10.1509/jmkr.41.1.7.25084

Reinartz, W. J., & Kumar, V. (2000). On the profitability of long-life customers in a noncontractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64(4), 17-35. https://doi.org/10.1509/jmkg.64.4.17.18077

Reinartz, W. J., & Kumar, V. (2003). The impact of customer relationship characteristics on profitable lifetime duration. Journal of Marketing, 67(1), 77-99. https://doi.org/10.1509/jmkg.67.1.77.18589

Rust, R. T., Lemon, K. N., & Zeithaml, V. A. (2004). Return on marketing: Using customer equity to focus marketing strategy. Journal of Marketing, 68(1), 109-127. https://doi.org/10.1509/jmkg.68.1.109.24030

Verhoef, P. C. (2003). Understanding the effect of customer relationship management efforts on customer retention and customer share development. Journal of Marketing, 67(4), 30-45. https://doi.org/10.1509/jmkg.67.4.30.18685