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Project updatesExams
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