The Nature of Customer Relationships in Services

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1 1 In: Swartz, Teresa A, David E. Bowen and Stephen W. Brown (eds.), Advances in Services Marketing and Management, Volume 4, London: JAI Press Inc., The Nature of Customer Relationships in Services Veronica Liljander and Tore Strandvik 1 1 The authors have contributed equally to the paper. Correspondence: Swedish School of Economics and Business Administration, P.O.Box 479, Helsinki, Finland. Tel (V. Liljander), (T. Strandvik), fax:

2 2 EXECUTIVE SUMMARY A paradigm shift is taking place in services marketing. The shift is from a transaction-oriented marketing mix view of exchanges to a relationship marketing view (Grönroos 1993a). The focus is turned away from how to acquire new customers to how to develop, enhance, maintain and terminate relationships. The dominating view within services marketing on the exchanges between service providers and customers has, however, been static. Service quality models usually only consider the quality of one specific service episode. They do not account for how the customer s perception of service quality evolves over time when the customer continues to use the service. There is as yet a limited understanding of the nature of relationships between customers and service providers. The conceptual analysis presented in this paper is an attempt to fill this gap. The analysis draws on research from both industrial and services marketing. In the industrial marketing literature relationships have been described as the exchange between mutually committed parties. Within services marketing the issue has not been clearly discussed. It is our view that the simplest form of a relationship is when the customer has purchased from the same service provider at least twice. In its purest form, however, a relationship is characterized by positive commitment by both the customer and the service provider. We propose that a relationship should be defined from the customer s point of view as this corresponds to a market oriented perspective. The customer can be negatively or positively committed toward the service provider, or s/he can be indifferent. A negatively committed customer will try to end the relationship as soon as possible, but is usually unable to do so in the short run because of different bonds which serve as exit barriers. The strength of a relationship is affected both by the degree of commitment between the customer and service provider and the strength of the bonds between them. Bonds within consumer markets differ somewhat from bonds recognized in industrial markets. We suggest that consumer-service provider related bonds are a) economic (e.g. budget restrictions) b) legal (e.g. a bank loan contract which is hard to break), c) technological (e.g. brand specific repair service), d) geographical (e.g. long distance to other service providers), e) time (e.g. the service provider has suitable business hours) f) knowledge (e.g. the service provider knows the customer and his/her history from previous occasions which facilitates the transactions), g) social (e.g. the customer is well know and trusted by the service provider), h) cultural (the customer may e.g. prefer a service provider who speaks his/her native language) i) ideological (e.g. preferring a service provider who is concerned about green

3 3 values) and j) psychological (e.g. brand image). A relationship may be strong although either or both parties are no longer committed to the relation. Thus, bonds and commitment are two independent variables, each of which makes its own unique contribution to the strength of the relationship. Perceived relationship quality is also suggested as a new important concept when studying relationships. A dynamic perceived service quality model, which incorporates both episodes and relationships is presented. In the model both service quality and satisfaction with the service can be perceived on two levels, an episode level and a relationship level. It is argued that the service quality that was received in one episode can be compared to the customer s sacrifices (price and other customer effort) connected to that episode. This results in an evaluation of episode value. It is proposed that the perceived episode value will affect how satisfied the customer is with the episode. In a relationship perspective we can compare all the perceived episode values from prior experiences with the service provider and make an evaluation of relationship value, i.e. the perceived quality over all previous episodes compared to the perceived sacrifices. The perceived relationship value will affect the customer s satisfaction with the relationship. It can be expected that all episodes will not affect the relationship value and satisfaction equally. The customer may give a higher weight to some of the episodes. One or several bad experiences may not make the customer break the relationship if his image of the service provider is otherwise positive. This can, however, differ between groups of consumers. The commitment of the customer to the service provider and the bonds that exist between them will affect how easy it is for the customer to break the relationship and how willing s/he is to do so. Applying the perspective suggested here will from a managerial point of view focus the attention on the core of customer dynamics and customer profitability.

4 4 ABSTRACT Customer relationships in services have been insufficiently studied compared to service interactions. In this paper findings from research on relationships within industrial marketing are applied to consumer services. To manage customer relationships new concepts are needed in addition to those used in static service quality models. A conceptual framework is presented where perceived service quality and customer satisfaction are related to relationship characteristics. It is suggested that the nature of the relationship is determined by the commitment of both the customer and the service provider to the relationship and by the bonds that exist between them. BACKGROUND It has been argued that long lasting relations 2 with customers would be beneficial for a service company. Relationship marketing has emerged as a new important approach by which marketing management can achieve customer retention. Customer retention is assumed to depend critically on the quality of and satisfaction with the service. The role of separate interactions, episodes in relation to the perception of overall quality has, however, not been scrutinized. One reason for this is that the question arises only when a dynamic perspective is applied. Both service quality and satisfaction have traditionally been approached from a static perspective (Grönroos 1993a). Empirical studies often use cross-sectional surveys to measure the service quality at a certain point of time, although initial attempts have been made to make static service quality models dynamic (Boulding et al. 1993). Customer retention indicates customer loyalty or some kind of relationship between the customer and the firm. The relationship concept gives a quite different view of the exchange processes on the market compared to the static view. In the service quality literature there is currently a discussion on the interrelationship between quality, satisfaction and value (see e.g. Anderson and Fornell 1994; Oliver 1993; Parasuraman, Zeithaml and Berry 1994; Rust and Oliver 1994). In this paper we will present a dynamic service relationship quality model that clarifies the relation between these concepts. In the model a distinction is made between episode quality and relationship quality. Satisfaction, service quality and value may all be

5 5 experienced on both an episode and a relationship level. We will extend the discussion on satisfaction, quality and value by including customer relationship characteristics. The question of relationship strength, which is closely connected to relationship quality will also be discussed. The paper draws on both traditional service quality literature and relationship studies within industrial marketing. We are, however, only focusing on the relation between private customers and service providers. In the next section the customer perceived service quality model is presented. The focus of the following discussion will be on those aspects that are directly linked to customer relationships. A PERCEIVED RELATIONSHIP QUALITY MODEL There are four basic ideas behind the model. One important aspect is the division into two levels, an episode and a relationship level. These will be discussed in detail following the description of the model. Another issue is the relation between service quality, satisfaction and service value. The third aspect is the extended disconfirmation framework that the model is based on. The fourth aspect is the inclusion of variables describing customer behavior variables in addition to the perceptual variables used in earlier models. All possible relations are not depicted in the model since these depend on situational characteristics and the type of service that is studied. Likewise, not all concepts are needed in all situations and the importance of them in determining satisfaction or behavior may vary. The model is presented in Figure 1 and a short summary description of the elements is given in Table The terms relationship and relation are both used within industrial marketing studies and service marketing studies. No meaningful difference can be made between the two terms either by definition (see e.g. Reber 1985) or in practice. We will use the terms interchangably.

6 6 Figure 1: A relationship quality model Relationship performance Disconfirmation Comparison standard Zone of tolerance Relationship value Relationship quality Relationship sacrifice Relationship satisfaction Behavior * loyalty * commitment Bonds Image / Commitment Episode performance Disconfirmation Comparison standard Zone of tolerance Episode value Episode quality Episode sacrifice Episode satisfaction

7 Table 1: Description of concepts in the relationship quality model 7 Concept Episode level Relationship level Comparison standard Disconfirmation Performance Zone of tolerance Quality Sacrifice All comparison standards suggested in the literature (e.g. predictive expectations, brand norm, adequate, product norm, best brand norm, excellent service, ideal, competitor). Direct or inferred disconfirmation of any comparison standard. Perceived performance of one particular episode. The accepted variation in performance levels. A plateau in the quality function. Customers cognitive evaluation of the service of one episode compared to some explicit or implicit comparison standard. Perceived sacrifices (price, other sacrifices) connected to the service episode compared to some explicit or implicit comparison standard reference price. Value Episode quality compared to episode sacrifice. Satisfaction Customers cognitive and affective evaluation based on the personal experience of one service episode. Image Commitment Behavior Bonds All comparison standards suggested in the literature except predictive expectations. Direct or inferred disconfirmation of any comparison standard except predictive expectations. Perceived performance across all episodes in the relationship. The accepted accumulated variation in the performance within the relationship. Customers cognitive evaluation of the service across episodes compared to some explicit or implicit comparison standard. Perceived sacrifices (price, other sacrifices) across all service episodes in the relationship compared to some explicit or implicit comparison standard. Relationship quality compared to relationship sacrifice. Customers cognitive and affective evaluation based on the personal experience across all service episodes within the relationship. The holistic perception of a service provider that filters performance evaluations and can in itself constitute a comparison standard. It is also the attitudinal component of commitment in a relationship. All types of bonds can affect the image positively or negatively. Image itself is more likely to affect and strengthen the psychological bonds. Commitment is defined as the parties intentions to act and their attitude towards interacting with each other. High relationship value will affect commitment positively. Purchase behavior and communication behavior (word of mouth, complaints). Loyalty which is based also on positive commitment by the customer indicates a stronger relationship than if it based on mere repetitive purchase behavior. The behavior is also affected by the bonds between the customer and the service provider. By using the same service provider the bonds might be strengthened. Exit barriers that tie the customer to the service provider and maintain the relationship. These are legal, economic, technological, geographical, time, knowledge, social, cultural, ideological and psychological bonds.

8 8 Service quality, satisfaction and value One important aspect in the model is that service quality and satisfaction can be experienced both at an episode and a relationship level. There has been some confusion regarding the differences between service quality and satisfaction. It is only recently that the conceptual and empirical overlap between the two concepts has raised a debate among service quality researchers (Anderson and Fornell 1994; Bitner and Hubbert 1994; Bolton and Drew 1994; Dabholkar 1993; Liljander and Strandvik 1993b; 1994; Oliver 1993; Parasuraman, Zeithaml and Berry 1994; Patterson and Johnson 1993; Rust and Oliver 1994). The debate has been concerned with similarities and links between the concepts and the discussion has mainly been kept on a conceptual level. In their latest article Parasuraman, Zeithaml and Berry (1994) changed their view on satisfaction and service quality compared to earlier publications. Instead of stating that satisfaction is connected to transactions and service quality to a global attitude of the service, it is suggested that quality precedes satisfaction and that satisfaction can be measured also for several transactions. Oliver (1993) also argues that quality is an antecedent of satisfaction. In our view quality precede satisfaction both when the customer evaluates an episode and a relationship. In our view perceived service quality can be seen as an outsider perspective, a cognitive judgment of a service. Although the evaluation of quality is usually based on experiences of the service, a judgment of quality can also be made without service experience (Oliver 1993). Quality judgments can, e.g., be based on knowledge about a service provider through word-of-mouth or advertising. Satisfaction, on the other hand, seems to refer to an insider perspective that is always connected to an actual service experience. Satisfaction is affected by the combination of perceived service quality and perceived sacrifices (Strandvik and Liljander 1994). In this sense a customer could very well respond on a questionnaire that a particular hotel is of high quality, even if this would not mean that this customer would be satisfied visiting the hotel. It might be too expensive for this customer, or might not fit the customer s preferences. It is thus assumed that satisfaction is closer connected to future behavior than quality is. Earlier service quality models did not include the customer's sacrifices (money, effort in time spent, other sacrifices). Lately, however, some researchers have suggested that at least price should be included (Koelemeijer, Roest and Verhallen 1993; Parasuraman, Zeithaml and Berry 1994). In our

9 9 model we consider sacrifice (Monroe 1990; Liljander and Strandvik 1993a) to be an important part of the satisfaction process. If the perceived quality and perceived sacrifices connected to one episode are in balance, or if quality exceeds the sacrifice, the customer will perceive high value and will probably be satisfied. Liljander (1994b) found that episode value for a restaurant service had a strong effect on satisfaction, but also that the model which explained satisfaction best included also service performance and direct disconfirmation of predicted expectations. She also found that there were dissatisfied customers who nevertheless perceived positive episode value, and likewise satisfied customers who perceived negative episode value. Relationship sacrifice refers to all perceived sacrifices made across the episodes, and is compared to relationship quality. The customer thus evaluates what s/he gets (relationship benefits) with what s/he gives (relationship sacrifice). Relationship sacrifice includes also switching costs caused by possible exit barriers. This comparison leads to a perception of relationship value. Although the value of one episode may be perceived as low, the relationship value might still be high due to all the benefits received on previous episodes. The same is true for relationship satisfaction, which is the overall satisfaction of several episodes. The relationship value affects behavior through perceived relationship satisfaction. One dissatisfactory episode does not have to break the relationship if the previous episodes have been satisfactory. The value perception will affect the general image (Grönroos 1990) of the service provider. The image in turn affects the predictive expectations of the next service episode. The image can also serve as a filter when the customer evaluates the relationship performance. An occasional lower level of service performance will not substantively affect the global evaluation of performance if the image of the company is otherwise good. Disconfirmation In line with prior research (see e.g. Liljander and Strandvik 1993b) it is suggested that perceived performance of the episode can affect episode quality either directly or indirectly through disconfirmation of a comparison standard. The comparison standard may be any of the standards mentioned in satisfaction and service quality literature (Woodruff et. al. 1991; Zeithaml, Berry and Parasuraman 1993; Liljander and Strandvik 1993b). Which standard is in fact used by the consumer may depend on the service in focus, situational characteristics and personal characteristics of the

10 10 consumer. A comparison standard may also influence the customer's perceived quality directly, as has been shown in some studies (Liljander and Strandvik 1994; Liljander 1994a). Disconfirmation can be measured either directly or as an inferred measure. Within service quality research an inferred measure has usually been used although a direct measure may give better results (Liljander and Strandvik 1993b). It can also be argued that perceived performance already contains an implicit comparison with some comparison standard. Perceived performance is the consumer's cognitive evaluation of a service. Relationship quality can in the same way as episode quality be determined by direct or inferred disconfirmation or by relationship performance alone. In our view it would be possible to compare relationship performance to any of the standards proposed in the literature, with the exception of predictive expectations which are specifically connected to one service episode. Relationship performance can be seen as a function of all previous experiences. Performance as measured by Servqual can be considered an evaluation of the relation (Parasuraman, Zeithaml and Berry 1988) 3. It has recently been shown that relationship performance has a greater effect than episode performance on intended behavior (Liljander 1994; Strandvik and Liljander 1994). The core idea behind tolerance zones is that customers may accept variations in service performance within a certain range. Earlier service quality models have postulated that customers react on all discrepancies between the comparison standard and performance. If tolerance zones exist, this effect is moderated by them and less direct. The concept of tolerance zones can be generalized to concern the shape of the quality function (Strandvik 1994). The quality function might not be linear as has been assumed in earlier service quality models leading to important measurement and management implications. It is proposed that tolerance zones also can be present on the relationship level, capturing the accepted accumulated variance of performance. 3 Parasuraman, Zeithaml and Berry specify performance as a global assessment of perceptions of performance (Parasuraman, Zeithaml and Berry 1988; 1994). We have interpreted their measure as one type of relationship performance measure. Those who fill out the Servqual questionnaire may, however, not have a relationship with the service provider. Some customers may be first-time visitors or may not otherwise meet the definition of a relation.

11 11 Customer behavior Usually only intended behavior is measured in both service quality and satisfaction studies. Still more important is, however, to study the effect of satisfaction and bonds on customers actual behavior (loyalty and commitment). Relationship quality can affect commitment directly or through perceived relationship value. Positive commitment can be seen as intentions leading to adaptation processes and other behavior, for example, positive word-of-mouth. It is, however, also possible that negative commitment is present, leading to negative word-of-mouth. Both commitment and purchase behavior are proposed to be related to bonds that the customer has with the service provider. Bonds are important as they influence the customer s behavior introducing inertia to the choice process. We have here given an overview of the complete perceived relationship quality model. In the next chapter we will go deeper into the anatomy of customer relationships. CUSTOMER RELATIONSHIPS Relationship marketing as a concept has been contrasted with transactional marketing. The traditional view of marketing, transaction marketing, is claimed to be focused on seeking new customers, while relationship marketing aims at long-term lasting relationships (Christopher, Payne and Ballantyne 1991; Grönroos 1993b). Relationship marketing has been defined as establishing, maintaining, enhancing and terminating relations with customers and other partners. This focus is dominant in industrial marketing within the network paradigm, where marketing is defined as all activities that build, maintain and develop customer relations. Miettilä and Törnroos (1993) list three assumptions that are implicitly or explicitly present in the Interaction Approach of industrial marketing. First, interaction is mediated through human actors, which means that their perceptions, beliefs, attitudes and behavior are central. Secondly, business interaction means mutual dependability, problem solving and adaptation. Thirdly, relationships evolve over time and include the present situation, future goals and their own histories. A comparison of these three statements to consumer service relationships reveals differences. The first statement is probably valid also for consumer services. The second, might not be as important as in industrial relations. The third is, on the other hand, important.

12 12 Within the interaction-network paradigm, relationships are thought to lead to bonds (Easton and Araujo 1989; Wilson and Mummalaneni 1986). This implies that the partner is tied to the firm in different ways. In the industrial marketing literature it has been suggested that such bonds can be economic, legal, social, technological etc. Bonds have also been divided into higher level bonds comprising attraction, trust and commitment, and lower level bonds, for example, economic and social bonds (Miettilä and Möller 1990; Möller and Wilson 1988). The idea is that higher level bonds are more abstract than lower level bonds. Changes in commitment and trust reflect essential changes in the relationship. Bonds can also be found in consumer markets although they may be somewhat different from the ones found in industrial markets. Different types of bonds and their effect on a customer service relationship will be discussed. In the following section we will describe the relation between service episodes and customer service relationships. Aspects that characterize a relationship, like commitment, bonds, number of relationships and relationship strength, will be presented. Episodes Different terms are used in the literature to represent the division into a local and global view of performance, quality and satisfaction. We use the terms episode and relationship, as these are already used within the Interaction Research tradition in industrial marketing, and seem to reflect the current trend (Håkansson 1982). An episode can be defined as an event of interaction which has a clear starting point and an ending point and represents a complete service exchange. Within the episode there can exist several interactions (acts). It is clear that the operationalization of episodes vs. acts should be service-specific. Figure 2 shows as an example the relation between the concepts by illustrating a customer who has stayed several times at a given hotel. The stay at an hotel represents an episode, consisting of a number of interactions or acts including check-in, breakfast, the room, bathroom, dinner etc. When the guest stayed at the hotel for the first time (Episode 1) s/he used check-in services (Act 1), the room (Act 2), breakfast (Act 3) and check-out (Act 4). The second time the customer stayed at the hotel the same services were used but in addition the guest also had dinner there, etc. It is thus possible to distinguish between different acts within an episode. The importance of the different acts, which compose the episode may vary in explaining episode satisfaction (Danaber and Mattsson 1994). An episode may also consist of only

13 13 one act, depending on the service (e.g. drawing money from an ATM). The concepts are relative to the level of analysis. It is difficult in some cases to exactly define the limits of an episode. Such are continuous services like insurances, where the interaction might be very limited for years, including only one-way contact from the insurance company (bill, information) and the customer responding by paying the bill or requesting more information. Figure 2: The relation between the concepts: relation, episodes and acts Relation: (Hotel Grand ) Episode 1 Episode 2 Episode 3 May 1992 August 1993 January 1994 Act 1 Act 2 Act 3 Act 4 Act 1 Act 2 Act 3 Act 4 Act 5 Act 1 Act 2 Act 3 Checkin Room Room Dinner Break fast Room Break Checkout fast Checkin Checkin Checkout Checkout Time In earlier research a number of different concepts have been used which can be seen as synonyms or related to the concepts episode and relationship. These are transaction-specific/global, local/global, service encounter/overall (Bitner and Hubbert 1994), incident specific/cumulative (Rust and Oliver 1994), transaction-specific/ brand-specific (Anderson and Fornell 1994). Within industrial marketing episodes are often called transactions. Webster (1992, p. 6) defines transaction at its purest level as a one-time exchange of value between two parties with no prior or subsequent interaction. This is in line with other researchers interpretation of a transaction in an industrial market (Dwyer, Schurr and Oh 1987; Heide 1994). The term episode is used within the Interaction Research tradition (Håkansson 1982), where it is defined as having four elements: a) product or service exchange, b) information exchange, c) financial exchange and d) social exchange. It is in their view important to distinguish between an individual episode and the longer-term aspects of a relationship that both affects and is affected by each episode. We feel that this definition could be used also in consumer markets.

14 14 Another concept, service encounter, which is often used within service quality research, intuitively refers only to the personal interaction between seller and buyer (Bitner, Booms and Tetreault 1990; Czepiel 1990; Solomon et al. 1985). Interactions (Storbacka 1993) have also been used as synonyms for episodes. Transactions and interactions give, however, more limited connotations compared to episodes as defined above. As interactions are often used to cover the interaction between people in a service situation, or can be interpreted as one act within an episode, we prefer the episode concept. It is, however, important to distinguish our episode concept from how the same term is used in critical incident studies. There an incident is considered to be of an episodic nature, in contrast to a multiattribute-approach (Stauss 1993). Relationships A distinction between episode dominated and relationship dominated services can be made according to whether the service is of discrete nature (the customer makes a separate decision each time which service provider to use) or continuous nature (the customer makes a contract about service delivery with the service provider). There are also services, which fall in-between discrete and continuous services. They have a long duration but are of a discrete type, e.g. holiday travel packages, educational services and medical services. These services can consist of many episodes and acts (different courses, lectures and assignments) that taken together can be described as a relationship. A distinction can also be made according to how often the service is consumed. Services of a discrete type, which are seldom used can be said to be episode dominated. In the other cases relationships grow in importance. Time is here a relative concept. A relation consists of a number of episodes. One episode, i.e. the first purchase from a service provider would not yet represent a relation. It is the necessary starting point for a relation but it might be the first, and at the same time last, contact with the service provider. If the service is of a continuous type a relation is established when the contract is signed (e.g. Cable TV, subscription services, membership). If, on the other hand, the service is of a discrete type we argue that some kind of relation is established when the second purchase is made (e.g. hotel, restaurant). It is, however, not sufficient to focus on only repurchase events as this gives a very simple picture of relationships. Consideration is neither given to whether the customer has a choice or not, nor to the

15 15 customer s commitment towards the service firm. Thus, buying the service twice is only a minimum requirement for a relationship. A long-term relationship in industrial markets has been defined as a contract between the parties (Dwyer, Schurr and Oh 1987; Heide 1994, Webster 1992), or when there is a repeat purchase situation (Dwyer, Schurr and Oh 1987; Heide 1994). Thus, Dwyer, Schurr and Oh suggest that relational aspects start to appear when the buyer pays by check or the seller schedules delivery for next week (p.12), and Heide states that Generally, when discrete exchange is abandoned, some form of a relationship is crafted (p. 74). If a more strict view on relations is adopted, as used within the Interaction Approach of industrial marketing, there will be a difference between loyalty based on repeat buying and a true relation, where both parties are committed to the relation. A third factor characterizing a relationships is different kinds of bonds between the customer and the firm. Thus, a customer who has purchased twice from the company, feels some positive commitment to it, and/or has bonds with it, has a stronger relationship than someone who has purchased twice without being committed and/or having bonds. Bonds can be studied at both company and individual levels. Thus a customer may be committed to, feel trust for and have a social bond to a specific person in the company, without feeling commitment and trust for the company as a whole. Commitment and Loyalty Commitment and loyalty are related concepts, although they emanate from different research traditions. No clearcut definition of either concept exists. Loyalty has been defined in numerous different ways (Jacoby and Chestnut 1978; Kunöe 1993) but in the marketing model building tradition loyalty is defined as observed purchase behavior. This is consistent with the transactional perspective used within traditional consumer marketing. Commitment has been used within the Interaction Approach of industrial marketing. It refers there to adaptation processes, which are the result of the parties intentions to act and positive attitudes towards each other. As the purchase is intertwined in the whole interaction process there is not the same focus as in consumer marketing. We will use the concepts in the following manner. Loyalty is defined only as purchase behavior and refers to the existence of a relationship as it was defined earlier. Commitment is defined as the

16 16 parties intentions to act and their attitude towards interacting with each other. These definitions seem to reflect the core meaning in earlier definitions of the concepts. According to our definition of a relation, loyalty is always present. Loyalty can occur with three different types of commitment, positive, negative or no commitment. A negatively committed customer shows a negative attitude but might still buy repeatedly because of bonds. Trust Trust in that the other party will fulfill its promises and obligations in the long-term is considered important in business exchanges in the industrial market (Miettilä and Möller 1990; Swan, Trawick and Silva 1985) and also in consumer markets (Crosby, Evans and Cowles 1988). Trust is a precondition for increased commitment (Miettilä and Möller 1990). Trust can usually be gained only over time, after the customer having experienced the service and found it to be trustworthy. However, when a service is highly intangible the customer will have to trust that the service provider can perform the service well before s/he chooses it for the first time. A customer may visit the same hairdresser because s/he trusts the competence of the firm or the competence of a specific hairdresser. S/he may buy a holiday package from a company which sells more expensive packages than other, because s/he trusts that this company will not go bankrupt before the holiday has been enjoyed. Trust is certainly more important in services like banks and insurance companies, or in other cases where credence qualities (Darby and Karni 1973) of the service dominate (merchants, general practitioner vs. a specialist etc.), than in services like restaurants and hotels. Bonds Within the Interaction Approach six different types of bonds have been suggested in the industrial market. These are social bonds, technological bonds, knowledge bonds, planning bonds and legal/economic bonds. Planning bonds refer to the company s ability to fit new relations into its time table. Although these six bonds can also be found in consumer markets, they are somewhat limited for this purpose. In addition to these bonds, we suggest that the consumer may also have geographical, cultural, ideological and psychological bonds to a service provider. We also prefer to use the term time bonds instead of planning bonds since this term refers more directly to the time restrictions of the consumer. The bonds and some examples of what they may be are listed in Table 2.

17 Table 2: Different types of bonds between customers and service providers 17 Type of bond Legal bond Economic bond Technological bond Geographical bond Time bond Knowledge bond Social bond Cultural bond Ideological bond Psychological bond Examples A contract between the customer and service provider (e.g. telephone company, cable TV, electricity, gas, bank services) Lack of resources may force the customer to buy a service that fits the customers budget, price reductions based on relationship The purchase of a specific brand which requires the use of a specified dealer for repairs/maintenance and/or original spare parts from manufacturer or retailer Limited possibilities to buy the service from other than one or a few service providers because of distance and/or lack of transportation. A service provider may be used because of suitable business hours or because of a flexible appointment system. Customers are limited by business hours set by service providers (e.g. child care from 8-16) or employers (office hours and limited lunch hour). The customer may have an established relationship with a doctor who knows the customer s medical history. A customer s relation to a bank clerk may be strong because of the clerk s knowledge about the customer s business, which facilitates the transactions. It also works the other way, so that the customer gains knowledge about the service provider (e.g. the scripts of how to behave are known to the customer, which reduces uncertainty) Social bonds exist when the customer and the service personnel know each other well, contact is easy, there is mutual trust (services can be handled by phoning the bank, the customer does not have to go there personally). Customers may identify themselves with a subculture (e.g. language, country) and therefore relate more strongly to certain companies or products made by certain countries Customers may be inclined to prefer some service providers because of certain personal values (e.g. green products, avoiding companies that exploit the nature, support homecountry products) The customer is convinced of the superiority of a certain service provider (brand image) The five first bonds in the table, legal, economic, technological, geographical and time bonds, constitute effective exit barriers for the consumer. They are contextual factors that cannot easily be influenced by the customer but can be observed and managed by the service firm. We propose that they are more likely to be perceived in a negative sense than the other five bonds. It is, for example, very costly for the customer to switch banks if s/he is tied up with a housing loan in one bank. One may also be stuck with the expensive maintenance services of the car manufacturer, because doing the repairs oneself or letting an unauthorized repair service company do it will lower the second hand value of the car. The nature of the bonds is thus, that they can prevent the customer from switching service provider even when the service given is of very low quality. The remaining five bonds, knowledge, social, cultural, ideological and psychological bonds, represent more positive connotations for the consumer. They are also perceptual factors, which are difficult to

18 18 measure and manage by the service firm. Knowledge and social bonds depend on the service provider being active and creating these bonds to the customer. Even so, it is the customer s perception of the existence, and importance, of such bonds that count. These bonds will make the service episodes more individual and business transactions smoother. The other bonds, cultural, ideological and psychological are directly connected to the customer s values and preferences, i.e. they are created in the mind of the customer. A psychological bond where the customer is convinced of the superiority of a brand is a very effective bond and exit barrier. Cultural and ideological bonds can be strong in themselves or be found in connection to other bonds which tie the customer to one particular service company. A characteristic of bonds is that if the customer has one or more of these bonds with a service company, s/he will accept lower levels of service quality compared to other service companies, without breaking the relationship. Bonds can be compared with the distance concept, which has been used mainly within the Network Approach concerning international markets. Some distances, which affect the relationship have been suggested; social distance, technical distance, cultural distance, geographical distance and time distance (Ford 1980). The distance concepts refer to the degree to which the two interacting companies are similar to each other and their familiarity with each other. A customer is, for example, unlikely to use a service provider which is located geographically further away than other service companies and which has working methods that are unfamiliar to the customer (cultural distance). The difference between bonds and distance is in our view that bonds constitute exit barriers for the customer while distance is a descriptive characterization of the relation between the buyer and the seller. Different types of relationships When talking about consumer services we feel that the focus of the relationship has to be on the customer s side. In industrial markets mutual commitment is often present (Håkansson and Snehota 1993), which might not be the case in relations between private customers and service providers. Business exchanges between industrial firms usually involve some degree of adaptation between the parties, which is usually not the case in consumer markets. In consumer services it is usually easier to change supplier. Often the service provider in consumer markets does not know its customers (e.g.

19 19 hamburger restaurant). Therefore, in consumer markets, it is more relevant to define a relation based on the customers attitudes and behavior. A definition of when a relation is broken is also needed. If the service is of a continuous nature the discontinuation of the contract is the demarcation line. Discrete services represent a less clear case. The customer might know that the relation is broken, but from the firm's point of view this is revealed only over time when the customer does not appear again. If a firm through direct marketing repeatedly approaches a customer, without this customer having any bonds with the firm, or him/her showing any positive attitude or loyalty to the firm, there is no relation. It might only be concluded that the firm is engaged in relationship marketing, with the aim to create a relationship with the customer. Figure 3 lists the different combinations in a customer-service firm dyad regarding commitment to a relation between the two parties. The list is structured with priority given to the customer s point of view. The customer s commitment to a service provider is affected by his/her perception of the quality of the service and the bonds that exist between him/her and the company. Three different types of relationships can be identified, a valued relation, an indifferent relation or a forced relation. The customer is respectively either positively committed, indifferent, or negatively committed towards the service provider. In the same way that the customer can be committed to a service provider, the service provider can be committed to the customer which shows as behavior (actively contacting the consumer, giving individual information, extra benefits etc.), and attitude (have a positive attitude towards the customer, preferring the customer to others etc.). Consequently we have nine different types of relations based on the minimum requirement that repeat purchasing can be observed or that a contract is made. More important is, however, to notice the situations where a relation is based on the customer s positive commitment. In these cases the customer has a positive attitude towards the company, which is a future oriented asset from the firm s point of view. Case 1 represents an ideal relation, following the definition within industrial marketing.

20 20 Figure 3: Different types of relations C+ S+ C+ S? C+ S- Valued relation C? S+ C? S? C? S- Indifferent relation C- S+ C- S? C- S- Forced relation C= customer, S= Service firm, + = commitment to establish and maintain relation,? = indifference regarding relation, - = commitment to prevent or end relation Valued relations In a valued relation the customer is positively committed to the firm. The relationship is strong from the customers viewpoint; i.e. s/he has a strong interest in keeping the relation alive. Case number 1 is a relation characterized by mutual commitment. Both parties are interested in establishing, maintaining and enhancing the relation. This is the type of relation that has been in focus in industrial marketing. In an analytical framework for business relationships in industrial markets Håkansson and Snehota (1993) define relationship as mutually oriented interaction over time between two parties, involving commitment and interdependence. They particularly stress the notion of mutual commitment as this represents a departure from the transaction-oriented view of exchange on the market. This definition and view on a relation is typical (when it is defined at all) within the interaction/network approach of industrial marketing. In the industrial context mutual commitment leads to multiple activity links, resource ties and actor bonds (Håkansson and Snehota 1993, p. 4-5). In the consumer market this type of intensive interaction might be more rare. In case two the customer is very positive and loyal towards the company but the company treats him like all the other customers. There is no interest on the firm s part to distinguish between customers

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