Relationship Marketing: Customer Value and Satisfaction

Relationship Marketing

Relationship marketing has emerged as an important topic in both academic and practitioner discussion and literature. The basis of relationship marketing is customer loyalty because retaining customers over their life will contribute to enhanced profitability. This implies that companies have to learn continuously about their customers’ needs and expectations, which are ever changing and often unpredictable. Customer relationships can then be enhanced by offering increased value which companies are able to derive from their learning.

Enhancing relationships with customers means treating them fairly, enhancing the core service by adding extra value and, perhaps most important, providing a highly customized service for each individual. While ensuring that existing customers are satisfied with the service, many managers are also developing loyalty schemes in an effort to entice customers away from their competitors.

Before an organization can begin to develop a relationship marketing strategy, it is important that three underlying principles are understood, loyalty, profitability and retention.

Relationship Building Blocks: Customer Value and Satisfaction

Attracting and retaining customers can be a difficult task. Customers often face a bewildering array of products and services from which to choose. To attract and keep customers, a company must constantly seek ways to deliver superior customer value and satisfaction.

Customer Value

A customer buys from the firm that offers the highest customer perceived value – the customer’s evaluation of the difference between all the benefits and all the costs of a marketing offer relative to those competing offers.

Perceived value describes the buyer’s overall assessment of a product’s utility based on what is received and what is given. It represents a trade-off between the “give” and the “get” components of a purchase transaction and plays a critical role in purchase decisions.

The give is mainly the product’s price. Increasingly, consumers base brand decisions on their notions of a “reasonable price” and compare prices regularly. Figure 1 summarizes the effects of price on buyer judgments of value. Perceived value ultimately determines willingness to buy. Perceived value in turn is determined by a combination of the perceived benefits, or quality received, and the monetary sacrifice made; higher benefits enhance value; higher monetary sacrifice detracts from it. These offsetting effects reflect the trade-off of the give and get components inherent in consumer perceptions of value.

Figure: Relationships among price, perceived value and willingness to buy

To survive in a competitive environment, an organization must provide target customers more value than is provided by its competitors. Customer value is the difference between all the benefits derived from a total product and all the costs of acquiring those benefits. For instance, owning a car can provide a number of benefits, depending on the person and the type of car, including flexible transportation, image, status, pleasure, comfort, and even companionship. However, securing these benefits requires paying for the car, gasoline, insurance, maintenance, and parking fees, as well risking injury from an accident, adding to environmental pollution, and dealing with traffic jams and other frustrations. The difference between the total benefits and the total costs constitutes customer value.

Customer Satisfaction

Highly satisfied customers produce several benefits for the company. Satisfied customers are less price sensitive. They talk favorably to others about the company and its products and remain loyal for a longer period.

Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Outstanding marketing companies go out their way to keep their customers satisfied. Satisfied customers make repeat purchases and tell others about their good experiences with the product. The key is to match customer expectations with company performance. Smart companies aim to delight customers by promising only what they can deliver, then delivering more than they do promise. The overall customer satisfaction has been declining slightly in recent years. It is unclear whether this has resulted from a decrease in product and service quality or from an increase in customer expectations. In either case, it presents an opportunity for companies that can consistently deliver superior customer value and satisfaction.

However, although the customer-centered firm seeks to deliver high customer satisfaction relative to competitors, it does not attempt to maximize customer satisfaction. A company can always increase customer satisfaction by lowering its price or increasing its services. Nevertheless, this may result in lower profits. Thus, the purpose of marketing is to generate customer value profitably. This requires a very delicate balance: The marketer must continue to generate more customer value and satisfaction but not “give away the house.”

Next Conceptualization of Customer Loyalty

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