Building Customer Relationships (Chapter 7)

1. Building Customer Relationships (Chapter 7) • Relationship Marketing • Service Loyalty & Customer Retention • research on service loyalty • defining loyalty • Relationship Development Model • drivers of strong customer relationships • outcomes of strong customer relationships • Relationship (Lifetime) Value of a Customer • Is the customer always right? • Relationship and Retention Strategies ã 2005 - Dwayne D. Gremler

2. Relationship Marketing • is a philosophy of doing business that focuses on • does not necessarily emphasize acquiring new customers • is usually cheaper (for the firm) • thus, the focus is less on and more on ã 2005 - Dwayne D. Gremler

3. Customer Goals of Relationship Marketing • goal = • RM questions: • Should all customers be treated equally? • Or, should preference be given to the more “profitable” customers? ã 2005 - Dwayne D. Gremler

4. Service Loyalty Research • The Increasing Importance of Customer Loyalty • Markets are • decrease in population growth • GNP growth increasing at a decreasing rate • Increase in • relative parity of marketplace offerings • Rising costs of • increase in the cost of advertising • Service Loyalty Research Questions: • What is service loyalty and how should it be measured? • What factors lead customers to become loyal to service providers? • What are the benefits to customers for being loyal to a service provider? ã 2005 - Dwayne D. Gremler

5. Antecedents Moderators Outcomes Impersonal Bonds Switching Costs (effort, search/setup costs) Continuity Bonds (customer learning, continuity, optimum service, loyalty programs) Individual (Customer) Social Benefits Psychological Benefits Economic Benefits Customization Benefits Services Characteristics Interaction Intensity Level of Standardization Level of Personalization Perceived Alternatives Service Loyalty Components Interpersonal Bonds Familiarity Care Friendship Rapport Trust Affective Loyalty Future Loyalty Intention Cognitive Loyalty Overall Evaluation Satisfaction Perceived Service Quality Perceived Value Customer Characteristics Level of Involvement Loyalty Coefficient Age Socioeconomic Factors Behavioral Loyalty Firm (Service Provider) Economic Benefits Customer Behavior Benefits Human Resource Benefits Competitive Factors Competitors’ Marketing Mix Competitive Offerings Relative Price Service Guarantees Original Model of Service Loyalty ã 2005 - Dwayne D. Gremler

6. Basis for Model of Service Loyalty • literature review • brand loyalty • services marketing • relationship marketing • phase 1 - qualitative study • 40+ depth interviews (customers, employees) • phase 2 - survey • 1600+ bank customers, 400+ dental patients ã 2005 - Dwayne D. Gremler

7. Service Loyalty Model • Service Loyalty Model Assumptions: • customers have • alternative service providers exist • customers are not “captive” customers • applies only to • excludes “one-time consumption” services e.g., emergency surgery, MBA degree, once-in-a-lifetime events • Service Loyalty Model Focus: • construct definition • four components of service loyalty • antecedents of service loyalty • interpersonal bonds • impersonal bonds • moderators • outcomes of service loyalty • to customers • to service providers ã 2005 - Dwayne D. Gremler

8. Service Loyalty Components • at least _____ components of loyalty have been conceptualized in research conducted in services contexts • service loyalty has been described as the to which a customer: ã 2005 - Dwayne D. Gremler

9. Components of Service Loyalty ã 2005 - Dwayne D. Gremler

10. Relationship Development Model Outcomes Relationship Drivers Customer Benefits Confidence Benefits Social Benefits Special Treatment Benefits Relationship Bonds Financial Bonds Social Bonds Customization Bonds Structural Bonds Core Service Provision Satisfaction Perceived Service Quality Perceived Value Strong Customer Relationship (Loyalty) Firm Benefits Economic Benefits Customer Behavior Benefits Human Resource Management Benefits Switching Barriers Customer Inertia Switching Costs Figure 7.5 ã 2005 - Dwayne D. Gremler

11. Relationship Drivers • Drivers of Loyalty: • satisfaction • perceived service quality • perceived value • customer inertia • switching costs • financial bonds • social bonds • customization bonds • structural bonds ã 2005 - Dwayne D. Gremler

12. Levels of Retention Strategies Stable Pricing Volume and Frequency Rewards Bundling and Cross Selling Continuous Relationships Integrated Information Systems I. Financial Bonds Excellent Service and Value IV. Structural Bonds II. Social Bonds Joint Investments Personal Relationships Shared Processes and Equipment Social Bonds among Customers III. Customization Bonds Anticipation/ Innovation Customer Intimacy Figure 7.6 Mass Customization ã 2005 - Dwayne D. Gremler

13. For the : increased revenues reduced costs (marketing, promotional, setup, operating, relationship maintenance) WOM communication customer voluntary performance social benefits/mentors for other customers easier work for employees social benefits for employees employee retention Outcomes of Service Loyalty(Gwinner, Gremler, & Bitner 1998) • For the : • increased trust in provider • reduced anxiety • personal relationships • social support • economic benefits • customization benefits • preferential treatment ã 2005 - Dwayne D. Gremler

14. How Much Profit a Customer Generates Over Time Source: Adapted from Frederick F. Reichheld and W. Earl Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review (September-October 1990, pp. 106-107. ã 2005 - Dwayne D. Gremler

15. Relationship (Lifetime) Value of a Customer • Income issues: • What is the customer’s ? • What is the per week/month/year? • Do spending patterns ? • How many other customers ? • Expense issues: • Are there expenses associated with and maintaining a relationship with them? • Should such expenses be ? • Assumptions must be made in calculating a customer’s relationship value: • e.g., customer’s characteristics, spending habits, length of lifetime, number of referrals ã 2005 - Dwayne D. Gremler

16. Is the customer always right? • Q: Should a firm consider ã 2005 - Dwayne D. Gremler

17. Is It Always Worthwhile to Keep a Customer? • Perhaps not when: • The account is • Contract conditions • Customer’s demands • Customer is • Customer’s reputation ã 2005 - Dwayne D. Gremler

18. Strategies for Building Strong Relationships and Retaining Customers • Foundations: • Monitor Relationships • Creating Bonds with Customers • Recovery • Customer Appreciation ã 2005 - Dwayne D. Gremler