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Managing External Relationships


Management is intrinsically linked with organisations

But what is the purpose of any organisation?

What is an organisation

To deliver something

The purpose of an organisation

To operate without a loss

To operate legally

In your groups discuss:
Who are all the different people and groups that an organisation
might have a relationship with?
Which of these relationships do you think are the most important?
And why?

Be prepared to report back to the class

Possible Stakeholders
Fund Managers


Pressure groups

Individual shareholders


Who does an organisation

have relationships with to
achieve its purpose?

those individuals or groups who depend on the
organisation to fulfil their own goals and on whom, in turn,
the organisation depends (Johnson & Scholes 1997:196)

But not all stakeholders are equal!

One key stakeholder group are customers

Organisations are interested in

Customer satisfaction
In an average business existing satisfied customers are around
70% of volume
Customer perceptions of quality
Customer intention to repurchase
Customer likelihood of word of mouth, etc.

Customer based issues

Thus two key customer based issues are:

1. Satisfying customers
2. Building relationships and loyalty

How do we evaluate
To understand satisfaction an organisation needs to know
how customers evaluate products
If you bought one of your favourite products what would
make you dissatisfied with it?
What expectations did you have about the product before
you bought it?

The customer evaluation


Meeting expectations

Every point of interaction between company

and customer is evaluated
Interactions are therefore key to quality and
value creation.
It is crucial that organisations are aware of
this and act accordingly.

Where do expectations
come from?

Your own experience (most trusted source)

Your friends advice (next most trusted)
Marketing information ( least trusted)
Third party communications eg reviews (considered to
be especially valid and objective)
Recent evidence suggests that electronic word of mouth
(WOM) is now highly significant
In the US, between 1 and 3 bad reviews will deter the majority
(62%) of consumers from purchasing a particular product or
service Lightspeed Research 2011
More than two-thirds of global internet users seek online
product reviews, recommendations from discussion forums or
feedback from social media sites when making a purchase
decision Nielsen

What do customers
Customers evaluate the core of the purchase
Reliable performance, tangible cues to quality, etc.
If the core is good, satisfaction is not affected much because the
customer expects the core to be good
If the core is bad, dissatisfaction occurs

Customers also evaluate the interpersonal aspects of

service when applicable
Responsiveness, competence, empathy, etc.
Supplemental components can affect both satisfaction and

What role does level of

involvement play?
Low involvement
Comparison process may be instantaneous and quickly
forgotten e.g. Purchasing toothpaste
Expectations are usually subconscious
If do not receive what expected, expectations become more
explicit e.g. Toothpaste tastes different

High involvement
Comparison process is deliberative and conscious e.g.
Purchasing athletic shoes
Customers think about purchases
Customers have expectations that must be met

How else does evaluation


Evaluation is also linked to purchase attributes of search,

experience, credence


Qualities are obvious from visual examination

Comparative process is straightforward


Expectations may not be fully formed prior to purchase

Experience and expectations simultaneously shape the


Customers dont have the expertise to evaluate what is

delivered so evaluate what they can e.g. appearance, staff
courtesy etc.

Barriers to the matching of

expectations and

inadequate resources
inadequate delivery
exaggerated promises

Perceptions of experience

Value gaps or
Expectation model highlights possibility of value gaps or
Important to understand these as they either
Provide existing supplier with opportunity to enhance customer

Open up access for competitors to do so

Customer relationship lifecycle

in airline industry

Source: Grnroos, C. (1983) Strategic Marketing and Marketing in the Service Sector, Marketing Science Institute, Cambridge, MA, p. 75. Reproduced with permission

Performance, satisfaction
and customer loyalty

Why is loyalty important?

Loyal customers are assets they generate more profit
as they buy more product, cost less to service, are less
price sensitive and recommend company to others
Its up to 6 times more expensive to win a new customer
as to retain an existing one
Dissatisfied customers will on average tell 14 others (so
business lost may be considerably higher than just 1
The average of customers lost is 10% p.a. All retentions
reduce loss in profits
Only 14% of customers are lost due to product problems
but around 70% are because of indifferent or inaccessible
service people

Valuing customers

The more of a customers business that can be attracted, and

the longer it can be kept by retaining the customer, the more
value that customer will have. Happy customers spend
increasing amounts on the purchase of a specific
product/service over time.
So customer retention is an important goal for any company
There are calculations to find out exactly how much each
customer is worth. These calculations are known as Customer
Lifetime Value (CLTV) calculations.

The loyalty ladder

The loyalty ladder is a shorthand way of assessing customer

How to hold on to existing


Targeting customers for retention

Internal marketing
Building trust
Promise fulfillment
Service recovery

The importance of
building relationships
Strong relationships help to retain customers and are the
basis of strong competitive advantage
Thus managing relationships with customers should be a
key focus for an organisation
The corporate solution is the creation of a customer
relationship management (or CRM) system which takes
planning, money and constant work
CRM is a process by which a firm gathers information about
the wants and needs of its customers to enable it to adjust its
offerings to better fit those wants and needs. It requires
ongoing monitoring of customers

Loyalty development with


High customer satisfaction and beginning of customer dependency

Both organisation and customer must receive positive benefits
(even if there are some hitches along the way)

Customer no longer totally focused on price and product;

Relationship is becoming a factor but they may still switch
Organisation shifts to maximising relationship including segmenting
customer groups in terms of value
Loyalty very weak
what have you done for me lately?
High likelihood of switching
Organisation focused on gaining customers

A shift to CMR
Increasing shift to Customer Managed Relationships
Customer empowerment
More control over how much personal data to share
More customised service
Permission marketing

Active role of customer and constructive 2 way dialogue

Learning organisation

Changed buying process

But organisations must be careful not to totally hand over

power to customers