Lifetime value of a customer relationship

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Frame of reference

In this chapter we will bring up the theoretical concepts from previous research in social media marketing and also bring up relevant theoretical aspects that we find is appropriate in this field in order for us to conduct our research.

Investigating the literature

We chose to do an analysis on the literature that has been conducted in the chosen field of interest. This due to we wanted to complement the previous research about how firms can use social media marketing in order to increase the brand awareness among their customers and thus have theories that can help us fulfill the purpose with our research.
Besides social media marketing and brand awareness we decided to write about relationship marketing that is interrelated with social media marketing. Word-of-mouth is another phenomenon that is brought up in our theoretical investigation due to word-of-mouth is the outcome of a successful managed relationship. Having a relationship based approach in firms’ social media activities is important because without a relationship approach the likelihood of the customer doing word-of-mouth marketing is less, compared to having a relationship based approach (Grönroos, 2007). Thus we see how relationship marketing is important when firms do social media marketing and for the future outcome of the relationship which affects the word-of-mouth promotion. Another phenomenon we will bring up shortly that is relevant within this field is viral marketing that is closely interrelated to social media marketing and word-of-mouth promotion.
We wanted to find out how firms should use social media marketing as a marketing tool in their daily operations and that is why we found these different areas that we mentioned above to be vital for our theoretical findings. We think that if a firm is successful to combine all these parts in their social media marketing they will be able to increase the brand awareness among their customers. We will mention these different concepts more in the theoretical parts, but this was a short introduction why we chose to bring them up in our theoretical findings. Figure 2.1, which is presented below, shows the correlation between the theories and the purpose, we will present the summary of the theories we have found within this area. We have made this figure in order to illustrate how the different theories will help us to fulfill our purpose. The figure shows that if firms are successful in their different marketing activities they can get marketing free of charge from their customers in form of word-of-mouth which is the result of a strong brand awareness among the firm’s customer that has evolved over time as a result of a successful relationship between the two parties involved

Brand awareness

Aaker (1991) mention that when customers recognize a brand in a specific product category and the brand is characterized by the customers’ attitudes that they are familiar with it is called brand awareness. Aaker (1991) further explains that brand awareness has three different levels: Brand recognition, brand recall and top-of-mind. Brand awareness is unique due to it something that the firm creates and promotes in form of marketing messages, but it is the customer’s brand recognition that is the objective of the firm’s marketing activities. Without brand recognition it would be difficult for the firm to create awareness and good perception of their brand among its customers. Brand awareness gets its full use when the firm’s brand is being shown in different social communities in order to be able to attract a large number customer’s to the firm (Aaker, 1991). According to Aaker (1996) the purpose of brand awareness is to create and improve the presence of the brand in the customer’s memory. The stronger presence the brand has in the customer’s memory the stronger brand awareness will the customer have and the firm can through different marketing activities like for instance repetitive advertising and active advertisement reach the mind of the customers (Aaker, 1996).
According to Weinberg (2009) the usage of social media will increase the firm’s sales in the short term and in the long-term due to social media will create brand awareness among the customers, resulting in increased sales. This implies that the company can use Internet to support their marketing activities; due to when firms are being present online it will strengthen the firm’s marketing strategy which is facilitated by todays technology. By being online a firm can interact with current and potential customers in order to improve their brand awareness (Weinberg, 2009). Aaker (1991) suggest that when a firm is present online and in their marketing activities they can share something that is appealing for the customers, which can lead to commitment among the customers, resulting in an improved relationship between the customer and the firm. By being present online the firm can communicate with anyone, anywhere which makes it possible for the firm to improve the brand awareness among their current customers and also to create relationships with new customers and improve current relationships (Gunawardena, Hermans, Sanchez, Richmond, Bohley & Tuttle, 2009). Having strong brand awareness among the firm’s customers will improve the customer’s perception of the firm’s products and create a familiarity with the firm’s products which has a vital importance in the customer’s purchasing decision due to the customer will choose the product or service s/he is familiar with if compared to an unknown brand (Aaker, 1991). If the firm is able to satisfy the customer’s demand it will increase the possibility that the customer will chose that brand in the purchasing decision (Keller, 2008). Keller (2008) further suggests that the more complex and technological the products become the more likely is it that the customer will choose a product s/he is familiar with. It is the same principle in markets where the competitiveness is high and less differentiation between similar products, thus firm should invest a lot in having as good brand awareness as possible in order to attain new customers that are present in these kind of markets and keep the old ones (Keller, 2008).
Brand awareness is divided into two parts, brand recognition which indicates the ability the customer has to remember and consider the brand in the purchasing decision, and secondly brand recall which is the customer’s ability to advice another person if the person asks the customer about a product in a specified product category (Keller, 2008). Keller (2008) further emphasizes that is vital that the customer is able to share his knowledge about the product or brand by linking his knowledge and the other person’s interest in the product. This indicates the importance of brand awareness where the customer should be able to register the brand in his mind. (Keller, 2008). In order to see the role brand awareness has one in a customer’s memory one should see the “Awareness pyramid” by Aaker (1991), the figure is shown below (figure 2.2).
Figure 2.2. shows us the different steps in a customer’s memory a brand can have where brand awareness has a certain impact on the perception of the brand. According to Aaker (1991) brand recognition is the lowest form in the pyramid where the customer confirms the relationship with the brand s/he has heard of. Aaker (1991) further mentions that the next step in the pyramid is brand recall which shows if the customer is able to remember the brand in his memory and mention the brand by name without seeing the brand, for instance if s/he is asked about the brand from another person. The last step is top-of-mind awareness which is the objective with brand awareness. Here the brand is furthest up in the customer’s memory when asked about a brand or a product category which affects the customer’s purchasing decision. If a brand is located here in the customer’s memory it shows that the brand is one step closer to the customer and is number one priority in a specific product category (Aaker, 1991).
From a customer point of view brand awareness is a process that is built on the familiarity of the brand (Keller, 1998). Having strong brand awareness among the firm’s customer will result to other benefits in form of higher margins and an easier acceptance of new products among current customers (Le Pla & Parker, 2002). In order to be successful in creating strong brand awareness the firm should look at the situation from a relationship perspective where the firm meets the customer’s personal demand with the firm’s interest. Randall (2000) explains that is not only the firm that is creating the brand, but that the brand is depending on loyal customers that are making sure that the brand is still alive in the market. Information about a brand is being spread via word-of-mouth promotion from the loyal customers (Ind, 2007)

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 Relationship marketing

In 1994 Grönroos defined the purpose of relationship marketing as: “Identify and establish, maintain and enhance and, when necessary, terminate relationships with customers at a profit so that the objectives of all parties involved are met; and this is done by mutual exchange and fulfillment of promises” (Grönroos, 1994, p. 275).
Håkansson and Snehota (1995) discussed that a relationships creates something priceless that neither the firm nor the customer can buy nor develop alone and the result of the creation cannot be easily copied. Håkansson and Johansson (2001) further described that a relationship is built on collecting and sharing knowledge between the two parties involved that cooperate with each other by making the most in order to employ the knowledge they share between them and in that way make a satisfying exchange that both parties are content with. The more the two parties involved have a mutual relationship and share their information to each other, the more valuable does the information get, leading to companies working harder to fulfill the other party’s needs (Palmatier 2006). The firm should have a long-term relationship approach towards the customer , thinking long-term in order to create a dialogue with the customer that both parties will benefit from and not only look for a “share of the customer’s wallet, but also a share of his heart and mind” (Grönroos, 2007, p. 321). The Trimodal model by Grönroos (2007) best illustrates this (figure 2.3).
Figure 2.3 shows us that a relationship evolves over time, in the beginning the firm is drawing the customer’s attention via planned messages in form of traditional media, for instance via the firm’s web page, which have a low level of interaction and is a one way communication. As times goes on and the interaction evolves it will result in contact between the customer and the firm being made. Grönroos (2007) mentions that in this phase the customer is not just a receiver of commercials, rather the customer is seen as a vital asset where s/he is a part of the information that is being shared in the two-way interaction between the firm and the customer. As communication increases and becomes more enhanced the knowledge that is being shared between the firm and the customer in the interactions will lead to the emerging of a connectedness which indicates that a relationship has been established (Grönroos, 2007).
It is vital that the firms know that not all interactions with their customer will lead to relationships, thus a firm must have a clear strategy how to communicate with their customers in order to create relationship marketing: “Only the planned integration of distinct communication and interaction processes into one systematically implemented strategy creates relationship marketing” (Grönroos 2007, p. 320). If communications is ongoing and the relationship has been established where the both parties view the relationship as profitable then it has a high possibility to further continue (Grönroos, 2007). Relationship marketing emphasizes that profitability can be achieved through mutual cooperation and in that way deliver value to both the customer and the firm (Sheth & Parvatiyar, 1995). In a relationship it is vital to have trust and commitment to each other due to it encourages the parties to invest in the relationship and not to look for other alternatives, but rather focus on long-term advantages (Morgan & Hunt, 1994)

Lifetime value of a customer relationship

In 2006 Ford, Gadde, Håkansson and Snehota explained that a relationship has value for both the firm and the customer in two different ways; a current and a potential value. The current value is obtained when the firm and customer have interacted for a while and learned about each other, which facilitates the future interaction between them.
The information that is shared through interaction will lead to a more effective implementation of the problem that is discussed. The interaction can lead to creating and adapting new solutions which can improve the relationship so that future problems will be reduced and future, potential value will evolve (Ford, et al., 2006).
Murphy (1997) mentioned that the only way for companies to create value is by investing in long-term relationship which will hopefully lead to long-term advantages. Egan (2008) emphasizes that a firm should distinguish the relationship marketing from other marketing activities due to relationship marketing has long-term focus on customer retention and customer satisfaction which is attained through interaction and customer service, compared to traditional marketing where companies focus mainly on short-term profit. If the customer is satisfied it is a higher possibility that the firm will attain customer for their whole life and gain the lifetime value of the customer. Anderson, Narus and Narayandas (2009) mention that firms should look here for cross sales due to loyal customers are likely to buy other products and services from the firm, and the firm is willing to expand the scope of their mutual relationship. Anderson et al. (2009) mention that loyal customers are less likely to search for other alternatives and to switch to other companies even if the alternative is more optimal due to they expect their relationship partner to improve. This is something that is difficult to measure, but vital for the firm’s success. Another part that is essential for the firm is the willingness among the loyal customers to pay sometimes a higher price – a price premium. There is a possibility that the loyal customers will give the firm important feedback about areas that they think that the firm can improve in, and in that way create new, improved products and services that the customer is more willing to buy (Anderson, et al., 2009).
Anderson et al. (2009) goes on and argue that in order for a firm to know how to manage their customer relationships and to know how much to invest of their resources in each customer relationship the firm should make a loyalty ladder where they categorize their customers according to their loyalty. Each loyalty ladder is specific for the actual industry, but one can use Anderson et al. (2009) “Loyalty ladder” as a template (figure 2.3.1). Different level of loyalty means that there will be different type of behaviors among the firm’s customers. When customers become more loyal they will move up in the loyalty ladder (Anderson, et al., 2009).
For a firm to be successful in relationship marketing they should recognize that a relationship is an essential asset of any business and that a relationship has an impact on the firm in the short-term and has possibilities to affect even in the long-term (Anderson, et al., 2009). Something a firm cannot control but which has huge marketing possibilities for the firm is the word-of-mouth effect (Ford, et al., 2006). Ford et al. (2006) mention that loyal customers tend to do positive word of mouth promotion for the firm, where they convince other people to buy from the firm, and in this way the firm generates higher revenues, lower their marketing costs and improve their profitability. By using these types of processes the firm either will increase their revenues or reduce their cost, or in the most optimal scenario do both (Anderson, et al., 2009). Thus a successful relationship will result in higher willingness among the loyal customers to do word-of-mouth promotion for the firm (Ford, et al., 2006).

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Word-of-mouth

Kirby and Marsden (2006) explain that through the years traditional marketing has become less effective and it has become more difficult for firms to reach the customers, therefore the concept of word-of-mouth has been an important role in attracting attention to the firm and its products and services in a natural way. Kirby and Marsden (2006) further mention that word-of-mouth is a non-commercial concept that has a commercial purpose, where the impact of consumers themselves spreading the information is higher and more reliable than if the firms would intentionally do it because here it is the customer themselves that recommend a company to someone else. Word-of-mouth is the collective name for the marketing that is designed in a non-commercial way to make the customers to start spreading information about the firm (Kirby & Marsden, 2006).
Sen and Lerman (2007) mention that word-of-mouth has its initial phase when two people exchange information between each other about a firm and their product or services. Today’s technology creates a great opportunity to share information and knowledge among two parties that want to get advices from others prior to the purchasing decision (Mangold & Faulds, 2009). Amichai-Hamburger (2005) explain that word-of-mouth is a part of human behavior where people constantly recommend their previous experiences to other people and the whole concept depends upon the users’ willingness to continue to help each other. Senecal and Nantel (2004) mentioned that the information online that users recommend to other people will have a clear impact on people’s choice of product. More and more people are frequently online and they are looking for information regarding their specific needs. Thus it is according to Dwyer (2007) of great importance for the firm to create a good word-of-mouth online not only among their customers, but among people in general. To see the role word-of-mouth has and how it is initiated a person should look at the communications circle (figure 2.4).
Grönroos (2007) argues that word-of-mouth sends unplanned messages which influence the dialogue between the customers and the firm. Grönroos (2007) further explains that both firms and customers should be willing to develop and maintain a dialogue where they interact and share knowledge, if not a dialogue is developed it will then only be a monologue without a listener. If the two parties involved maintain and develop a dialogue the customers’ perceived value of the relationship will be incrementally increased as times goes on and if the firm’s marketing activities are supported by the product and service messages that the firm sends out to their customers in the interaction process we will see how unplanned, but positive word-of-mouth communication will occur due to the customer’s expectations of the firm are fulfilled. Grönroos (2007) goes on and argues that when a customer has good experiences from the firm and its products the likelihood of them doing word-of-mouth marketing for the firm will increase. This clearly indicates the importance of a dialogue as a part of the value co-creation in the relationship between the customer and firm when interacting online on the different social media channels (Grönroos, 2007).

 Social media marketing

Drury (2007) describes social media as an online resource that people use to share different types of contents, for instance photos, videos, text, images, opinion, gossip, humor and ideas by using resources in form of blogs, social networks, wikis and others. As a user, social media marketing is based to give the opportunity to connect with friends and through linking sites, share their experiences. One may believe that it is just about giving and receiving a message, but that is not the case due to interactions within social media is about receiving and exchanging perceptions and ideas (Drury, 2007). Drury (2007) further explains that traditional marketing via television and newspapers is about delivering a message to the audience, whereas social media marketing is about building a conversation and relationship with the audience. Traditional marketing is a passive way of marketing compared to the fast and interactive social media marketing (Qiao, 2008). Social media marketing is a two-way process that engages an audience and a brand, and marketing has developed from one dimensional to a two-way process (Eley & Tilley, 2009)

1 Introduction 
1.1 Background
1.2 Problem discussion
1.3 Purpose
1.4 Perspective
1.5 Delimitations
1.6 Disposition
1.7 Definitions
2 Frame of reference
2.1 Investigating the literature
2.2 Brand awareness
2.4. Word-of-mouth.
2.5 Social media marketing
2.6 Viral marketing.
2.7 Summary of the theoretical framework
3 Method 
3.1 Research approach
3.2 Data collection
3.3 Reliability and validity of data
4 Empirical data 
4.1 Overview of the empirical data
4.2 Structure of the answers
4.3 Interview with the company representative
5 Analysis
5.1 Analysing the empirical data
5.2. Analysing the interview with the company representative.
6 Conclusion
7 Discussion
References
Appendices
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