Marketing Strategy and Competitive Positioning pdf ebook

CHAPTER 13 COMPETING THROUGH SUPERIOR SERVICE AND CUSTOMER RELATIONSHIPS
Best Service Is No Service (2008), that most customers do not want a relationship with a 
company, they just want things to work.
For example, a recent multinational survey concludes that many consumers find the 
rising volume of marketing messages on the Internet and in the mobile-enabled world to 
be simply overwhelming. It seems that rather than attracting customers and building loy-
alty and effective relationships, marketers are pushing them away with relentless and ill-
conceived efforts to engage with them. It seems that what customers want most is ‘decision 
simplicity’ – ease in gathering trustworthy information about a product so they can con-
fidently and efficiently weigh their purchase options and choose. It seems what customers 
want from marketers is actually simplicity, not more complexity and confusion (Spenner 
and Freeman, 2012).
Similarly, it has been argued that companies should stop trying to ‘delight’ their custom-
ers and just focus on solving their problems. While the rewards for over-the-top service are 
small (if they exist at all), the loss of customers because you do not solve their problems is 
likely to be large. Customers punish bad service but may not reward exceptionally good 
service. The link between service and loyalty is not straightforward. So, telling staff to 
exceed customers’ expectations is liable to produce confusion, wasted time and effort, and 
expensive give-aways (Dixon et al., 2010).
Indeed, while customer loyalty has long been a central tenet of marketing, it is increas-
ingly being called into question. The modern customer may increasingly be a ‘serial adul-
terer’ rather than conventionally loyal (Hill, 2014). Perhaps customer loyalty does not really 
matter anymore? Loyal customers may not actually be cheaper to serve as convention-
ally suggested. For example, one study that goes against the conventional marketing grain 
divides customers into: true friends (long term and highly profitable), butterflies (transient 
but profitable), strangers (with the lowest potential for profit) and barnacles (who create 
‘additional drag’ and need to be removed or converted into better customers). Conventional 
loyalty programmes may just attract butterflies – less than a third of Tesco shoppers are 
‘highly loyal’ (that is, spend 50 per cent of their grocery budget there), while for Sainsbury’s 
the figure is only 9 per cent, and for M&S Food less than 3 per cent. Grocery customers 
appear to be overwhelmingly disloyal, in spite of all attempts to gain their affections.
Far from customers providing a devoted, monogamous relationship, Simonson and 
Rosen (2014) suggest the customer relationship has become an ‘open marriage’, where cus-
tomers evaluate each new model of the camera, car or computer on merit rather than on 
marketing messages or prior preference. This opens the way for upstarts to challenge with 
better products – as Asus laptops did successfully when it took on Dell and Hewlett-Packard. 
Traditional measures of customer loyalty become meaningless, as do attempts to measure 
customer lifetime value, if consumers spend their lifetime flitting between brands. The key 
issues become not loyalty, but quality, service and consistency (Simonson and Rosen, 2014).
It is important that executives should rigorously evaluate the controversies surrounding 
issues such as customer loyalty, satisfaction and service/relationship investments with a 
critical perspective. Many conventional assumptions may be misleading.
Nonetheless, more conventionally, one of the most significant changes in contemporary 
marketing thinking and practice was the shift in focus from achieving single transactions to 
establishing longer-term relationships with customers (see, for example, Vargo and Lusch, 
2004). While transactional marketing is concerned with making a single sale, relationship 
marketing is more concerned with establishing a rapport with the customer aimed at achiev-
ing higher customer satisfaction, more repeat business, greater word-of-mouth referral, 
more opportunities for further business development and enhanced revenues and profit-
ability for the supplier.
Certainly, in the contemporary environment, many markets in developed countries can 
be regarded as mature, or at best growing only slowly, suggesting that there are fewer 
new customers for which to compete. Demographics emphasise this condition – an ageing 
population coupled with high youth unemployment in the West constrains market growth 
in many markets. Competition is increasingly intense, particularly in the new competi-
tive landscapes that are the legacy of economic downturn, and the costs of attracting new 

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INTRODUCTION
customers are high. It has been estimated that the costs of attracting new customers can 
be up to five times as much as the costs of adequately serving existing ones to ensure that 
they stay with you.
Ideas such as lean, waste-free consumption and fair value for money resonate with the 
demands of the post-recession consumer. Appropriate service and relationship strategies 
are critical issues for executives to address in developing robust marketing strategies for 
the environment we all now face.
Note that conventional logic suggests that customer retention is a key predictor of prof-
itability. Support for this view dates back to Reichheld and Sasser (1990), who claimed 
to show the value to companies, operating in a variety of markets, of cutting customer 
defections (lost customers) by as little as 5 per cent: for an automobile service chain a 
5 per cent cut in customer defections resulted in a 30 per cent increase in profits; for an 
industrial laundry a 47 per cent increase in profits; for an insurance brokerage a 51 per cent 
increase; and for a bank branch a staggering 84 per cent increase. Customers that have been 
with a company longer tended, on average, to spend more on each transaction, offer more 
opportunities for cross-selling (selling them other products and services) and give better 
recommendations to their friends and colleagues. In the bank, customer relationships of ten 
years or more accounted for 29 per cent of the account base but 71 per cent of the profits. 
Nonetheless, while the logic appears compelling, there are some suggestions that there are 
limits to its universal applicability. Some companies are placing more emphasis on making 
choices between customers based on profitability and future prospects rather than simply 
longevity of relationship. Maintaining some customer relationships may become expensive 
compared to the value of the customer in question to the company.
Indeed, in all this, it is important that we distinguish between customer retention and 
customer loyalty, together with the relationship each of these has with customer satisfaction. 
There is a danger, in practice, that these concepts become confused. Customer retention is 
essentially a measure of repeat purchase behaviour, and there are many reasons why custom-
ers may come back, even if we have failed to provide them with a high level of satisfaction – 
they may have no choice or they may not know any better. Fraser (2007), for example, warns 
of ‘conflicted consumers’ who buy your product and appear highly satisfied, but in fact are 
a stealth segment ready to defect as soon as a viable alternative appears. Customer loyalty, 
at least as most managers and customers would understand the term, goes beyond simple 
repeat behaviour and habit, and is more to do with how customers feel about us: do they 
trust us? Do they actively want to do business with us? Will they recommend us to others?
To confuse retention and loyalty can be dangerous. Retention may be achieved through 
a ‘bribe’ – discounts for repeat purchase, additional exclusive value-added services and so 
on. Achieving high customer loyalty is likely to be far more difficult (perhaps in some cases 
impossible) and requires greater long-term investment. The practical difference is great. 
That said, marketers should always think carefully about whether they really need loy-
alty, or whether repeat purchase is their goal. Certainly, many commentators and authors 
assume loyalty leads to more predictable and consistent repeat business, but this relation-
ship is by no means proven in practice.
For example, ‘customer loyalty’ card schemes offered by many retailers are more about 
customer retention than loyalty and satisfaction, and it is likely that their effects will last 
only until there is a better offer available. On the other hand, the John Lewis Partnership 
achieves high customer loyalty through satisfaction building above and beyond such ‘loyalty 
cards’. This is expressed in their Partnership Business Model: ‘We work to build brand trust 
and loyalty and provide customers with increasingly personalised, unique and exclusive 
products and services that are authentic and inspiring. And because we’re Partners, we’re 
invested to build that trust and loyalty.’ (www.johnlewispartnership.co.uk/annualreport
Page 12). John Lewis has been rated as the most admired British company for honesty and 
trust, and wins many awards for customer satisfaction. Indeed, as airlines have discovered, 
for example, if all competitors offer the same thing, then customer ‘loyalty’ programmes 
such as frequent flyer awards become a cost of being in business rather than a differentiator. 
Many frequent fliers will have loyalty cards with several airlines or alliances.

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