Study Notes: Customer Relationship Management – Relationship Management and Retention

 

2.9 Lecture 3: The Five Theoretical Underpinnings of Relationship Management

Customer relationships are underpinned by five key schools of thought:

1. IMP (Industrial Marketing and Purchasing) School

• Focuses on B2B relationships.

• Key elements:

  • Actor Bonds: Personal interactions between individuals across firms; build trust and commitment.

  • Activity Links: Commercial, technical, financial, and administrative connections (e.g. shared IT or stock systems).

  • Resource Ties: Human, financial, legal, physical, and intellectual resources dedicated to maintaining the relationship (e.g. time, contracts, payments).

2. Nordic School

• Based on Grönroos and Gummesson.

• Applies to both B2B and B2C.

• Emphasizes service in interactions.

• Key ideas:

  • Organizations and customers co-create value through mutual service.

  • Leads to Service-Dominant Logic (SDL): All organizations, including manufacturers, are service providers.

  • Example: A car’s value is transportation; true value is only realized when used by the customer.

3. Anglo-Australian School

• Broader stakeholder approach.

• Suggests firms serve six markets:

  • Customer markets

  • Internal markets (employees)

  • Recruitment markets (employee sources)

  • Referral markets (word of mouth, advocates)

  • Influence markets (media, government, investors)

  • Supplier/alliance markets (suppliers, partners)

4. North American School

• Introduced trust and commitment as foundations of strong relationships.

• Trust builds through:

  • Shared values

  • Open communication

  • Non-opportunistic behavior

  • Low functional conflict

  • Cooperation

• Commitment enhances value but can also make exit difficult if the relationship deteriorates.

5. Asian (Guanxi) School

• Based on Confucian and Buddhist values.

• Emphasizes interpersonal relationships, social bonds, reciprocity.

• Long-term, trust-based networks of mutual benefit.

Reference: Buttle, F. and Maklan, S. (2019). Customer Relationship Management: Concepts and Technologies. 4th edn. London: Routledge, pp. 53–58.

---

Service-Dominant Logic: Blog Post

Understanding Service-Dominant Logic (SDL): Co-Creating Value in a Service Economy

In today’s customer-driven economy, the concept of Service-Dominant Logic (SDL) has reshaped how businesses understand value. Introduced by Vargo and Lusch (2004), SDL moves away from traditional views of value being embedded in physical products, suggesting instead that value is co-created by customers and providers through service exchange.

What Is Service-Dominant Logic?

SDL asserts that:

• Service is the fundamental basis of exchange.

• Goods are merely mechanisms to deliver services.

• Value is not created by the firm alone but is co-created with the customer.

• Value is always uniquely and phenomenologically determined by the beneficiary (the customer).

Example: Car Manufacturer

Traditionally, a car company creates value by producing and selling cars. Under SDL, the car is a service enabler—it provides mobility. The true value is realized only when the customer drives the car. Thus, value emerges from how well the service (mobility) fits the customer’s needs.

Example: Spotify

Spotify doesn’t sell music in the traditional sense. It offers a streaming service, enabling access to music anywhere, anytime. The value is co-created when users personalize playlists, interact with recommendations, and engage with content that suits their mood and preferences.

Implications for Business

• Businesses must understand the customer’s context.

• Product design should focus on customer experience and outcomes.

• Firms need to become partners in value creation, not just producers.

SDL encourages companies to move beyond transactional thinking and focus on building relationships that enable mutual benefit. It is especially relevant in sectors like hospitality, banking, healthcare, and IT services, but applies across industries.

References:

• Vargo, S.L. and Lusch, R.F. (2004). 'Evolving to a New Dominant Logic for Marketing', Journal of Marketing, 68(1), pp. 1–17.

• Buttle, F. and Maklan, S. (2019). Customer Relationship Management: Concepts and Technologies. 4th edn. London: Routledge.

---

3.1 Lecture 1: Defining Customer Retention and Development

Customer Retention

• Strategy to reduce customer defections (churn).

• Churn rate: % of customers lost in a time period.

• Retention rate: % of customers retained from the start of the time period.

• Important to understand which customers are lost, not just how many.

  • Losing high-value customers is worse than losing many low-value ones.

Share of Wallet

• Measures what % of a customer’s total spending in a category goes to your organization.

• A customer may be "retained" but spend less if competitors gain share of wallet.

• Retention should aim to preserve both customer and value contribution.

Strategic Value of Customers

• Customers may also offer prestige or branding value.

  • Example: Supplying toiletries to a 5-star hotel may be low-margin but high-prestige.

Retaining New vs. Existing Customers

• Some firms focus retention on new customers, assuming existing ones are loyal.

• Caution: Long-time customers may feel neglected if new ones receive better offers.

Customer Development

• Aims to increase Customer Lifetime Value (CLV).

• Cross-Selling: Selling new products to existing customers (e.g. checking + insurance).

• Upselling: Encouraging purchase of more premium options (e.g. basic → premium account).

• Timing and relevance are key—poorly executed sales pitches can alienate customers.

Reference: Buttle, F. and Maklan, S. (2019). Customer Relationship Management: Concepts and Technologies. 4th edn. London: Routledge, pp. 120–121.