MARKETING 2
Services Marketing
MODULE 2
Ramuthivheli IL
www.vut.ac.za
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Chapter 13
Building customer relationships and loyalty
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LEARNING OUTCOMES
By the end of this chapter, you should be able to:

Define the term ‘relationship’ and explain the importance of relationships in
marketing for service organisations.

Explain trust and commitment as elements of a customer relationship.

Compare the various types of customers from a relationship-building
perspective.

Explain the relationship-building process in service organisations.

Interpret the importance of customer retention to a service organisation.

Explain the components of retention.

Summarise customer satisfaction and its relevance for service marketing.

Apply your grasp of the theory discussed in this unit by providing appropriate
practical examples to illustrate any principle or concept.

Provide a marketing management solution related to any of the above outcomes.
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THE ROLE OF SERVICES IN RELATIONSHIPS
• Relationships built with customers, which can be achieved throughout
the service process with help with retention , satisfaction and loyalty of
customers in the long term
• Customers who are not satisfied, will not want to continue buying from
the organisation
• Neither will they want to build relationships with its staff
• This means that service and service quality are not only important in
creating satisfied customers but are also a prerequisite for successful
relationship building.
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THE NATURE AND COMPONENTS OF CUSTOMER RELATIONSHIPS
• The nature of customer relationships:
Exists when two preconditions are met.
1)
2)

Both parties must believe that a relationship exists
The contact between them must be more than simply occasional
A relationship can be viewed as consisting of a number of periodes and once
a customer has purchased a service twice from the organisation, a
relationship then exists.
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THE NATURE AND COMPONENTS OF CUSTOMER RELATIONSHIPS
• The components of relationships:
1)
Trust



2)
The belief in the reliability and integrity of the other party
Means that the parties will not act opportunistically
Customer and organisation must trust each other
Commitment



An ongoing relationship with another party that requires maximum effort at retaining it
Customers who are committed are those who have an affective preference towards the
organisation
Implies that the parties want to maintain the relationship because they believe it is
valuable
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TYPES OF RELATIONSHIPS
• Relationships can be placed on a continuum from true to not genuine.
1)
True relationships




Are long-term relationships
Positive behaviours between the organisation and the client
Presence of trust, relationship benefits and the absence of negative bonds
A true relationship is based on the belief of both parties that the relationship is
beneficial
• Relationships can be placed on a continuum from true to not genuine.
2)
Spurious relationships





On the opposite end of the continuum
Occur when a customer has little trust in the organisation
When there isn’t a strong bond with the organisation
The customers cannot be expected to support the organisation
When there is an absence of trust, neither the client nor the organisation wishes to
remain in the relationship and satisfaction levels decrease
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BUILDING CUSTOMER RELATIONSHIPS: A PROCESS
• Does not happen instantly but develops over an extended period of time
• Is a process in which each party gets to know the other to ensure that
both parties realise their goals
Customer expectations
Customer co-creation
Service quality
Customer retention
Customer satisfaction
Customer loyalty
Organisational
Strategies and actions
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RELATIONSHIP OUTCOMES
• It is important that relationships that are built with customers have
positive outcomes for both parties.
• Customer retention
Can be seen as the organisation placing the focus of much of its marketingrelated activities on its existing customers.
Retention cannot be guaranteed
Satisfied customers do not necessarily stay with the organisation
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BENEFITS OF CUSTOMER RETENTION
1) Profitability
2) Cost issues
3) The sales effect of loyal customers
4) Increased brand equity
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THE COMPONENTS OF CUSTOMER RETENTION
1) Customer satisfaction and loyalty
 Satisfaction is the meeting of customer expectations and delivering on the promises made in
the actual service delivery process
 Willingness of a customer to keep buying from a specific outlet in the long term
 The organisation has to bear in mind that customers will only stay loyal for as long as they
believe that they ae receiving value that they wouldn’t be getting elsewhere
 Attitudinal loyalty is an affective state and refers to the loyalty that the customer has towards
the organisation in his mind
 Behavioural loyalty refers to the actions that a customer displays
 It is clear that attitudinal loyalty may not be converted into behavioural loyalty
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THE COMPONENTS OF CUSTOMER RETENTION
2) Customer relationships
 A mutually beneficial relationship is essential if customers are to be retained
 Becoming harder to connect with customers, and in fact harder to understand consumer
needs
 Changing customers needs also means that customers want to interact with organisations in
different ways
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CUSTOMER RETENTION TACTICS
 Specific actions that the organisation needs to perform to
increase customer retention
 Tactics:
Provide excellent customer service
Knowing and measuring the current defection rate
Listening to customers is regarded by many as the best way to
reduce customer defections
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CUSTOMER LIFETIME VALUE
 Customer lifetime value (CLV) is that a customer who stays
with an organisation will spend money with it over a longer
period of time
 As long as a customer is retained, he will continue to spend
money and contribute to profitability
 Assumptions:
The organisation is able to ensure customer retention among
these customers
The customer will continue using the service and that he will
continue buying from this organisation
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STEPS IN CALCULATING CUSTOMER LIFETIME
VALUE (clv)
1) Calculate the revenue the organisation will receive
2) Having an indication of the costs associated with offering the
service to the customer
3) Takes the outcome from number 2 and determining the
present value of these future inflows.
This includes:
oDetermining the profits for the period
oDetermining the discount factors for each time period
4) The present value of the inflows that the organisation will
receive from this customer and indicates their CLV
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CUSTOMER PROFITABILITY SEGMENTS
• It is argued that customer relationship management
(CRM) involves building relationships with strategically
significant customers
• The concept of identifying profitable segments is not
something that customers want to know about
• They believe all customers are equal and should be
treated as equals
• Various levels or categories of customers can be
identified
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CUSTOMER PROFITABILITY SEGMENTS
Platinum
Most profitable
consumers
Gold
Iron
Lead
Least profitable
consumers
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LOYALTY PROGRAMMES
• Most popular strategy = loyally programmes and
loyalty cards
• Intention = Getting customers to enrol in programmes
and then to use the cards on a regular basis
• Enable organisations to collect data
• Also useful tool in developing customer experiences
and encouraging customer referrals
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LOYALTY PROGRAMMES
Advantages
1)
2)
3)
4)
Disadvantages
Customers receive rewards
Providing information to organisations
Customers spend over longer periods
Impacts on profitability
1)
2)
3)
4)
Do not generate or contribute to increasing
loyalty
Affect sales levels, but do not contribute to
genuine relationship-building with customers
Are short-term in nature
Customers are driven by rewards. But if another
programme provides better benefits, customers
will often defect to that programme
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