The document discusses managing relationships and building loyalty in service firms. It defines loyalty as a customer's willingness to continue patronizing a firm over the long term and recommend the firm to others. The document outlines four stages of brand loyalty and discusses what makes loyal customers more profitable through increased spending, lower costs to serve, and word-of-mouth referrals. It also discusses strategies for developing loyalty bonds with customers through deepening relationships, rewards programs, personal relationships, customization, and aligning customer processes with the firm.

1. “Managing Relationship and Building
Loyalty in Services”
Presented by
Jishnu & Rodixon

2. “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.

3. 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

4. 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

5. Analyzing Why Customers Are
More Profitable over Time (Fig. 12.2)
1 2 3 4 5 6 7
Year
Profit from price
premium
Profit from references
Profit from reduced
op. costs
Profit from increased
usage
Base Profit
Source: Reichheld and Sasser

6. 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.

7. 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:

8. 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

9. The Wheel of Loyalty
1. Build a
Foundation
for Loyalty
2. Create Loyalty
Bonds
3. Reduce
Churn Drivers
Customer
Loyalty
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

10. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 10
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

11. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 11
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

12. Searching forValue—Not JustVolume
• 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

13. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 13
The Customer Satisfaction-Loyalty Relationship
(Fig. 12.6)
0
20
40
60
80
100
1 2 3 4 5
Loyalty(Retention)
Very
dissatisfied Dissatisfied
Neither
satisfied
nor dissatisfied
Satisfied
Very
Satisfied
Satisfaction
Near Apostle
Zone of Defection
Zone of Indifference
Zone of Affection
Terrorist
Apostle

14. 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
equipment
s Anticipation/
Innovation
Mass
customization
Customer
Intimacy

15. Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 15
Strategies for Developing Loyalty Bonds
with Customers (1)
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

16. Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 16
Strategies for Developing Loyalty Bonds
with Customers (2)
Reward Based Bonds can be financial or non-financial
bonds or a combination of both.
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.

17. Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 17
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 Bonds
Customized service for loyal customers
Customers may find it hard to adjust to another
service provider who cannot customize service

18. Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 18
Strategies for Developing Loyalty Bonds
with Customers
Structural Bonds
Mostly seen in B2B settings
Align customers way of doing things with supplier’s own
processes
Can 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

19. 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

20. Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 12 - 20
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

21. Slide © by Lovelock, Wirtz and Chew 2009 Essentials of Services Marketing Chapter 1 - Page 21
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 process
Value creation process
Multichannel integration process
Performance assessment process