Managing Relationships and

Building Loyalty
• Targeting, acquiring and retaining “right” customers is at core of many
successful service firms.

• Customer loyalty extends beyond purchasing behavior, and includes

preferences, liking and future intentions.

• Objective is to build relationships and to develop loyal customers who

will contribute to the growing volume of firm’s business in future.
Importance of Customer Loyalty

Figure 12.2 How much profit a customer generates over time

Factors that create incremental profits

Profit derived from increased purchases

Profit from reduced customer service costs

Profit from referrals to other customers

Profit from lower price sensitivity that allow a price premium

Acquisition costs can be amortized over a longer period

Customers profitability over time
Why are customers loyal?
Service firms need to
create value for
customers to become
and remain loyal.

Relationships can • inspiring greater

confidence,
create value for • offering social benefits and
individual consumers • providing special
through factors such as treatment.
The Wheel Of Loyalty
The Customer Pyramid
Customer Satisfaction And Service Quality As
Prerequisites For Loyalty

Figure 12.8 The customer satisfaction-loyalty relationship

Strategies For Developing Loyalty Bonds With
Customers

Create loyalty rewards

Deepen the relationship Build higher level bonds

through cross-selling and such as social, customized
bundling and structural bonds.
1. Deepen The Relationship

• Through bundling and/or cross-selling services

• Switching becomes a major exercise and is unlikely, unless customers

are extremely dissatisfied

• When enjoying many services of the same firm, the customer may
achieve a higher service tier and receive better services
2. Create Loyalty Rewards
Financial rewards
- customer incentives with financial value; “hard benefits”
- e.g., discounts on purchases, loyalty program rewards such as frequent flier miles,
and cash-back programs provided by credit card companies
Non-financial rewards
- provide benefits that cannot be translated directly into monetary terms; “soft
benefits”
- e.g., giving priority to loyalty program members on reservation waitlists and
virtual queues in call centers
3. Build Higher-level Bonds (1 of 2)
Social Bonds
Social bonds and related personalization of service are based on personal relationships
between providers and customers; are more difficult to build than financial bonds

Customization Bonds
Built when service provider succeeds in providing customized service to its loyal
customers
Firms offering customized service are likely to have more loyal customers
3. Build Higher-level Bonds (1 of 2)

Structural Bonds
Frequently seen in B2B settings

Created by getting customers to align their way of doing things with the supplier’s
processes and linking customer to firm
Strategies For Reducing Customer Defections (1
of 2)

Analyze customer defections and monitor declining accounts

• Reasons for customer defection
• E.g. core service failures; dissatisfactory service encounters; high,
deceptive or unfair pricing; inconvenience in terms of time, location,
or delays and poor response to service failure
Strategies For Reducing Customer Defections (2
of 2)

• Address key churn drivers

• By delivering quality service, minimizing inconvenience and other
non-monetary costs, and having fair and transparent pricing.

• Implement effective complaint handling and service

recovery procedures
• Increase switching costs
What Drives Customers to Switch
Customer Relationship Management
Common Failures In CRM Implementation
Viewing CRM as a technology initiative
Lack of customer focus
Insufficient appreciation of customer lifetime value (LTV)
Inadequate support from top management
Failing to reengineer business processes
Underestimating the challenges in data integration
Getting CRM Implementation Right

• CRM is becoming a basic building block in corporate success.

• Service firms should focus on clearly defined problems within their
customer relationship cycle.