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Essay Question: Critically evaluate how organisations can retain customers through the

quality of their relationships with them.

ABSTRACT:

The objective of this journal is to find out how customers can be retained through the quality

of relationships they have with the organisation through its marketing communications;

factors include trust etc. This article takes into consideration the core service and relational

benefits which help in establishing a relationship and whose outcome leads to loyalty and

retention of customers. Two companies; BOOTS and Tesco have been used as examples in

order to demonstrate how they have successfully established relationships by offering core

and relational benefits in order to build relationship quality and retain their customers, and

the importance of relationships discussed in the conclusion.

KEY WORDS: Relationship Marketing, Customer retention, Loyalty, Relationship Quality.

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INTRODUCTION:

Vilfredo Pareto stated in his work that 80% of sales for an organisation will come from 20%

of its customers. (McCorkell, 1997, p.26) therefore the importance of building long term

relationships with customers is paramount. Relationships with customers are important since

not only do long term customers generate more sales but it also costs lesser to serve them,

thus companies employ a variety of tactics in order to make customers loyal and in turn

increase profitability (Athanasopoulou, 2009). Gronroos (1999, cited in 2009a) states

relationship marketing aims to find out, cultivate and enrich relations and in some cases

terminate them, if they are not profitable, in order to meet the expectations of all the parties

involved in the relation such as suppliers, dealers, consumers and the company itself, which

is achieved through the mutual understanding between these parties.

CONSTRUCT OF REALTIONSHIPS:

There is a variety of relational constructs used by different authors for example Odekerken et

al (2001) states that trust, commitment and satisfaction derived from the relation help in

building a bond between the two parties. Nevertheless, Sabol (2002) argues that for building

a relation trust is the most important factor in gaining loyalty of the consumers, these

constructs differ in different industries; however the forerunners of relational quality are

mainly trust, commitment, mutual goals, satisfaction and cooperation. (Evans, et al:

2006).Time is also an integral part of quality relationship building. In the short term it is
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uneconomical for firms however the economic advantage accrues over time and so does the

quality of the relations (Athanasopoulou, 2009).

Barnes (2001) mentions that a relationship is a dynamic process and every contact can change

the way it is perceived. What makes a relationship special is the quality and effort put into it

which binds a customer to the company. Priluck (2003) stated that companies with good

relationship with its customers can sometimes also justify the reason for its product failures.

Relationships are first started by attracting the consumers and providing them with the Core

service and relational benefits, it is through this that the standard of service or benefits

received can be assessed (Brady and Cronin, 2001). The service or product is an essential

component in establishing a relationship. Gronroos (1997) noted that service quality is

generally conceived to comprise of functional and technical quality. The former is in which

way the service is provided while the latter mirrors the result of the service experience.

According to Kaul (2005) the quality of the service is linked to the relation of the customers

to the service, it is becoming the most important tool to for value addition which in turn

means that the benefit from the service quality, customer education and expertise initiates the

consumer's trust (Bell, and Eisingerich, 2008). Therefore according organizations should put

special efforts in order to earn the trust and satisfaction of consumers thereby build

relationships with them.

IMPORTANCE OF QUALITY RELATIONSHIPS:

The foundation blocks of building a relationship are long-term orientation, trust,

commitment, fulfilment of promises, two-way dialogue, focussing on customer share and not
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market share, and customisation as much as possible (Little, 2003). In this current situation of

recession developing relationships with customers is of vital importance. Just the value or

services of the core product are not enough to keep a customer with a company (Zineldin,

2006). The lifetime worth of consumers are focussed on by companies in order to build

relationships through usage of different technologies and relationship marketing and

management (Lovelock et al, 2007). In order to build this bond and for both parties to be in a

mutually beneficial position and above the benefits of the core product or service, relational

benefits such as social, confidence and special treatment benefits are offered (Tharau, et al,

2002), for e.g. companies such as Vodafone sending a text on our phone to let us know about

the time of our package arrival, to reduce our anxiety is a confidence benefit. Addressing you

by your name in a shop by an employee and giving you preference is a social benefit. Lastly

special treatment benefits are VIP lounges for first class travellers, complimentary food on

arrival at a hotel etc. Through these companies aim to develop their quality of service over

and above the core product or service and build a personal relation with the customer and in

turn gain the customers satisfaction , trust (Palmatier et al. 2006) and gain recognition for

their brand thereby driving commitment and loyalty.

However, in recent times the core product is more or less the same, of a company when

compared to its competitors, the functional and technical quality is of the same standards.

Njenga (2010, p.87) states that the core benefits from the product or service may not be the

commanding factor in building a relation. For a company, in order to distinguish itself from

competition needs to create value. Eggert et al. (2006, p. 20, cited in Gronroos 2009, p.352)

identifies the importance of value creation for

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customers in order to develop long term relations with customers, which go beyond just

delivering core benefits derived from the product. Buttle (2000) states to build a successful

relationship and add value, customer portfolio analysis (CPA), customer intimacy, network

development, value proposition development and managing the relationship needs to be done

effectively.

EXAMPLES OF QUALITY RELATIONSHIPS:

Examples of some successful companies who have been able to retain customers through the

quality of relationships with them:-

BOOTS: BOOTS uses an "Advantage Loyalty Card" program through which it aims to

develop relations with its customers. The company adds value to the core product by

rewarding loyalty with points which can be redeemed at any of its stores. The card helps in

CPA by gathering all the data such as place of shopping, product bought, promotions and

benefits attracted to, average transaction value etc. Customer intimacy aims to know a

company's customers (Buttle, 2000). Most companies are inundated by the amount of data,

however BOOTS with its effective segmentation has been able to cater to the different

segments in actual fact, and the products are tailored according to each segment's need. For

each campaign customers are handpicked and are directly contacted by mail. BOOTS aims to

increase the value proposition by making the points redeemable immediately and helps its

customers treat themselves to high profile products which intends to provide customers with

the social and special treatment benefit over and above the core benefits from using the

product, additional health & beauty tips and also a quarterly magazine are issued for its most
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loyal customers. (http://www.BOOTSlearningstore.com/ks4/ad_card_text.pdf) These steps

help in customers being satisfied with the relationship, develop trust and thereby commitment

and loyalty to the brand. The quality of the company's usage of its database and the effective

segmentation and tailored products has resulted in retention rates of 26% (Piskar, 2005).

However BOOTS still interacts with its customers using traditional channels such as direct

mailing and the company does not have any special incentives for its most valued customers,

a step which should be taken to further develop the quality of the relation with its customers.

TESCO: is another example of how quality of relationships and adding value for the

customer can lead to customer retention and brand loyalty. Tesco which is known for its

innovativeness for the use of their technological data (CRM data) (Rowley, 2003, cited in

Rowley, 2005, p.198) has a loyalty scheme knows as Tesco clubcard in the UK. Eggert et al.

(cited in Gronroos, 2009, p.352) points out that for creating and maintaining long term

relationships between the company and its customers offering superior value is vital. Tesco

Clubcard not only builds relations with its own customers but it also introduces customers

and businesses to each other. Tesco attracts its customer base by rewarding points which can

go further than everyday shopping and it associates its partner organisations, deals are also

offered from Tesco and participating companies to involve the customer with Tesco's

experience every day. They have also integrated the online and offline channels together and

further details related to their purchases and points can be accessed. The main aim of Tesco is

to be with its customers in every aspect of their lives in order to build relation and trust in the
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brand (Rowley, 2005).Value is further added by allowing customers to be part of different

clubs as well which range from advice to parents about their babies to connoisseurs in wine,

liquor etc. The quality of service provided by Tesco has further helped in retention of

customers, Tesco recently has also launched smart phone applications for its customers to

browse through the products available at any selected store, or to locate the nearest store and

for its clubcard members has launched "Clubcard on your smart phone"

(http://www.tesco.com/clubcard/clubcard/). These steps not only improve the level of

satisfactions among its customers, but also helps to maintain customer relationships by

adding more value into its brand thereby achieving loyalty and retention. This can be easily

comprehended by the market share Tesco has which is 30.5% compared to 16.9%, 16.3% and

12.3% of Asda, Sainsbury's and Morrisons respectively (www.advfn.com).

EVALUATION:

A review of previous literature has shown us that quality of customer service, value addition

over and above the core product, regular contact and fulfilment of promises is vital for

retaining customers and developing relationships with them. It is also the perception of the

customers, and the ability of relationship marketers to influence it in favour of the company

or brand is also essential where the consumer believes that there is no better alternative or no

other company can provide more satisfaction. Relationships are based on trust, commitment,

satisfaction and proper communication between both parties along

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with the benefits derived from the products (Thurau, 1997) Another critical factor is sense of

security in the consumer's mind .

Focussing on the examples above, we can evaluate the scope of customer retention in terms

of relationship marketing. Apart from the core benefits derived from the product we will

discuss about the Social, confidence and special treatment benefits.

BOOTS offers its customers the widest range of products, for customers with the advantage

card a temporary paper card is issued at the counter and make points redeemable immediately

and points can be checked and spent using an advantage point machine

(http://www.BOOTSlearningstore.com/ks4/ad_card_text.pdf). Tesco and the other

participating organisations offer clubcard points for each purchase its channel integration

offers even more confidence to customers and offers information, posts magazines, special

offers etc. these were the confidence benefits offered.

BOOTS offers social benefits by allowing customers to treat themselves to something special

in place of just reducing the cost of shopping the customer can buy an expensive perfume or

bag which can be a social statement, also included are special offers on health and beauty.

Tesco too takes a similar approach by offering deals from a wide range of choices, offering

variety of advice and information and customers can use their points buy products from other

companies as well which makes Tesco a part of their everyday life and shopping a bit more

enjoyable.
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Finally BOOTS offer special treatment benefits by hand picking customers for their

promotional and special campaigns, personalised mailing of products according to their

purchase history and faster service through advantage point. Tesco also has personalized

mailings, premium customers get special offers for clubcard deals and points are also doubled

for premium customers, points are doubled for members purchasing on clubcard deals

(Rowley, 2005).

CONCLUSION:

Social benefits, special benefits and confidence benefits derived from relationships help steer

commitment and trust (Yuan, 2010), and satisfaction can be found in the relational benefits

offered (Johnsson, 2003). As mentioned earlier the trust, commitment, satisfaction and

fulfilment of promises (Gronroos, 2009) is vital in determining the quality of the relations.

Functional quality of a product or service can be biased as opposed to the technical quality of

the same product or service over time (IBID, 2009), and expectations vary from customer to

customer and their duration of activity with a specific company, it also changes over a period

of time.

Industries such as the retail sector integration of loyalty schemes, Customer Relationship

Management , alliances help in creating additional value in the broadest level where

interpersonal communication can be low (Egan, 2003). Duration of the relationship is a

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critical factor, relations are built over a period of time and the satisfaction of the customers is

based on the service and benefits received from the company over a period of time as it is

cumulative in nature.

Proper utilization of resources and data can help in developing profitable relations for both

the consumer and the company. Therefore we can conclude that there is a vast scope for

retaining customers by developing relationships with them thereby retaining them.

Companies such as Tesco and BOOTS have been able to retain customers through value

addition and by offering relational benefits as mentioned above and have taken additional

measures such as providing constant training for the staff and offering incentives on superior

performance in order to offer better quality of service and satisfaction for its customers every

time owing to the time taken in developing and maintaining a relation.

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