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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

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Project updates


why is customer loyalty important to a firm s profitability
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
American Express And Customer Loyalty

service dominant logic
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
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

what s happening
What’s Happening?

strategies for building relationships
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:
    • financial bonds
    • social bonds
    • customization bonds
    • structural bonds
targeting the right customers
Targeting the Right Customers
  • How a service business position’s itself is very important
  • 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?
  • 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
Strategies for Developing Loyalty
  • Bundling/Cross-selling services makes switching a major effort that customer is unwilling to go through unless extremely dissatisfied with service provider
  • Customers benefit from buying all their various services from the same provider
    • One-stop-shopping, potentially higher service levels, higher service tiers etc. Examples?
levels of relationship strategies
Levels of Relationship Strategies

Stable pricing

Bundling and cross selling

Volume and frequency rewards

1. Financial bonds

Integrated information systems

Continuous relationships


service and value





Structural bonds

Personal relationships

Joint investments


processes and equipment

Social bonds among customers

3. Customization


Anticipation/ innovation

Customer intimacy

Mass customization

strategies for developing loyalty1
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 loyalty2
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 toanother service provider who cannot customize service
strategies for developing loyalty3
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
discussion questions
Discussion Questions

Page 389, question 1 and 2

strategies for reducing customer defections1
Strategies for Reducing Customer Defections
  • Deliver quality service
  • Reduce inconvenience and non-monetary costs
  • Have fair and transparent pricing
  • Industry specific drivers
  • Implement Effective Complaint Handling and Service Recovery Procedures
  • Increase Switching Costs
    • Ethical implications
simple return on relationship model
Simple return on Relationship Model





Service organization’s