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MBA 9061
Services Marketing
Managing Relationship And Building
Loyalty, Complaint Handling And Service
Recovery Strategies...
MBA 906
Managing Relationships
and Building Loyalty
MBA 906
Four Stages of Brand Loyalty in a
Consumer
Cognitive
loyalty
• perception
from brand
attribute
information
that on...
MBA 906
Why Is Customer Loyalty Important to A Firm’s
Profitability?
• Customers become more profitable the longer they re...
MBA 906
Assessing the Value of a Loyal
Customer
Wrong Assumption: Loyal
customers are always more
profitable than those ma...
MBA 906
Why are Customers Loyal?
• Customers stay loyal when we create value
for them
• Value can be created for customers...
MBA 906
Value Can Be Created For
Customers Through
Confidence Benefit
Confidence in correct
performance
Ability to trust t...
MBA 906
Why Loyalty???-Bucket with Holes
Increased
purchase
by some
customers
New customers
Lost Customers
Decreased purch...
MBA 906
A Loyal Customer Pyramid
• Relationship of partner
• Actively recommends you
• Supports you passively
• Repeat bus...
MBA 906
Loyalty Wheel
MBA 906
BUILDING A FOUNDATION FOR
LOYALTY
MBA 906
Targeting the Right Customers and Searching
for Value, Not Volume
• Target the right customer and match them to
wh...
MBA 906
• Focus on number of customers served as well as
value of each customer
– Heavy users who buy more frequently and ...
MBA 906
Targeting the Right Customers and
Searching for Value, Not Volume
• Firms that are highly focused and selective in...
MBA 906
Effective Tiering of Service The
Customer Pyramid
MBA 906
The Customer Satisfaction
Loyalty Relationship
MBA 906
STRATEGIES FOR DEVELOPING
LOYALTY BONDS WITH CUSTOMERS
MBA 906
Deepening The Relationship
Bundling/Cross-selling
services
• Makes switching a major effort
that customer is unwil...
MBA 906
Loyalty Bonds with Customers
Excellent
Service andValue
1. Financial Bond
2.SocialBond
3. Customization Bond
4.Str...
MBA 906
Reward Based Bonds
Financial bonds
• Discounts on
purchases,
loyalty program
rewards (e.g.
frequent flier
miles), ...
MBA 906
STRATEGIES FOR REDUCING
CUSTOMER DEFECTIONS
Understand reasons for customer switching
MBA 906
What Drives Customers to Switch?
MBA 906
Address Key Issues
• Deliver quality service
• Reduce inconvenience and non-monetary costs
• Have fair and transpa...
MBA 906
Customer Response Categories to
Service Failures
MBA 906
Understanding Customer Responses to
Service Failure
Why do customers complain?
• Obtain compensation
• Release the...
MBA 906
3 Dimensions of Perceived Fairness in
Service Recovery Process
MBA 906
Dealing with Complaining Customers and
Recovering from Service Failure
Take complaints professionally and not pers...
MBA 906
Importance of Service Recovery
Plays a crucial role in achieving customer satisfaction
Tests a firm’s commitment t...
MBA 906
The Service Recovery Paradox
• Note: not all research supports this paradox
Customers who experience a
service fai...
MBA 906
Figure 10.1 (Source: Adapted from Schindlholzer, 2008)
Customerloyalty
Time
Customers who
experience service failu...
MBA 906
Principles of Effective Service
Recovery Systems
MBA 906
Strategies to Reduce Customer
Complaint Barriers
MBA 906
How to Enable Effective Service
Recovery
Be proactive
• On the spot, before customers complain
Plan recovery proce...
MBA 906
How Generous Should
Compensation Be?
What is
positioning of
our firm?
How severe
was the
service failure?
Who is t...
MBA 906
Service Recovery Process
Apology
Frames customer’s perceptions and paves
the way to recovery
Urgent
reinstatement
...
MBA 906
Effective Recovery Process Leads To
Impacts
customer
satisfaction
Impacts
perceptions of
quality
Impacts
bottom-li...
MBA 906
The Customer Complaint Iceberg
Figure 10.2 (Source: based on TARP, 1979)
MBA 906
Service Guarantees
MBA 906
The Power of Service Guarantees
Force firms to focus
on what customers
want
Set clear standards
Require systems to...
MBA 906
How to Design Service Guarantees
Unconditional
Easy to
understand and
communicate
Meaningful to
the customer
Easy ...
MBA 906
Reasons And Criteria For Service Guarantees
Table 10.1 (Source: based on Hart, 1990; Zeithaml et al, 2007)
Reasons...
MBA 906
Is it Always Suitable to Introduce a
Guarantee?
• It is not appropriate to introduce
guarantees when
Companies hav...
MBA 906
JAYCUSTOMERS
A customer who behaves in a thoughtless
or abusive fashion, causing problems for
the firm, its employ...
MBA 906
SEVEN TYPES OF JAYCUSTOMERS
44
MBA 906
Seven Types of Jaycustomers
• The Cheat: thinks of various way to cheat the firm
• The Thief: No intention of payi...
MBA 906
Seven Types of Jaycustomers
• The Rule breaker
– Many services need to establish rules to guide customers safely
t...
MBA 906
• The Belligerent
– Shouts loudly, maybe mouthing insults, threats and curses
– Service personnel are often abused...
MBA 906
Seven Types of Jaycustomers
• The Deadbeat
– Customers who fail to pay (as distinct from “thieves” who never
inten...
MBA 906
Dealing with Customer Fraud
• If in doubt, believe the customer
• Keep a database of how often customers invoke se...
MBA 906
Service Guarantee Impacts On Marketing And
Operations
Internal & external
marketing
Internal & external
operating ...
MBA 906
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Managing relationship and building loyalty

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Managing relationship and building loyalty, Complaint handling and Service recovery strategies

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Managing relationship and building loyalty

  1. 1. MBA 9061 Services Marketing Managing Relationship And Building Loyalty, Complaint Handling And Service Recovery Strategies Course Instructor: Sneha Sharma, PhD*, MBA, Dip T & D, UGC-NET JRF Qualified
  2. 2. MBA 906 Managing Relationships and Building Loyalty
  3. 3. MBA 906 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 re-buying the same brand Action loyalty • exhibiting consistent repurchase behavior
  4. 4. MBA 906 Why Is Customer Loyalty Important to A Firm’s Profitability? • Customers become more profitable the longer they remain with a firm: Increase purchases and/or account balances • Customers / families purchase in greater quantities as they grow Reduced operating costs • Fewer demands from suppliers and operating mistakes as customer becomes experienced Referrals to other customers • Positive word-of-mouth saves firm from investing money in sales and advertising Price premiums • Long-term customers willing to pay regular price • Willing to pay higher price during peak periods
  5. 5. MBA 906 Assessing the Value of a Loyal Customer Wrong Assumption: Loyal customers are always more profitable than those making one-time transactions • Large customers may expect price discounts in return for loyalty • Revenues don’t necessarily increase with time for all types of customers Tasks • Determine costs and revenues for customers from different market segments at different points in their customer lifecycles • Predict future profitability
  6. 6. MBA 906 Why are Customers Loyal? • Customers stay loyal when we create value for them • Value can be created for customers through – Confidence benefits – Social benefits • Mutual recognition and friendship between service provider and customer – Special treatment
  7. 7. MBA 906 Value Can Be Created For Customers Through Confidence Benefit Confidence in correct performance Ability to trust the provider Lower anxiety when purchasing Knowing what to expect and receive Special Treatment Better price Extra services Discounts not available to most customer Higher priority when there is a wait
  8. 8. MBA 906 Why Loyalty???-Bucket with Holes Increased purchase by some customers New customers Lost Customers Decreased purchase by some customers Lost Customers
  9. 9. MBA 906 A Loyal Customer Pyramid • Relationship of partner • Actively recommends you • Supports you passively • Repeat business, but passive or negative attitude • Carried out one transaction • Potential customer
  10. 10. MBA 906 Loyalty Wheel
  11. 11. MBA 906 BUILDING A FOUNDATION FOR LOYALTY
  12. 12. MBA 906 Targeting the Right Customers and Searching for Value, Not Volume • Target the right customer and match them to what firm can deliver – How do customer needs relate to company? – How well can service personnel meet expectations of different types of customers? – Can company match or exceed competing services that are directed at same types of customers?
  13. 13. MBA 906 • 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 Targeting the Right Customers and Searching for Value, Not Volume
  14. 14. MBA 906 Targeting the Right Customers and Searching for Value, Not Volume • 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
  15. 15. MBA 906 Effective Tiering of Service The Customer Pyramid
  16. 16. MBA 906 The Customer Satisfaction Loyalty Relationship
  17. 17. MBA 906 STRATEGIES FOR DEVELOPING LOYALTY BONDS WITH CUSTOMERS
  18. 18. MBA 906 Deepening The Relationship Bundling/Cross-selling services • Makes switching a major effort that customer is unwilling to go through unless extremely dissatisfied with service provider Customers benefit from buying all their various services from the same provider • One-stop-shopping, potentially higher service levels, higher service tiers etc
  19. 19. MBA 906 Loyalty Bonds with Customers Excellent Service andValue 1. Financial Bond 2.SocialBond 3. Customization Bond 4.StructuralBond Stable Pricing Personal Relationships Joint Investments Shared processes and equipments Anticipation/ Innovation Mass customization Customer Intimacy
  20. 20. MBA 906 Reward Based Bonds Financial bonds • Discounts 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 Intangible rewards • Special recognition and appreciation Reward-based loyalty programs • Relatively easy to copy and rarely provide a sustained competitive advantage
  21. 21. MBA 906 STRATEGIES FOR REDUCING CUSTOMER DEFECTIONS Understand reasons for customer switching
  22. 22. MBA 906 What Drives Customers to Switch?
  23. 23. MBA 906 Address Key Issues • Deliver quality service • Reduce inconvenience and non-monetary costs • Have fair and transparent pricing • Industry specific drivers – Cellular phone industry: handset replacement a common reason for subscribers discontinuing services – offer handset replacement programs • Take active steps to retain customers – Save teams: specially trained call center staff to deal with customers who want to cancel their accounts – Be careful about how save teams are rewarded
  24. 24. MBA 906 Customer Response Categories to Service Failures
  25. 25. MBA 906 Understanding Customer Responses to Service Failure Why do customers complain? • Obtain compensation • Release their anger • Help to improve the service • Because of concern for others What proportion of unhappy customers complain? Why don’t unhappy customers complain? Who is most likely to complain? Where do customers complain? What do customers expect once they have made a complaint? • Procedural, interactional and outcome justice
  26. 26. MBA 906 3 Dimensions of Perceived Fairness in Service Recovery Process
  27. 27. MBA 906 Dealing with Complaining Customers and Recovering from Service Failure Take complaints professionally and not personally Be prepared to deal with angry customer who may behave in an insulting way to service personnel who may not be at fault Take the perspective that customer complaints allow firm a chance to • Correct problems, • Restore relationships • Improve future satisfaction for all Develop effective service recovery procedures
  28. 28. MBA 906 Importance of Service Recovery Plays a crucial role in achieving customer satisfaction Tests a firm’s commitment to satisfaction and service quality • Employee training and motivation is highly important Impacts customer loyalty and future profitability • Complaint handling should be seen as a profit center, not a cost center
  29. 29. MBA 906 The Service Recovery Paradox • Note: not all research supports this paradox Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems • the paradox disappears—customers’ expectations have been raised and they become disillusioned If second service failure occurs, • (e.g., spoiled wedding photos) may limit firm’s ability to delight customer with recovery efforts Severity and “recoverability” of failure • Do it right the first timeBest strategy
  30. 30. MBA 906 Figure 10.1 (Source: Adapted from Schindlholzer, 2008) Customerloyalty Time Customers who experience service failure and successful recovery Customers who do not experience service failure Customer loyalty difference Service recovery Service failure The Service Recovery Paradox
  31. 31. MBA 906 Principles of Effective Service Recovery Systems
  32. 32. MBA 906 Strategies to Reduce Customer Complaint Barriers
  33. 33. MBA 906 How to Enable Effective Service Recovery Be proactive • On the spot, before customers complain Plan recovery procedures • Identify most common service problems and have prepared scripts to guide employees in service recovery Teach recovery skills to relevant personnel Empower personnel to use judgment and skills to develop recovery solutions
  34. 34. MBA 906 How Generous Should Compensation Be? What is positioning of our firm? How severe was the service failure? Who is the affected customer?
  35. 35. MBA 906 Service Recovery Process Apology Frames customer’s perceptions and paves the way to recovery Urgent reinstatement Quick action to correct or remove problem Empathy Employee understanding and responsiveness Symbolic atonement Tangible evidence of organization’s willingness to take responsibility Follow-up Evaluate recovery plan
  36. 36. MBA 906 Effective Recovery Process Leads To Impacts customer satisfaction Impacts perceptions of quality Impacts bottom-line performance Enhances customer loyalty Stimulates positive word of mouth
  37. 37. MBA 906 The Customer Complaint Iceberg Figure 10.2 (Source: based on TARP, 1979)
  38. 38. MBA 906 Service Guarantees
  39. 39. MBA 906 The Power of Service Guarantees Force firms to focus on what customers want Set clear standards Require systems to get & act on customer feedback Force organizations to understand why they fail and to overcome potential fail points Reduce risks of purchase and build loyalty
  40. 40. MBA 906 How to Design Service Guarantees Unconditional Easy to understand and communicate Meaningful to the customer Easy to invoke Easy to collect Credible
  41. 41. MBA 906 Reasons And Criteria For Service Guarantees Table 10.1 (Source: based on Hart, 1990; Zeithaml et al, 2007) Reasons for service guarantees Criteria for designing guarantees A good guarantee forces the company to focus on its customers The guarantee should be totally unconditional An effective guarantee sets clear standards for the organization It must be easy to understand and communicate to the customer A good guarantee generates immediate and relevant feedback from customers It must be meaningful to the customer and compensation more than adequate Information generated from the guarantee program can be used for continuous improvement The guarantee must be easy to invoke When the guarantee is invoked there is an immediate opportunity to recover It should be easy to collect Guarantees build ‘marketing muscle’ by reducing the risk of purchase decision The guarantee should be credible Employee morale and loyalty can be enhanced as a result of a good guarantee program
  42. 42. MBA 906 Is it Always Suitable to Introduce a Guarantee? • It is not appropriate to introduce guarantees when Companies have a strong reputation for service excellence Company does not have good quality level Quality cannot be controlled because of external forces Consumers see little financial, personal or physiological risk associated with the purchase
  43. 43. MBA 906 JAYCUSTOMERS A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm, its employees, and other customers
  44. 44. MBA 906 SEVEN TYPES OF JAYCUSTOMERS 44
  45. 45. MBA 906 Seven Types of Jaycustomers • The Cheat: thinks of various way to cheat the firm • The Thief: No intention of paying--sets out to steal or pay less – Services lend themselves to clever schemes to avoid payment • e.g., bypassing electricity meters, circumventing TV cables, riding free on public transportation – Firms must take preventive actions against thieves, but make allowances for honest but absent-minded customers 45
  46. 46. MBA 906 Seven Types of Jaycustomers • The Rule breaker – Many services need to establish rules to guide customers safely through the service encounter – Government agencies may impose rules for health and safety reasons – Some rules protect other customers from dangerous behavior • e.g. ski patrollers issue warnings to reckless skiers by attaching orange stickers on their lift tickets – Ensure company rules are necessary, not should not be too much or inflexible • Family Feuders – People who get into arguments with other customers – often members of their own family
  47. 47. MBA 906 • The Belligerent – Shouts loudly, maybe mouthing insults, threats and curses – Service personnel are often abused even when they are not to be blamed – Confrontations between customers and service employees can easily escalate – Firms should ensure employees have skills to deal with difficult situations • The Vandal: – Service vandalism includes pouring soft drinks into bank cash machines; slashing bus seats, breaking hotel furniture – Bored and drunk young people are a common source of vandalism – Unhappy customers who feel mistreated by service providers take revenge – Prevention is the best cure Seven Types of Jaycustomers  In a public environment, priority is to remove person from other customers  May be better to support employee’s actions and get security or the police if necessary if an employee has been physically attacked
  48. 48. MBA 906 Seven Types of Jaycustomers • The Deadbeat – Customers who fail to pay (as distinct from “thieves” who never intended to pay in the first place) – Preventive action is better than cure--e.g., insisting on prepayment; asking for credit card number when order is taken – Customers may have good reasons for not paying - If the client's problems are only temporary ones, consider long- term value of maintaining the relationship
  49. 49. MBA 906 Dealing with Customer Fraud • If in doubt, believe the customer • Keep a database of how often customers invoke service guarantees or of payments made for service failure • Insights from research on guarantee cheating: – Amount of a guarantee payout had no effect on customer cheating – Repeat-purchase intention reduced cheating intent – Customers are reluctant to cheat if service quality is high (rather than just satisfactory) • Managerial implications: – Firms can benefit from offering 100 percent money-back guarantees – Guarantees should be offered to regular customers as part of membership program since regular customers are unlikely to cheat – Excellent service firms have less to worry about than average providers
  50. 50. MBA 906 Service Guarantee Impacts On Marketing And Operations Internal & external marketing Internal & external operating standards Enhance operational competency Enhance market awareness Experience Quality Service Guarantee Expected Quality
  51. 51. MBA 906

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