Using the organization for which you work, examine how your organization approaches the acquisition of customers and the maintenance of customers differently. Given the importance of customer lifetime value on long-term profitability, is your organization investing sufficiently in customer relationship management? Explain. The tactics associated with a customer relationship management (CRM) strategy vary from stage to stage in relationship development. Evaluate the extent to which your organization’s CRM tactics align with its CRM goals and each relationship stage. Propose modifications your organization should follow in its CRM efforts to improve its effectiveness in maintaining and improving customer relationships. Ultimately customers seek to optimize perceived value. There are several components of value that can be provided via the marketing mix elements. Propose specific product, price, distribution, and promotion strategies for your organization’s offer that could produce a higher perceived value (total value) for the target audience. Justify the value components you used to design a high-value overall strategy. Of the two types of customer expectations, performance expectations fluctuate the most. Describe situations that might cause expectations to increase, thereby narrowing the width of the zone of tolerance for your organization’s customers. What recommendations do you provide for the organization in these situations to better enable the organization to achieve its satisfaction targets? Organizations want customers to be satisfied. Imagine you’ve been asked to estimate the relative importance of the performance factors your organization’s customers evaluate and design a plan to increase satisfaction and decrease dissatisfaction based on your results. Present your findings and planDeveloping and
Maintaining Long-Term
Customer Relationships
To this point in the text, we have examined the processEof strategic planning from its
initial stages through the implementation of the marketing plan. At this point, howR to look at it holistically.
ever, we take the opportunity to step back from the process
Firms often lose sight of the big picture as they rush T
to complete product development and test marketing, or put the finishing touches on a media campaign. All of
the activities involved in developing and implementing the marketing program
have one key purpose: to develop and maintain long-term customer relationships.
However, as we have seen, implementing a marketing strategy that can effectively
satisfy customers’ needs and wants has proven difficult in today’s rapidly changing
Eresearch, strong competitive
business environment. The simple fact is that thorough
advantages, and a well-implemented marketing program
R are often not enough to
guarantee success.
R “right” marketing strategy
In times past, developing and implementing the
was all about creating a large number of transactions
E with customers in order
to maximize the firm’s market share. Companies paid scant attention to discovN customers’ problems. In
ering customers’ needs and finding better ways to solve
today’s economy, however, that emphasis has shifted
C to developing strategies
that attract and retain customers over the long term. As illustrated in Beyond
E through a comprehensive
the Pages 10.1, 1-800-Flowers does this effectively
understanding of its customers, including their expectations, motivations, and
behaviors. With this knowledge in hand, firms like 1-800-Flowers can then offer
the right marketing program to increase customer satisfaction
and retain customers over the long term.
In this chapter, we examine how the marketing program can be leveraged as
a whole to deliver quality, value, and satisfaction to customers. We begin by
reviewing the strategic issues associated with the customer
relationship management process. Developing long-term customer relationships is one of the best
ways to insulate the firm against competitive inroads and the rapid pace of enviS we address the critical
ronmental change and product commoditization. Next,
topics of quality and value as we concern ourselves with how the entire marketing program is tied to these issues. Finally, we explore key issues with respect to
customer satisfaction, including customer expectations and metrics for tracking
customer satisfaction over time.
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
1-800-Flowers Focuses on Customers1
Customer service. Trust. One-to-one customer
interactions. Customer loyalty. These are the
foundations of the steady growth of 1-800Flowers for over 35 years. Since the company
went online in 1992, CEO Jim McCann has
used a laser-like focus on customers to make
1-800-Flowers the number one floral retailer in
the world. In addition to flowers, the company
offers fruit baskets, popcorn, gourmet food products, and other gifts under brands such as
Harry & David, The Popcorn Factory, Fannie
May Berries, Fruit Bouquets, and Cheryl’s.
McCann’s company earns over $756 million
each year, is essentially debt free, and enjoys
almost $20 million in free cash flow each year.
1-800-Flowers uses the Internet to connect
to customers and puts a lot of effort into creating a 360-degree, holistic view of each one. The
company collects customer information at every
point where it contacts a customer—sales, loyalty programs, surveys, direct mail advertising,
sales promotions (contests and sweepstakes),
and affiliate programs (with florists, credit
card companies, and airlines)—and uses it to
create customized communications and product
offerings for the millions of customers in its
database. 1-800-Flowers uses a sophisticated
segmentation system that analyzes transactional
behaviors (recency, frequency, monetary) and
combines it with gift buying behaviors. This
information is then tied to each customer’s psychographic profile to create targeted messages
for each customer segment. The company then
uses a variety of different metrics—financial,
customer retention and acquisition, brand
awareness, purchase intentions, and customer
recommendations—to measure performance.
To increase customer loyalty, 1-800-Flowers
uses Celebrations Rewards, a free, point-based
loyalty program. Customers earn one point
for every dollar they spend, and then receive a
$20 savings pass via e-mail when they have
accumulated 200 points. For $29.99 per year,
customers can upgrade to the Celebrations Passport program that offers free shipping and no
minimum order size. In addition to increasing
customer loyalty, the Rewards and Passport
programs allow the company to collect more
in-depth information from customers. 1-800Flowers also offers a 100 percent Smile
Everyone at 1-800-FLOWERS.COM
is passionate about delivering
flowers and gifts that bring smiles.
And we mean everyone. Like the
president of 1-800-FLOWERS.COM,
our growers, our fantastic floral
designers, even me, the guy writing
the customer service section of this
website. So if you OR the person
who received your gift calls us with
any sort of issue, it’s a big deal to
us. All of us. And we’ll jump to make
it right—no matter what, no questions asked. We’re happy when you’re
T For 1-800-Flowers, the key to success has
been its ability to integrate and leverage the
E massive amount of data that it collects from its
R customers. However, CEO McCann also favors
the old-school approach to understanding custoR mers. McCann states that his training as a social
E worker helps him to understand the importance
solid relationships. True to his background,
N of
McCann regularly goes into the field to talk
C with customers. On key occasions such as
Mother’s Day and Valentine’s Day, McCann and
E other
executives answer the phones, deliver products, and work in the company’s retail stores.
1 McCann puts it this way: “Our competitors are
all about the sales, we’re about relationships.
8 We are helping our customers connect with the
5 important people in their lives through flowers
and gifts created and designed for specific rela9 tionships, occasions, and sentiments. That’s the
T difference.”
As we briefly mentioned in Chapter 1, creating and maintaining long-term customer
relationships requires that organizations see beyond the transactions that occur
today to look at the long-term potential of a customer. To do this, the organization
must strive to develop a relationship with each customer rather than generate a
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
large number of discrete transactions. Before a relationship can be mutually beneficial to both the firm and the customer, it must provide value to both parties. This is
one of the basic requirements of exchange noted in Chapter 1. Creating this value is
the goal of customer relationship management (CRM), which is defined as a business philosophy aimed at defining and increasing customer value in ways that motivate customers to remain loyal.2 In essence, CRM is about retaining the right customers. It is
important to note that CRM does not focus solely on end customers. Rather, CRM
involves a number of different groups:

Customers. The end users of a product, whether they be businesses or individual consumers.
Employees. Firms must manage relationships with their employees if they are
to have any hope of fully serving customers’ needs. This is especially true in service firms where employees are the service in the eyes of customers. Retaining
key employees is a vital part of CRM.
Supply Chain Partners. Virtually all firms buy and
A sell products upstream and/
or downstream in the supply chain. This involves the procurement of materials
L way, maintaining relationor the sale of finished products to other firms. Either
ships with key supply chain partners is critical to V
satisfying customers.
External Stakeholders. Relationships with key
E stakeholders must also be
managed effectively. These include investors, government agencies, the media,
nonprofit organizations, or facilitating firms that provide
goods or services that
help a firm achieve its goals.
Delivering good value to customers requires that, firms use CRM strategies to
effectively manage relationships with each of these groups. This effort includes finding ways to integrate all of these relationships toward the ultimate goal of customer
To fully appreciate the concepts behind customer relationship management, orgaE
nizations must develop a new perspective on the customer—one
that shifts the emphasis from “acquiring customers” to “maintaining clients”
in Exhibit 10.1.
Although this strategic shift has been underway for some time in business markets,
technological advancements allow CRM to be fully embraced in consumer markets as
well. Firms that are exceptionally good at developing customer
relationships are said to
possess “relationship capital”—a key asset that stems from the value generated by the
Strategic Shift from Acquiring Customers to Maintaining
Acquiring Customers
Customers are “customers”
Mass marketing
Acquire new customers
Discrete transactions
Increase market share
Differentiation based on groups
Segmentation based on homogeneous
Short-term strategic focus
Standardized products
Lowest-cost provider
One-way mass communication
Maintaining Clients
Customers are
1 “clients”
One-to-one marketing
Build relationships with current customers
Continuous transactions
9 of customer
Increase share
DifferentiationTbased on individual customers
Segmentation based on heterogeneous needs
Long-term strategic focus
Mass customization
Value-based pricing strategy
Two-way individualized communication
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
trust, commitment, cooperation, and interdependence among relationship partners.
With respect to competitive advantages, many see relationship capital as the most
important asset that an organization can possess, as it represents a powerful advantage
that can be leveraged to make the most of marketing opportunities.3
Developing Relationships in Consumer Markets
Developing long-term customer relationships can be an arduous process. Over the
life of the relationship, the firm’s goal is to move the customer through a progression
of stages, as shown in Exhibit 10.2. The objective of CRM is to move customers from
having a simple awareness of the firm and its product offering through levels of
increasing relationship intensity to the point where the customer becomes a true
advocate for the firm and/or its products. Note that true CRM attempts to go beyond
the creation of satisfied and loyal customers. Ultimately, the firm will possess the
C when its customers become true believers or
highest level of relationship capital
sponsors for the company andA
its products. For example, Harley-Davidson, which is
now over 100 years old, is a great example of a firm that enjoys the highest levels of
L exhibit a cult-like love for the brand that most
customer advocacy. Harley owners
other companies do not possess.
V Other firms such as Starbucks, Apple, Coca-Cola,
and Nike also enjoy a high degree of customer advocacy.4
In consumer markets, one of the most viable strategies to build customer
relationships is to increase theRfirm’s share of customer rather than its market share.
Stages of Customer Relationship Development.
Relationship Stage
Initial purchase
Repeat customer
CRM Goals
Promote customer knowledge and T
education about the product or company.
Prospect for new customers.
Get product or company into customers’
evoked set of alternatives.
Stimulate interest in the product.
Stimulate product trial.
Fully satisfy customers’ needs and N
Completely meet or exceed customers’
expectations or product specifications.
Offer incentives to encourage repeatEpurchase.
Create financial bonds that limit the customer’s
ability to switch products or suppliers.
Acquire more of each individual customer’s
Personalize products to meet evolving
5 customer
needs and wants.
9 or
Create social bonds that prevent product
supplier switching.
Create opportunities for customers to interact
with each other in a sense of community.
Create customization or structural bonds that
encourage the highest degree of loyalty.
Become such a part of the customer’s life
that he or she is not willing to end the
Think of customers as partners.
Product advertising
Personal selling (cold calls)
Word of mouth
Product sampling
Personal selling
Good product quality and value-based
Good service before, during, and after the
Frequent reminders and incentives
Frequent customer cards
Frequent-flier programs
Broad product offering
Membership programs
Affinity programs
Ongoing personal communication
Customer events and reunions
Long-term contracts
Brand-related memorabilia
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Lucas Schifres/Getty Images
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Apple enjoys one of the highest levels of customer advocacy around
V the world.
This strategy involves abandoning the old notions of acquiring new customers and
increasing transactions to focus instead on more fullyRserving the needs of current
customers. Financial services are a great example ofTthis strategy in action. Most
consumers purchase financial services from different firms. They bank at one institution, purchase insurance from a different institution, ,and handle their investments
through another. To counter this fact of life, many companies now offer all of these
services under one roof. For example, Regions Financial Corporation offers retail
and commercial banking, trust, securities brokerage, T
mortgage, and insurance products to customers in a network of over 1,600 officesE
in 16 states across the South,
Midwest, and Texas.5 Rather than focus exclusively on the acquisition of new custoR
mers, Regions tries to more fully serve the financial needs of its current customers,
thereby acquiring a larger share of each customer’s financial
business. By creating
these types of relationships, customers have little incentive to seek out competitive
firms to fulfill their financial services needs. This relationship capital gives Regions
an important strategic asset that can be leveraged asNit competes with rival banks
and financial institutions, both locally and online.
Focusing on share of customer requires an understanding that all customers
E equal value to a firm. The
have different needs; therefore, not all customers have
most basic application of this idea is the 80/20 rule: 20 percent of customers provide
80 percent of business profits. Although this idea is not new, advances in technology
1 customers in real time. In
and data collection techniques now allow firms to profile
fact, the ability to track customers in detail can allow8the firm to increase sales and
loyalty among the bottom 80 percent of customers. The goal is to rank the profitabil5 (LTV) to the firm. Some
ity of individual customers to express their lifetime value
customers—those that require considerable handholding
9 or those that frequently
return products—are simply too expensive to keep given the low level of profits
they generate. These bottom-tier customers can be “fired” or required to pay very
high fees for additional service. Banks and brokerages,Sfor example, slap hefty maintenance fees on small accounts. This allows the firm to spend its resources to more
fully develop relationships with its profitable customers.
The firm’s top-tier customers (those that fall into the top 20 percent) are the
most obvious candidates for retention strategies. These customers are the most
loyal and the most profitable, so the firm should take the necessary steps to ensure
their continuing satisfaction. Customers that fall just outside of this tier, or secondtier customers, can be encouraged to be better customers or even loyal customers
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
with the right incentives. Exhibit 10.3 outlines strategies that can be used to enhance
and maintain customer relationships. The most basic of these strategies is based on
financial incentives that encourage increased sales and loyalty. However, financial
incentives are easily copied by competitors and are not typically good for retaining
customers in the long run. To achieve this ultimate goal, the firm must turn to strategies aimed at closely tying the customer to the firm. These structural connections are
the most resilient to competitive action and the most important for maintaining longterm customer relationships.
Developing Relationships in Business Markets
Relationship management in business markets is much like that in consumer
markets. The goal is to move business buyers through a sequence of stages, where
each stage represents an increasing level of relationship intensity. Although business
Cthe cult-like, emotional involvement found in some
relationships may not approach
Strategies for Enhancing and Maintaining Customer Relationships.
Increasing Relationship Intensity
R Enhanced
Social Bonding
T Customization
, Using intimate customer
Using financial
Using social and
incentives to increase
customer loyalty
psychological bonds to
maintain a clientele
• Volume discounts
• Coupons
• Frequent-customer
• Membership
• Customer-only
• Community
outreach programs
knowledge to provide oneto-one solutions or mass
Creating customized
product offerings that
create a unique delivery
system for each client
• Customer reminder
• Structured, lock-step
• Personal
• Personal shopping
Used by
• Airlines
• Grocery retailers
• Music clubs
• Health clubs
• Churches
• Credit cards
• Effective in the
• Difficult for
• Promotes strong loyalty
short term
• Easy to use
competitors to copy
• Reduces brand
and greatly reduces
brand switching
• Very difficult for
competitors to copy
customer knowledge
• Easily imitated
• Hard to end
incentives once
• Can promote
continual brand
• Social bonds take
time to develop
• Customer trust
is critical and
must be maintained
at all times
Structural Bonding

Auto service centers
Electronic retailers
Department stores
Professional services
• Can be quite expensive
to deliver
• Takes time to develop
• Automated electronic
• Contractual
• Colleges and universities
• Banks
• Bundled telecom services
• Ultimate reduction in
brand switching
• Products become
intertwined in customers’
• Customer resistance
• Time-consuming and
costly to develop
SOURCE: Based on Leonard L. Berry and A. Parasuraman. Marketing Services: Competing Through Quality (New York: The Free Press, 1991), pp. 136–148;
Valerie Zeithaml, Mary Jo Bitner, and Dwayne Gremler. Services Marketing: Integrating Customer Focus Across the Firm. (New York: McGraw-Hill/Irwin,
2013), pp. 160–166.
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
consumer markets, businesses could nonetheless become structurally bound to their
supply chain partners. These relationships can give both parties an advantage with
respect to relationship capital: One firm maintains a loyal and committed customer;
the other maintains a loyal and committed supplier. Both parties may also consider
each other to be strong partners or advocates within the entire supply chain.
Although our discussion certainly involves generalizations (e.g., some consumer
marketers are better at building relationships than many business marketers), relationship development in business markets can be more involving, more complex,
and much riskier than relationships in consumer markets. This occurs because business buyers typically have fewer options to choose from, and the financial risks are
typically higher. For example, Apple’s Mac line of laptops and desktops has used
Intel processors since 2006. However, in 2010 when Apple developed its first custom
chip, the A4, to power the iPad, many in the industry suggested that Apple would
eventually dump Intel in the Mac. Such a move would save Apple a lot of money.
However, as the world’s leader in chip technology, Intel offers many advantages
that Apple would have a hard time recreating (i.e., engineering
know-how, compatiA
bility with Windows). The relatively small number of players in this industry means
that firms like Apple and Intel are tightly integrated. This is also important due to the
presence of long-term contractual obligations and theV
sheer dollars involved. These
types of business relationships must be built on win–win
E strategies that focus on
cooperation and improving the value of the exchange for both parties, not on strict
R side loses.6
negotiation strategies where one side wins and the other
Business relationships have become increasingly complex,
as decisions must be
made with an eye toward the entire supply chain, not just the two parties involved. In
these cases, the relationships that are developed enhance
the ability of the entire
supply chain to better meet the needs of final customers. Over the past several
years, a number of changes have occurred in business relationships, including:

A Change in Buyers’ and Sellers’ Roles. ToEbuild stronger relationships,
buyers and sellers have shifted away from competitive negotiation (trying to
drive prices up or down) to focus on true collaboration. This represents a
major change for many companies.
An Increase in Sole Sourcing. Supplier firms will
E continue to sell directly to
large customers or move to selling through systems suppliers that put together
N a comprehensive solution.
a set of products from various suppliers to deliver
The continuing growth in online e-procurement C
systems is one result of this
An Increase in Global Sourcing. More than ever, buyers and sellers scan the
globe in search of suppliers or buyers that represent the best match with their
specific needs and requirements. The relationship1building process is so costly
and complex that only the best potential partners will be pursued.
An Increase in Team-Based Buying Decisions.8
Increasingly, teams from both
buying and supplying firms make purchase decisions.
5 These teams consist of
employees from different areas of expertise that are central to the success of
both firms. Increasingly, senior management of both firms will be represented
T play a major role in setting
on these teams as economic buyers, for both sides
goals and objectives.
An Increase in Productivity Through Better Integration. Firms that closely
align their buying and selling operations have the capacity to identify and
remove any inefficiency in the process. This increased productivity leads to a
reduction in both hard and soft costs, thereby enhancing the profitability of
both firms. This integration can be extended throughout the supply chain. In
the future, only the most efficient supply chains will survive, particularly as
more procurement moves into the electronic arena.
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
These fundamental changes in the structure of most business relationships will
lead to dramatic changes in the way that organizations work together. Only those
firms willing to make strategic, as opposed to cosmetic, changes in the way they
deal with their customers or suppliers are likely to prosper as we move forward in
this century.
To build relationship capital, a firm must be able to fulfill the needs of its customers
better than its competitors. It must also be able to fulfill those needs by offering highquality goods and services that are a good value relative to the sacrifices customers
must make to acquire them. When it comes to developing and maintaining customer
relationships, quality is a double-edged
sword. If the quality of a good or service is
poor, the organization obviously
chance of satisfying customers or maintainA
ing relationships with them. The adage of “trying something at least once” applies
here. A firm may be successful in generating first-time transactions with customers,
but poor quality guarantees that
V repeat purchases will not occur. On the other
hand, good quality is not an automatic guarantee of success. Think of it as a necessary
but insufficient condition of successful customer relationship management. It is at this
R to maintaining long-term customer relationships.
point where value becomes critical
Understanding the Role of, Quality
Quality is a relative term that refers to the degree of superiority of a firm’s goods or
services. We say that quality is relative because it can only be judged in comparison
to competing products, or when
Tcompared to an internal standard of excellence. The
concept of quality also applies to many different aspects of a firm’s product offering.
The total product offering of any firm consists of at least three interdependent comR 10.4: the core product, supplemental products, and
ponents, as illustrated in Exhibit
symbolic and experiential attributes.
The Core Product
The heart of the offering, the core
N product, is the firm’s raison d’etre, or justification
for existence. As shown in Exhibit 10.4, the core can be a tangible good—such as a
C service—such as the Verizon Wireless communiChevy Silverado—or an intangible
cation network. Virtually everyEelement of the marketing program has an effect on
the quality (or perceived quality) of the core product; however, the firm’s product
and branding strategies are of utmost importance. Since the core product is the part
of the offering that delivers the
1 key benefits desired by customers, the form utility
offered by the core product is vital to maintaining its quality. For example, the qual8
ity of an entrée in a restaurant depends on the form utility created through the com5 and expert preparation. In service offerings, the
bination of quality raw ingredients
core product is typically composed of three interrelated dimensions:7

People. The interaction among
T the customer, the firm’s employees, and other
customers present during service delivery.
Sflow of activities or steps in the service delivery proProcesses. The operational
cess. Processes can be done through technology or face-to-face interaction.
Physical Evidence. Any tangible evidence of the service including written materials, the service facility, people, or equipment. Includes the environment in
which the service is delivered.
As a whole, service firms struggle daily with maintaining the quality of their core
service offerings. Because services are so people-intensive, effective implementation
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Components of the Total Product Offering.
Silverado 1500
Core Product
Supplemental Products
GMAC financing
Replacement parts
Verizon Wireless
John Deere
Lawn Tractor
Lawn and garden
Michelin Tires
Waldorf Astoria
New York City
Phone options
Rate plan options
“The More Everything Plan”
Broad availability
on Park Avenue
Restaurants E
Room service R
Symbolic and Experiential Attributes
“The most dependable,
longest-lasting full-size
pickup on the road”
“Chevy Runs Deep”
“Like a Rock”
“The Nation’s largest and most reliable
“Rule the Air”
“It’s the Network”
John Deere “Green”
“Nothing Runs Like a Deere”
“A Better Way Forward”
“Because a lot is riding on your tires”
The Michelin Man
“Peerless service and indulgent
The first “Grand Hotel”
of the marketing strategy (through shared goals, employee
, motivation, and employee
skills) is a major factor that helps to ensure consistency and quality. The quality of
service also depends more on issues such as responsiveness to customer requests,
consistent and reliable service over time, and the friendliness
and helpfulness of the
firm’s employees. The quality of tangible goods depends
on issues such as
durability, style, ease of use, comfort, or suitability for a specific need.
R of success if its core prodWhether a good or a service, the firm has little chance
uct is of inferior quality. However, even providing a high-quality
core product is not
enough to ensure customer satisfaction and long-term customer relationships. This
occurs because customers expect the core product toEbe of high quality or at least
at a level necessary to meet their needs. When the core
N product meets this level of
expected quality, the customer begins to take it for granted. For example, customers
take their telephone service for granted because theyC
expect it to work every time.
They only take notice when clarity becomes an issue, E
or when the service is unavailable. The same thing can be said for a grocery retailer who consistently delivers highquality food and service. Over time, the core product no longer stands out at a level
that can maintain the customer relationship in the long1term. It is at this point where
supplemental products become critical.
Supplemental Products
Supplemental products are goods or services that add value
9 to the core product, thereby
differentiating the core product from competing product offerings. In most cases,
supplemental products are extra features or benefits that enhance the total product
experience; however, they are not necessary for the S
core product to function correctly. In many product categories, the true difference between competing products
or brands lies in the supplemental products provided by the firm. For example, every
hotel is capable of delivering the core product—a room with a bed in which to spend
the night. Although the quality of the core product varies among hotels, the important differences lie in the supplemental products. Upscale hotels such as Hyatt or Hilton offer many amenities—such as spas, restaurants, health clubs, valet parking, and
room service—that budget hotels like Motel 6 or Econolodge do not. Wireless phone
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
service is another example. All wireless firms can fulfill their customers’ communication needs; however, customers use supplemental products such as different phone
options, rate plans, and special packages that combine minutes, texting, and data to
differentiate one product offering from another. In business markets, supplemental
services are often the most important factor in developing long-term relationships.
Services such as financing, training, installation, and maintenance must be of top
quality to ensure that business customers will continue to maintain a relationship
with the supplier firm.
It is interesting to note that companies do not market many products with the
core product in mind. When was the last time an automaker touted a car or truck
on its ability to fulfill your transportation needs (i.e., getting you from Point A to
Point B)? Rather, they focus on supplemental product attributes such as special
financing, roadside assistance, and warranties. Supplemental products such as
these depend heavily on the product, pricing, and distribution elements of the marC
keting program. For example, in addition to selling a wide range of name brand products, Amazon also offers its own
A credit card and free shipping on many orders of
$35 or more, or free shipping with an Amazon Prime membership. These supplemenL
tal services, along with 24/7 access and competitive pricing, make Amazon a formidaV product categories.
ble competitor in many different
Symbolic and ExperientialRAttributes
Marketers also use symbolic and experiential differences—such as image, prestige, and
brand—to differentiate their products.
These features are created primarily through the
product and promotional elements
, of the marketing program. Without a doubt, the
most powerful symbolic and experiential attributes are based on branding. In fact, many
brands—like Mercedes, Ritz-Carlton, Coca-Cola, Rolex, Disney World, and Ruth’s
Chris Steak House—only needTtheir names to get the message across. These brands
have immense power in differentiating their products because they can project the
entire product offering (core, supplemental, and symbolic/experiential) with one word
R don’t necessarily rely upon branding, but on their
or phrase. Other types of products
uniqueness to convey their symbolic
R and experiential nature. Major sporting events,
such as the Super Bowl, the NCAA Final Four, or the Tour de France, are certainly
E athletic events, such as high school football games,
good examples of this. Even local
can have symbolic and experiential
N qualities if the rivalry is intense.
Delivering Superior Quality
Delivering superior quality day in and day out is one of the most difficult things that
any organization can do with regularity. In essence, it is difficult to get everything
right—even most of the time. 1
During the 1980s and 1990s, strategic initiatives such
as total quality management, ISO 9000, and the advent of the Baldrige Award were
8 way businesses thought about quality. As a result,
quite successful in changing the
virtually every industry saw dramatic
improvements in quality during that time.
Today, however, most businesses struggle with improving the quality of their
9 core product or supplemental products. As we disproducts, whether they are the
cussed in Chapter 1, this has happened
because (1) customers have very high expecT
tations about quality, (2) most products today compete in mature markets, and
(3) many businesses compete in markets with very little real differentiation among
product offerings. As products become further commoditized, it becomes very difficult for marketers to make their products stand out among a crowd of competitors.
A great deal of research has been conducted to determine how businesses can
improve the quality of their products. These four issues stand out:8

Understand Customers’ Expectations. It is not surprising that the basis of
improving quality is also the starting point for effective customer relationship
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships

management. The delivery of superior quality begins with a solid understanding
of customers’ expectations. This means that marketers must stay in touch with
customers by conducting research to better identify their needs and wants.
Although this research can include large-scale efforts such as surveys or focus
groups, it can also include simple and inexpensive efforts such as customer comment cards or having managers interact in a positive fashion with customers.
Advances in technology have greatly improved the ability to collect and analyze
information from individual customers. New tools such as data warehousing and
data mining hold great promise in enabling firms to better understand customers’ expectations and needs.
Translate Expectations Into Quality Standards. Firms that can successfully
convert customer information into quality standards ensure that they hear the
voice of the customer. If customers want better ingredients, friendlier employees, or faster delivery, then standards should be set
C to match these desires. It is
often the case, however, that managers set standards that meet organizational
objectives with no consideration for customer expectations.
As discussed in
Beyond the Pages 10.2, this commonly occurs when
set standards
based on productivity, efficiency, or cost reductions rather than quality or customer service. In these cases, the temptation is to V
focus on internal benchmarks
such as cost control or speed rather than customer
E benchmarks such as quality
and satisfaction.
Uphold Quality Standards. The best quality standards are of little use if they
T is the ability of managers
are not delivered accurately and consistently. At issue
and employees to deliver quality that is consistent with established standards.
Greeting customers by name, answering the phone on the second ring, and delivering a hot pizza within 30 minutes are all examples of quality standards that
may, or may not, be achieved. Successfully achieving
T these standards depends
mostly on how well the strategy is implemented. However, it also depends
E effort. For example, many
on the ability of the firm to fully fund the quality
retailers—including Walmart—at one time had standards
for opening additional
checkout lanes when there were more than three people in line. However, these
retailers failed to deliver on this standard due toRthe expense of staffing additional employees to operate the registers.
Don’t Overpromise. It goes without saying that customers will be disappointed
if an organization fails to deliver on its promises. The key is to create realistic
customer expectations for what can and cannot beC
delivered. All communication
to customers must be honest and realistic with respect
E to the degree of quality
that can be delivered. Intentionally misleading customers by making promises
that cannot be kept is a guaranteed recipe for disaster.
1 of customer expectations
Of these four issues, having a thorough understanding
is the most critical because it sets the stage for the entire
8 quality improvement effort.
Customer expectations are also vital to ensuring customer satisfaction. We will look
more closely at customer expectations later in this chapter.
Understanding the Role of Value
Earlier, we stated that quality is a necessary, but insufficient,
condition of effective
customer relationship management. By this we mean that exceptionally high product
quality is of little use to the firm or its customers if the customers cannot afford to pay
for it or if the product is too difficult to obtain. In the context of utility (want satisfaction), sacrificing time, place, possession, and psychological utility for the sake of form
utility may win product design awards, but it will not always win customers.
Value is critical to maintaining long-term customer relationships because it allows
for the necessary balance among the five types of utility and the elements of the
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Customer Service versus Efficiency9
As consumers, we are supposed to be living the
good life. After all, we have access to an unprecedented variety and assortment of goods and
services from around the globe. Everything we
need is practically at arm’s length and available
24/7. If things are so great, then why do we still
suffer from poor service, long wait times,
ignored complaints, and the feeling that we are
just another number to most firms? In other
words, why is customer service so bad? Are
we just spoiled or do companies not care
While we may be spoiled and some companies might not care about service, the truth
is that our own demands for convenient,
fast, and low priced products are at odds with
our demands for better customer service. As
firms look to drive down costs and increase
speed, they focus more on internal efficiency
benchmarks based on costs and time-based
measures of performance. This means they
focus less on customer-driven benchmarks like
quality, value, or satisfaction. This tendency is
also driven by human nature: It is much easier
to measure costs and time than something as
subjective as customer satisfaction. As a result,
more and more firms must continuously walk a
fine line between service and operational
Some companies successfully walk this line
(Southwest Airlines is a good example). Others,
however, have damaged customer relationships
in their attempt to reduce costs. In some cases,
firms have been forced to reduce customer service to maintain or improve profitability. Four
recent examples are discussed below:
Hertz and Avis
After laying off 4,000 employees, Hertz’s customers were faced with a shortage of customer
service personnel. The company reduced its
“instant return” hours at smaller airports, along
with reducing the number of personnel at all
locations. Avis took a similar route to reduce
expenses during the economic downturn. The
company cut service, reduced staff, and moved
most of their instant return staff to airport counters. The result for customers: longer lines,
increased wait time, and declining customer satisfaction. The result wasn’t what Hertz and Avis
had hoped for either. Both companies saw many
of their most loyal customers move to competing rental companies. In time, both Hertz and
Avis reversed their policies and increased the
number of agents for their instant return
Home Depot
After years of record growth and profits, Home
Depot shifted its strategy to focus on expanding
its contractor supply business and increasing
C efficiency through cost cutting and streamlined
A operations. Along the way, customer service
slipped on the company’s list of priorities. FullL time employees were replaced by part-timers,
V employee incentives for good service were cut,
and the employee profit-sharing pool declined
E from $90 million to $44 million in 1 year. The
R end result: Home Depot slipped to dead last in
customer satisfaction among major U.S. retaiT lers. More importantly, the company found itself
, 6 percentage points behind Lowe’s, which
pursued a strategy that promoted more
customer-friendly stores. After launching a
T major customer service program and abandonmany of its command-and-control practices,
E ing
Home Depot’s customer service improved. The
R key to the change was redefining employees’
roles to focus clearly on customers.
E Costco and Sam’s Club
N While Sam’s Club (and its parent company
is well known for offering low prices,
C Walmart)
virtually every customer survey indicates that
E Costco provides better customer service than
Sam’s Club. The reason? Costco treats its
employees better. In addition to providing better
1 benefit packages, Costco pays its employees
8 more on average than Sam’s Club. While more
costly to implement, Costco’s treatment of
5 employees pays off in terms of better service
9 to customers. For starters, better pay and benefits usually leads to more satisfied employees. In
T addition, Costco’s employee turnover rate
S ranges from 6 to 20 percent per year, far lower
than Sam’s Club rate of 20 to 50 percent each
year. This means that Costco’s employees are
more experienced and better able to serve the
company’s customers. Increased employee loyalty has another side benefit: Costco’s recruiting, hiring, and training costs are lower.
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Dell’s strategy and its success have long been
tied to internal efficiency. Its business model of
selling via phone and Internet is a textbook
example of supply chain integration and operational excellence. In recent years, however,
Dell has pursued cost cutting with a vengeance.
The reason is competition. Virtually all of Dell’s
competitors match the company on pricing and
product availability. Unfortunately, Dell’s moves
alienated its customers, especially in the
company’s call center operations, which Dell
outsourced to firms in foreign countries.
Not surprising, Dell’s customer satisfaction ratings, along with its market share, fell dramatically. To turn things around, Dell initiated a
$100 million program to improve customer
service. The company began by appointing
a new director of customer service, who
immediately expanded the size of Dell’s call
centers from 1,000 to 3,000 reps. Dell also
invested $1 billion to open new data centers,
including 12 global solution centers, which
focus on sales, customer service, and technical
If business can learn anything from these
examples, it’s that they can never win the fight
between customer service and efficiency. Cost
cutting that reduces customer service almost
always has to be reinstated once customers
demanding better quality, more attention,
C start
and increased value for their money. Customer
A expectations are simply too high—and competitors too plentiful—for businesses to ignore.
marketing program. As a guiding principle of marketing
Estrategy, value is quite useful
because it includes the concept of quality, but is broader in scope. It takes into
account every marketing program element and can be used to consider explicitly
customer perceptions of the marketing program in the
T strategy development process. Value can also be used as a means of organizing the internal aspects of market,
ing strategy development.
In Chapter 6, we defined value as a customer’s subjective evaluation of benefits
relative to costs to determine the worth of a firm’s product
T offering relative to other
product offerings. To see how each marketing program element is related to value,
E their component parts, as
we need to break down customer benefits and costs into
shown below and in Exhibit 10.5:
Perceived Value ¼
ðCore Product Quality þ Supplemental
Product Quality þ Experiential QualityÞ
ðMonetary Costs þ Nonmonetary CostsÞ
Different buyers and target markets have varying
N perspectives on value.
Although monetary cost is certainly a key issue, some buyers place greater imporC good value is about prodtance on other elements of the value equation. To some,
uct quality. To these customers, the product elementEof the marketing program is
the most crucial to achieving good value. To others, value hinges on the availability
and quality of supplemental products. Here, the firm’s product, customer service,
pricing, and distribution strategies come together to create
1 value. For other buyers,
good value is all about convenience. These customers place greater emphasis on
8 multiple locations, 24/7
distribution issues such as wide product availability,
access, or even home delivery to achieve good value. 5
The relationships among marketing program elements must constantly be managed to deliver good value to cus9
tomers. It is important for managers to remember that any change in one program
element will have repercussions for value throughout
the entire marketing
Core Product, Supplemental Product, and Experiential Quality
The relationship between quality and value is most apparent in the quality of the customer benefits depicted in the top portion of the value equation. Here, good value
depends on a holistic assessment of the quality of the core product, supplemental
products, and experiential attributes. Although each can be judged independently,
most customers look at the collective benefits provided by the firm in their
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Connections between Value and the Marketing Program.
Value Components
Core Product
Product Quality
Product Strategy
Product features
Brand name
Product design
Ease of use
Value-added features
Replacement parts
Repair services
Customer service
Friendliness of
Psychological benefits
Exclusive features
Monetary Life
Cycle Costs
Product design
Minimize opportunity
Marketing Program Elements
Pricing Strategy
Distribution Strategy
Prestige C
Prestige E
Selling price
Delivery charges
Installation charges
Licensing T
Maintenance costs
Cost of consumables
Repair costs
Costs of replacement
Return policy
IMC Strategy
Personal selling
On-site training
of employees
Personal selling
Retail atmosphere
Retail décor
24/7 availability
Overnight delivery
Delivery charges
Installation charges
Personal selling
Availability of
Availability of
replacement parts
Speed of repairs
Wide availability
24/7 access
Personal selling
Personal selling
Reinforce purchase
assessments of value. Consequently, firms are able to create unique combinations of
core, supplemental, and experiential
benefits that help drive value perceptions. Consider a hotel stay at the Hyatt versus
5 Motel 6. Despite their obvious differences, both
can deliver the same value to different customers at different points in time. The
Hyatt may offer better form utility and caché, but Motel 6 may be less expensive
and closer to attractions. TheToverall perception of value is driven by customer
needs, expectations, and the sacrifices required in obtaining the benefits provided
by each firm.
Monetary and Nonmonetary Costs
Customer costs include anything that the customer must give up to obtain the benefits provided by the firm. The most obvious cost is the monetary cost of the product,
which comes in two forms: transactional costs and life cycle costs. Transactional costs
include the immediate financial outlay or commitment that must be made to
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
purchase the product. Other than the purchase price of the product, examples of
these costs include sales taxes, usage taxes, licensing fees, registration fees, and
delivery or installation charges. For example, appliance or furniture retailers can
increase value by offering free delivery or installation when their competitors charge
for these services. Life cycle costs include any additional costs that customers will
incur over the life of the product, such as the costs of consumable supplies, maintenance, and repairs. Hyundai and Kia, for example, offer long-term warranties on their
cars, vans, and SUVs that significantly reduce life cycle costs for their customers.
Product quality, warranties, and the availability of repair services all play into the
equation when customers judge monetary costs. Firms that have the capability to
reduce transactional or life cycle costs can often provide a better value than their
Nonmonetary costs are not quite as obvious as monetary costs, and customers
sometimes ignore them. Two such costs include the time and effort customers
expend to find and purchase goods and services. These costs are closely related to
a firm’s distribution activities. To reduce time and effort,
A the firm must increase
product availability, thereby making it more convenient for customers to purchase
the firm’s products. The growth in nonstore and electronic retailing is a direct result
of firms taking steps to reduce the time and effort required
to purchase their products, thereby reducing customers’ nonmonetary costs.
sheer number of proE
ducts that customers can have delivered directly to their homes is a testament to
the growing importance of customers’ time.
Offering good basic warranties or extended warranties
T for an additional charge
can reduce risk, another nonmonetary cost. Retailers reduce risk by maintaining liberal return and exchange policies. Personal safety and, security risks come into play
when customers purchase products that are potentially dangerous. Common examples include tobacco products, alcohol, firearms, and exotic products like skydiving,
bungee jumping, and dangerous pets. The final nonmonetary
cost, opportunity cost,
is harder for the firm to control. Customers incur opportunity
costs because they
forgo alternative products in making a purchase. Some firms attempt to reduce
R the best or by promising
opportunity costs by promoting their products as being
good service after the sale. To anticipate opportunity costs,
R marketers must consider
all potential competitors, including total budget competitors that offer customers
alternatives for spending their money.
Competing on Value
Ecan better understand how a
After breaking down value into its component parts, we
firm’s marketing strategy can be designed to optimize customer value. By altering
each element of the marketing program, the firm can enhance value by increasing
core, supplemental, or experiential quality and/or reducing
monetary or nonmonetary costs. This effort must be based on a thorough8understanding of customers’
needs and wants, as well as an appreciation for how the firm’s customers define
In consumer markets, retailers offer good examples
9 of how value can be delivered by altering one or more parts of the value equation. Convenience stores offer
value to customers by reducing nonmonetary costs (time and effort) and increasing
monetary prices. These high-priced (in dollars) storesS
stay in business because customers value their time and effort more than money in many situations. Online retailers offer a similar mix of value by reducing time and effort costs, and in some cases
by reducing monetary costs through free shipping or by not collecting sales taxes.
Customers who want the best quality may be willing to spend large sums of money
and/or spend more time searching because they consider their nonmonetary costs
to be less important. These consumers are likely to shop at retailers such as
Macy’s, Nordstrom, or Saks rather than discount chains. Finally, specialty stores,
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
like Victoria’s Secret or Banana Republic, offer an attractive mix of value in terms of
quality clothing, fashionable styling, excellent service, and attractive décor, albeit at
higher monetary prices.
Those in business markets often define value in terms of product specifications,
availability, and conformity to a delivery schedule, rather than in terms of price or
convenience. Business customers must ensure that the products purchased will
work right the first time, with minimal disruption to ongoing operations. In some
cases, products have value not only because of their features or quality, but because
the buying firm has a long-standing relationship with the supplying firm. Business
buyers tend to become loyal to suppliers that consistently meet their expectations,
solve their problems, and cause them no headaches. All of this is not to say that monetary considerations are not important. In fact, unlike most consumers, business
buyers are keenly aware of total transactional and life cycle costs as they seek to
reduce the total lifetime expenditure associated with a particular purchase. Business
customers will quite often pay more in up-front costs if the total lifetime cost can be
Obviously, different market segments will have different perceptions of good
value. The key is for the marketer to understand the different value requirements of
each segment and adapt the marketing
program accordingly. From a strategic perspective, it is important to remember
each marketing program element is vital
to delivering value. Strategic decisions about one element alone can change perR If a decision lowers overall value, the firm should
ceived value for better or worse.
consider modifying other marketing
program elements to offset this decrease. For
example, an increase in price may have to be offset by an increase in customer ben,
efits to maintain the value ratio.
In the final part of this chapter,Ewe look at customer satisfaction and the role it plays
in maintaining long-term customer
R relationships. To maintain and manage customer
satisfaction from a strategic point of view, managers must understand customer
R between satisfaction, quality, and value. They
expectations and the differences
must also make customer satisfaction
measurement a long-term, continuous commitE
ment of the entire organization.
Understanding CustomerCExpectations
E be conceived in a number of ways, it is typically
Although customer satisfaction can
defined as the degree to which a product meets or exceeds the customer’s expectations about that product. Obviously, the key to this definition lies in understanding
1 they are formed. Marketing researchers have discustomer expectations and how
covered that customers can hold
8 many different types of expectations as shown in
Exhibit 10.6. Customer expectations can vary based on the situation. For example,
5 high (i.e., closer to the ideal end of the range) in
expectations are likely to be very
situations where personal needs
9 are very high. In highly involving situations such as
weddings, birthdays, or funerals, customers will demand a great deal from the firm.
Expectations also tend to be higher when customers have many alternatives for
meeting their needs. This connection
between expectations and alternatives is one
reason that serving customers in highly commoditized markets is so challenging.
Other situations can cause customer expectations to be lower (i.e., closer to the tolerable end of the range), such as when the purchase is not involving, or when the
monetary or nonmonetary prices are low. Customers can also become more tolerable of weak or poor performance when they have fewer product alternatives, or
when the poor performance is beyond the control of the firm (e.g., bad weather,
excessively high demand, natural disasters).
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Range of Customer Expectations.
Type of Expectation
Descriptive Example
Typical Situations
Expectation Range
Ideal Expectations
“Everyone says this is the best MP3
player on the market. I want to get
my sister something special for her
Highly involving purchases
Special occasions
Unique events
High (Desired)
“As expensive as this MP3 player is,
it ought to hold a lot of music and come
with several included accessories.”
Shopping comparisons
Value judgments
“I bought this brand of MP3 player
last time and it served me very well.”
Frequent purchase
Brand loyalty
Price-driven purchases
Low (Adequate)
A Low-involvement purchases
SOURCE: Adapted from James H. Myers, Measuring Customer SatisfactionV
(Chicago, IL: American Marketing Association, 1999); Valarie A. Zeithaml,
Leonard L. Berry, and A. Parasuraman, “The Nature of Determinants of Customer
E Expectations of Service,” Journal of the Academy of Marketing Science,
21 (January 1993), 1–12.
The Zone of Tolerance
The difference between the upper and lower end of the
, range of possible customer
Minimum Tolerable
“I know it’s not the best MP3 player
out there. I only bought it because it
was inexpensive.”
expectations is an important strategic consideration in managing customer satisfaction. Marketers often refer to the upper end of expectations as desired performance
expectations (what customers want) and the lower T
end of the range as adequate
performance expectations (what customers are willing
E to accept). As shown in
Exhibit 10.7, the extent of the difference between desired and adequate performance
R of tolerance represents the
is called the zone of tolerance.10 The width of the zone
degree to which customers recognize and are willing R
to accept variability in performance (i.e., quality, value, or some other measurable aspect of the marketing proE
gram). Performance can fall above the zone of tolerance,
within the zone of
tolerance, or below it:

Customer delight—occurs when actual performance
C exceeds the desired performance expectation. This level of performance is rare and quite surprising
when it occurs. Therefore, customers find it to beE
Customer satisfaction—occurs when actual performance falls within the zone
of tolerance. Satisfaction levels vary based on where
1 performance falls within
the zone (high or low).
Customer dissatisfaction—occurs when actual8performance falls below the
adequate performance expectation. Depending upon
5 the severity of the performance level, customers may go beyond dissatisfaction to become frustrated or
even angry. This too can be very memorable for customers.
We addressed these three issues in Chapter 5 as being a consequence of the buying process. Now, with the marketing plan developed and
S implemented, we can think
of these issues in a strategic sense by considering the zone of tolerance as a moving
target. If the zone is narrow, the difference between what customers want and what
they are willing to accept is also narrow. This means that the marketer will have a
relatively more difficult time matching performance to customer expectations.
Hence, customer satisfaction is harder to achieve when the zone of tolerance is narrow. Conversely, customer satisfaction is relatively easier to achieve when the zone
of tolerance is wide. In these instances, the marketer’s hurdle is lower and the
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
The Zone of Tolerance.
Customer Delight
Customer Satisfaction
Customer Dissatisfaction
(Performance Exceeds Desired
(Performance within Zone of
(Performance Falls Below
Adequate Expectations)
Desired Expectations
Desired Expectations
Desired Expectations
Adequate Expectations
Marketing L
Adequate Expectations
Adequate Expectations
Typical Zone of Tolerance
Wide Zone of Tolerance
Narrow Zone of Tolerance
(Performance Factors of
(Performance Factors of
(Performance Factors of
Average Importance)
Highest Importance)
satisfaction targets are easier E
to hit. Delighting the customer by exceeding desired
expectations is an exceedingly difficult task for any marketer. And, causing customer dissatisfaction by failing to meet even adequate expectations is a situation
that should be avoided at all times.
Customers will typically hold
8 different expectation levels and zones of tolerance
for different factors of performance. In a restaurant, for example, customers might
5 for food quality, an even narrower zone of tolerance
have a narrow zone of tolerance
for service quality, an average 9
zone of tolerance for wait time, and a relatively wide
zone of tolerance for cleanliness. From the marketer’s point of view, two issues are
important. First, the firm must clearly understand the relevant performance factors
about which customers will hold
S performance expectations. Customers can have
expectations for just about anything, though there are typically only a few factors
that are critical for most customers. Many firms look first at factors dealing with
product strategy; however, critical performance factors can cut across the entire
marketing program. Second, the firm must track expectations and performance
over time. Tracking performance levels vis-à-vis expectations and the zone of tolerance is a useful diagnostic tool for both strategic planning and the management of
customer satisfaction. The approach is also useful for tracking the effectiveness of
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Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
performance improvements, and in assessing the performance of new goods or services. In the end, tracking both expectations and performance is an important way to
ensure that customer satisfaction remains stable or improves over time. Declining
customer satisfaction suggests a need for immediate corrective action.
Managing Customer Expectations
Many marketers ask two key questions as they work toward managing customer
expectations: (1) Why are customer expectations unrealistic? and (2) Should
we strive to delight our customers by consistently exceeding their desired
expectations? Although it is true that customers are more demanding today than
ever (especially American consumers), their expectations are typically not that
unrealistic. Most customers are looking for the basics of performance—things that
a firm is supposed to do or has promised to do.11 For example, flights should take
C good and be prepared as
off and land on time, meals in a restaurant should taste
ordered, new cars should be hassle free throughout the
A warranty period, and your
soft drink should be cold and fresh. On these and other basic factors of perforL customer expectations.
mance, it is essentially impossible for the firm to exceed
These basic factors represent the bare minimum: If the
Vfirm wants to exceed expectations, it has to go above and beyond the call of duty. Beyond the Pages 10.3
explains how exceeding customer expectations is anE
important component of customer loyalty.
The second question about delighting the customer is a bit more controversial.
Firms should always strive to exceed adequate expectations. After all, this is the
basic delineation between satisfaction and dissatisfaction.
The tougher question is
whether the firm should try to exceed desired expectations. The answer depends
on several issues. One is the time and expense involved in delighting customers. If
delighting a customer does not translate into strongerT
customer loyalty or long-term
customer retention, then it is not likely to be worth the
E effort. It may also not be a
good investment if delighting one customer lowers performance for other customers.
R raises their expectations
Another issue is whether continually delighting customers
over time. To be effective, customer delight should be R
both surprising and rare, not a
daily event. Firms should look for small ways to delight customers without elevating
E Finally, the firm must be
expectations beyond what can reasonably be delivered.
aware of whether its initiatives to delight the customer
N can be copied by competitors. If customer delight is easily copied, it ceases to be a key means of differentiaC
tion for the firm.
Satisfaction versus Quality versus Value
1let’s look at how satisfaction
Now that we better understand customer expectations,
differs from quality and value. The answer is not so obvious
because the concepts
overlap to some extent. Since customer satisfaction is defined relative to customer
expectations, it becomes difficult to separate satisfaction
from quality and value
because customers can hold expectations about quality
9or value or both. In fact, customers can hold expectations about any part of the product offering, including seemT
ingly minor issues such as parking availability, crowding, or room temperature in
addition to major issues like quality and value.
To solve this dilemma, think of each concept not in terms of what it is, but in
terms of its size. The most narrowly defined concept is quality, which customers
judge on an attribute-by-attribute basis. Consider a meal at a restaurant. The quality
of that meal stems from specific attributes: the quality of the food, the drink, the
atmosphere, and the service are each important. We could even go so far as to
judge the quality of the ingredients in the food. In fact, many restaurants, like Ruth’s
Chris Steakhouse, promote themselves based on the quality of their ingredients.
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Satisfied, But Not Loyal12
Generally speaking, American consumers are a
satisfied lot. At least that’s what survey after survey reveals. Sure there are ups and downs, and
some industries or firms fair better than others,
but the general tendency is a positive one.
Despite this good news, however, research indicates that roughly 30 percent of satisfied customers would switch to a new company if given a
good reason to do so. This begs the question:
Why will satisfied customers leave a firm for a
competitor? The answer is that customer satisfaction is not the same thing as customer
Customer satisfaction by itself tells a firm
very little about where it stands with customers.
There are two issues at work: relative satisfaction and customer expectations. Relative satisfaction tells a firm where it ranks against the
competition. For example, Outback Steakhouse’s satisfaction rating of 80 says little
about the firm and its products until that score
is compared with Olive Garden (80), Red Lobster (78), Applebee’s (78), and Chili’s (74). Similarly, Samsung might consider its most recent
satisfaction score of 81 to be somewhat low
until that score is compared to Apple (79),
Nokia (77), Motorola (77), HTC (75), Blackberry
(74), and LG (73). Comparisons like these are
important because customers make similar comparisons when making purchase decisions. A
customer may be satisfied with a specific product or company, but will switch if they believe
they will be better satisfied (via higher quality, a
better user experience, or a better value) by
another firm. For this reason, satisfied customers are not necessarily loyal customers.
To increase loyalty, firms must look at the
second issue: customer expectations. Customer
expectations are key because they serve as the
anchor points for customer satisfaction.
Research suggests that firms that simply meet
customer expectations do little to create loyalty.
Thus, while customers may have no complaints,
the firm’s products probably do not stand out in
any meaningful way. In other words, loyalty
comes from providing products that exceed customer expectations. Loyalty can be especially
strong in situations where customers believe
the firm’s performance is better than can be
expected from a competitor. In this situation,
the customer has little incentive to switch.
Most firms do a good job of tracking customer satisfaction over time. However, many
do a rather poor job in tracking customer expectations. Research indicates that 47 percent of
customers believe that company executives do
not understand their expectations or what they
experience in day-to-day contact with their
firms. Another 41 percent don’t believe that
companies take their complaints seriously. FurC ther, half of customers who do complain will
the firm if their complaints are not
A leave
resolved. The other half may stay, but they
L spread negative word-of-mouth either in person
via online forums. Across all industries,
V or
17 percent of customer interactions result in a
E lost customer.
R As we have seen, to promote genuine loyalty
to the firm, executives must have a full underT standing of their customers’ expectations.
, Then, the firm must set out to deliver on those
expectations and create value beyond the norm
for the industry. Some tips on how to make this
T happen include:

Seek Out Negative Feedback. In addition
to carefully considering customer complaints, firms must look outside to gather
information from dissatisfied customers
who do not complain. This can be done via
websites, blogs, message boards, and thirdparty rating services.
Manage from the Outside In. This involves
leveraging customer information (both positive and negative) to improve business practices. Firms must take what customers tell
them and use it to improve the customer
Recognize That One Size Does Not Fit
All. Different customers have different preferred avenues to meeting their expectations.
For example, some customers prefer high
automation, or even self-service, with
respect to the customer experience. Young
customers are a good example. Others prefer
a personal, customized experience. Older
customers, for instance, prefer to bank with
live tellers than use automation.
Put Service Over Personalization. The
majority of customers—78 percent—place
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
more importance on good service than personalized service. This means that firms
must be able to address customers’ needs
on the first try. Simply knowing the customer’s name is not enough.
most of the company’s profitable customers are
not loyal. To get past this enigma, executives
must ask three questions about their customers:
(1) Which loyal customers are good for our
business? (2) How do we retain these customers? and (3) How do we get more customers
like them? Customers who do not meet this profile are simply not worth having as customers. In
the end, most executives will discover that even
some of their most satisfied and loyal customers
are not worth the effort.
Research shows that about 33 percent of a
firm’s customers feel loyal to the firm and show
their loyalty by making most of their purchases
in a category with the firm. Unfortunately, the
same research shows that only 20 percent of
the firm’s customers are profitable, and that
When the customer considers the broader issue of value, they begin to include things
other than quality: the price of the meal, the time andAeffort required getting to the
restaurant, parking availability, and opportunity costs.
L In this case, even the best
meal in a great restaurant can be viewed as a poor value if the price is too high in
terms of monetary or nonmonetary costs.
When a customer considers satisfaction, he or she
Ewill typically respond based
on his or her expectations of the item in question. If the quality of the food is not
what the customer expected, then the customer will R
be dissatisfied with the food.
Similarly, if the value of the meal is not what the customer
T expected, the customer
will be dissatisfied with the value. Note that these are independent judgments. It is
, quality of the meal, but disentirely possible for a customer to be satisfied with the
satisfied with its value. The opposite is also true.
However, most customers do not make independent judgments about satisfacT
tion. Instead, customers generally think of satisfaction based on the totality of their
E or value. We are not saying
experience without overtly considering issues like quality
that customers do not judge quality or value. Rather, we are saying that customers
think of satisfaction in more abstract terms than they do quality or value. This hapR
pens because customers’ expectations—hence their satisfaction—can
be based on
any number of factors, even factors that have nothing
or value.
Continuing with our restaurant example, it is entirely possible for a customer to
Ulrich Baumgarten/Getty Images
Toyota typically scores well in both customer and third-party ratings of customer satisfaction.
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
receive the absolute best quality and value, yet still be dissatisfied with the experience. The weather, other customers, a bad date, and a bad mood are just a few examples of non-quality and non-value factors that can affect customers’ expectations and
cloud their satisfaction judgments.
Customer Satisfaction and Customer Retention
Customer satisfaction is the key to customer retention. Fully satisfied customers are
more likely to become loyal customers, or even advocates for the firm and its products. Satisfied customers are less likely to explore alternative suppliers, and they
are less price sensitive. Therefore, satisfied customers are less likely to switch to
competitors. Satisfied customers are also more likely to spread positive wordof-mouth about the firm and its products. However, the way that customers think
about satisfaction creates some interesting challenges for marketers. It is one thing
to strive for the best in terms C
of quality and value, but how can a firm control the
uncontrollable factors that affect
A customer satisfaction? Certainly, marketers cannot
control the weather or the fact that their customers are in a bad mood. However,
there are several things that marketers can do to manage customer satisfaction and
leverage it in their marketing efforts:

E Wrong. Managers, particularly those on the frontUnderstand What Can Go
line, must understand that an endless number of things can and will go wrong
in meeting customers’ expectations. Even the best strategies will not work in
the face of customers whoTare in a bad mood. Although some factors are simply
uncontrollable, managers ,should be aware of these factors and be ready to
respond if possible.
Focus on Controllable Issues. The key is to keep an eye on the uncontrollable
factors, but focus more onTthings that can be controlled. Core product quality,
customer service, atmosphere, experiences, pricing, convenience, distribution,
and promotion must all be managed in an effort to increase share of customer
and maintain loyal relationships.
R It is especially important that the core product
be of high quality. Without that, the firm stands little chance of creating cusR
tomer satisfaction or long-term customer relationships.
Manage Customer Expectations.
As we have seen, managing customer expectations is more than promising
what you can deliver. To manage expectaN
tions well, the firm must educate customers on how to be satisfied by the firm
C can include in-depth product training, educating
and its products. These efforts
customers on how to get the
E best service from the company, telling customers
about product availability and delivery schedules, and giving customers tips
and hints for improving quality and service. For example, the U.S. Postal Service
routinely reminds customers
1 to mail early during the busy holiday season in
November and December. This simple reminder is valuable in managing custo8
mers’ expectations regarding mail delivery times.
Offer Satisfaction Guarantees.
Companies that care about customer satisfaction back up their offerings
customer satisfaction or product
quality. Exhibit 10.8 provides several examples of customer satisfaction guaranT of benefits. For the firm, a guarantee can serve
tees. Guarantees offer a number
as a corporate vision, creed,
Sor goal that all employees can strive to meet. A good
guarantee is also a viable marketing tool that can be used to differentiate
the firm’s product offering. For customers, guarantees reduce the risk of
buying from the firm and give the customer a point of leverage if they have a
Make It Easy for Customers to Complain. Over 90 percent of dissatisfied
customers never complain—they just go elsewhere to meet their needs.
To counter this customer defection, marketers must make it easy for customers
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
Examples of Customer Satisfaction Guarantees.
Hampton Inn
Friendly Service, clean rooms, comfortable surroundings, every time. If you’re not satisfied, we don’t
expect you to pay. That’s our commitment and your guarantee. That’s 100% Hampton.
Our 100% Hampton Guarantee® is boldly etched on our front desk so that it is constantly visible to
our employees and our guests. Our guarantee epitomizes the pride we take in our brand, our hotels,
and our service to you, our guest. We’ll do whatever it takes to make our guests feel welcome,
relaxed, and completely comfortable.
Our products are guaranteed to give 100% satisfaction in every way. Return anything purchased
from us at any time if it proves otherwise. We do not want you to have anything from L.L.Bean that
is not completely satisfactory.
Our guarantee is based on something as simple as a handshake—the
deal that you’ll be satisfied
with a purchase, and if you are not, we’ll make it right. We guarantee that we’ll hold up our end of
the bargain. It’s just how we do business. If your purchase isn’t completely
satisfactory, we’re happy
to accept your exchange or return at any time.
FedEx Express
We will, at our option, and upon request, either refund or credit to the applicable invoice only your
transportation charges if we deliver a shipment 60 seconds or more after the applicable delivery
commitment time.
If you are not totally satisfied with any Xerox-brand Equipment delivered under this Agreement,
Xerox will, at your request, replace it without charge with an identical model or, at Xerox’s option,
with Xerox Equipment with comparable features and capabilities. This Guarantee applies only to
Xerox-brand Equipment that has been continuously maintained E
by Xerox under this Agreement or a
Xerox maintenance agreement.
We believe that auto care should be a hassle-free experience. For over 50 years, we have built
trusted customer relationships based on Midas reliability and professional
service. And because we
know that quality parts and services are important to you,N
we stand behind them with our
In fact, we guarantee all our work. And, we’re known for our lifetime-guaranteed brake pads, shoes,
E is valid for as long as you own
mufflers, and shocks and struts. Our limited lifetime guarantee
your car.
Eddie Bauer
Every item we sell will give you complete satisfaction or you may
8 return it for a full refund.
Publix Supermarkets
We will never knowingly disappoint you. If for any reason your purchase does not give you complete
satisfaction, the full purchase price will be cheerfully refunded immediately upon request.
to complain. Whether by mail, phone, e-mail, or in person, firms that care about
customer satisfaction will make customer complaints an important part of their
ongoing research efforts. However, tracking complaints is not enough. The firm
must also be willing to listen and act to rectify customers’ problems. Complaining customers are much more likely to buy again if the firm handles their complaints effectively and swiftly.
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships

Create Relationship Programs. As we discussed earlier, firms can use relationship strategies to increase customer loyalty. Today, loyalty or membership
programs are everywhere: banks, restaurants, supermarkets, and even bookstores. The idea behind all of these programs is to create financial, social, customization, and/or structural bonds that link customers to the firm.
Make Customer Satisfaction Measurement an Ongoing Priority. If you
don’t know what customers want, need, or expect, everything else is a waste of
time. A permanent, ongoing program to measure customer satisfaction is one of
the most important foundations of customer relationship management.
Customer Satisfaction Measurement
There are a number of different methods for measuring customer satisfaction. The
simplest method involves the direct measurement of performance across various factors using simple rating scales.AFor example, a customer might be asked to rate the
quality of housekeeping services
L in a hotel using a 10-point scale ranging from poor
to excellent. While this method is simple and allows the firm to track satisfaction, it
V it permits the firm to determine how satisfaction
is not diagnostic in the sense that
varies over time. To do this, E
the firm can measure both expectations and performance at the same time. Exhibit 10.9 illustrates how this might be done for a hypoR
thetical health club.
The ongoing measurementTof customer satisfaction has changed dramatically
over the last decade. Although most firms track their customer satisfaction ratings
, about customer relationship management have
over time, firms that are serious
Measuring Expectations and Performance for T
a Hypothetical Health Club.
When it comes to….
The quality and variety of exercise
equipment provided
The amount of time I have to wait
for a specific piece of exercise
The quality and variety of exercise
classes offered
The availability of specific exercise
The availability of facilities, such
as racquetball or basketball courts,
the running track, or the pool
Having a clean, attractive, and
inviting facility
Having a comfortable atmosphere
(temperature, lighting, music)
The overall helpfulness and
friendliness of the staff
Having convenient hours of
Having plenty of available parking
The Lowest Adequate
Level of Service
I Expect Is:
1 2 3 4 5E
The Highest Desired
Level of
Service I Expect Is:
The Actual
Performance of
this Health Club is:
1 2 3 4 51
1 2 3 4 5S
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships
adopted more robust means of tracking satisfaction based on actual customer behavior. Advances in technology, which allow firms to track the behaviors of individual
customers over time, provide the basis for these new metrics. Some of these new
metrics include:13

Lifetime Value of a Customer (LTV). The net present value of the revenue
stream generated by a specific customer over a period of time. LTV recognizes
that some customers are worth more than others. Companies can better leverage
their customer satisfaction programs by focusing on valuable customers and giving poor service or charging hefty fees to customers with low LTV profiles to
encourage them to leave.
Average Order Value (AOV). A customer’s purchase dollars divided by the
number of orders over a period of time. The AOV will increase over time as customer satisfaction increases and customers become more loyal. E-commerce
C that need extra incentives
companies use AOV quite often to pinpoint customers
or reminders to stimulate purchases.
Customer Acquisition/Retention Costs. It is typically less expensive to retain
L As long as this holds true, a
current customers than to acquire new customers.
company is better off keeping its current customers
V satisfied.
Customer Conversion Rate. The percentage of visitors
or potential customers
that actually buy. Low conversion rates are not necessarily a cause for concern if
the number of prospects is high.
Customer Retention Rate. The percentage of customers
who are repeat purT
chasers. This number should remain stable or increase over time. A declining
retention rate is a cause for immediate concern. ,
Customer Attrition Rate. The percentage of customers who do not repurchase
(sometimes called the churn rate). This number should
T remain stable or decline
over time. An increasing attrition rate is a cause for immediate concern.
Customer Recovery Rate. The percentage of customers
who leave the firm
(through attrition) that can be lured back usingRvarious offers or incentives.
Companies that sell products via contract or subscriptions (e.g., wireless phone
service, magazines, satellite radio or television) frequently offer special incentives to lure back former customers.
Referrals. Dollars generated from customers referred
to the firm by current
customers. A declining referral rate is a cause for concern.
Social Communication. Companies can track satisfaction
by monitoring customers’ online commentary. The number of blogs, E
newsgroups, chat rooms, and
general websites where customers praise and complain about companies is
Firms also have another research method at their disposal: the focus group.
Long used as a means of understanding customer 8
requirements during product
development, companies use focus groups more often5
to measure customer satisfaction. Focus groups allow firms to more fully explore the subtleties of satisfaction,
9 By better understanding
including its emotional and psychological underpinnings.
the roots of customer satisfaction, marketers should be
T better able to develop marketing strategies that can meet customers’ needs.
The “right” marketing strategy:

is not necessarily about creating a large number of customer transactions in
order to maximize market share.
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships

is one that attracts and retains customers over the long term.
considers customers’ needs, wants, and expectations in order to ensure customer satisfaction and customer retention.
develops long-term relationships with customers in order to insulate the firm
against competitive inroads and the rapid pace of environmental change.
Customer relationship management:

requires that firms look beyond current transactions to examine the long-term
potential of a customer.
is based on creating mutually beneficial relationships where each party provides
value to the other party.
is a business philosophy aimed at defining and increasing customer value in
ways that motivate customers to remain loyal to the firm.
is about retaining the right customers.
involves a number of stakeholders in addition to customers including employees, supply chain partners,Aand external stakeholders such as government agencies, investors, the media, nonprofits, and facilitating firms.
shifts the firm’s marketing emphasis from “acquiring customers” to “maintaining
involves the creation of relationship
capital—the ability to build and maintain
relationships with customers, suppliers, and partners based on trust, commitR
ment, cooperation, and interdependence.
, the goal of moving consumers through a series of
is a long-term process with
CRM in consumer markets:

stages ranging from simple awareness, through levels of increasing relationship
intensity, to the point where consumers become true advocates for the firm and
its products.
attempts to go beyond theEcreation of satisfied and loyal customers to create
true believers and sponsors for the company.
R that increase share of customer rather than market
is usually based on strategies
abandons old notions of acquiring new customers and increasing transactions to
focus more on fully serving the needs of current customers.
Nall customers have different needs; therefore, not all
is based on the precept that
customers have equal value to the firm.
involves estimating the worth of individual customers to express their lifetime
value (LTV) to the firm. E
Some customers are simply too expensive to keep
given the low level of profits they generate.
not only involves strategies to retain top-tier customers; it also involves finding
1 customers to be even better customers.
ways to encourage second-tier
involves the use of four types
8 of relationship strategies: financial incentives,
social bonding, enhanced customization, and structural bonding.
also involves moving buyers through a sequence of stages, where each stage
T of relationship intensity.
represents an increasing level
is based more on creating
S structural bonds with customers or supply-chain
CRM in business markets:

creates win–win scenarios where both parties build relationship capital; one
firm maintains a loyal and committed customer, the other maintains a loyal and
committed supplier.
is typically more involving, more complex, and much riskier due to the nature of
business buying, the presence of long-term contractual obligations, and the
sheer dollars involved in many business purchases.
9781337669078, Marketing Strategy: Text and Cases, Seventh Edition, O.C. Ferrell – © Cengage Learning.
All Rights Reserved. No distribution allowed without express authorization. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-240
Chapter 10 • Developing and Maintaining Long-Term Customer Relationships

leads to many changes in the way that companies conduct business, including a
change in buyers’ and sellers’ roles, as w…
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