building loyalty

“Managing Relationship and Building Loyalty in Services”

Presented byJishnu & Rodixon

“Targeting, acquiring and retaining “right” customers is the core of many successful service firms”.

Loyalty in business context used to describe a customer’s willingness to continue patronizing a firm over a long term, preferably on an exclusive basis, and recommending the firm’s products to friends and associates.

Four Stages of Brand Loyalty in a Consumer

• Cognitive loyalty – perception from brand attribute information that one brand is preferable to its alternatives

• Affective loyalty – developing a liking for the brand based on cumulatively satisfying usage occasions

• Conative loyalty – commitment to rebuying the same brand

• Action loyalty – exhibiting consistent repurchase behavior

What Makes Loyal Customers More Profitable?

• Tend to spend more as relationship develops– customer’s demand may grow– may consolidate purchases to one supplier

• Cost less to serve– less need for information and assistance– make fewer mistakes

• Recommend new customers to firm (act as unpaid sales people)

• Trust leads to willingness to pay regular prices vs. shopping for discounts

Analyzing Why Customers Are More Profitable over Time (Fig. 12.2)

1 2 3 4 5 6 7

Year

Profit from pricepremium

Profit from references

Profit from reducedop. costsProfit from increased

usageBase Profit

Source: Reichheld and Sasser

According to Philip Kotler, there are 4 patterns of Loyalty:

1.Hard-core Loyals: Who buys the brand all the time.

2.Split Loyals: Who are loyal to two or three brands

3.Shifting Loyals: Who move from one brand to another.

4.Switchers: Who have no loyalty to any brand.

Customer-Firm Relationship

• Database Marketing: Involves the use of technology by delivering differentiated service levels to consumers and subsequently tracking the relationship.

• Interaction Marketing: Usually in B2B context where people and the social process also add mutually beneficial value.

• Network Marketing: Common in B2B context where companies commit resources to develop positions in a network of relationships with the stakeholders and relevant agencies.

Today’s marketers seek to develop long-term relationships with customers. Relationship marketing includes:

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 8

Types of Relationships with Customers

Type of Relationship--Firm and Customer

Nature of Service Delivery

“Membership” No formal relationship

Continuous Cable TV Radio station Insurance Police College enrollment Lighthouse

Discrete transactions Subscriber phone Pay phone Theater subscription Movie theater Warranty repair Public transport

The Wheel of Loyalty

1. Build aFoundationfor Loyalty

2. Create LoyaltyBonds

3. Reduce Churn Drivers

CustomerLoyalty

Be selective in acquisition

Conduct churn diagnostic Segment the market

Use effective tiering of service.

Deliver quality service.

Deepen the relationship

Give loyalty rewards

Build higher level bonds

Implement complaint handling & service recovery

Address key churn drivers

Increase switching costs

Enabled through: Frontline staff Account

managers Membership

programs CRM Systems


Identifying and Selecting Target Segments

User characteristics demographics psychographics geographic location benefits sought

User behavior when, where, how services used quantity/value of purchases frequency of use profitability of relationship sensitivity to marketing variables


The Customer Pyramid (Fig. 12.5)

Lead

Iron

Gold

Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-of-mouth?

Which segment costs us in time, effort and money, yet does not provide the return we want? Which segment is difficult to do business with?

Platinum

Good Relationship Customers

Poor Relationship Customers

Searching for Value—Not Just Volume • Focus on number of customers served as well as value of each customer – Heavy users who buy more frequently and in larger

volumes are more profitable than occasional users – Avoid targeting customers who buy based on lowest

price• Firms that are highly focused and selective in their

acquisition of customers grow faster• “Right customers” are not always high spenders

– Can come from a large group of people that no other supplier is serving well

• Different segments offer different value


The Customer Satisfaction-Loyalty Relationship (Fig. 12.6)

0

20

40

60

80

100

1 2 3 4 5

Loya

lty (R

eten

tion)

Verydissatisfied Dissatisfied

Neithersatisfied

nor dissatisfiedSatisfied

VerySatisfied

Satisfaction

Near Apostle

Zone of Defection

Zone of Indifference

Zone of Affection

Terrorist

Apostle

Loyalty Bonds with Customers

Excellent Service and Value

1. Financial Bond

2. Social Bond

3. Customization Bond4. S

truc

tura

l Bon

d

Volume &

Fre

quenc

y

Stable Pricing

Bundling & Cross SellingContinuous

RelationshipsPersonal

Relationships Social Bonds

Among

customers

Inte

grat

ed

Info

rmat

ion

Syst

ems

Join

tIn

vest

men

ts

Shared process

es and

equipments

Anticipation/Innovation

Mass customization

Customer Intimacy

Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 -

Strategies for Developing Loyalty Bonds with Customers (1)

Deepening the relationshipBundling/Cross-selling services makes switching a major effort that customer is unwilling to go through unless extremely dissatisfied with service providerCustomers benefit from buying all their various services from the same provider

One-stop-shopping, potentially higher service levels, higher service tiers etc


Strategies for Developing Loyalty Bonds with Customers (2)Reward Based Bonds can be financial or non-financial

bonds or a combination of both.

Financial bondsDiscounts on purchases, loyalty program rewards (e.g. frequent flier miles), 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.


Strategies for Developing Loyalty Bonds with Customers (3)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 BondsCustomized service for loyal customersCustomers may find it hard to adjust to another

service provider who cannot customize service


Strategies for Developing Loyalty Bonds with Customers Structural BondsMostly seen in B2B settingsAlign customers way of doing things with supplier’s own processesCan be seen in B2C environment too

-Airlines - SMS check-in, SMS email alerts for flight arrival and departure times

Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier

Strategies for reducing Customer Defections:

Analyze Defections and monitor Declining accounts.

Address key churn drivers.

Implement effective complaint handling and service recovery procedures.

Increase switching costs


Drivers of Service Switching (Fig. 12.9)

Service Switching

Service Encounter Failures• Uncaring• Impolite• Unresponsive• Unknowledgeable

Response to Service Failure• Negative Response• No Response• Reluctant Response

Pricing• High Price• Price Increases• Unfair Pricing• Deceptive Pricing

Inconvenience• Location/Hours• Wait for Appointment• Wait for Service

Competition• Found Better Service

Ethical Problems• Cheat• Hard Sell

Involuntary Switching• Customer Moved• Provider Closed

Value Proposition

Others

Service Failure / Recovery

Core Service Failure• Service Mistakes• Billing Errors• Service Catastrophe

• Unsafe• Conflict of

Interest


Customer Relationship Management (CRM)

Customer relationship management (CRM) is a whole process by which relations with customers are built and maintained.

An integrated CRM system includes

Strategy development processValue creation processMultichannel integration processPerformance assessment process