CHAPTER 15
CONSUMER RELATIONSHIPS
WHAT DO YOU THINK POLLING QUESTION
When I have a good experience with a brand, I reward it by telling my friends how great
it is.
Strongly disagree 1
2
3
4
5
6
7
Strongly agree
Have students access www.cengagebrain.com to answer the polling questions for each chapter of
CB. Ask them to take the online poll to see how their answers compare with other students taking
a consumer behavior course across the country. Then turn to the last page of the chapter to find
the What Others Have Thought box feature. This graph is a snapshot of how other consumer
behavior students have answered this polling question thus far.
LEARNING OUTCOMES
After studying this chapter, the student should be able to:
L01 List and define the behavioral outcomes of consumption.
L02 Know why consumers complain and the ramifications of complaining behavior for a
marketing firm.
L03 Use the concept of switching costs to understand why consumers do or do not repeat
purchase behavior.
L04 Describe each component of true consumer loyalty.
L05 Understand the role that value plays in shaping loyalty and building consumer
relationships.
SUGGESTED LECTURE OPENER
During an economic downturn, one of the first consumer relationships to take a hit is brand
loyalty. When customers are feeling the pressures of cost, they are more likely to turn to lowpriced, bargain products rather than stick with their favorite brands. However, prices can only go
so low and downturns don’t last forever. Retailers need to consider how they can earn long term,
loyal consumers now. Recent research indicates that one powerful way to do this is through
social networking. Consumers are increasingly using the Web to collect and put out information
related to products, good, and services. Building a social community around a brand helps
promote awareness and allows marketers to keep brands relevant and targeted. [Source: Helen
Leggatt, “Rebuild Brand Loyalty with Social Media,” Biz Report, August 19, 2010,
http://www.bizreport.com.]
LECTURE OUTLINE WITH POWERPOINT® SLIDES
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1
Slide 1
Slide 2
LO1. List and define the behavioral outcomes of consumption.
Outcomes of Consumption
Slide 3
Exhibit 15.1 expands the disconfirmation framework traditionally used to explain consumer
satisfaction. This particular chart divides the different concepts into three groups.
1. Predominantly cognitive—these include the actual disconfirmation process that results
from comparing actual performance with expected performance.
2. Affective reactions—this model shows that the evaluation process could lead to any
number of affective outcomes.
3. Behavior—do much to determine the success or failure of competitive enterprises.
Slide 4
LO2. Know why consumers complain and the ramifications of complaining behavior for a
marketing firm.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2
Complaining and Spreading WOM
Slide 5
Complaining Behavior
Complaining behavior occurs when a consumer actively seeks out someone with whom to share
an opinion regarding a negative consumption event.
Slide 6
Complainers
Less than one-half of customers experiencing some dissatisfaction complain to management.
Only 17% of healthcare consumers complain when experiencing some problem with the service
or care they are receiving, and a recent survey among restaurant consumers suggests that no
more than 5% of consumers with a problem complain. When a consumer complains, the
marketer has a chance to rectify the negative situation. A truly consumer-oriented organization
should encourage customers to complain.
The Result of Complaining
Exhibit 15.2 provides a summary of what happens when consumers do or do not complain. The
following list gives advice to service providers for handling consumer complaints effectively:
1. Thank the guest for providing the information.
2. Ask questions to clarify the issue.
3. Apologize sincerely.
4. Show empathy for the customer’s situation.
5. Explain the corrective action that will take place.
6. Act quickly.
7. Follow up with the customer after the corrective action.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
Slide 7
Slide 8
Q: Ask students whether they have ever worked at a place where a customer
complained. How did they handle it? What lessons can they share with the
class?
A: Answers will vary. Many students that work with the general public (e.g.,
retail, restaurants, service industries) should have a story to tell.
The Result of Not Complaining
So, what happens when the consumer does not complain? Let’s return to the noisy hotel room
example from the book. A customer may simply put up with the inconvenience and end up
leaving miserable after a poor night’s sleep. The result is that the hotel will never know that the
customer was not pleased with their stay.
Revenge
If a consumer’s verbal complaint does not get results, some may retaliate in the form of revengeoriented behaviors. Rancorous revenge is when a consume yells, insults, or makes a public scene
in an effort to harm the business. In retaliatory revenge, a consumer becomes violent with
employees and/or tries to vandalize a business.
Slide 9
Word-of-Mouth
Negative word-of-mouth (negative WOM) takes place when consumers pass on negative
information about a company from one person to another. Some estimates suggest that a
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4
consumer who fails to achieve a valuable consumption experience is likely to tell their story to
more than 10 other consumers.1
Positive WOM occurs when consumers spread information from one person to another about
positive consumption experiences with companies or products. Conventionally, negative WOM
is seen as more commonplace than positive WOM.
Slide 10
Negative Public Publicity
When negative WOM spreads on a relatively large scale, it can result in negative public
publicity. Negative public publicity could even involve media coverage. Thus, most large
companies have employees whose job is to attempt to quell or respond to negative public
publicity. Today, consumers can easily make their complaints public by using the Internet, and
numerous websites exist that facilitate this type of behavior. One such site is
www.consumeraffairs.com.
Visit the Consumer Affair’s website, and have students look at the pet food
example mentioned in the book. See whether you can find other relevant
examples.
The following are some alternative courses of action for a firm to use to handle negative public
publicity:
1. Do nothing; the news will eventually go away.
2. Deny responsibility for any negative event.
3. Take responsibility for any negative events, and be visible in the public eye.
4. Release information allowing the public to draw its own conclusion.
Doing Nothing or Denying Responsibility
Doing nothing is neither the best nor worst option. Taking action seems to be a responsible thing
to do, but it’s possible that the action can backfire. Even when the basis for negative public
publicity is simply rumor, denying any responsibility can be a very bad idea.
Hart, C. A., J. L. Heskett, and E. W. Sasser (1990). “The Profitable Art of Service Recovery,” Harvard
Business Review, 68 (4): 148-156.
1
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5
Taking Responsibility
If consumers blame the company for the event surrounding the negative public publicity, then
the potential repercussions appear serious. However, public action taken to deal with any
consequences of a negative event can mollify any negative effects. Discuss the Tylenol example
from 1982. Many students will not know about this case since it happened before they were born.
Releasing Information
Sometimes, a company may be able to release some public relations counter-information to the
media that allows consumers to make up their own minds about the potential source of any
negative publicity. If done properly, the company does not publicly deny any allegation about the
event and instead insists that actions are being taken to get to the bottom of the event. Discuss
the Pepsi event from the book.
Slide 11
Participating in Negative WOM
Consumers who spread negative WOM without complaining to the company itself are
particularly likely not to ever do business with that company again.
Implications of Negative WOM
One reason why consumers share negative WOM is to prevent other consumers from falling victim
to a company. Thus, negative WOM can hurt sales. However, this is not the only potential negative
effect. Negative WOM can also damage the image of the firm.
LO3. Use the concept of switching costs to understand why consumers do or do not repeat
purchase behavior.
Switching Behavior
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Slide 12
Switching in a consumer behavior context refers to those occasions when a consumer chooses a
competing choice rather than the previously purchased choice on the next purchase occasion. If a
consumer visited Burger King for lunch last Tuesday and chooses Wendy’s on Saturday, the next
time he or she goes out for lunch, the consumer has practiced switching behavior.
Slide 13
Switching costs are the costs associated with changing from one choice (brand/retailer/service
provider) to another. Switching costs can be divided into three categories:2
1. Procedural
2. Financial
3. Relational
Procedural Switching Costs
These costs involve lost time and effort. Although Apple computers have a stellar reputation for
being easy to use, most computer users stick with PC models despite this reputation.
Financial Switching Costs
These costs consist of the total economic resources that must be spent or invested as a consumer
learns how to obtain value from a new product choice.
Relational Switching Costs
This term refers to the emotional and psychological consequences of changing from one
brand/retailer/service provider to another.
Burnham, T. A., J. K. Frels, and V. Mahajan (2003). “Consumer Switching Costs: A Typology,
Antecedents and Consequences,” Journal of the Academy of Marketing Science, 31 (Spring) 109-126.
2
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Understanding Switching Costs
Exhibit 15.3 demonstrates the conventional consumer behavior theory explaining switching
costs. Consumers become dissatisfied for any number of reasons, and these reasons and
dissatisfaction determine how likely a consumer is to return on the next purchase occasion.
Slide 14
Slide 15
Q: Ask students how many have switched as users from PC to Apple, or vice
versa. How do procedural switching costs influence loyalty to computer
brands?
A: Answers will vary. Either user, PC or Apple, would have to learn a new
operating platform so the effort previously used to learn the first operating
platform would be lost. When consumers master a technologically complex
product, they become very resistant to switching.
Satisfaction and Switching
Exhibit 15.4 summarizes the vulnerability of a company to consumer defections based on the
interaction between switching costs, competitive intensity, and consumer satisfaction. Switching
costs are dependent on the amount of competition or competitive intensity. Competitive intensity
refers to the number of firms competing for business within a specific category. At one time,
consumers in the United States had only one choice for telephone service—“Ma Bell.”
Slide 16
LO4. Describe each component of true consumer loyalty.
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8
Consumer Loyalty
Slide 17
Customer Share
Customer share is the portion of resources allocated to one brand from among the set of
competing brands. The share of wallet is sometimes used to refer to customer share. Exhibit 15.5
demonstrates how the concept works.
Slide 18
Slide 19
Consumer Inertia
Consumer inertia means that a consumer will tend to continue a pattern of behavior until some
stronger force motivates him or her to change.
Slide 20
Loyalty Programs
A loyalty card/program is a device the keeps track of the amount of purchasing a consumer has
had with a given marketer. Once some level is reached, a reward is offered, usually in terms of
future purchase incentives. The consumers in Exhibit 15.5 repeat similar behavior and thus
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
9
appear to be loyal to Starbucks, but are they really loyal? This question is the focus of the next
section.
Q: Ask which students have a loyalty card. What is the value of the loyalty
card? What types of rewards do they receive for being a loyal customer?
A: Answers will include everything from grocery shopping, pet stores,
Sephora, library cards, and so forth. Rewards will also vary.
Customer Commitment
A sense of attachment, dedication, and identification with a brand is known as customer
commitment. Exhibit 15.6 depicts the components of loyalty. Customer share is behavioral, and
commitment is an affective component of loyalty. Truly loyal customers are like gold to a
company.
Slide 21
Slide 22
Antiloyalty
Antiloyal consumers are those who will do everything possible to avoid doing business with a
particular marketer. Antiloyalty is often motivated by a bad experience between a consumer and
the marketer in which the marketer could not redress the problem.
Slide 23
Value and Switching
Exhibit 15.7 reproduces the center portion of the CVF and clearly shows that value plays a role
in the postconsumption process. For a host of reasons, consumers may end up maintaining a
relationship with a brand even if they experience dissatisfaction; however, consumers do not
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10
maintain relationships in which they find no value. Exhibit 15.8 suggests ways in which value
plays a role in shaping loyalty and preventing switching behavior for different types of
businesses.
Slide 24
Slide 25
LO5. Understand the role that value plays in shaping loyalty and building consumer
relationships.
Value, Relationships, and Consumers
Slide 26
Relationships and the Marketing Firm
Marketers have come to realize that the exchange between a business and a consumer comprise a
relationship. Two factors help to make this clear:
1. Customers have a lifetime value to the firm.
2. True loyalty involves both a continuing series of interactions and feelings of attachment
between the customer and the firm.
Q: Ask students if they have a particular company with which they have a
longstanding relationship. Why do they feel such loyalty to the firm?
A: Answers will vary. Discuss value along with the type of relationship they
share.
Value and Relationship Quality
Relationship quality represents the degree of connectedness between a consumer and a retailer.
When relationship quality is high, the prospects for a continued series of mutually valuable
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
11
exchanges exist. Relationship quality can be thought of as capturing the health of the relationship
so that it will likely continue.
Slide 27
There are many kinds of relationships between consumers and salespeople. The critical key to a
relationship with a consumer, could in fact be the salesperson. By having salespeople work to
build relationships with consumers, the company also benefits.
Slide 28
A healthy relationship between a consumer and a marketer enhances value for both parties.
Exhibit 15.9 displays some of the characteristics of a healthy marketing relationship, such as the
following:
 Competence
 Communication
 Trust
 Equity
 Personalization
 Customer oriented
For example, a good hair stylist can build relationship quality through value-added services,
including knowing a consumer’s preferences.
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12
Slide 29
Q: Besides the hair stylist example, what are some other examples where the
marketer has used these relationship quality characteristics to build a
healthy marketing relationship?
A: Answers will vary.
VIDEO CLIP
PowerPoint Clip from Travelocity
Run time 1:42 minutes
Slide 30
Travelocity is a pioneering brand in the world of Internet travel businesses. Travelocity has
maintained its brand leadership by embracing a stance of traveler advocacy. The Travelocity
Guarantee promotes the idea that what you book will be right, or Travelocity will work with their
partners to make it right.
Ask your students:
1. How does the Travelocity Guarantee reinforce brand loyalty?
Answer: Consumers can rely on the brand to protect their travel interests with a minimal level of
involvement on their part. This means a decrease in consumer risk and an increase in customer
value, and thus a likely repeat purchase.
2. What kind of response has Travelocity gotten from the launch of the guarantee program?
Answer: Travelocity hit a 37% revenue growth the quarter of the launch and also garnered a lot
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13
of positive buzz and “free” launch press because it was a company doing what it should be
doing—backing up its product.
END OF CHAPTER MATERIAL
ONLINE CASE ANSWERS
Visit www.login.cengage.com to access the online case studies for CB.
1. How can Avant Healthcare further leverage its brand loyalty from its HCPs to helping its
business?
Answer: Avant Healthcare’s brand loyalty can be leveraged into its marketing to attract
more HCPs to work for them. This can be done by stressing their high customer satisfaction
in their marketing efforts, such as in advertisements. Avant can also encourage HCPs to tell
their friends and colleagues about Avant’s quality programs, which will help attract more
HCPs.
2. What is the importance of Avant proactively asking its HCPs about possible concerns?
How does this help Avant build brand loyalty?
Answer: By encouraging the act of complaining, Avant is able to identify problems and fix
them. It also makes HCPs feel supported, which leads to satisfaction and brand loyalty.
3. How do the international medical staffing firms that view customer complaints as nothing
more than a pain in their side contribute to customer disconfirmation formation by their
HCPs?
Answer: These companies make HCPs believe that they are only out to make money and
are not looking out for the HCPs’ best interests, as exemplified in the negative quotes cited
in the article. This negative cognition leads to negative reactions of disgust, anger,
skepticism, and frustration, which in turn lead into the behaviors of complaining, negative
word of mouth, and leaving their contracts early.
4. What kinds of long-term implications can the negative word-of-mouth have on international
medical staffing firms?
Answer: Negative word-of-mouth will lead to loss of brand loyalty, negative public
publicity, loss of potential future HCPs, and switching behavior from the HCPs who are
currently working for them.
REVIEW QUESTIONS
(*) Indicates material on prep cards.
1. [LO1] What are the cognitive and affective components that help shape postconsumption
behavior?
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14
Answer: Cognitive components include expectations, performance perceptions,
disconfirmation (which results from comparing the latter two), attributions, and equity
perceptions. Affective components include consumer satisfaction and dissatisfaction, but
also include other emotions such as joy, sadness, disgust, anger, skepticism, excitement,
love, attachment, frustration, and commitment.
2. [LO1] List and define the behavioral outcomes of consumption.
Answer: The behavioral outcomes of consumption include the following:




Complaining behavior occurs when a consumer actively seeks out someone with whom
to share an opinion regarding a negative consumption event. In the extreme, complaining
can take the form of revenge.
Negative word-of-mouth takes place when consumers relay negative information about a
company from one person to another. Positive word-of- mouth takes place when
consumers relay positive information or recommendations about a company to other
consumers.
Switching in a consumer behavior context refers to those occasions when a consumer
chooses a competing choice rather than the previously purchased choice on the next
purchase occasion.
The behavioral component of customer loyalty is customer share, which is the portion of
resources allocated to one brand from among the set of competing brands.
3.* [LO2] Describe an instance when you complained about poor service. Using Exhibit 15.1,
explain how you complained to the establishment. Was your complaint acted upon by the
service-providing firm?
Answer: This activity is an opportunity for students to elaborate on the extended
disconfirmation model shown in Exhibit 15.1. Students should focus on the specific
emotion they experienced and how that emotion contributed to the behavior they
subsequently exhibited.
4. [LO2] What is the difference between complaining and negative word-of-mouth? Which
one should marketers encourage, and why?
Answer: Complaining is directed at the marketing firm itself. Negative word-of-mouth is
directed toward other consumers including the public at large. Therefore, marketers should
encourage complaining to the extent that it provides valuable information about how to
improve performance without making a potentially negative event public.
5. [LO2] What are the different ways in which a firm can react to negative public publicity?
Which way is almost always a bad response?
Answer: The different ways in which a firm can react include:





Do nothing and the news will eventually go away.
Deny responsibility for any negative event.
Take responsibility for any negative events, and be visible in the public eye.
Release information, thereby allowing the public to draw its own conclusion.
Denying any responsibility is almost always a bad option.
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15
6. [LO3] Define the concept of switching costs.
Answer: Switching costs are costs associated with changing from one choice
(brand/retailer/service provider) to another. The chapter contains numerous examples, such
as the switching costs associated with changing computers.
7.* [LO3] What are the different types of switching costs that a consumer faces? Provide
examples of each from your own consumer experiences.
Answer: The three types of switching costs are procedural, financial, and relational.
Changing mobile phones involves procedural switching costs because new ways of doing
the same old things must be learned. Financial switching costs could be encountered when a
consumer wishes to change apartments before the lease is expired and thus risks forfeiting
the deposit. Relational switching costs could come in the form of changing hair stylists or
dentists.
8. [LO3] Explain which types of firms are most vulnerable and least vulnerable to customer
defections.
Answer: The most vulnerable firms have dissatisfied customers combined with a highly
competitive industry and low switching costs. The least vulnerable firms have satisfied
customers combined with a relatively uncompetitive industry and high switching costs. An
interesting discussion point is whether or not the latter situation is rare.
9. [LO4] Define each component of true customer loyalty.
Answer: One important component is customer share, which is the portion of resources
allocated to one brand from among the set of competing brands. A second component is
customer commitment, which is a strong feeling of attachment, dedication, and sense of
identification with a brand.
10. [LO4] For each of the following product areas, list your favorite brand and estimate the
customer share you allocate to that brand:

Gasoline

Supermarkets

Phone Service

Consumer Electronics

Soft Drinks
Answer: This activity is designed to prompt students to elaborate on customer share and
commitment (loyalty). You can expect a full range of responses.

Gasoline – Many students will not have any loyalty to gasoline brands, so perhaps a
single brand, such as Chevron, will have a customer share similar to those of other
national brands.
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16




Supermarkets  In many small cities in the United States, Walmart has a very high
customer share due to the lack of competition.
Phone service  High switching costs probably contribute to students keeping their phone
service even though they may not be thrilled with it.
Consumer electronics  Some students may have strong loyalties (at least the customer
share) to Walmart.
Soft drinks – Coke will probably do pretty well here with perhaps more than 50% of
purchases and revenue spent by many consumers.
11. * [LO5] What is relationship quality, and how does a relationship create value?
Answer: Relationship quality represents the degree of connectedness between a consumer
and a retailer. When relationship quality is high, the prospects for a continued series of
mutually valuable exchanges exist. A healthy relationship between a consumer and a
marketer enhances value for both parties. For the consumer, decision making becomes
simpler, thereby enhancing utilitarian value. Relational exchanges often involve pleasant
relational and experiential elements, thereby enhancing hedonic value.
12. [LO5] Consider two retailers: Walgreens Drug Store and Nordstrom’s Department Store.
Both stores have succeeded by providing shopping value to consumers. How does the value
each creates contribute to a lasting relationship between the firm and its loyal consumers?
Answer: The student can use the points in Exhibit 15.9 to form an answer. One point that
students should make is that Walgreens is positioned to do things that lead to high
utilitarian value from a relationship, while Nordstrom’s probably does things that create
more hedonic value from the relationship.
INTERACTIVE/APPLICATION EXERCISES
13. Search the Internet for websites where consumers can place complaints about a product.
Print a list of complaints, and analyze the complaints for patterns. Do these patterns identify
a problem for the company that might be addressed based on complaints?
Answer: This is a hands-on exercise that should provide students with some experience in
identifying the sources of complaining yet, at the same time, allow them to analyze things
that could end up terminating the relationship between a customer and the business. Exhibit
15.9 should be helpful.
14. * What switching costs are built into doing business with mobile phone providers, healthcare
providers, Internet music services, and health clubs? Are all switching costs ethical?
Answer: Students should be able to reasonably discuss how these industries involve
relative amounts of procedural, financial, and relational switching costs. Perhaps students
can relate a story from their own experiences as consumers when they believed a switching
cost was unethical. An apartment lease may come to mind as something they might discuss
or transferring credits when switching from one school to another. Courses that were paid
for may not count after a transfer. If a service product is intentionally designed with a
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17
feature whose purpose is to make it difficult to switch from one brand to another, the study
may have a good case for a lack of justice.
15. Briefly research and describe Microsoft’s reasons for market share dominance with
products like Microsoft Word. What role, if any, do you think switching costs played in this
success?
Answer: This activity provides an opportunity to elaborate on the concept of switching
costs. Microsoft presents consumers with many switching costs, including procedural
elements such as learning the new system, financial elements such as the costs of acquiring
a new system, and problems associated with compatibility with other computers. Thus,
switching costs probably did play a role in Microsoft’s market share dominance because,
once people starting using Microsoft products, the cost of switching was simply too high.
16. Take a stance on this statement: Walmart’s success is based on true customer loyalty, and
therefore Walmart is relatively invulnerable to competition.
Answer: Walmart’s success may be based more heavily on consumer inertia and their
ability to make the marketplace less competitive. Overall, Walmart customers do indicate
behavioral loyalty in the form of high customer share toward the retailer. The fact that
Walmart success lies in utilitarian shopping value may also contribute to high behavioral
loyalty (customer share), even though there is not high hedonic shopping value. If the
customer turns away from Walmart, they may have to make several stops to buy the things
they could have bought with one stop at Walmart Supercenter. Thus, a strong case can be
made that switching costs play a role.
*GROUP ACTIVITY
A similar exercise performed in Chapter 14 would also apply to this chapter under the category
“dissatisfied customers.” Have a few students share negative experiences (cognitive dissonance)
with a brand or establishment and write letters expressing their dissatisfaction. Students should
be encouraged in the “proper” way to complain so that they can distinguish the difference
between complainers and dissatisfied customers. This important exercise emphasizes the point
that relatively few customers actually complain. Have students share their experiences in class,
and assess which groups would be considered “angered complainers” and “disgusted or
hopeless” customers. Complainers, although sometimes unpleasant to deal with, are valuable
sources of feedback about potential problems in service quality, product performance, or system
malfunction.
CHAPTER VIDEO CASE
To view the video case Success Blooms at 1-800-FLOWERS, go to the CB companion
website login.cengage.com and go to the Chapter Video and Video Case drop down menus
to select this video.3
3
From Gitman & McDaniel. Success Blooms at 1-800-Flowers from The Future of Business 6e, pg. 492. Copyright
(c) 2008, a part of Cengage Learning, Inc. Reproduced by permission. www.cengage.com/permissions
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18
Do you need to send flowers for a relative’s birthday in Germany, to celebrate your daughter’s first
big business presentation in the United Kingdom, or to congratulate your neighbors across the street
on the birth of their new baby? One call to 1-800-FLOWERS does it all—floral arrangements
individually created by the nation’s top floral artists, hand-delivered the same day at the peak of
freshness and perfection—whether your loved ones are in Australia, the Philippines, Mexico, Italy,
Japan, Hawaii, Alaska, or Puerto Rico.
So how do they do it? After opening his first retail store in 1976, Jim McCann, chief
executive officer of 1-800-FLOWERS, built a chain of 14 flower shops in the New York
metropolitan area before acquiring the 1-800-FLOWERS telephone number in 1986 and
continuing to grow his business under that name. His understanding of his customer base and
market helped him create a reliable brand his customers could trust.
He knew that when selling such a perishable product, efficient access and distribution is
critical to success. The company’s sophisticated fulfillment system includes its BloomNet network
of 1,500 florists throughout the United States, including 35 company-operated stores and 85
franchised stores, as well as distribution and warehouse facilities. BloomNet partners are selected
based on their commitment to quality and service and strictly monitored by 1-800-FLOWERS—
part of its focus on customer service.
McCann extended his business into other channels, going online in 1992 and opening a
website in 1995. He maintains strategic marketing relationships with a number of online
services, including America Online, Microsoft Network (MSN), and Yahoo! The company’s
third-party vendor-direct program allows for easy and efficient delivery of gourmet foods,
candies, and gift baskets, among other items. Its collection of brands includes home décor and
garden merchandise sold under Plow & Hearth; premium popcorn and other food gifts sold under
The Popcorn Factory; chocolates from Fannie May, Godiva, and others; and baked cookies and
desserts from Cheryl & Co. Headquartered on Long Island, New York, 1-800-FLOWERS,
(http://www.1800flowers.com) is today one of the most recognized brands in flower and gift
retailing. Available online 24 hours a day, seven days a week, customers can also visit a
company-operated or franchised store. The website also allows customers to send free virtual
flowers—building their own virtual bouquet complete with flowers, accents, a beautiful vase, and
even a personalized message.
1-800-FLOWERS maintains a comprehensive quality assurance program that
incorporates ongoing blind test orders, telephone surveys with customers and recipients, in-store
and mail surveys, and customer service reports. With customers assured of a 100 percent
satisfaction and freshness guarantee on all products and services, the company’s fortunes should
continue to blossom.
Ask your students:
1. Describe the unique challenges faced by companies that sell highly perishable products.
Answer: Distribution must be reliable and timely with a product that is perishable. In
addition, forecasting inventory can be extremely challenging. Inventory managers must
balance holding costs (the costs of maintaining and warehousing inventory) against
stockout costs.
2. How does 1-800-FLOWERS meet and address those challenges?
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Answer: The company’s fulfillment system includes a BloomNet network of 1,500 florists
throughout the U.S. including 35 company-owned stores and 85 franchised stores. The
company’s third-party vendor-direct program allows for easy and efficient delivery of its items.
The company also maintains a comprehensive quality assurance program that incorporates
ongoing blind test orders, telephone surveys with customers and recipients, in-store and mail
surveys, and customer service reports.
3. What other types of distribution or product access should the company consider?
Answer: The company may want to consider purchasing its own trucking company rather
than relying on a third-party vendor.
Sources: Adapted from the video “1-800-FLOWERS,” http://www.swlearning.com; Tim
Beyers, “Budding Growth at 1-800-FLOWERS?” The Motley Fool, http://www.fool.com,
August 11, 2005; Tony Goins, “1-800-FLOWERS to buy Cheryl & Co.,” Business First of
Columbus, March 11, 2005; Rich Smith, “1-800-Flowers Buys Fannie May,” The Motley Fool,
April 10, 2006, http://www.fool.com; 1-800-FLOWERS corporate website,
http://1800flowers.com; April 29, 2006.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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