Chapter 2: Building Customer Loyalty Through Customer Service

LESSON 4: RELATIONSHIP MARKETING

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PRINCIPLES OF MARKETING

Relationship marketing is the process of building and maintaining profitable customer relationships by delivery
superior customer value and satisfaction, thus ensuring brand loyalty. When customers are satisfied, it is more likely
that they will become loyal customers because they will keep on patronizing the brand.
A key factor in relationship marketing is customer loyalty (also known as brand loyalty). This arises when a
customer has had several positive experiences with a company’s products and services and thus, is motivated to
continue to support the company and patronize its products and services. Customer loyalty tends to persist despite the
actions of the company or changes in the business environment.

Customer Perceived Value

Our premise is that customers will buy from the firm that they see as offering the highest perceived value.
Customer perceived value (CPV) is the difference between prospective customer’s evaluation of all the benefits and
all the costs of an offering and the perceived alternatives. It is defined as the satisfaction derived from what a customer
may experience or expect to experience by choosing a particular action relative to the cost of that action. The action can
be a purchase, a visit, an order or a sign up. Total customer value is the perceived monetary value of the bundle of
economic, functional and psychological benefits customers expect from a given market offering. Total customer cost
is the bundle of costs expect to incur in evaluating, obtaining, using and disposing of the given market offering. The
cost refers to anything that can be given up to receive the desired product or service, which can be in the form of
money, time, knowledge, data or others.
Buyers operate under various constraints and occasionally make choices that give more weight to their
personal benefit than to the company’s benefit. However,
customer perceived value is a useful framework that applies to
many situations and yields rich insights. Here are its
implications: First, the seller must assess the total customer
value and total customer cost associated with each competitor’s
offer to know how his or her offer rates in the buyer’s mind.
Second, the seller who is at a customer perceived value
disadvantage has two alternatives: to increase total customer
value or to decrease total customer cost. The former calls for
strengthening or augmenting the offer’s product, services,
personnel and image benefits. The latter calls for reducing the
buyer’s costs by reducing the price, simplifying the ordering
and delivery process, or absorbing some buyer risk by offering
a warranty.

Levels of Customer Value

The levels of customer value indicate what the

consumers expect and do not expect from their purchase
decisions.
Basic and expected levels. These levels include the
basic requirements of conducting a business. For instance,
restaurants are expected to have a spacious dining are and clean
tables and utensils. If these requirements are not met by the
FIGURE 1 DETERMINANTS OF CUSTOMER business, it cannot provide high-quality customer value.
D ELIVERED VALUE Desired customer value. This involves what the
customers want from the purchase or service experience. This is the first opportunity for a business to get ahead of the
competition. For example, a retail shop can provide friendly and helpful staff who can assist the customers in making
the right purchase.
Unanticipated customer value. It pertains to an unexpected purchase or service experience that may go
beyond what the customers desire. For example, in a gasoline station, the gasoline boy cleans the car windows after
filling up the customer’s gasoline tank without an extra charge.

Total Customer Satisfaction

Whether the buyer is satisfied after purchase depends on the offer’s performance in relation to the buyer’s
expectations. In general, satisfaction is the person’s feelings of pleasure or disappointment resulting from comparing a
product’s perceived performance (or outcome) in relation to his or her expectations. If the performance falls short of
expectation, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the
performance exceeds expectations, the customer is highly satisfied or delighted.
 The link between customer satisfaction and customer loyalty is not proportional. Suppose customer satisfaction
is rated on scale from one to five. At a very low level of customer satisfaction (level one), customers are likely to
abandon the company and even bad mouth it. At levels two to four, customers are fairly satisfied but still find it easy to
switch when a better offer comes along. At level five, the customer is very likely to repurchase and even spread good
word of mouth about the company. High satisfaction or delight creates an emotional bond with the brand or company,
not just a rational preference.
Customer expectations. How do buyers form their expectations? From past buying experience, friend’s
advice, and marketers’ and competitors’ information and promises. If the marketers raise expectations to high, the
buyers are likely to be disappointed. However, if the company sets expectations to low, it will not attract enough buyers
(although it will satisfy those who do buy).
Some of today’s most successful companies are raising expectations and delivering performance to match.
These companies are aiming for TCS – total customer satisfaction. One of Honda’s ads says, “One reason our
customers are so satisfied is that we aren’t.” Nissan invites potential Infiniti buyers to drop in for a “guest drive” (not a
“test drive”), because the Japanese word for customer is “honored guest/”
Delivering High Customer Value. The key to generating high customer loyalty is to deliver high customer
value. A company must design a competitively superior value proposition aimed at a specific market segment, backed
by a superior value-delivery system.
The value proposition consists of whole cluster of benefits the company promises to deliver; it is more than
the core position of the offering. For example, Volvo’s core positioning is “safety,” but the buyer is promised more
than just a safe car; other benefits include a long-lasting car, good service, and a long warranty period. Basically, the
value proposition is a statement about the resulting experience customers will gain from the company’s market offering
and from their relationship with the supplier. The brand must represent a promise about the total experience customers
can expect. Whether the promise is kept depends on the company’s ability to manage its value-delivery system. The
value-delivery system includes all the experiences the customer will have on the way to obtaining and using the
offering.
In addition to tracking customer value expectations and satisfaction, companies need to monitor their
competitor’s performance in these areas.
For customer-centered companies, customer satisfaction is both a goal and a marketing tool. Companies that
achieve high customer satisfaction ratings make sure that their target market knows it.

Types of Customers

There are four types of customers based on projected customer retention and loyalty to the brand.
Strangers are customers whose needs do not fit the company’s offerings. The company does not need to invest
and exert effort to win them.
Butterflies, as the name implies, are not loyal to a specific brand because they keep on looking for the best
deals which may lead to patronizing other brands. The company can enjoy profits from these customers only for a short
period.
True friends have needs that match the company’s offerings. They make repeat purchase and patronize the
brand so long as it satisfies their needs. The company must invest in these customers and strengthen its relationship
with them.
Freeloaders are loyal but not profitable because of the limited fit between their needs and the company’s
offerings. For example, a few customers of a salon patronize its services regularly but do not generate enough to sustain
the maintenance costs; it can earn only if it raises the prices of its services.
Attracting and Retaining Customers
Many companies are intent on developing stronger bonds with their customers – called customer relationship
management (CRM). This is the process of managing detailed information about individual customers and carefully
managing all the customer “touchpoints” with the aim of maximizing customer loyalty.
Attracting Customers. Many customers are becoming harder to please. They are smarter, more price
conscious, more demanding, less forgiving, and they are approached by many more competitors with equal or better
offers. The challenge is not to produce satisfied customers; several competitors can do this. The challenge is to produce
delighted and loyal customers.
Companies seeking to expand their profits and sales have to spend considerable time and resources searching
for new customers. To generate leads, the company develops ads and places them in media that will reach new
prospects; it sends direct mail and makes phone calls to possible new prospects; its salespeople participate in trade
shows where they might find new leads; and so on. This produces a list of prospects. The next task is to identify which
really good prospects, by interviewing them, checking on their financial standing, and so on. Then it is time to send out
the salespeople.
Cost of Lost Customers. It is not enough to be skillful in attracting new customers; the company must keep
them and increase their business. Too many companies suffer from customer churn – namely, high customer
defection.
There are steps a company can take to reduce the defection rate:
1. The company must define and measure its retention rate.
2. The company must distinguish the causes of customer attrition and identify those that can be managed
better.

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 3. The company needs to estimate how much profit it loses when it loses customers. In the case of an
individual customer, the lost profit is equal to the customer’s lifetime value – that is, the present value of
the profit stream that the company would have realized if the customer had not defected prematurely.
4. The company needs to figure out how much it would cost to reduce the defection rate.
5. Listen to customers. Some companies have created an ongoing mechanism that keeps senior managers
permanently plugged in to front-line customer feedback.
The Need for Customer Retention. Unfortunately, most marketing theory and practice centers on the art of
attracting new customers rather than on retaining and cultivating existing ones. The emphasis traditionally has been on
making sales rather than building relationships; on preselling and selling rather than caring for the customer afterward.
A company would be wise to measure customer satisfaction regularly, because the key to customer retention is
customer satisfaction.
A highly satisfied customer stays loyal longer, buys more as the company introduces new products and
upgrades existing products, talks favorably about the company and its products, pays less attention to competing brands
and is less sensitive to price, offers product or service ideas to the company, and costs less to serve than new customers
because transactions are routine.
Here are some interesting facts bearing on customer retention:
1. Acquiring new customers can cost five times more than the cost involved in satisfying and retaining
current customers. It requires a great deal to induce satisfied customers to switch away from their current
suppliers.
2. The average company loses 10 percent of its customers each year.
3. A 5 percent reduction in the customer defection rate can increase profits by 25 percent to 85 percent,
depending on the industry.
4. The customer profit rate tends to increase over the life of the retained customer.

Levels of Relationship Marketing

Customer loyalty is found on excellent customer services. The five levels of relationship marketing define the
levels of interaction between the customer and the company. It is also a guide in improving customer satisfaction.
1. Basic marketing. The salesperson simply sells the product. This is also called “direct sales” and is the most
basic level of interaction between the company and the customer. In basic marketing, a salesperson takes charge
of selling the products or services to consumers.
2. Reactive marketing. The transaction moves to a higher level because the sales person tells the customer that he
or she can be contacted to answer any inquiry about the product or service. The salesperson sells the product
and encourages the customer to call if he pr she has questions, comments or complaints.
3. Accountable marketing. In this level, the salesperson voluntarily contacts the customer to ensure that the
product is in perfect condition and asks if it met the latter’s expectations. Also, the salesperson encourages the
customer to provide suggestions on how to improve the product or service.
4. Proactive marketing. The company works closely with a group of regular customers who provide constructive
feedback for the improvement of the product or service. This group also helps in the development of new
products or services.
5. Partnership marketing. In the final level, the company has already built a loyal group of customers who can
help in improving its performance and offerings.

Relationship Development Strategies

Recent research has shown that loyal customers prove to be more profitable than ordinary customers. This is
the reason why companies are challenged to maintain customer loyalty. Companies should practice the following
relationship development strategies to retain loyal customers.
1. Get cross-departmental participation. Make sure that all departments participate in planning and
managing the customer satisfaction and retention process.
2. Communicate with customers frequently and effectively. Integrate the Voice of the Customer in all
business decisions. It is important to always get in touch with customers through email and social
networking sites to sustain brand recall. Also, they should be provided with various means to give
immediate feedback so companies can promptly respond to them. Make it easy for customers to reach
appropriate company personnel and express their needs, perceptions and complaints.
3. Create superior products, services and experiences for the target market.
4. Keep data base of information. Organize and make accessible a database of information on individual
customer needs, preference, contacts, purchase frequency, and satisfaction.
5. Offer customer rewards. Customer loyalty programs, which include special discounts, perks and
freebies, may work well for various types of products and services. These encourage consumers to remain
loyal to the brand because they are rewarded of their patronage
6. Conduct special events and provide sponsorships. Companies can hold or sponsor parties, concerts,
contests and the like to boost interaction among loyal customers and company representatives.
7. Enhance customer service. Some companies outsource their customer services to third-party
organizations to cater to complaints and inquiries, promote their latest offerings and provide technical
support.

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 8. Utilize languages to reach a wider customer base. Marketers can create promotional materials in
different languages to cater specific regions. Consumers can also now choose the language they would like
to use to communicate with customer service representative.

There are three general retention-building approaches:

1. Adding Financial benefits. Two financial benefits that companies can offer are frequency programs and
club marketing programs. Frequency programs are designed to provide rewards to customers who buy
frequently and in substantial amounts. Many companies have created club membership programs to bond
customers closer to the company.
2. Adding Social benefits. Company personnel work on increasing social bonds with customers by
individualizing and personalizing customer relationships.
3. Adding structural ties. The company may supply customers with special equipment or computer linkages
that help customers manage orders, payroll and inventory. Strategies to create structural ties includes
creating long-term contracts, quantity discounts and long-term service.

Customer Service in the Philippine Business Enterprise

The success of our homegrown companies lies not just on their offerings but also on their customer service.
Local businesses now utilize customer service tools that fit our customer-oriented culture and extensive technology
usage.
 Many companies provide a customer hotline that customers can call for inquiries, concerns, and
technical support.
 Email and SMS also help businesses communicate with their clientele more easily as most consumers
regularly check their inboxes. Online store BeautyMNL sends texts and emails from the moment an
order is placed until it is on its way to the customer.
 Social networking sites, aside from their primary function of connecting people, have become a
channel for netizens to ask for customer support.
 Live chat support facilitates real-time correspondence between the customer and the company
representative.
 Given the amount of time people spend on using their smartphones, companies know that creating
mobile applications increases their visibility and provides value to their customers.

CASE 4 : The Live in Levi’s Project

In 2014, American denim brand Levi Strauss & Co. launched the “Live in Levi’s Project. The campaign
included print, TV and online ads featuring young adults having fun while wearing the company’s products. The
taglines “For everybody who’s not just anybody” and “Look good on your way to what’s next” were highlighted in
the promotion. Levi’s also released a documentary-style film series showing different people living, working and
playing in their Levi’s apparel.
Jennifer Sey, Levi’s Global Chief Marketing Officer, said she and her team wanted to capture the warm
and optimistic feeling that comes with recalling stories. Sey also emphasized that “people who wear Levi’s have
always been the inspiration for our brand.” For the campaign, the company created a digital platform which
enables customers to share their personal Levi’s experiences using the hashtag #Live on Levi’s, be inspired by
fellow customers, and shop for featured products in the interactive ads. In their physical stores, Levi’s jeans were
displayed alongside stories written by their owners which explains the markings on them – providing an account of
the life of people who wore those jeans.
“Live on Levi’s” aimed to reinvigorate the brand’s soul through storytelling and social media, celebrate
authentic self-expression, and engage customers in both real life and virtual experiences that will strengthen their
personal connection to the brand. It positioned Levi’s not just as a leading denim brand, but also the consumers’’
“ultimate life companion.”

Discussion Questions
1. How can you relate the Live on Levi’s project to relationship marketing? What level of relationship marketing was achieved with
the campaign?
2. What other marketing strategies can be employed to improve the campaign?

Activity 1: Provide an example for the following tools that are used for tracking and measuring customer satisfaction:
1. Complaint and suggestion systems
2. Customer satisfaction survey
3. Ghost shopping
4. Lost customer analysis

Marketing Experience - Brand Promise Presentation: Students will work in small groups to find one company's brand
promise/s. They will create a poster board that shows the company, their brand promise and they will list ways in which they
think the company has lived up to their brand promise. The presentations will be shared with the class.

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Group Activity: Going local on building customer relationship
Each group will select a local business establishment in San Jose. Come up with 2-3 unique marketing strategies that help
build the customer relationship marketing of the chosen business establishment. Present you output in a short (2-3 minutes)
role playing.

Performance Task: Select five people and ask them to talk about the value of their mobile phones and their satisfaction with
them. Compare their answers and from the perspective of a cell phone company’s marketer, develop five marketing strategies
based on their feedback.

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