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CHAPTER 12

Managing Relationships and Customer Loyalty

Why Is Customer Loyalty Important to A Firm’s Profitability?

Customers become more profitable the longer they remain with a firm: Increase purchases and/or account balances• Customers / families purchase in greater quantities as they grow

Reduced operating costs• Fewer demands from suppliers and operating mistakes as customer

becomes experienced

Referrals to other customers• Positive word-of-mouth saves firm from investing money in sales and

advertising

Price premiums• Long-term customers willing to pay regular price• Willing to pay higher price during peak periods

American Express And Customer Loyalty

http://www.youtube.com/watch?v=0B-Km9vAIwo

Service Dominant Logic

S-D logic regards value as something co-created between the organization and the customer. It is a change in thinking from value in exchange to a value in use perspective

S-D logic and the co-creation of value

Three of these premises are

relevant to this course this work:

FP6:The customer is always a

co-creator of value

FP7: The enterprise cannot deliver value, but only offer value propositions

FP10: Value is always uniquely and phenom

enologically determ

ined by the beneficiary

Framework for Building Value

Value Proposition

Communication Encounters

Outcomes

Co-creation of Value

Non-creation of value

What’s Happening?

http://www.dailymail.co.uk/news/article-2547254/South-Korean-woman-known-The-Diva-makes-9-400-month-streaming-eating-online-three-hours-day-manages-stay-chopstick-thin.html

http://www.adweek.com/adfreak/paris-prepared-love-emergencies-breakable-flower-boxes-valentines-day-155739

Strategies for Building Relationships

Core Service Provision: service foundations built upon delivery of excellent service:

satisfaction, perceived service quality, perceived valueSwitching Barriers:

customer inertia switching costs:

set up costs, search costs, learning costs, contractual costsRelationship Bonds:

financial bonds social bonds customization bonds structural bonds

Targeting the Right Customers

o How a service business position’s itself is very importanto Target the right customer and match them to what firm

can deliver How do customer needs relate to operations elements? How well can service personnel meet expectations of different types of

customers? Can company match or exceed competing services that are directed at

same types of customers?

o Focus on number of customers served as well as value of each customer Some customers more profitable than others in the short term Others may have room for long-term growth

Strategies for Developing Loyalty

o Bundling/Cross-selling services makes switching a major effort that customer is unwilling to go through unless extremely dissatisfied with service provider

o Customers benefit from buying all their various services from the same provider

o One-stop-shopping, potentially higher service levels, higher service tiers etc. Examples?

Excellent

service and

value

1. Financia

l bonds

2.Socialbonds

4. Structural bonds

3. Customizatio

nBonds

Volume and frequency rewards

Bundling and cross

selling

Stable pricing

Social bonds among

customers

Personal relationship

s

Continuous relationships

Customer intimacy

Mass customization

Anticipation/

innovation

Sharedprocesses

and equipment

Joint investments

Integrated information systems

Levels of Relationship Strategies

Strategies for Developing Loyalty

Reward Based Bonds Can be financial or non-financial bonds or a combination of

both Financial bonds

• Discounts on purchases, loyalty program rewards (e.g. promotional currency), cash-back programs

Non-financial rewards • Priority to loyalty program members for waitlists and queues

in call centers; higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers

Intangible rewards• Special recognition and appreciation

Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage

Strategies for Developing Loyalty

Social Bonds Based on personal relationships between providers and

customers Harder to and takes a longer time to build, but also

harder to imitate and thus, better chance of retention in the long term

Customization Bonds Customized service for loyal customers

• e.g. Starbucks Customers may find it hard to adjust to

another service provider who cannot customize service

Strategies for Developing Loyalty

Structural Bonds Mostly seen in B2B settings Align customers way of doing things with supplier’s

own processes Joint investments in projects and sharing of

information, processes and equipment. Can be seen in B2C environment too

Airlines - SMS check-in, SMS email alerts for flight arrival and departure times

PAGE 389, QUESTION 1 AND 2

Discussion Questions

Strategies for Reducing Customer Defections

Strategies for Reducing Customer Defections

o Deliver quality serviceo Reduce inconvenience and non-monetary costso Have fair and transparent pricingo Industry specific driverso Implement Effective Complaint Handling and

Service Recovery Procedureso Increase Switching Costs

o Ethical implications

Simple return on Relationship Model

CustomerSatisfaction

Customer Retention

Service organization’s success