You are on page 1of 30

Chapter 2

Building and Sustaining Relationships

in Retailing

9th Edition

Chapter Objectives
To explain what “value” really means and highlight
its pivotal role in retailers’ building and sustaining
To describe how both customer relationships and
channel relationships may be nurtured in today’s
highly competitive marketplace

How Customers Make Their Choices
In a team, choose a product and discuss:
Task 1

• How do you make a choice what product to buy?

• What are your selection criteria?
• What do you consider?
• What do you compare?

What is Value?
Channel Perspective: Customer Perspective:
 Value is a series of  Value is the perception
activities and that the shopper has of
processes - the value the value chain
chain - that provides a
 It is the view of all the
certain value for the
benefits from a
purchase versus the
price paid.

Defining Customer Value

• Customer Perceived Value (CPV)

• Customer Delivered Value (CDV)
– Total customer value
– Total customer cost

Determinants of
Delivered Value

Customer Value

• Customer delivered value – the difference

between total customer value and total customer

• Total customer value – the bundle of benefits

customers expect from a given product or service

• Total customer cost – the bundle of costs

customers expect to incur in evaluating, obtaining,
and using the product or service

Delivering Customer Value and

• A company can win by creating and

delivering customer value

• Value Chain
– Value chain
– The Value Delivery Network
(Supply Chain)

The Generic Value Chain by Porter
A firm must examine its costs and performance in each
value-creating activity

Levi Strauss’s

Retail Value Chain
 Represents the total bundle of benefits offered
to consumers through a channel of distribution
– Store location and parking,
– retailer ambience,
– customer service,
– brands/products carried,
– product quality,
– retailer’s in-stock position,
– shipping, prices,
– image, and other elements
Providing Extra Value
for Customers
List the benefits
offered to consumers
at Melonman Store:

3 Aspects of Value-Oriented Retail Strategy


List some elements
of retail value strategies
for a music/records shop:
1. expected
2. augmented
3. potential
An expected retail strategy
represents the minimum value chain elements a given
customer segment expects from a type of retailer. These
are expected value chain elements:
a. Store cleanliness
b. Convenient hours
c. Well-informed employees
d. Timely service
e. Popular products in stock
f. Parking
g. Return privileges

An augmented retail strategy
encompasses the extra elements in a value chain that
differentiate one retailer from another.
These are augmented value chain elements: Exclusive
brands,Superior salespeople, Loyalty programs, Delivery,
Personal shoppers, Valet parking

A potential retail strategy comprises value chain

elements not yet perfected by a competing firm in the
retailer’s industry category.

Potential Pitfalls to Avoid in Planning a
Value-Oriented Retail Strategy

• Planning value with just a price perspective

• Providing value-enhanced services that customers
do not want or will not pay extra for (Wal-Mart
Greeters in Germany)
• Competing in the wrong value/price segment
• Believing augmented elements alone create value
• Paying lip service to customer service (на словах,
не на деле)

A Value-Oriented Retailing Checklist
 Is value defined from a consumer  Is the retailer’s value-oriented
perspective? approach effectively communicated
 Does the retailer have a clear value/ to the target market?
price point?  Can the target market clearly
 Is the retailer’s value position identify the retailer’s positioning
competitively defensible? strategy?
 Are channel partners capable of  Does the retailer’s positioning
delivering value-enhancing services? strategy consider trade-offs in sales
versus profits?
 Does the retailer distinguish between 
expected and augmented value chain Does the retailer set customer
elements? satisfaction goals?
 Has the retailer identified meaningful  Does the retailer periodically
potential value chain elements? measure customer satisfaction
 Is the retailer’s value-oriented
approach aimed at a distinct market  Is the retailer careful to avoid the
segment? pitfalls in value-oriented retailing?
 Is the retailer’s value-oriented  Is the retailer always looking out for
approach consistent? new opportunities that will create
customer value?
Customer Relationships

1. The Customer Base

2. Customer Service
3. Customer Satisfaction
4. Loyalty Programs

Customer Service
• Expected customer • Augmented customer
service is the service service includes the
level that customers activities that enhance
want to receive from the shopping
any retailer such as experience and give
basic employee retailers a competitive
courtesy advantage

Figure 2.4 Classifying Customer Services

Fundamental Decisions
 What customer services are expected and what
customer services are augmented for a particular
 What level of customer service is proper to
complement a firm’s image?
 Should there be a choice of customer services?
 Should customer services be free?
 How can a retailer measure the benefits of providing
customer services against their costs?
 How can customer services be terminated?

Customer Services
 Delivery  Interior designers
 Installations
 Personal shoppers
 Packaging/ gift wrapping
 Complaints/ Return handling
 Ticket outlets
 Gift certificates  Parking
 Trial purchases  Water fountains
 Special sales
 Pay phones
 Extended store hours
 Mail and phone orders  Baby strollers
 Credit  Restrooms
 Information
 Restaurants
 Shopping bags
 Baby-sitting
 Fitting rooms
 Beauty salons

Customer Satisfaction:

Expectations vs. Experience

What are the factors influencing
Customer Expectations?
• ?
• ?
• ?

Customer Satisfaction
• Satisfaction is a person’s feelings of pleasure or
disappointment resulting from comparing a product’s perceived
performance (or outcome) in relation to his or her expectations

• The challenge of implementing Total Customer Satisfaction is to

create a company culture in which everyone within the company
aims to delight the customer

Complete Customer Satisfaction: Hampton Inns

A subcommittee of the board of directors of Hampton Inns

has made a bold proposal that customers be given a
guarantee of “complete satisfaction or your night’s stay is

• Why would employees not want to guarantee customer


• What are possible customer reactions to such a guarantee?

Attracting and Retaining
• Partner relationship management (PRM)

• Customer relationship management (CRM)

Attracting and Retaining Customers
• Attracting Customers
– Costly: Research has found that what it costs to
gain a new customer is about 5 times more then
keeping customer we’ve got

• Computing the Cost of Lost Customers

– Customer defection
Adding water to a leaking bucket
– Lifetime value
Computing the Cost of Lost Customers
Stew Leonard, who operates a highly profitable single-store supermarket,
says that he sees $50,000 flying out of his store every time he sees a
dissatisfied customer. Why?

Because his average customer spends about $100 a week,

shops 50 weeks a year and remains in the area for about 10 years.

$100 x 50 weeks x 10 years = $ 50 000

If this customer has an unhappy experience and switches to another

supermarket. Stew Leonard has lost $50,000 in revenue. The loss can
be much greater if the disappointed customer shares the bad
experience with other customers and causes them to defect.

Stew Leonard’s Video
Rule # 1 - the customer is always right
Rule # 2 - if the customer is ever wrong, reread rule #1

3 S’s of quality service

– Strong service STRATEGY
– Customer friendly SYSTEMS
– Very good STAFF

Why is Stew Leonard’s so successful?

How did Stew Leonard’s use 3 S’s to satisfy their customers?