Page 237 - DMGT522_SERVICES MANAGEMENT

Services Management

Notes each of the customers of the six-market model have expectations that are different from each
other. The firm is now six-times challenged – to first build and hype up expectations; to bond
relationships; and then retain customer loyalty by meeting those expectations to the maximum
extent possible.
Let’s take the example of an airline (see Figure 11.2) to drive home this thesis. The expectations
of the customer market would include good services that are simultaneously value for
money (VFM) and full of trust; the internal market of the airline expects security, recognition,
advancement in career and rewards. Similarly, the supplier market expects large orders, quick
and reliable settlements, partnering and not adversarial roles, (agencies, franchisees) with clear
briefings and requirements; the view from the campus (recruitment market) is for job
requirement, courteousness and the image of ‘first choice employer.

11.3 Customer Retention through Relationship Marketing

For a service firm, its marketing philosophy should be:

To acquire customers
To retain customers

To do business with only profitable customers.
Figure 11.3: Leaking Bucket Theory

SERVICE SERVICE
COMPANY ‘A’ COMPANY ‘B’

10% New
Customers
every year

5% loss of 10% loss of
Customers Customers

95% Retention 90% Retention
Rate Rate

AFTER 14 YEARS:
SERVICE FIRM SERVICE FIRM
‘A’ ‘B’
DOUBLES ITS HAS THE SAME
CUSTOMER BASE CUSTOMER BASE
It is more expensive to acquire customers than retain customers. But customer retention becomes
a challenge in the era of heightened competition and decreasing customer loyalty. Various
researches point out to the fact that customer acquisition is five to ten times more expensive than
customer retention. The above diagram explains the leaking bucket theory (see Figure 11.3
above) – that all things being equal (firm size, service offer, rate of customer acquisition, etc.), a
firm, which has half the customer leakage than its rival, will have double the market base in
fourteen years. Or putting it in a different way, if two service firms intend to have the same
market base but have different customer retention capabilities, they will require different
customer acquisition rate or volume. The service firm with better customer retention will need
to acquire fewer customers than its rival, suffering less cost and – at the same time fine-tuning to
focus on high transaction, high profitability, and low-maintenance cost clientele. It underlines
the importance of relationship marketing in such an intangible area as services.

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