Stuff!
 Project updates
 Exams
Managing Relationships and
Customer Loyalty
CHAPTER 12
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 phenomenologically
determined by the beneficiary
Framework for Building Value
Value
Proposition
Communication
Encounters
Co-creation of
Value
Outcomes
Non-creation of
value
What’s Happening?
 http://www.dailymail.co.uk/news/article-
2547254/South-Korean-woman-known-The-Divamakes-9-400-month-streaming-eating-online-threehours-day-manages-stay-chopstick-thin.html
 http://www.adweek.com/adfreak/paris-preparedlove-emergencies-breakable-flower-boxesvalentines-day-155739
Strategies for Building Relationships
 Core Service Provision:

service foundations built upon delivery of excellent service:

satisfaction, perceived service quality, perceived value
 Switching Barriers:


customer inertia
switching costs:

set up costs, search costs, learning costs, contractual costs
 Relationship Bonds:
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financial bonds
social bonds
customization bonds
structural bonds
Targeting the Right Customers
o How a service business position’s itself is very important
o Target the right customer and match them to what firm
can deliver
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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?
Levels of Relationship Strategies
Stable
pricing
Volume and
frequency
rewards
1.
Financial
bonds
Integrated
information
systems
4.
Joint
Structural
investments
bonds
Shared
processes
and
equipment
Bundling and
cross selling
Excellent
service
and value
3.
Customization
Bonds
Anticipation
/ innovation
Mass
customization
Continuous
relationships
2.
Social
bonds
Personal
relationships
Social bonds
among
customers
Customer
intimacy
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


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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
Discussion Questions
PAGE 389, QUESTION 1 AND 2
Strategies for Reducing Customer Defections
Strategies for Reducing Customer Defections
o Deliver quality service
o Reduce inconvenience and non-monetary costs
o Have fair and transparent pricing
o Industry specific drivers
o Implement Effective Complaint Handling and Service
Recovery Procedures
o Increase Switching Costs
o
Ethical implications
Simple return on Relationship Model
Customer
Satisfaction
Customer
Retention
Service organization’s
success