The Impact of Relationship Type on Customer Loyalty in the Context of Service Failures - Assignment Example

RUNNING HEAD: Review Report on “The Impact of Relationship Type on Customer Loyalty in a Context of Service Failures” by Anna S. Mattila. Review Report Name Course Institution Date Review Report on “The Impact of Relationship Type on Customer Loyalty in a Context of Service Failures” by Anna S. Mattila. Introduction In the article, “The Impact of Relationship Type on Customer Loyalty in a Context of Service Failures”, Mattila (2001) explores the effect that relationship types have on the responses and behavioural intentions of customers due to service failures and also in cases of effective service recovery. The relationship types examined in this article include; service relationships, service encounter relationships and pseudorelationship. The findings of this article are based on two scenario-based experimental studies conducted in restaurant settings. The key findings of this study depict that true service relationship with customers is significant in promoting customer loyalty particularly in relation to a failed service recovery attempt. Moreover, this type of relationship minimises the resistance of customers to premium prices (Mattila, 2001). The key aim of this report is to critically examine the findings and implications Mattila’s articles on the effect that relationship types have on the responses and behavioural intentions of customers due to service failures. Foremost, this report will highlight the key issues and findings depicted in the article. Secondly, it will discuss the implications that the findings of this article have on practitioners. In this case, this report will draw on to relevant marketing and relationship marketing theories. Key findings and issues in the article In this article, Mattila (2001) attempts to establish the influence that three key relationship types have on the responses and behavioural intentions of customers in cases of service failures and effective service recovery. Her study is based on the assumption that, service failures are inevitable even in best run service companies. She draws on to Gutek’s model to define different interactions or relationships between service companies and their customers. The three relationship types examined in this article include; true service relationships, service encounter and pseudorelationship. According to Mattila true service relationships is characterised by a customers’ repeated contact and interaction with the same service provider whereas service encounter is characterised by customers’ contact and interaction with different providers (Gutek, 1995; Gutek 2000). On the other hand, pseudorelationships are characterised by customers’ interaction with different providers from the same company (Gutek, Bhappu, Liao-Troth & Cherry, 1999). Tax and Brown (2000) observe that, in most cases, service failures have negative impact on the perception and behavioural response of customers towards the alleged service company. However, in this article, Mattila suggests that the impact that service failures bring to a service company is dependent on the type of relationship that the company has with its customers. From her research Mattila basically establishes that, service relationships can help to mitigate the negative consequences that come as a result of failed service recovery. In essence, customers in true service relationships are more willing to forgive their service provider for service failures that customers in service encounter and pseudorelationships. In addition to this, Mattila establishes that, service failures often have the strongest negative impact single in cases of single service interaction particularly with regards to the behavioural intentions of customers and their willingness to accept premium prices. Generally, Mattila’s findings in this article convey that developing a true service relationship with customer helps to ensure customer loyalty especially in cases service recovery. It can also help to minimise customer’s resistance to premium prices (Mattila, 2001). A critical look at the findings of Mattila in this article, it is evident that she accentuates on the need for businesses to develop and maintain true relationships with their customers as an effective marketing strategy (Mattila, 2001). Moreover, a critical look at previous and current literature on marketing it is apparent that there has been a major paradigm shift from transaction-specific marketing to relationship marketing. Initially, marketing theories and concepts such as Jerome McCarthy’s (1960) 4P’s of marketing (price, product, promotion and place) did not capture the essence of building customer relationships. However with time, marketing theories and concepts have evolved and now capture the essence of developing and maintaining true relationships with customers (Grönroos, 1994; Gummesson, 1997). For instance, the “commitment and trust theory” of relationship marketing by Morgan and Hunt emphasises on the need for organizations to develop true relationships with their customer characterised by trust and commitment. According to this theory, relational networks or business relationships between companies and their customers, that are characterised by trust and commitment minimises uncertainty and contributes to customer loyalty. Mattila’s findings in this article echos the sentiments of Morgan & Hunt (1994) in their “commitment and trust theory” in the sense that it depicts that, true service relationships can result to customer retention or loyalty even in cases of service recovery failure. This is mainly because, in true service relationships customers develop a sense of trust and commitment towards their service provider such that in cases of service failure, they are bound to give their service provider a second chance (Mattila, 2001). Moreover, Mattila’s sentiments in this article are echoed in key relationship marketing concepts such as Customer Relationship Management (CRM). CRM is a marketing concept that is often mediated by information technologies in order to enable an organisation to obtain information regarding the preferences, needs and buying habits of their consumers. CRM enables organisations to understand and anticipate the specific needs of their customers. This in turn contributes to customer loyalty and increased profitability for the organisation (Jha, 2008). One of the evident similarities between the CRM concept and Mattila’s findings is that they both based on the premise that true or well developed customer relationships result to customer loyalty (Jha, 2008; Mattila, 2001). In addition to this, “Customer-based Brand Equity theory” by Kevin Keller (1993), provides significant insights on relationship marketing that are in line with the findings of Mattila in this article. Basically, this theory proposes that, in order for markers to enhance the brand equity of their products, they should build brand relationships between their brands and customers. This will in turn help to enhance brand loyalty (Majumdar, 2009). Implications Given that service failures are inevitable, the findings of this article convey that building close relationships with customers may minimise the negative impacts of service failures especially on customer loyalty and their willingness to pay premium prices. Generally, Mattila’s article has provided invaluable insights on relationship marketing. In essence, the findings of this article have confirmed the hypothesis that building and maintaining true service relationships can result to customer loyalty even in cases of failed service recovery. The findings of this article illuminate vital lessons that practitioners or service providers can employ in order to increase customer loyalty and develop a strong brands. For instance, from this article, we learn that developing strong customer relationship involves creating an emotional appeal and bond with the customer. In order to realise this, practitioners or service providers need to identify, understand and meet the specific needs and preferences of their customers. This can be actualised through market segmentation. Basically, market segmentation entails, identifying and dividing segments in the market with similar characteristics in term of consumer’s income, needs, interests, tastes and buying habits. This strategy can help marketers to effectively target and meet the needs of their customers effectively (McDonald & Ian, 2007). In addition to this, Mattila’s article highlights the importance of Customer Relationship Management (CRM) in building strong customer relationship. For instance, in the service industry where service failures are inevitable, CRM is very important since it can help service providers to build customer loyalty and mitigate negative consequences in cases of service failure. The current business environment is very competitive and as a result CRM can help service providers to gather organise and analyse information that are related to customers’ needs, wants, preferences and buying habits. This will in turn enable the alleged service providers to gain a competitive edge over their competitors since they will be able to effectively meet the needs of their customers, appeal to their emotions and form emotional bonds with their consumers. This will in turn enhance customer loyalty and profitability to the service provider (Jha, 2008; Mattila, 2001). Conclusion In this article, Mattila has attempted to establish the influence that three key relationship types have on the responses and behavioural intentions of customers in cases of service failures and effective service recovery. Basically, the key findings of this article depict that true service relationship with customers is significant in promoting customer loyalty particularly in relation to a failed service recovery attempts. Furthermore, this type of relationship minimises the resistance of customers to premium prices. These findings accentuate on the need for businesses to develop and maintain true relationships with their customers as an effective marketing strategy (Mattila, 2001). Moreover, these findings are echoed in marketing theories and concepts such as CRM, commitment and trust theory and Customer-based Brand Equity theory” which accentuate on the need to develop true customer relationships in order to realise positive outcomes. Based on a critical review of this article and other relevant relationship marketing theories and concepts, it is evident that building and maintaining true service relationships can result to customer loyalty even in cases of failed service recovery. References Gummesson, E. (1997) "Relationship marketing as a paradigm shift: some conclusions from the 30R approach". Management Decision, 35(4):267 – 272. Grönroos, C. (1994). "From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing". Management Decision, 32 ( 2): 4 -20. Gutek, B. (1995). The Dynamics of Service: Reflections in the Changing Nature of Customer/Provider Interactions. San Francisco: Jossey-Bass. Gutek, B., Bhappu, A., Liao-Troth, M. & Cherry, B. (1999), “Dis-tinguishing between Service Relationships and Encounters,” Journal of Applied Psychology, 84 (2): 218-33. Gutek, B. (2000). “Service Relationships, Pseudo-Relationships and En-counters.” In Handbook of Services Marketing and Management, T.Swartz and D. Iacobucci, eds. Thousand Oaks, CA: Sage, 371-80. Jha, L. (2008). Customer Relationship Management: A strategic Approach. New Delhi: Global India. Majumdar, M. (2009). Towards Customer Equity: Should Marketers Shift Focus from Brand Equity. 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