Page 71 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes To understand why managers adopt price competition strategies when corporate cost structure
is predominately fixed, it is necessary to understand the concept of operating leverage. Operating
leverage is the measure of the extent to which fixed costs are being used in an organization.
Using fixed costs, managers apply operating leverage to convert small changes in revenue to
significant changes in profitability. The idea of operating leverage is consistent with the
economies of scale concept developed by economists to describe the fact that cost per unit can be
reduced by taking advantage of opportunities that become available as the size of an operation
increases.
The degree of operating leverage is very important to managers, as it enables them to focus on
the appropriate activities. For example, when the company operates near the breakeven point,
managers should focus their attention on activities that increase sales (hence, the destructive
price strategy), because increased sales will have a significant impact on profitability. On the
other hand, when the company operates far from the breakeven point, the focus of managers
should be oriented to cost control or new product development.

Self Assessment

Fill in the blanks:
8. Sales revenue – cost of production/provision = ……………………
9. There are …………………… steps in ABC costing process

10. ABC is often used by telecommunications companies to improve customer ……………_
11. …………………… is concerned with how profit is determined by sales volume, sales
price, variable expenses, and fixed expenses.

3.4 Customer Defection

Understanding consumer behaviour is a great topic of discussion. Now, while we are at it,
customer defection relates a lot to consumer complaint behaviour. Let us discuss the same
before taking a leap towards the main topic of customer defection.

Consumer Complaint Behaviour

Consumer complaint behaviour is also known as consumer complaint responses (Singh & Widing,
1991). Crie (2003: 61) defined consumer complaint behaviour as a process that ‘’constitutes a
subset of all possible responses to perceived dissatisfaction around a purchase episode, during
consumption or during possession of the goods or services’’. He argued that consumer complaint
behaviour is not an instant response, but a process, which does not directly depend on its
initiating factors but on evaluation of the situation by the consumer and of its evolution over
time. Broadbridge and Marshall (1995) explained that consumer complaint behaviour is a distinct
process, which begins when the consumer has evaluated a consumption experience (resulting in
dissatisfaction) and ends when the consumer had completed all behavioural and non-behavioural
responses.

Singh (1990) identified consumer complaint behaviour as the consumer dissatisfaction response
style. Thus, complaint is actually the response following the consumer dissatisfaction. These
responses/actions include among others, switching patronage, telling friends and family and
complaining to a consumer agency. Mason and Himes (1973) categorized the response styles
into action group and no action group. The consumers who complain to member(s) of distribution
(e.g. retailer or seller) with intention to seek relief are classified as action group, while others,

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