CUSTOMER RELATIONS

Customer relations is the process by which companies promote customer satisfaction and, moreover, loyalty. At its most basic, it involves managing communications with customers, particularly customer questions and complaints, and resolving disputes amicably. The ultimate goal of most customer relations programs is to build long-term relationships—those in which the customer keeps buying the product or service and recommending it to others—with customers. To meet this goal, companies may go to great lengths to build a strong reputation for lavishing their customers with special services, discounts, gifts, or other benefits.

Customer relations has become such an important paradigm in modern business that it is common to refer to relations with a company's "internal" and "external" customers. The implication here is that functional units of a large organization, e.g., the management information systems department, are expected to develop a service-oriented rapport with the people inside the business who require that unit's assistance. In this sense customer relations is linked to stakeholder theory, an approach to business that emphasizes meeting the needs of all interested parties in a business relationship, including customers, outside vendors, shareholders, and others.

EVOLUTION OF CUSTOMER RELATIONS

Customer relations traces its roots to the corporate "complaint department," the part of the operation that dealt with negative client comments, returns, and other concerns. Over the years, many firms developed a policy whereby "the customer is always right," finding that it was more profitable to take a small loss and keep a good customer than to argue with customers about alleged defective products or problems that occurred with staff. Firms developed complaint departments to deal with customers who had bad experiences with products or services.

As consumer consciousness grew in the late 20th century, the focus of the industry shifted from dealing with dissatisfied customers as they complained to a more active approach of reaching out to discover why the complaint was made. The goal was to ensure that the dissatisfied customers remained customers and to study each case and improve the product or service and the way in which it was delivered to customers. In the 1960s the complaint department began to be known as the customer relations department, reflecting management's realization that maintaining a solid customer base required much more than taking complaints. Customer relations departments still receive the complaints, but perform many other tasks as well. The advent of toll-free numbers, and later the Internet, made it easier for customers to obtain information and register complaints. This new emphasis on improving the overall customer experience gave rise to a branch of marketing known as relationship marketing, a broad term that encompasses the various efforts a company may take to develop a loyal customer base.

FOCUS ON CUSTOMER LOYALTY

The purpose of most well-developed customer relations programs is to turn one-time or occasional customers into loyal buyers. Customer relations specialists distinguish loyalty from satisfaction, noting that it's possible for customers to be satisfied but have no particular loyalty. Indeed, one mid-1990s study found that three-quarters of the customers who reported being satisfied with one company's products still bought competitors' products as well.

The emphasis on loyalty is mostly driven by the bottom line. Keeping existing customers is cheaper than finding new ones, and having a base of loyal customers for one product or service improves sales for the company's other offerings. By some estimates, the amount a company must spend to attract a new customer is five or six times that needed to keep bringing back loyal customers. Repeat customers are also more likely to recommend the company to others and to try out the company's latest products. The financial results are that a small percentage increase in customer loyalty can translate into a significant rise in profits.

The opposite of loyalty—customer turnover—can deplete a company's marketing resources and can signal weakness in the firm's brand image or competitive position. However, high turnover does not necessarily mean that the company's underlying product or service is at fault. Rather, it may be the customers' negative (or simply neutral) experiences and impressions that stand in the way of loyalty. In the late 1990s one executive went so far to suggest that happy customers would even buy bad products from a company they liked, whereas unhappy or indifferent customers might ignore a really good product.

TOOLS FOR BUILDING STRONG RELATIONSHIPS

Strategies for improving customer relations and building customer loyalty range from simply opening up communications channels to implementing elaborate point systems that reward loyalty. Enhanced customer communications approaches include

• providing customer feedback forms
• asking about customer needs in general when customers call with problems
• training call-center staff to handle disputes uniformly and constructively
• responding directly to customer feedback
• demonstrating how the company listens to its customers
• encouraging a service culture throughout the organization

Companies also employ a wide variety of tactics to directly encourage customer loyalty through promotions or special treatment. Some examples are

• creating a point system that offers rewards once a customer accumulates a certain number of points
• offering discount or free-product coupons
• running contests in which customers may win prizes by entering a drawing
• offering lifetime service guarantees

In order to be effective, such programs and initiatives must be tailored to customer needs and interests. For example, if a company overwhelms its would-be loyal customers with frequent mailings (or broadcast faxes or e-mail) consisting of trivial or unappealing offers, it may be turning itself into a nuisance instead of encouraging loyalty.

Often small, day-to-day policies have significant impact. General Motors' customer-friendly Saturn unit enjoyed unusually high customer loyalty through simple measures like an integrated computer system that stored their vehicle history, a one-price sales policy, free car washes and refreshments at the dealership, and an annual event for customers at the company's Tennessee headquarters.