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MBM 4th Semester

Service Marketing, MKT 541

Unit-5: Managing Relationship and Building Loyalty

Understanding Customer Firm Relationship

 Customer relationship marketing (CRM) is a technique based on client relationships and
customer loyalty. Using customer data and feedback, companies utilizing this marketing
strategy develop long-term relationships with customers and develop laser-focused brand
awareness. Customer relationship marketing varies greatly from the traditional transactional
marketing approach that focuses on increasing individual sale numbers.
 Companies that prioritize customer relationships, on the other hand, strive to create strong
customer connections, which may be emotional, to their brand to promote customer loyalty
and increase customer lifetime value. They benefit from word-of-mouth promotion and
develop brand ambassadors.

The term relationship marketing has been widely used, but until recently it was only Loosely
defined. In fact, four distinct types of marketing: transactional marketing and three categories of
what they call relational marketing: database marketing, interactive Marketing, and network
marketing.

Transactional Marketing: A transaction is an event during which an exchange of value takes place
between two parties. One transaction or even a series of transactions don’t necessarily constitute a
relationship, which requires mutual recognition and knowledge between the parties. When each
transaction between a customer and a supplier is essentially discrete and anonymous, with no long-
term record kept of a customer’s purchasing history, and little or no mutual recognition between the
customer and employees, then no meaningful marketing relationship can be said to exist. This is true
for many services, ranging from passenger transport to food service or visits to a movie theater, in
which each purchase and use is a separate event.

Database Marketing: In database marketing the focus is still on the market transaction, but now it
includes information exchange. Marketers rely on information technology, usually in the form of a
database, to form a relationship with targeted customers and retain their patronage over time.
However, the nature of these relationships is often not a close one, with communication being driven
and managed by the seller. Technology is used to
(1) Identify and build a database of current and potential customers,
(2) Deliver differentiated messages based on consumers’ characteristics and preferences, and
(3) Track each relationship to monitor the cost of acquiring the consumer and the lifetime value of
the resulting purchases.
Although technology can be used to personalize the relationship, relations remain somewhat distant.
Utility services such as electricity, gas, and cable TV are good examples.

Interaction Marketing: A closer relationship often exists in situations where there is face-to-face
interaction between customers and representatives of the supplier (or “ear-to-ear” interaction by
phone). Although the service itself remains important, value is added by people and social processes.
Interactions may include negotiations and sharing of insights in both directions. This type of
relationship exists in many local service markets, ranging from community banks to dentistry, in
which buyer and seller know and trust each other. Both the firm and the customer are prepared to
invest resources to develop a mutually beneficial relationship. This investment may include time
spent sharing and recording information. As service companies grow larger and make increasing use
of technologies such as interactive web sites and self-service technology, maintaining meaningful
relationships with customers becomes a significant marketing challenge. Firms with large customer
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bases find it increasingly difficult to build and maintain meaningful relationships through call
centers, web sites and other mass delivery channels.

Network Marketing: We often say that someone is a “good networker” because he or she is able to
put individuals in touch with others who have a mutual interest. The four types of marketing
described above are not necessarily mutually exclusive. A firm may have transactions with some
customers who have neither the desire nor the need to make future purchases, while working hard to
move others up the loyalty ladder.

Marketing based on relationships, networks, and interaction, recognizing that marketing is embedded
in the total management of the networks of the selling organization, the market, and society. It is
directed to long-term, win–win relationships with individual customers, and value is jointly created
between the parties involved. Ideally, we would like to create ongoing relationships with our
customers. This is easier when customers receive service on a continuing basis. However, even
where the transactions are themselves discrete, there may still be an opportunity to create an ongoing
relationship.

A membership relationship is a formalized relationship between the firm and an identifiable

customer, which may offer special benefits to both parties. Services involving discrete transactions
can be transformed into membership relationships either by selling the service in bulk (for instance, a
theater series subscription or a commuter ticket on public transport) or by offering extra benefits to
customers who choose to register with the firm (loyalty programs for hotels, airlines, and car rental
firms fall into this category). The advantage to the service organization of having membership
relationships is that it knows who its current customers are and, usually, what use they make of the
services offered. This can be valuable information for segmentation purposes if good records are
kept and the data are readily accessible for analysis. Knowing the identities and addresses of current
customers enables the organization to make effective use of direct mail (including e-mail), telephone
selling, and personal sales calls—all highly targeted methods of marketing communication. In turn,
members can be given access to special numbers or even designated account managers to facilitate
their communications with the firm.

Customer Satisfaction and Service Quality Are Prerequisites for Loyalty

The foundation for true loyalty lies in customer satisfaction, for which service quality is a key input.
Highly satisfied or even delighted customers are more likely to become loyal apostles of a
firm, consolidate their buying with one suppler, and spread positive word of mouth. Dissatisfaction,
in contrast, drives customers away and is a key factor in switching behavior

Customer satisfaction levels:

When it comes to customer satisfaction, there are five levels of measurement: 
 Not satisfied: The customer felt their needs were not met.
 Slightly satisfied: The customer felt that some needs were met but most were not.
 Satisfied: The customer got what they expected.
 Very satisfied: The customer got what they expected plus some pleasant surprises.
 Extremely satisfied: All expectations were completely exceeded for the customer. 

The Wheel of Loyalty

Building customer loyalty is difficult. Just try and think of all the service firms you yourself are loyal
to. Most people cannot think of more than perhaps a handful of firms they truly like (i.e., give a high
share of heart) and to whom they are committed to going back (i.e., give a high share-of-wallet). This
shows that although firms put enormous amounts of money and effort into loyalty initiatives, they
often are not successful in building true customer loyalty.
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First, the firm needs a solid foundation for creating customer loyalty, which includes having the right
portfolio of customer segments, attracting the right customers, tiering the service, and delivering high
levels of satisfaction.

Second, to truly build loyalty, a firm needs to develop close bonds with its customers, which either
deepen the relationship through cross-selling and bundling, or add value to the customer through
loyalty rewards and higher-level bonds.

 Third, the firm needs to identify and eliminate factors that result in “churn”—the loss of existing
customers and the need to replace them with new ones.

1) Build a foundation for loyalty

- segment market
- target and acquire customers
- manage customer base (service tiering)
- provide quality service

2) Create Loyalty Bonds

- reward bonds (financial - discounts, cash-back; non-financial - priority, higher baggage claim;
intangible- tiered loyalty)
- social bonds (personal relationship between customer & provider)
- customized bonds ("personalization")
- structural bonds (B2B, hard to change if there's a set process)

3) Reduce Churn Drivers

- churn diagnostics (analyze data, exit surveys, alert systems)
- delivery quality
- minimize inconvenience and non-monetary costs
- fair and transparent pricing
- effective complaint handling service and recovery procedure
- increase switching costs

           
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Techniques for Creating Loyalty Bond

1. Build strong brand: You need to start with a strong brand identity that your customers can
identify with. Your brand must not only communicate a message, but also inform, motivate
and deliver as promised. The better your brand is at keeping its promises, the better your
brand is at being trusted.
2. Learning relationships: Organizations that implement learning relationships are better able
to understand and anticipate a customer’s unique needs. Learning organizations understand
that great customer experiences start with listening to the customer to learn instead of talking
to the customer to sell. Customers in a learning relationship experience a heightened sense of
vendor awareness and are more likely to be loyal because their vendor understands their
needs.
3. Use technology: To connect in positive and collaborative ways. Customer connections that
engender loyalty deliver a seamless experience across channels and touch points while
demonstrating integrity and interest.
4. Ensure and empower: Ensure high quality customer interactions that demonstrate a caring
attitude by empowering your employees to resolve problems. You can’t build loyalty if you
don’t truly care about your customers.
5. Provide great service: Almost every customer has a service support need at some point. Use
support incidents as an opportunity to solidify relationships. Providing excellent service and
quick resolution can build customer trust.
6. One view of the company: Despite the desires of corporate managers, the customer
ultimately controls the relationship. If the customer is in control, don’t they need a 360
degree view of the company? Great customer experiences start when you make it easy for the
customer to do business with you.
7. Layers: Customers have layers, and relationship layers are built on trust and dialog over
time. Customer loyalty requires the care and commitment to take the time, invest the money,
and have the patience to grow the relationship.
8. Dynamic real-time processes: Building relationships takes time; however, instant
gratification has been a feature of our everyday lives for a long time. Give your customers
their rewards now, and keep your promises on time.
Service Recovery
Concept of Service Recovery

Service recovery is a company's resolution of a problem from a dissatisfied customer, converting

them into a loyal customer.  It is the action a service provider takes in response to service failure. By
including also customer satisfaction into the definition, service recovery is a thought-out, planned,
process of returning aggrieved/dissatisfied customers to a state of satisfaction with a
company/service.  Service recovery differs from complaint management in its focus on service
failures and the company's immediate reaction to it. Complaint management is based on customer
complaints, which, in turn, may be triggered by service failures. However, since most dissatisfied
customers are reluctant to complain, service recovery attempts to solve problems at the service
encounter before customers complain or before they leave the service encounter dissatisfied. Both
complaint management and service recovery are considered as customer retention strategies.

Service recovery refers to the ‘actions taken by an organization in response to a service failure’.
Failures occur for all kinds of reasons — the service may be unavailable when promised, it may be
delivered late or too slowly, the outcome may be incorrect or poorly executed, or employees may be
rude or uncaring. All of these types of failures bring about negative feelings and responses from
customers.
The goal of service recovery is to identify customers with issues and then to address those issues to
the customers’ satisfaction to promote customer retention. However, service recovery doesn’t just
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happen. It is a systematic business process that must be designed properly and implemented in an
organization. Perhaps more importantly, the organizational culture must be supportive of idea that
customers are important and their voice has value.

Importance of Service Recovery

Importance of Service Recovery Service recovery has great importance for over 25 years within
service marketing. The cost of gaining a new customer is usually five times costly than retaining
existing customers, to avoid this cost of acquisition, managers are increasingly concerned with
minimising customer defections. Following are some points which show how service failure and
subsequent recovery affects customer’s loyalty towards business:
1) Service failure negatively affects customer’s loyalty intentions.
2) Recovery of service failure has a positive effect on loyalty intentions.
3) Customer satisfaction with the recovery has positive effect on loyalty intentions.
4) Immediate service recovery influence customers further purchase relations with the business.
5) Outstanding recovery results help in customer retention.

Principles of Effective Service Recovery

Micah Solomon, a seasoned customer service professional, advises keeping a few service recovery
principles in mind — they will help you cultivate the right thought process for the moment of truth:

1. Do not make excuses: Most customers do understand that a few things will go wrong every now
and then. What they don’t understand, accept or find interesting are excuses. For example, they
do not want to know if the problem originated from another department. They do not want to
know of the internal disputes that caused a problem. The moment you shy away from taking
responsibility, they are going to lose it. With Hiver’s Shared Inbox, your support team will never
have to make excuses again. Task delegation in seconds, seamless team communication,
and much more.

2. Do not panic: No matter how bad the situation looks, remind yourself that the customer looks up
to you to get their problem solved. You have to work with the customer and a little composure
will go a long way in re-establishing their trust in you during the service recovery process.

3. Do not dismiss them: Do not be surprised if a customer makes a request that sounds extreme or
absurd. You have to be mentally prepared not to dismiss it immediately. If you are in no position
to give them what they want, get them to settle for something almost like it. Show them that you
went an extra mile for them.

4. Don’t stop at being fair: You can be fair to a customer only if nothing has gone wrong. When
you’re dealing with a disgruntled customer, you will have to delight them as well. Do not stop at
making up for what they have lost. Go a step ahead and create a memory for them. Always
remember that the service breakdown was caused by you and you should be glad to have the
opportunity to correct it. Many customers would rather abandon you in the face of failure.

5. Remember you aren’t doing them a favour: You’re not doing anything special for the
customer. You’re just ensuring things are the way they should’ve been in the first place. Because
you wasted their time, you have to do a little extra for them in order to make up for it. Work with
them to determine what is that extra they need, but do tell them you are ready to go an extra mile.

6. Always remind yourself of the lifetime value of the customer: You will have to learn to think
beyond the present transaction. A happy customer is much more than the revenue you earn from
them. They can become a vocal supporter of your product. They can influence their own
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networks to try it. It’s a well-known fact that word-of-mouth is probably the most effective
marketing tool for your brand.
Remember, retaining a customer for over a decade can help you build a small fortune for your
company. With the right mindset, you’ll be able to empathize with customers and be ready to build a
solid foundation for service recovery.

Customer Service Feedback

What is customer service feedback?

Customer feedback is the information, insights, issues, and input shared by community about their
experiences with company or services. This feedback guides improvements of the customer
experience and can empower positive change in any business — even (and especially) when it’s
negative.
Customer feedback is information provided by clients about whether they are satisfied or dissatisfied
with a service and about general experience they had with a company. Their opinion is a resource for
improving customer experience and adjusting company's actions to their needs. This information can
be collected with different kinds of surveys (prompted feedback), but organization can also find
opinions and reviews customers post online (unprompted feedback) and collect them using Internet
monitoring tools. Both sources are important to get a full picture of how customers perceive service
brand.
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Why is customer feedback important?

Customer feedback is important because it serves as a guiding resource for the growth of company.
Don’t you want to know what you’re getting right — and wrong — as a business in the eyes of your
customers?
Within the good and the bad, you can find gems that make it easier to adjust and adapt the customer
experience over time. In short, feedback is the way to keep your community at the heart of everything
you do.
1) Customer feedback helps improve services
2) Customer feedback helps to measure customer satisfaction
3) Collecting customer feedback shows the value their opinions
4) Customer feedback helps to create the best customer experience
5) Customer feedback helps to improve customer retention
6) Customer feedback is a reliable source for information to other consumers
7) Customer feedback gives the data that helps taking business decisions

The 7 most effective customer feedback methods

1) Customer feedback surveys
2) Email and customer contact forms
3) Usability tests
4) Exploratory customer interviews
5) Social media
6) On-site activity (via analytics)
7) Instant feedback from website

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