Contents [hide] 1 The service quality model 2 Expanded models 3 Data collection 4 See also 5 Notes 6 References The service quality model[idle] A model by Aka Storybook, Tore Strangled, and Charlatans Gross (1994), the service quality model, Is more detailed than the basic loyalty business model but arrives at the same conclusion. [al In it, customer satisfaction is first based on a recent experience of the product or service.
This assessment depends on prior expectations of overall quality compared to the actual performance received. If the recent experience exceeds prior expectations, customer satisfaction is likely to be high. Customer satisfaction can also be high even with mediocre performance quality if the customer’s expectations are low, or if the performance provides value (that is, it is priced low to reflect the mediocre quality).
Likewise, a customer can be dissatisfied with the service encounter and still perceive the overall quality to be good. This occurs when a quality service Is priced very high and the transaction provides little value. This model then looks at the strength of the business relationship: it proposes that this strength is determined by the level of satisfaction with recent experience, overall perceptions of quality, customer commitment to the relationship, and bonds between he parties.
Customers are said to have a “zone of tolerance” corresponding to a range of service quality between “barely adequate” and “exceptional. ” A single disappointing experience may not significantly reduce the strength of the business relationship if the customer’s overall perception of quality remains high, if switching costs are high, if there are few satisfactory alternatives, if they are committed to the relationship, and If there are bonds keeping them in the relationship.
The existence of these bonds acts as an exit barrier. There are several types of bonds, Including: gal bonds (contracts), technological bonds (shared technology), economic bonds (dependence), knowledge bonds, social bonds, cultural or ethnic bonds, Ideological bonds, psychological bonds, geographical bonds, time bonds, and planning bonds. Loyalty. Customer loyalty is determined by three factors: relationship strength, perceived alternatives and critical episodes.
The relationship can terminate if: 1) the customer moves away from the company’s service area, 2) the customer no longer has a need for the company’s products or services, 3) more suitable alternative providers become available, 4) the relationship strength has weakened, 5) the many handles a critical episode poorly, 6) unexplainable change of price of the service provided. The final link in the model is the effect of customer loyalty on profitability. The fundamental assumption of all the loyalty models is that keeping existing customers is less expensive than acquiring new ones.
It is claimed by Richened and Gasser (1990) that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85% (in terms of net present value) depending upon the industry. However, Carroll and Richened (1992) dispute these calculations, lamming that they result from faulty cross-sectional analysis. According to Buchanan and Gilles (1990), the increased profitability associated with customer retention efforts occurs because: The cost of acquisition occurs only at the beginning of a relationship: the longer the relationship, the lower the amortized cost.
Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue). Long term customers tend to be less inclined to switch and also tend to be less price sensitive. This can result in stable unit sales volume and increases in sales volume. Long term customers may initiate free word of mouth promotions and referrals. Long term customers are more likely to purchase ancillary products and high-margin supplemental products. Long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors’ market share gains difficult.
Regular customers tend to be less expensive to service because they are familiar with the processes involved, require less “education,” and are consistent in their order placement. Increased customer retention and loyalty makes the employees’ Jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction in a virtuous circle. For this final link to hold, the relationship must be profitable. Striving to maintain the loyalty of unprofitable customers is not a viable business model.
That is why it is important for marketers to assess the profitability of each of its clients (or types of clients), and terminate those relationships that are not profitable. In order to do this, each customer’s “relationship costs” are compared to their “relationship revenue. ” A useful calculation for this is the patronage concentration ratio. This calculation is hindered by the difficulty in allocating costs to individual relationships and the ambiguity regarding relationship cost drivers. Expanded models[edit] Schlesinger and Highest (1991) added employee loyalty to the basic customer loyalty model.
They developed the concepts of “cycle of success” and “cycle of failure”. In the cycle of success, an investment in your employees’ ability to provide superior service to customers can be seen as a virtuous circle. Effort spent in selecting and training employees and creating a corporate culture in which they are empowered can lead to increased employee satisfaction and employee competence. This will likely result in superior service delivery and customer satisfaction. This in turn will create customer loyalty, improved sales levels, and higher profit margins.
Some of these profits can be reinvested in employee development thereby initiating another iteration of a virtuous cycle. Frederick Richened (1996) expanded the loyalty business model beyond customers and employees. He looked at the benefits of obtaining the loyalty of suppliers, employees, bankers, customers, distributors, shareholders, and the board of directors. Data collection[edit] Typically, loyalty data is being collected by multi-item measurement scales administered in questionnaires. However, other approaches sometimes seem more viable if managers want to know the extent of loyalty for an entire data warehouse.
