Chapter 7 Developing Customer Loyalty Chapter 7 Learning Objectives Understand the concept of relationship marketing. Recognize the distinction between satisfaction and loyalty. Describe the necessary components of a value added service delivery system. Appreciate the importance and role of a recovery system. 2 3 Learning Objective 1 Relationship marketing An organization’s attempt to develop a long-term, cost-effective link with a customer for the benefit of both the customer and the organization Shift from individual transactions to the establishment of longer term relationships Regular, ongoing contact with patients Learning Objective 1 Typology of customer groups Strangers Acquaintances Friends Partners TABLE 7-1 The Relationship Marketing Focus 5 Adapted from Payne, Relationship Marketing, 1995. 6 Learning Objective 1 Relationship marketing Focus on what the customer is buying, not what the organization is providing. Value Empowering employees to meet customer needs Quality focus—beyond the clinical side of service delivery Learning Objective 1 Creating customer bonds Four levels of bonds tie a customer to an organization. 1. Financial 2. Social 3. Customization 4. Structural CRM (customer relationship management)—characterized by user generated content 8 Learning Objective 2 Satisfaction or loyalty? Organizations benchmark, depending on their measurement programs. Must aim for more than satisfaction. Link to loyalty is strongest when satisfaction is high. 8 Open up the floor for discussion based on personal experiences. 9 Learning Objective 2 The customer loyalty pyramid Progression of customer psychological movement toward loyalty Awareness Interest Evaluation Trial Satisfaction Repeat purchase Loyalty 9 See Fig. 7-1, p. 199. 10 Learning Objective 2 The value of loyalty The loyal customer makes frequent and repeat purchases. Is immune from the pull of competition Reduction in acquisition costs 5:1 ratio Lifetime value of customer Referrals, word-of-mouth referral More tolerant if there is a problem 10 Discuss the 5:1 ratio. 11 Learning Objective 3 Creating customer value The customer defines the appropriate service quality and price level. Customer defines the price/value relationship of the service. This value is relative to competitive offerings. FIGURE 7-5 Customer Value Equation 13 Learning Objective 3 Creating customer value (cont.) Health care service value equation Value = Clinical quality provided + process quality –(Price + Service acquisition cost) Clinical quality provided: technology and expertise Process quality: the ease with which a customer can access the clinical quality 14 Learning Objective 3 Conducting a gap analysis Five possible gaps Between expectations of service quality and management perceptions of customer expectations Between management perceptions of customer expectations and service quality specifications Between service quality specifications and service delivery 14 F ...

1. Chapter 7
Developing Customer Loyalty
Chapter 7 Learning Objectives
Understand the concept of relationship marketing.
Recognize the distinction between satisfaction and loyalty.
Describe the necessary components of a value added service
delivery system.
Appreciate the importance and role of a recovery system.
2
3
Learning Objective 1
Relationship marketing
An organization’s attempt to develop a long-term, cost-effective
link with a customer for the benefit of both the customer and
the organization
Shift from individual transactions to the establishment of longer
term relationships
Regular, ongoing contact with patients
Learning Objective 1
Typology of customer groups
Strangers
Acquaintances
Friends
Partners

2. TABLE 7-1 The Relationship Marketing Focus
5
Adapted from Payne, Relationship Marketing, 1995.
6
Learning Objective 1
Relationship marketing
Focus on what the customer is buying, not what the organization
is providing.
Value
Empowering employees to meet customer needs
Quality focus—beyond the clinical side of service delivery
Learning Objective 1
Creating customer bonds
Four levels of bonds tie a customer to an organization.
1. Financial
2. Social
3. Customization
4. Structural
CRM (customer relationship management)—characterized by
user generated content
8
Learning Objective 2
Satisfaction or loyalty?
Organizations benchmark, depending on their measurement
programs.
Must aim for more than satisfaction.
Link to loyalty is strongest when satisfaction is high.

3. 8
Open up the floor for discussion based on personal experiences.
9
Learning Objective 2
The customer loyalty pyramid
Progression of customer psychological movement toward
loyalty
Awareness
Interest
Evaluation
Trial
Satisfaction
Repeat purchase
Loyalty
9
See Fig. 7-1, p. 199.
10
Learning Objective 2
The value of loyalty
The loyal customer makes frequent and repeat purchases.
Is immune from the pull of competition
Reduction in acquisition costs
5:1 ratio
Lifetime value of customer
Referrals, word-of-mouth referral
More tolerant if there is a problem
10
Discuss the 5:1 ratio.

4. 11
Learning Objective 3
Creating customer value
The customer defines the appropriate service quality and price
level.
Customer defines the price/value relationship of the service.
This value is relative to competitive offerings.
FIGURE 7-5 Customer Value Equation
13
Learning Objective 3
Creating customer value (cont.)
Health care service value equation
Value = Clinical quality provided + process quality –(Price +
Service acquisition cost)
Clinical quality provided: technology and expertise
Process quality: the ease with which a customer can access the
clinical quality
14
Learning Objective 3
Conducting a gap analysis
Five possible gaps
Between expectations of service quality and management
perceptions of customer expectations
Between management perceptions of customer expectations and
service quality specifications
Between service quality specifications and service delivery

5. 14
For these two slides on gap analysis, discuss in detail using
real-life experiences of the students (see pp. 203–205).
FIGURE 7-7 The Sources of Service Gaps
Adapted with the permission of The Free Press, a Division of
Simon & Schuster, Inc., from Delivering Quality Service:
Balancing Customer Perceptions and Expectations by Valerie A.
Zeithaml, A. Parasuraman, Leonard L. Berry. Copyright © 1990
by The Free Press. All rights reserved.
16
Learning Objective 3
Conducting a gap analysis
Five possible gaps (cont.)
Between service delivery and external communications to
customers
Promotional in nature
Between expected service and perceived service
Perception is reality to our customers!
Marketers set the expectations
16
For these two slides on gap analysis, discuss in detail using
real-life experiences of the students (see pp. 203–205).
17
Learning Objective 3
Measuring service performance
Must meet three criteria
Measurement tool must be managerially useful.
Tool must recognize the role of customer expectations.
Tool must direct action to the most relevant areas.

6. 18
Learning Objective 3
Measuring service performance (cont.)
Step 1 in developing a measurement tool is to conduct a service
blueprint
Use of flow charts to observe process and identify potential
difficulties
Medical service blueprints—mapping processes
Moments of truth—customer contact points
18
See Figures 7-3 and 7-4 on pp. 206–207.
19
Learning Objective 4
Developing a customer recovery system
An organized system that anticipates service delivery failures or
problems
Defined scripts for handling problems
Learning Objective 4
Developing a customer recovery system (cont.)
Critical components for implementation
Focused recovery training must be conducted with all
employees.
Recovery standards must exist.
The organization must be “easy to complain to.”
Frontline employees must see themselves as part of the system.
Employees need to believe they are a part of a quality-conscious
organization.
20

7. Learning Objective 4
Forms of justice
Outcome fairness
Procedural fairness
Interactional fairness
Customer recovery paradox: Overall level of loyalty of
recovered customers is greater than those who did not encounter
a service delivery problem.
22
Summary
Relationship marketing is a shift from a transactional
perspective to the development of longer term loyalty.
In a transactional focus, the perspective is more on what the
organization is selling; in a relationship marketing focus, it is
more on what the customer values.
Satisfaction is not a sufficient goal for customer behavior;
rather, the focus must be loyalty.
The customer loyalty pyramid has multiple stages: awareness,
interest, evaluation, trial, repeat, satisfaction, and ultimate
loyalty.
23
Summary (cont.)
The lower levels of the customer pyramid are referred to as the
promotional levels.
Loyal customers have multiple benefits in terms of reduced
acquisition costs, longer term per revenue growth, more
profitable to serve, able to refer others, and more willing to pay
a price premium.
Loyal patients have a broader zone of tolerance, or are more
willing to forgive an organization’s service lapses.

8. 24
Summary (cont.)
Customer value equation has four variables: clinical quality,
service process quality, less out-of-pocket cost, and less effort
expended.
Conducting a gap analysis can help identify the opportunities
for the delivery of customer value.
A service blueprint or medical service blueprint is a flowchart
of each step in service delivery.
25
Summary (cont.)
A service blueprint highlights opportunities for establishing a
differential advantage.
Measuring satisfaction is a function of expectations and the
importance of each point of contact.
A customer recovery system is defined script that anticipates
how to react when a problem arises in service delivery.
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