The Extended KMV Model of Relationship Marketing (Morgan - Hunt, 1994)

The following Diagram presents “The Extended KMV Model of Relationship Marketing” as it was described by Morgan and Hunt (1994, p. 33) with the positive and negative precursors and outcomes of Relationship Commitment and Trust:

Based on the above work of Morgan and Hunt (1994) (“The Commitment-Trust Theory of Relationship Marketing”, p. 33), the Diagram shows the influence of the five major precursors of Relationship Commitment and Trust (Relationship Termination Costs, Relationship Benefits, Shared Values, Communication and Opportunistic Behaviour) on the outcomes of Relationship Commitment and Trust (Acquiescence, Propensity to Leave, Cooperation, Functional Conflict and Decision-making Uncertainty) in order to achieve a successful Relationship Marketing.

Customer Loyalty

We believe that loyal customers are satisfied but the opposite is not always true.

Jackson (1985), Sewell and Brown (1990), Cannie and Caplin (1991), Reicheld (1993; 1994; 1996), Dick and Basu (1994), Fredericks and Salter (1995), McKenna (1997), Spekman (1998), Peppers and Rogers (2004) underline the importance of Customer Loyalty – beyond Customer Satisfaction.

Reicheld (1993) notes:

“The primary mission of a loyalty based company is to deliver superior value to customers. Success or failure in this mission can be clearly measured by customer loyalty (best quantified by retention rate or share of purchase or both). 

Customer loyalty has three second-order effects:

·       Revenue grows as a result of repeat purchases and referrals

·       Costs decline as a result of lower acquisition expenses and from the efficiencies of serving experienced customers

·       Employee retention increases because job pride and satisfaction increase, in turn creating a loop that reinforces customer loyalty and further reducing costs as hiring and training costs shrink and productivity rises”

Diagram from Customer Satisfaction to Customer Loyalty

The following Diagram shows exactly the way from Customer Satisfaction to Customer Loyalty and how a Company may measure and monitor through the Leading Indicators any positive or negative trends on customer’s behaviour, trying to understand the presence of not of real satisfaction and to predict the customer’s loyalty towards it.

Customer Equity Diagnostics (Leading Indicators)

As Reicheld and Sasser (1990) propose companies want to keep customers satisfied in order to keep them longer, as profits increase with the duration of the relationship.

They recognize “four factors contributing to the underlying profit growth:

·       Profit derived from increased purchases

·       Profit from reduced operating costs

·       Profit from referrals to other customers

·       Profit from price premium”

 Suggesting that “the longer an enterprise keeps a customer, the more   money it can make”.

Reicheld (1994) even though notes that “Customers who describe themselves as satisfied are not necessarily loyal” and the companies have really experiences many times the “satisfied” customers of the previous year Satisfaction Questionnaire to defect and leave the company (“60%-80% of customers defectors said that they were “satisfied” or “very satisfied” on the last satisfaction survey prior to their defection”). 

This may be caused by a better competition offering, new customer’s requirements and search for alternative solutions to cover his new needs or other parameters, leading to the conclusion that the company will have to go further than the satisfaction surveys, trying to measure not customer’s state of mind but annual retention rate, frequency of purchases, share of customer’s wallet to predict customer’s future behaviour.

As Peppers and Rogers (2004) also propose such “Leading Indicators” that the company might create to monitor positive and negative trends in each customer’s behaviour 

and Ganesan (1994) seeks the “Determinants of long term orientation in buyer-seller relationships”.

Seth (2001) suggests to deal with Brand (enterprise image, values, consistency of proposition), Quality (perceived quality, professionalism of the enterprise, its service and products), Interrelationship (the degree to which customer needs are met, amount of use, dependence and convenience all in the context of competitors) and Performance (service delivery, product, reliability, response time), 

while Ruekert and Churchill (1984) examine the reliability and the validity of the alternative measures of customer satisfaction.

Customer Satisfaction

Besu, Ennew and Palmer (1998, pp. 170-175) consider Customer Satisfaction as a necessary interactive dimension of Relationship Quality, noting that Length of Relationship, Trust, Ethics and Expertise are positive factors in building Customer’s Satisfaction while Sales Orientation of the Sales people is a negative factor.

In general a satisfied customer will remain more with the supplier, while a dissatisfied customer will try to move to another supplier. 

As Peppers and Rogers (2004, p. 47) suggest new customers during the early stages of their Relationship with a company may count differently a negative experience and lead with high probability to a defection, so they need the closer care to create satisfying experiences than an old customer, who will compare it with his other previous experiences.

Mutual Commitments

Morgan and Hunt (1994, p. 23) define Commitment as “the belief that the importance of a relationship with another is so significant as to warrant maximum effort at maintaining” and they consider it as like Trust an important dimension in the creation of the Relationship.

“Because commitment entails vulnerability, parties seek relationships with these who are trustworthy. Hence, trust is a strong contributor to commitment”.

Trust Building Process and Customer Satisfaction Diagram

The following Diagram explains the Trust Building Process with the Positive and Negative Factors and how then Trust (as an “interactive dimension of Satisfaction”) leads to the Customer’s Satisfaction: