Service providers may reward loyal customers with special price offers; e.g., banks may offer higher interest rates for long-duration accounts and airlines may design
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frequent-flyer programs to encourage regular guests. In addition, non-monetary time saving is also proposed by scholars; e.g., customers who have developed a long-term relationship with a service provider could get quicker service than other customers (Gwinner, Gremler & Bitner 1998).
Businesses can enhance customer relationships by establishing a financial bond, which is a type of business practice that enhances customer loyalty through pricing incentives (Berry 1995). Service providers often reward loyal customers with special prices offers. According to several studies, monetary promotions improve customer’s perceptions of utilitarian value and, thereby, increase the acquisition utility of their purchases (Ailwadi et al. 2001; Chandon et al. 2000).
According to Yi and Hung (2009), the financial bond is more effective for short-term than for term customers, while the structural bond is more effective with long-term customers. However, the social bond has no significant impact on satisfaction for both the long-term and short-term groups; the result is similar to the result for the non-significance of the social bond across the whole sample.
The biggest challenge in front of today’s retailers is how to retain existing customers and keep them loyal at the same time as growing the business. The price war in technology products is acute, and retailers all over the world are facing challenges to maintain the margin on high-tech product sales. Australia is no different than the global market. In the Australian market, retailers like Harvey Norman, Clive Peeters, Retrovision, Clive Anthony, J B High-Fi, Dick Smith, Good Guys, Big W and smaller retailers are fighting fiercely with each other. Today, retailers are changing the strategy of their marketing activities to be more focussed on ‘beating the price of competitors’. It has become very normal practice for consumers to check the prices of a few retailers before deciding on the actual purchase. Salespeople sometimes match a competitor’s price instantly, thereby forgetting relationship bondage with customers and showing a very sloppy attitude towards cost and competitor details. This is very dangerous for any business, where salespersons cannot be bothered to check details like the cost of the product, competitor stock availability, authenticity of the competitor price quoted or condition of stock such as whether the item is a display model or in the box. It is very important for a salesperson or retailer to ascertain this before deciding to match the price of their competitors. However, this is will be an
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ongoing problem for retailers as the price war is going to intensify in days ahead.
Gone are the days when consumers blindly believed the retailer’s price structure and bought the product based on service, knowledge, retailer signage and physical appearance and attributes. Today, price is a very important determinant in a purchasing decision; to counter the price factor; the only modern way for retailers to be successful is by implementing RM strategy in their overall business.
Price competition is largely unavoidable for most retailers today. It exerts a substantial downward pressure on operating profitability (Van Heerde, Gijsbrechts &
Pauwels 2008). Online discounters are virtually omnipresent, and 67 percent of all retail stores in the United States of America are located within five miles of a Wal-Mart store (Basker 2007). Some retailers enjoy economies of scale and other favourable conditions that allow them to maintain lower costs than their competitors and to compete aggressively on price. For example, food prices at Wal-Mart Supercenters are 5 percent to 48 percent lower than at major supermarket chains, which often lose substantial business to the Wal-Mart in their area (Hausman &
Leibtag 2005). On the other hand, some retailers decide not to compete on price, irrespective of their cost position. Recent studies of the homogeneous goods markets, for instance, show that some retailers implement aggressive pricing strategies, whereas other retailers of similar size choose to employ a high-price strategy in the same homogeneous goods market (Clay, Krishnan & Wolff 2001; Koças & Bohlmann 2008).
Retailers that cannot, or do not, wish to compete on price face the challenging task of trying to retain customers while charging higher prices for equivalent merchandise.
For such retailers, a defensive strategy of developing close relationships with customers can be effective in strengthening customer retention and loyalty (Berry &
Parasuraman 1991; Bagozzi 1995; Berry 1995; Bitner 1995; Davis 1995; Dodge &
Fullerton 1997; Stone & Mason 1997; Hultman & Shaw 2003). Prior research has demonstrated that developing intense customer relationships that involve exchanging many and diverse resources leads to reduced customer defection (De Wulf, Odekerken-Schröder & Iacobucci 2001; Verhoef 2003; Gustafsson, Johnson & Roos 2006; Lacey 2007). However, a number of retailers do not have the capacity to
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establish intense, intimate bonds with their customers, just as many customers do not wish to engage in such close ties with marketers (Fournier, Dobscha & Mick 1998).
Fournier, Dobscha and Mick (1998) argue that many consumers may not be interested in acquiring the full range of resources offered by a marketer; e.g., a consumer may not wish to engage in social interactions with a marketer. Even consumers who would like to establish closer relationships may not want to incur the associated costs, such as disclosing personal information. At the same time, many marketers do not have the capacity to offer a variety of different resources to customers. What has been absent from both retailing theory and practice is a differentiated conceptualisation of the types of bonds that retailers can cultivate with customers and the relative strategic benefits of each type of bond. A richer differentiation would allow retailers to optimise their customer relationship strategies in such a way as to minimise customer defection to lower-priced competitors without incurring unnecessary resource investment or disregarding of customers’ relationship preferences. The objective in the current study was to identify and evaluate customer relational models so that retailers can utilise resources more effectively in aligning their relationship strategies with specific competitive conditions.