Keywords: Customer defection; Service Quality; Relationship Quality; Value; Gap
-model ...... “Zero defections: quality comes to services”. Harvard Business ...
A CASE STUDY INVESTIGATING IN CUSTOMER DEFECTION Master Thesis, 30hp, spring 2012 Department of Business studies, Uppsala University Supervisor: Nazeem Seyed Mohamed Authors: Karolina Wolnik and Amela Svraka
Abstract This master’s thesis investigates the Swedish American Chamber of Commerce (SACC) in Chicago, a non-profit organization, in order to aid it with customer defection. The chosen literature contributes to a better understanding of customer behavior, and thus, customer defection, by examining customer retention, customer defection, switching behaviors, and different gaps that can occur in the relationship between a service supplier and its customers. Through a systematic combining approach and empirical findings gained through semi-structured interviews with both executives and defected customers, this study reveals that the main reason for customer defection is a perceived lack of value in their membership to the SACC, along with the sentiment that their business-oriented expectations are not being met. As for the SACC, the Board members have a varied range of views as to the value of defected customers, though overall, acquisition is prioritized over customer defection strategies.
Keywords: Customer defection; Service Quality; Relationship Quality; Value; Gap-model
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ACKNOWLEDGMENTS This master’s thesis was written during the spring semester of 2012 at Uppsala University. After spending a great amount of time exploring and studying customer defection, the authors would like to thank their supervisor, Nazeem Seyed Mohamed, for his valuable support and guidance throughout the process. Further thanks as well to the SACC Chicago office, whose participation and insightful responses not only made this thesis possible, but also resulted in an enjoyable collaboration. A thank you to all interview respondents as well, who provided vital data, and to family and friends for their support. And finally, thank you to the thesis committee for their guidance and great suggestions.
We hope you will enjoy reading this thesis.
Karolina Wolnik and Amela Svraka
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Table of Content 1.INTRODUCTION ......................................................................................................................... 6 1.1 PROBLEM BACKGROUND...................................................................................................................... 7 1.2 PURPOSE .......................................................................................................................................... 7 1.3 RESEARCH QUESTION AND OBJECTIVES .................................................................................................. 8 1.4 THE CONTRIBUTION OF THE STUDY TO RESEARCH ..................................................................................... 8 1.5 SACC CHICAGO- CASE COMPANY ......................................................................................................... 8 2. LITTERATEUR REVIEW ............................................................................................................. 10 2.1 THEORY OF STRATEGY ....................................................................................................................... 10 2.2 INTRODUCTION TO THEORY ................................................................................................................ 10 2.3 CUSTOMER DEFECTION...................................................................................................................... 11 2.3.1 Tremination factors .............................................................................................................. 11 2.3.2 Widening Gaps ..................................................................................................................... 11 2.3.3 Gap model by Parasuraman et al ......................................................................................... 12 2.4 MANAGEMENT ................................................................................................................................ 13 2.4.1 Service Quality ...................................................................................................................... 14 2.4.2 Relationship Quality ............................................................................................................. 14 2.4.3 Value ..................................................................................................................................... 15 2.5 THEORETICAL SUMMARY ................................................................................................................... 16 3. METHODOLOGY...................................................................................................................... 19 3.1 APPROACH ...................................................................................................................................... 19 3.2 RESEARCH DESIGN ............................................................................................................................ 19 3.3 DATA COLLECTION............................................................................................................................ 20 3.4 SAMPLE COLLECTION ........................................................................................................................ 20 3.5 INTERVIEWS .................................................................................................................................... 21 3.6 OPERATIONALIZATION ....................................................................................................................... 22 3.7 RELIABILITY AND VALIDITY .................................................................................................................. 23 4. EMPIRICAL FINDINGS .............................................................................................................. 24 4.1 DEFECTED MEMBERS ........................................................................................................................ 24 4.1.1 Termination Factors ............................................................................................................. 24 4.1.2 Expected and Perceived Service ............................................................................................ 25 4.2 STATISTICAL FINDINGS ...................................................................................................................... 27 4.3 MANAGEMENT ................................................................................................................................ 30 4.3.1 Current View on Customer Defection ................................................................................... 30 4.3.2 Current Customer Defection Strategy .................................................................................. 31 4.3.3 Rejuvenation of the Board and Their Action Plan ................................................................ 32 4.3.4 Future networking abilities and events ................................................................................ 32 5. ANALYSIS ............................................................................................................................... 34 5.1 DEFECTED MEMBERS ........................................................................................................................ 34 5.1.1 Termination factors .............................................................................................................. 34 5.1.2 Precived and expceted service .............................................................................................. 35
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5.2 MANAGEMENT IMPROVEMENTS ......................................................................................................... 36 5.2.1 Hands-on tasks ..................................................................................................................... 36 5.2.2 Service and relationship quality............................................................................................ 37 5.2.3 Value ..................................................................................................................................... 38 6. CONCLUSIONS ........................................................................................................................ 39 6.1 FURTHER RESEARCH ......................................................................................................................... 40 REFERENCES ............................................................................................................................... 41 APPENDIX 1. MEMBERS BENEFITS ........................................................................................................... 44 APPENDIX 2. INTERVIEW SACC CHICAGO ................................................................................................. 47 Tabel 1. Respondents Background ............................................................................................... 47 Initial Outline questioner: Boards of directors............................................................................... 48 APPENDIX 3. INTERVIEW DEFECTED MEMBERS ........................................................................................... 49 Tabel 2. Respondents Background ............................................................................................... 49 Initial Outline questioner: Defected members............................................................................... 50
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1. Introduction This section provides an introduction and explanation of the topic’s interest and importance. It continues with a presentation of research question and objectives, ending with background information about the case company and contribution to further research.
In the late 80’s the main literature and research regarding service organizations and customer satisfaction was mainly focused on financial numbers, employees and the resources the company had access to. There were not too many organizations focusing on the true meaning of customer satisfaction and creating a better quality in the relationship between the service supplier and its customers (Berry, 1983). During the 1990’s something changed. Companies and organizations started to change their focus meaning that they became much more focused and concerned about their customer’s satisfaction, providing value to the customers and think about how the company would be able to achieve quality improvements. Firms started to create so called “quality improvement programs” due to the fact that a clear link between satisfied customers and higher quality was noticed. This generated higher consumption of services among the customers which gave the companies bigger profits (Ibid:25). In the Harvard Business Review the authors Grant and Schlesinger, started during 1995 to discuss gaps that could occur in relationships between the service supplier and its customers if the customer was not receiving the expected service he or she was paying for. Berry (1983) had before that looked into what so called “full-potential profitability” really meant for managers. His research showed how important it was for managers to look over how long their customers tend to remain in the relationship and what were the biggest reasons for termination. The reason why service quality, relationship quality and meeting customers’ demands have become highly relevant for companies is because of the high competition out on the market (Grant & Schlesinger, 1995). To be able to keep customers, old and new ones, firms have realized throughout decades that when meeting customers preferences and providing them with the service they are expecting customer tend to show a great amount of loyalty (Ibid.)
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Recently researchers started to see a clear link between customer not receiving the expected value and termination. This specific question has become of great importance in this field for the management teams but also for researcher who are investigating in this specific topic, to be able to see “how customer’s assessments of services influences their subsequent behavior” (Bolton, 1998:45). Firms are now, as well as researchers, realizing the potential monetary losses, as a result of discontinuation of these relationships however there haven’t been devoted sufficient time to investigate in the termination of relationships (Athanasopoulou, 2009).
1.1 Problem background A case study of the Swedish American Chambers of Commerce (SACC) in Chicago gives an opportunity to look further into this field. One of the authors completed an internship at the case company which motivated the authors to look deeper into SACC as an organization. Due to its non-profit nature, customer defection has a great impact on an organization like SACC, as they are highly dependent on members to generate income so the business may operate; as such, membership fees are essential for their survival. The organization plays an essential role not solely for their members, as well as the continuous growth and development of transatlantic relations between Swedish and American firms. If not focusing on customer defections and allowing members to leave without gaining further insight into their grounds for defection, the SACC that is going through this problem right now ,could suffer even more in the long-term should further members share the same sentiment and discontinue their membership. This would not only impair their operations, but also have a detrimental effect on remaining members who would not be able to receive the same level of business services that they expect, thus making the SACC less effective and unable to fulfill its purpose.
1.2 Purpose The goal of this study is offer the SACC some insight into customer defection within the service sector; more specifically, to help the Board of Directors understand why some of their members have discontinued their membership. Further to investigate in their current strategy towards preventing customer defection. The knowledge gained concerning reasons for defection and its view in the organization can help the Chamber improve their business and prevent future defection.
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1.3 Research question and Objectives Research Question:
Which customers have terminated their memberships with the Swedish American Chamber of Commerce in Chicago between the years of 2009 and 2011, and what were the reasons behind these terminations?
Three main objectives were examined to explore this research question and fulfill the aim of this case study:
What do the members say is the reason or reasons behind the discontinuation of their memberships?
Are there any patterns among the members who have defected? For instance, does one industry have more defectors than another?
What are the opinions among the Chamber’s Board concerning customer defection? More specifically, does the Board of Directors value the importance of customer defection strategies; what kind of strategy do they have; and which weaknesses exist in this strategy?
1.4 The contribution of the study to research This study is not simply the fulfillment of the Chamber’s request, but may also serve to contribute to literature in the field of customer behavior. Current literature indicates that companies are realizing the loss of both financial and non-financial value inherent in customer defections (Athanasopoulou, 2009). However, executives require more research-based knowledge about why customers decide to defect to better run their businesses, which the authors aim to contribute to through this case study. The goal of this study is to lay the foundation for a better understanding of customer defection and how companies may combat this growing trend.
1.5 SACC Chicago- Case company Across the United States, there are currently 19 Swedish American Chambers of Commerce operating and interacting with over 2000 members. All of the chambers are non-profit organizations and their main mission is to act as a “nationwide business network” for their members by assisting with the establishment of connections with potential business partners in the USA. The SACC was established in the United States in 1906; since then, it has become an umbrella organization that serves both Swedish and American citizens. With its
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2000 members, the SACC is the second largest European Chamber of Commerce in the United States. (www.sacc-usa.org). During the late sixties, the SACC began operating in Chicago, Illinois. The Chicago Chamber covers the states of Illinois, Indiana, Iowa, Missouri, and Wisconsin – with 43 million citizens in total, this makes SACC Chicago the second largest Swedish American Chamber in the U.S. Like the other Chambers, their purpose is to encourage and promote Swedish trade and business; thus, they organize a wide variety of business events, at which members are given the opportunity to develop and promote their businesses. Normally, there is one event or meeting per month (sacc-chicago.org). According to SACC Chicago, they offer many benefits to their members, such as a Business Matchmaking Service, Corporate Branding, Marketing and Sales Programs, Custom Tailored Trade Missions, Invitations to Swedish American Entrepreneurial Days and a Monthly Membership E-Paper (please see appendix, page 44-46). There are different levels of membership to better serve businesses: corporate memberships are for no more than five individuals, business memberships are for up to three, individual memberships are for those over the age of thirty-five, and Young Professional memberships are for students and individuals under the age of thirty-five (sacc-chicago.org). Membership
Fee
Corporate membership
$450.00
Business membership
$275.00
Individual membership
$140.00
Young Professional membership
$50.00
Figure 1.1 Membership fees SACC Chicago (www.sacc-chicago.org)
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2. Litterateur Review This section presents the theory of strategy, along with an introduction to the literature and theories in this field. The chapter ends with a theoretical summery, highlighting the most interesting and relevant themes found in the research.
2.1 Theory of Strategy The literature was found via the JSTOR, EBSCO and Google Scholar databases. Key words consisted of; “customer defection”, “lost customers”, “consumer behavior”, “relationship marketing”, “expected and perceived services”, “value”, “gap models”, etc. The chosen literature mainly concerns customer retention, customer defection, and switching behavior, as each of these topics contributes to the understanding of customer behavior, and, more specifically, customer defection. Theory section has been rewritten several times due to the systematic combining approach, which will be described later in the methodical part of the paper.
2.2 Introduction to Theory “A lost customer is one who has established a relationship with the company but now has terminated the relationship” (Homburg et al., 2007:461). In comparison to literature regarding customer acquisition and retention, research pertaining to customer defection is quite rare. Jet, researchers have found that attracting new customers is five times more costly than retaining existing ones. Recently, companies have become more aware of this dilemma, and have begun focusing on strategies to win back lost customers (Athanasopoulou, 2009). The following theory review was constructed from both the point of view of an organization and of its customers. The section will begin to discuss the issue from the customer’s point of view, also examining gaps that may occur between the customer and the organization. Since the interviews conducted with the SACC defectors indicated that one of the primary reasons for defection concerned perceived service quality, Parasuraman et al.’s (1985) Gap Model was examined. The following part brings up theory pertaining to the managerial relationship to the problem of customer defection, and delves into the most essential details that management must concentrate on to improve.
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2.3 Customer defection 2.3.1 Tremination factors
Service quality is often identified as an attitude that is the result of the interaction between a firm and its customer. When a customer is consuming a product or service, they are also observing the company’s service performance, and their opinion of the quality of this service will always be subjective (Shepard, 1999). Even though service quality affects behavior intention and customer satisfaction, it does not always lead to behavior change (Ibid.) Keaveney (1995) has demonstrated that even satisfied customers may terminate a relationship to switch to a different company. For this reason, studies examining financial constraints, a lack of alternatives, switching costs, and habits are also important, as these factors affect loyalty. Keaveney (1995) developed the first model to explore, from the customer’s viewpoint, why they switch or terminate relationships in service industries. This model identifies eight principal factors: core service failures, service encounter failures, pricing, inconvenience, employee response to service failures, attraction to competitors, ethical problems, involuntary switching, and seldom mentioned incidences. Six of these factors are manageable and can be organized to prevent customers to switch (Ibid.). 2.3.2 Widening Gaps
Parasuraman et al., (1985:44) explains that a widening gap is a “gap between the expected service and the perceived service in different functions in a service company's production that can be seen from two different perspectives; from a company’s perspective and from the costumer’s point of view”. An important step for companies hoping to maintain or win back defected customers is to determine the gap between market demand and the company’s capacity to meet these demands, and understand why that gap is widening (Day, 2011). When a company has a widening gap, their profitability is suffering, but they are also losing future market competitiveness (Ibid). Once a company discovers such a gap, they must search for ways to narrow it and repair the relationship with their customers in order to gain an advantage over competitors. Day (2011: 183) claims that the main challenge for companies who discover this is “to seize the opportunity for advantage out of the confusion created by accelerating market complexity”. Grönroos (1993:37) was the first to present a service quality model to explain how the costumer perceives service quality and to determine how it can be influenced: “Perceived quality of a given service will be the outcome of an evaluation process, where the consumer
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compares his expectations with the service he perceives he has received”. The quality of the service therefore depends on two variables: expected service and perceived service. The perceived service quality may depend on marketing activities such as advertising and pricing, which are promises made to the customers that influence expected service. Grönroos (1993) recommends that marketing activities should reflect a company exists technical and functional quality, as increasing expectations may lead to customers becoming dissatisfied with the level of service they receive. Grönroos model/research (1993) gives the reader a good overview when it comes to receiving the expected service or not, but to get an even more deeper understanding of the situation that can occur, Parasuraman et al., (1985) model will be used for further explanation. 2.3.3 Gap model by Parasuraman et al
Parasuraman et al., (1985) have developed a service gap model that shows the different gaps in a relationship between a company and its customers. The model raises two different aspects of possible gaps: the customer’s vision and the company’s point of view.
Figure 2.1 Service Gap Model (Parasuraman et al., 1985)
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This model shows how the quality of service can be perceived. The different gaps in the model show the customers assessment of the service quality that is being provided to them. Three main factors have a great impact on how the customer perceives the service he or she is buying: worth-of-mouth, personal needs and past experience. The service quality that a customer gets from an organization depends on the “size and direction” of gap number 5. Meaning, that if gap number 5 is too big, the service the company is providing its customers with, is not meeting the expectations the customer initially had when he or she decided to buy the service. A big gap between the expected and the perceived service can mean very risk full business for the organizations and can end the relationship the organization have with their clienteles. On the other hand, if gap number 5 is small, or does not exist at all, this means that the company is doing a good job when it comes to meeting their customers’ expectations with the service they are providing them with. But this does not mean that the company should stop there and fill satisfied with their work, instead they should get even more engaged and try to develop even more (Parasuraman et al., 1985). Looking at the figure one can see that gap number 5 depends on all of the rest of the gaps in the model. Meaning that GAP 5 = f(GAPl,GAP2,GAP3,GAP4). If gap number five turns out to be rather big in a relationship the service supplier, in this case the company needs to look over their internal actions. The management needs to look deeper into what they themselves think that the customers are demanding from them and what service the customers actually percives (gap 1), they need to translate the true meaning of service quality (gap 2), make sure that they turn that translation into real service quality (gap 3) and get to know how good the external communication really is compared to the service delivery (gap 4) (Ibid.)
2.4 Management According to Hart, Heskett & Sasser Jr (2000), the golden rule of business is not to be in the position of losing customers; thus making management’s concentration and awareness of all customers imperative. Reicheld (1996) states that ambitious managers and companies most often want to link their business strategies to success stories, but in order to have success stories, the Board of Directors and company as a whole must sometimes examine their past failures. Today, many companies perform a “Root Cause Analysis”, which entails asking themselves five times why customers have decided to terminate doing business with them or why they have stopped consuming their products. This allows them to explore multiple aspects and factors, rather than focusing on only one (Ibid.)
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Reichheld & Sasser (1990) not only stress the importance of winning back customers, but also declare how vital these defected customers can be in providing insight towards improving business. Tokman, Davis & Lemon (2007) underscore the value of implementing a zerodefect culture within the organization, meaning that all employees understand the importance of keeping customers and, as a collective, work towards that goal. This includes educating employees about the problem of defection and establishing common objectives and initiatives for a more cohesive approach. 2.4.1 Service Quality
Literature regarding service quality has demonstrated a correlation between behavioral intention and service quality, where the perceived service quality influences the behavior intentions and can signal whether or not a customer will defect (Zeithaml, Berry & Parasuraman, 1985). When examining quality, it is often the company’s salespeople that play the most critical role in the service delivery chain (Shepard, 1999). A large number of studies have been conducted on this particular topic, but few studies have delved into service quality. David Sheperd (1999) conducted a study regarding the link between personnel and service quality; he deduced that when companies measure service quality of existing customers only, they deprive themselves of the opportunity to pinpoint their competitive position. So, when measuring service quality, taking defected customers into consideration is imperative for prioritizing quality improvements. 2.4.2 Relationship Quality
In the field of Relationship Marketing, the Relationship Quality (RQ) has become an important and popular topic. Roberts, Varki & Brodie (2003) stress that RQ is a better predictor of behavioral intentions than service quality. There are four dimensions that indicate the quality of a relationship: trust, satisfaction, commitment, and affective conflict (Roberts, Varki & Brodie, 2003). The trust dimension is divided into credibility and benevolence trust, where the former is based on customers’ belief in the firm’s sincerity, and the latter reflects whether the company is concerned with the welfare of their customers. Satisfaction is a customer’s cognitive and affective evaluation, grounded in their personal service experiences with the firm. Commitment reflects the process of problem resolution, and the affective conflict dimension is a negative indicator of RQ. The RQ thus demonstrates that managers must not only focus on the quality of the service they provide, but also on the quality of their customer relations.
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Satisfying the customer demands a great time investment. There are three steps that managers must take into consideration to establish loyal, qualitative relationships with their customers: they must clearly define their target customer, measure customer satisfaction in a variety of methods, and understand the full meaning of the customer’s satisfaction in a qualitative relationship (Jones & Sasser, 1995). According to the authors Jones & Sasser (1995) when a customer is completely satisfied, he or she tends to remain loyal to the relationship – thus, relationship quality is achieved. When the customer is just satisfied, the company can easily lose the customer, meaning their loyalty varies. Finally, if a customer is dissatisfied, they may stop being loyal and end the relationship – thus the relationship quality is weak. Studies show that to maintain customers as completely satisfied, the company must provide world-class service. Thus, customer-management interaction must be high, with management not only taking customer demands into consideration, but also determining how customers perceive the service they are being provided. When it comes to relationship quality, it is crucial to consider that “the gap between satisfied customers and completely satisfied customers can swallow a business” (Jones & Sasser, 1995:2). Although much research has been conducted on this area, other researchers have suggested that value, rather than quality, is the main factor in customer behavior and loyalty (Roberts, Varki & Brodie, 2003). 2.4.3 Value
Researchers favoring the value concept claim that it is more flexible and adaptable in explaining changes in consumer behavior, as quality is an absolute measure, whilst value is relative. Research has shown that perception of value delivery can vary between managers customers – however, researched refer to this as ‘fuzzy concepts’, as it is usually conceptualized in relation to other concepts (Gallarza, Gil-Saura & Holbrook, 2011). Hills & Jones (1998:88) state that, “value creation occurs when a firm is able to advance and come up with something that is unique for its customers, something that fulfills and satisfies the customer’s needs”. According to Reicheld (1996), the reason why many organizations and firms fail and start losing customers is because they lose focus of this. Instead of focusing on value creation, they examine different measurements and analyses and become purely profitdriven, resulting in the adoption of short-term solutions when customers begin defecting. Yet, defecting customers possess the most valuable information, as they have often had long relationships with the company (Ibid.).
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A company’s value is composed of three different aspects: employees, processes, and customers. A firm seeking to gain a competitive advantage must offer a greater value than their competitors among these aspects. To do so, they must determine which aspects are positive drivers in customer-value creation. Barriers, however, do exist that hinder such exploration (T.R Lin & J. Lin, 2006). Errget & Ulaga (2002) explain that value creation can be compared to competition: if a firm can deliver a better trade-off, where their products and services offer more benefits than their competitors’, they offer a greater value and establish a sustainable competitive advantage. Further, if a company aims for long-term profitability and progress, they must focus on the creation of real value.
2.5 Theoretical Summary As stated in the introduction, the field of customer defection is far from fully explored (Athanasopoulou, 2009). The main concepts found in the literature review are summarized in the table below, which attempts to summarize the fundamental and most essential theoretical findings into a guideline that may facilitate further investigation of problems and opportunities. The left-hand box summarizes earlier literature on factors that have made customers defect. The middle box summarizes what earlier researchers suggested management should take into consideration in order to improve. The table is constructed as a process, with the reader intended to follow the direction of the arrow, going from left to right. The initial step is to investigate why customers have left, followed by an investigation of the current management approach to identify the existing problem, and ending with making improvements. These concepts are intertwined and vital for understanding customer defection; they present factors that greatly impact each other and customers in their decision to discontinue their relationship with a company.
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Defected Customer
Managment Approach
• Termination factors • Gap between Perceived and Expected service
• Hands-on managment tasks • Service quality and relationship quality • Value
Improvements
Figure 2.2 Customer Defection As stated, the left box summarizes earlier findings on why customers have decided to defect. For instance the previously defined determination and switching factors by Keaveney (1995): core service failures, service encounter failures, pricing, inconvenience, and employee response to service failures, attraction by competitors, ethical problems, involuntary switching, seldom mentioned incidences, financial constraints, lack of alternatives, switching costs, and habits. The second aspect of this section brings up the previously discussed gap between expected and received (perceived) service. In this filed Parasuraman et al., (1985) gap model explains this phenomenon in a very clear and precise way. The quality of the service that is being offered to a company’s customers is essential and it has a strong connection to the “size and direction” of gap number 5, which is the most important and relevant gap for this thesis due to the choice of topic regarding customer termination. Meaning that if gap number 5 is too big, the service the company is providing its customers with, is not meeting the expectations the customer initially had when he or she decided to buy the service. A big gap between expected and perceived service can be dangerous for the organizations, and it can sometimes swallow a whole business meaning termination in the relationship between a company and its customers. The middle box raises theories of management approaches towards customer defection with the aim of reducing them. Hands-on management mainly incorporates full awareness of all customers (both existing and defected), examining past failures, winning customers back, benefiting from the insight defected customers provide, and establishing a zero-defect culture.
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The second aspect concerns the quality of both the service and relationship, while emphasizing the importance of measuring both. The third and final aspect of this section concerns the value concept, stressing the importance of creating a better value than that offered by competitors.
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3. Methodology The following section will present the methodological choices for the study, including research approach and design, data and sample collection methods, a detailed description of the interview process, an empirical study description, and the limitations of the method.
3.1 Approach The approach in this paper is based on systematic combining, which is an abductive approach; this method was selected as it aims to refine existing theories rather than invent a new one (Dubois & Gadde, 2002). Through continued movement and development between an empirical and theoretical world, the approach avoids forcing a chosen theory to fit with reality, which also facilitates the avoidance of the author’s involvement. Theory, empirical findings, and the case analysis evolve simultaneously (Ibid.). As previously stated, one of the authors completed an internship at the case company, which allowed for an understanding of the problem and situation. In the second step, the authors conducted research to find relevant theories applicable to the case company. After the empirical study was conducted, the theories were revisited for further exploration, which is reflected in the theoretical summary to highlight the topics that were most relevant to the case company.
3.2 Research design The study is both explanatory and exploratory, as it both explains the current situation within the organization and its Board Members, and investigates the gap that exists between SACC Chicago and its members, and also the gap that exists in the theory (Patel & Davidsson, 2003). The research is based on a single case study of SACC Chicago and a portion of their defected members. A single case study allows for a more in-depth understanding of the existing problem and situation (Saunders et al., 2009), and can answer questions such as “why”, “what” and “how” (Yin, 2003). This is a cross-sectional study based on interviews conducted over a short time period of three months; this means that the study is descriptive and is used to describe the case and define the problem the organization is facing (Saunders et al., 2009). Organizational data was also used to map how many members had terminated their membership, and to determine if there was a clear pattern within various industries. The data mining from the SACC Directory was of quantitative nature, meaning that it was collected in
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numerical form with the aim of identification. The quantitative research was linked to the empirical study when the investigated and analyzed collected data was turned into diagrams and statistics. In this way, knowledge of the customer defection among the SACC was deepened.
3.3 Data Collection The theoretical framework is based on secondary data like books, articles, and papers. To avoid biased or inaccurate work, most of the publishers examined were well known. To form a critical point of view, different sources have been used to view the literature. Further, guidelines and information from lectures held at Ekonomikum at Uppsala University from January to March 2012 proved to be applicable. The data collection method for this study consisted of primary data gathered from interviews: three were conducted with members of the Board of Directors of SACC Chicago, and twelve were conducted with defected customers. As previously mentioned, secondary data was gathered from the register of the SACC’s members, which went back three years. This made it possible to count, compare, and categorize defected members, while the three year time period ensured that interviews members had strong and clear memories of their experiences with the Chamber. The time period was also chosen due to the amount of information that was limited by the time restriction.
3.4 Sample Collection The three respondents for the interviews with members of the Board of Directors of SACC Chicago were selected based on advice from the Executive Administrator for SACC Chicago and the interning author. Each respondent was a member of both the Board of Directors and the Membership Committee; the Board is the decision-making body of the SACC and has the greatest impact on membership questions, thus making it crucial to investigate the members. Two of the respondents had been on the Board for a long period of time, and thus had a great deal of experience with existing, new, and old members. One of the respondents had been recently elected to the Board, which meant that they could offer a fresh point-of-view. As for the Membership Committee, they have been involved in the Swedish community in Chicago for many years and have a varied set of knowledge in many fields. (For more information, please see appendix page 47.) Due to distance constraints, these in-depth interviews were conducted via Skype.
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Of the twelve defected members that were interviewed, five participated in in-depth interviews via Skype (three members who left in 2009 and two who left in 2010)1 and seven were interviewed via email due to time constraints, four members left in 2009 and three in 2010. The respondents represented the different membership categories. (For more information, please see the Appendix page 49.)
3.5 Interviews Each of the members that terminated their memberships with SACC Chicago between 2009 and 2011 were contacted via email three times over a period of three months to extend an invitation to participate in the case study. Twelve defected members decided to participate. The interviews were semi-structured, with key questions and themes prepared in advance. This allowed the authors to maintain a clear purpose and direction throughout the research process (Saunders et al., 2009). Each of the interview participants, both defected members and the Board Members, opted to be anonymous. The initial interview guide (please see Appendix page 48-50) provided a structure that ensured the coverage of all themes during the interviews. At the same time, the open-ended questions allowed for flexibility, which permitted for the exploration of new angles depending on the interview; respondents were also able to define and describe specific situations, thus allowing for a deeper understanding (Ibid.). Follow up questions were conducted with some defected members, mainly due to the systematic combining approach. These were done via Skype or email, depending on respondents’ time. Skype interviews with members of the SACC Board of Directors and defected members ranged from 45 to 60 minutes in length; a data recorder was used so that interviews could be revisited, thus ensuring accurate interpretation and the ability to quote respondents. Such indepth interviews were valuable for the case study, as the primary aim of speaking with defected members was to determine which specific behaviors caused them to terminate their relationships; a questionnaire would have limited the scope and depth of their replies (Saunders et al., 2009).
1
No members who left in 2011 were interviewed as the report from 2012 had not yet been published, and therefore it would be impossible to compare the 17 lost members during that year.
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3.6 Operationalization The initial request from the SACC was to aid them with their marketing channel strategy, and to investigate which channels are more effective and attractive for their members. During the author’s internship at the Chicago office, it was noted that a portion of members were discontinuing their memberships. It was also observed that there was a diverse range of opinions regarding customer defection among the Board of Directors. Due to this, the authors determined that the study should instead focus on customer defection – a decision that the SACC Chicago agreed with. Thus, the request changed to investigate customer defection within SACC Chicago. The two initial questions of investigation were why members were discontinuing their membership and how the SACC in Chicago was managing and viewing their defection. Jointly with this investigation, the authors examined relevant literature to better understand current knowledge of customer defection: primarily, reasoning behind defection, and secondarily, which strategies and models could aid an organization prevent defection. After an extensive investigation of relevant literature, the initial theoretical framework was completed; this included the part “Termination factors’ in the section “Defected members” and the “Management” sections, which guided the main topics and questions to be explored in the interviews. Please see the Appendix page 48-50 for the questions and their connection to the theoretical concepts. The interviews revealed that the main concerns were of perceived and expected service quality. This information was later used in the critical analysis. In conjunction with the gathering of empirical data, research of complementary theories was also conducted – most notably of Parasuraman et al.’s (1985) Gap Model as it was the most relevant model for this research. The primary focus was on Gap number 5 during the in-depth interviews, and was used to examine why members had terminated their memberships to the SACC. Both qualitative and quantitative data were collected and linked to each other to establish a more thorough view of the problem. The in-depth interviews demonstrated the division in opinion between the Board of Directors and defected members (Patel & Davidsson, 2003). The theories presented in this case study not only offer a wider and deeper insight into the field, but also ensure that the SACC Chicago benefits from the findings. The statistical survey complemented the study by painting a broader picture of defecting members in terms of membership levels and industries.
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3.7 Reliability and validity While a case study limits generalizability (Saunders et al., 2009), this study aims to examine a very specific situation. As such, an exploratory strategy is useful in achieving a richer understanding of the problem, as it makes it possible to find new insight into the phenomenon and answer the question of why (Ibid.). As Dubois and Gadde (2002:554) insist, “the interaction between a phenomenon and its context is best understood through in–depth case study”, thus strengthening the findings. The main limitation regarding the empirical data is that it is based on both human interpretations, and behaviors that can change over time. The respondents’ answers may not be “objective”, as respondents could provide answers that lead them to appear in a “social desirable role” (Saunders et al., 2009). The high trust dimension of the interviews, given the internship and close relationship between one of the authors and the case company, combats this bias. Further, the samples studied are not probability samples, as many potential respondents opted not to participate; however, this does not make the data any less valuable.
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4. Empirical findings This section presents the statistics that represent the members who defected from 2009-2011, followed by the empirical material amassed from the interviews with the Board and several defectors. The findings are presented in line with the objective of the study, and structured in accordance with the theoretical summary.
4.1 Defected Members Objective: What do the members say is the reason or reasons behind the discontinuation of their memberships? 4.1.1 Termination Factors
The reason why many companies or individuals originally decided to join the SACC Chicago was to enhance their relationships with Swedish companies and forge new relationship with customers in the United States. After some experience with the Chamber, some of these companies and individuals no longer believed that their membership would bring them any benefits, and so opted not to renew their memberships when the time came. Several members who previously held corporate or business memberships changed them to individual memberships, as they perceived their involvement with the SACC as a way of meeting Swedish people with a serious interest in the arts, rather than as being directly beneficial to their companies. Some of the interviewed defectors explained that the main reason for this was a lack of perceived value in membership, particularly in a time of recession where unnecessary costs needed to be eliminated. Other common reasons provided were that members moved or retired, or that, despite enjoying the organized events and meetings, they simply no longer had the time to participate. Other defectors commented that they found they were not receiving much of a response from the SACC, and so decided to terminate their memberships. Some other defectors found that they were part of too many organizations, and since the SACC was one of their pricier memberships and did not seem to result in any business referrals, it was not worth their time or expense. Interestingly, one of the defected corporate members explains that their company perceived a low interaction between their American firm and the Swedish firms working in the American market. Other members echoed the sentiment of Swedes only using Swedish companies, and another American member explained that those in the Swedish community did not take
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advantage of the services provided by his company. He felt that the Swedes did not consider that American corporate buyers were different than corporate buyers in other countries. Further, he added that while his company used to approach Swedish firms that seemed to demonstrate a capacity to grow in the U.S., it became impossible to make them invest in their brand in an ‘American way’ once they had a Swedish President or Marketing Director for the U.S. market. According to him, “the refusal to accept American branding campaigns as the major competitive advantage has made cooperation impossible”, and several Swedish companies that his company worked with lost out on great opportunities. Another defected member declared that their company felt that the SACC had a very small number of members, so “when you know them, you know if you can work with them. If you cannot work with them, membership in SACC is worthless”. A common sentiment shared amongst defectors was that the SACC focused on how to generate income for its member organizations, but that the higher membership fees did not translate into more business opportunities. Further, defectors have found that other countries’ Chambers of Commerce, for example the German or the French Chamber, can offer greater opportunities, which has resulted in them visiting these events instead. Another member explains it like this: “I had huge problems getting Swedish clients in the USA. Swedes think that they are great at advertising and marketing in the USA. Swedish marketing firms, Swedish advertising agencies and Swedish companies have the idea that whatever they do capture the American purchasing spirit. Unfortunately, that is a complete misconception and therefore I don’t have many Swedish clients”. The defected member than continuous: “Only, when Swedish companies use American advertising agencies, they grow, take market share and take customers from their competitors. My work is very successful doing just that but for some reason Swedes rather believe that in future their Swedish advertising will break through and generate wealth. These relationships that I have with Swedish companies have made me stay away from wasting time with Swedish business people. Which have made me go to other country's business meetings”. 4.1.2 Expected and Perceived Service
Some defected members felt that they actively participated in the SACC, while others simply received invitations and emails from the Chamber but never got involved, and still others did not attend meetings or events as they felt that their participation did not pay off. One of the interviewees explained that the SACC is like a social club, and that many people simply do
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not have time to participate in each event due to time constraints. As other members mentioned, their social calendar is already full, and what they need are more business-oriented meetings. Others were dissatisfied with the offered benefits to membership as they were of no particular interest to them specifically. When examining members’ perceptions of service, their opinions were more varied. One member from the food industry commented; “I don’t know if I received the service part of the Chamber of Commerce. I’m in the food business, and I actually sell Swedish food so you would think that I should get some value form the Chamber of Commerce. But I didn’t get that. Like for example, the German Chamber of Commerce brings companies over here to visit me and I have had the German Chamber of Commerce call me and let me know that they have this trade show. They have arranged for four companies to come and visit me and to buy my food. And I didn’t get that from SACC”. Due to the lack of matching companies and their needs, members explained that they did not think about contacting the Chamber when they needed help with something, even if it could have been something that the Chamber could have helped them out with. In joining such an organization, members were expecting to receive a more business-oriented service, but upon working with the SACC, they did not end up perceiving that such was the case. When asked whether or not defectors would consider rejoining the SACC, some replied yes and others replied perhaps; the common sentiment amongst these groups was that they wanted to be sure of the value of their membership. Interesting fact showed that no one actually said no on considering rejoining the SACC. While none of the respondents felt that there had been any problems during their membership, they felt that, due to the globalized nature of business, the Chamber needed to establish relationships with companies in other countries. Further, they felt that the Chamber ought to encourage Swedish businesses to look closer to the services that firms in the USA have to offer.
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4.2 Statistical Findings Objective: Are there any patterns among the members who have defected? For instance, does one industry have more defectors than another?
Members between 2009 - 2011 250 200 150 Members between 2009 2011
100 50 0 2009
2010
2011
Figure 4.1 Members between 2009-2011 (SACC Chicago Membership Directories, 2009-2011) The largest loss of members occurred between 2009 and 2010, with the SACC losing 38 (18.27%) of its members. Between the years of 2009 and 2011, SACC Chicago lost 36 members (17.30%). Between 2010 and 2011, the SACC actually gained 2 new members, resulting in a growth of 0.11%. The following figures illustrate the four different membership categories and how they have changed over time:
YPC 15,5 15 14,5
YPC
14 13,5 2009
2010
2011
Figure 4.2 Young Professional Members 2009-2011 (SACC Chicago Membership Directories, 2009-2011)
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Figure 4.3 Individual Members 2009-2011 (SACC Chicago Membership Directories, 2009-2011) Looking at figure 4.3, one can see that the Chamber has only one more Young Professional member in 2010 than in 2009 and 2011. Individual memberships, on the other hand, were more varied. Between 2009 and 2010, the SACC lost 7 members. In 2011, however, they experienced a growth of 19%, which lead to more members than in 2009.
Business 70 60 50 40 Business
30 20 10 0 2009
2010
2011
Figure 4.4 Business Members 2009-2011 (SACC Chicago Membership Directories, 2009-2011)
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Corporate 85 80 75 Corporate
70 65 60 2009
2010
2011
Figure 4.5 Corporate Members 2009-2011 (SACC Chicago Membership Directories, 2009-2011)
Figures 4.4 and 4.5 demonstrate a dramatic, negative change over the last three years. Between 2009 and 2011, 23 Business members terminated their memberships, resulting in a loss of 36.5%. Similarly, Corporate memberships dropped by 15.85% between 2009 and 2010, with 13 members terminating their memberships. Interestingly, membership did not change going into 2011. However, as the Business and Corporate memberships are the most profitable levels of membership for the Chamber, such significant decreases in memberships represent a great loss.
Different types of businesses between 2009-2011 10 9 8 7 6 5 4 3 2 1 0
Figure 4.6 Different Types of Businesse 2009-2011 (SACC Chicago Membership Directories, 2009-2011)
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Figure 4.6 depicts the eight main industries in which members who defected from SACC Chicago between the years of 2009 and 2011 did business in: manufacturing, health care, transport/material, finance/brokers, consultants, food industry, sales/trade and technology. It is evident that most defectors (24.3%) worked in the health care sector, followed by finance/brokers (21.6%). The consulting (16.21%) and transport industries (16.21%) also represent two large losses in SACC membership. The remaining industries – manufacturing, food, sales, and technology – only represented minor drops in membership.
4.3 Management Objective: What are the opinions among the Chamber’s Board concerning customer defection? More specifically, does the Board of Directors value the importance of customer defection strategies; what kind of strategy do they have; and which weaknesses exist in this strategy? 4.3.1 Current View on Customer Defection
The SACC Chicago Membership Committee believes that members are defecting for a number of reasons that come down to the membership life cycle. The Committee also feels that the predominant reason for membership termination has been the economic downturn, which resulted in some members changing their membership levels as companies and individuals have critically examined their expenditures – this is made evident in the significant drop in Corporate memberships. During a recession, high-cost business events like the Golf Outing or the Lucia Luncheon are more difficult for members to justify. Additionally, the Committee claims that fewer Swedes are moving to and from the United States; with fewer individuals moving in a suffering economy, there is less opportunity to entice new members. Communication with local Swedes has also been hampered by the retirement of some senior Board members, who have made deep personal connections to the community over time. Overall, the Committee feels that members simply do not see enough potential or value in their membership. Unfortunately, this fosters a downward slope and vicious cycle, whereby as members drop out, networking opportunities decrease and thus membership value does as well. This has lead the SACC to believe that members are not considering the long-term effects of their membership when they defect: they are debating whether or not the membership is something they can live without at the present time, rather than whether or not their membership is helping the SACC survive or not. The Board is certain that members are
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not defecting over service dissatisfaction or irrelevant work by the SACC, particularly as there is no equivalent competitor for Swedes to turn to – they simply are not likely to join the Chambers of another nation. 4.3.2 Current Customer Defection Strategy
The SACC has reached out to its existing members via letters soliciting opinions on what sort of services they would like to see in the future, and comments on service satisfaction. While not many members responded, a trend was still established where members preferred more networking events and special events like the annual Lucia Luncheon and Golf Outing. Respondents also felt that the SACC could improve communication and better explain the value of each membership category. As the Chamber believes that the value of membership is very subjective, they do not measure service quality. Instead, event attendance is used as the measurement for service quality: if the events offered are of high quality, attendance will be high. There are daily interactions between the SACC and its members via telephone, which the SACC believe are well-received and should be done more often. Yet, one Committee Member explains; “But it is hard, some people say that they receive too much info meanwhile other say that they don’t receive enough. Where is the middle?” The Committee is aware of the fact that the membership question is the most difficult part that they have to deal with; the main problem is always how to attract new members and while retain the existing ones. One interview respondent stressed that the SACC needs to improve communication in terms of explaining the value of the various membership levels, which is something that the Chamber plans to concentrate on this year. Further, the Chamber has found that while there are members who are very actively involved, others are not. For the SACC to be successful, more individuals must actively contribute to the organization and participate in events. However, many members face time constraints and do not feel the need to contribute when they are so busy; while they may attend an even or two, they have no interest in organizing any. As one of the Board members says, “event quality is key. If members are engaged with our events then they will automatically improve the quality of our relationship”.
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4.3.3 Rejuvenation of the Board and Their Action Plan
Since the organization is volunteer-led and thus full of busy individuals, the Board considers that there are more pressing issues to address than the analysis of defected members. As part of an action plan this year, the SACC mailed out a brief survey to members who have not been active; this was followed by a phone call to determine how members felt about the Chamber, whether or not their service was lacking, if they were aware of current programming, if they were interested in contributing to specific meetings, if they could suggest any ideas, or if they were interested in becoming a Board member - this resulted in contacted members feeling honored that the Chamber cared enough to contact them. The SACC then took this information into consideration when planning their upcoming events and happenings. The SACC has stated that they are aware of the dilemma of decreasing memberships, and determined that renewing the Board was imperative: “Many of the board members have been part of the organization for a long time. In order for this to be a vibrant organization you have to have vibrant and active directors who take a personal interest of actually doing something. For much too long board members have seen being a part of the board just as something nice without really realizing that it takes a little bit more than that if we want this organization to survive and be the vibrating place that we all want it to be. A very important rejuvenation of the board happened last January, where 8 new board members began and 5 old ones left. Now there needs to be a realization within the membership committee that everyone needs to take turns and that the membership question overall, regarding old, new and existing members becomes everyone’s concern”. 4.3.4 Future networking abilities and events
When looking at which members, old ones, new ones, existing ones, are being prioritized, the answers within the Chamber vary. Some say that the issue is that members are not attending events – members that are not overly visible to the SACC. They mean that the issue is not if they are old, new, or existing ones – but that it has more to do with the fact that SACC is unable to engage members and that needs to be prioritized. Some say it is very important to keep the members who have been around for a long time and not lose them. But they feel that it is even more important to gain new members that are satisfied with the organization. One of the respondents said that, “In general SACC thinks that getting old members back is not priority number one”.
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What, then, can be improved by the Chamber? According to the SACC, events can be better publicized, there could be more of them, and there could be more direct integration with American businesses. The Chamber’s aim is to bring in interesting speakers, provide social opportunities, and organize larger networking/business events. The major limitation is that of time: the Board members feel that they are busy and do not necessarily have the time to commit every week to analyzing and acting on improving the events off SACC.
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5. Analysis This section analyzes the empirical findings in relation to the theoretical concepts. It identifies the weaknesses as well as opportunities for the management approach (improvements), drawing on earlier theoretical finings. Initially the section discusses and analyzes defector responses.
5.1 Defected Members 5.1.1 Termination factors
The main reasons that sum up why old members terminated their membership are that they did not see the value of it at the time being, and that they did not get as great of a business response as they thought they would. Also, they had to cut unnecessary expenses, and since the SACC was expensive and did not result in any business referrals, it had to be cut from their budgets. Members felt that it was not worth their time or finances: the expenses compared to the expectations did not match. Zeithaml, Berry & Parasuraman (1985) claim that the perceived service quality influences the behavior intentions and can signal whether a customer will remain or defect - meaning in this case that the perceived quality was not satisfying enough for some of the members. Some of the members moved or retired, some simply did not have enough time anymore, but the main reason that was mentioned several times by different defectors was that the company who was a member had huge problems getting Swedish clients in the USA due to the fact that they felt that the Swedish members tended to stick to the Swedish companies that were operating on the American market instead of using American firms. None of the participants felt that they had had any problems; they felt that the Chamber was well run but needed to create more business relationships with other country's businesses. When asking the old members if they could consider becoming a member again interesting fact showed that no one said no. The old members could reconsider a renewing their old memberships. However, one interesting aspect that an interviewed participant brought up was that they had felt that the major focus of the SACC had been on how to generate income, rather than providing their members with the benefits they were interested in. As the high fees have not generated more business opportunities, members have felt that there are more opportunities elsewhere. When discussing the costs and pricing during the interviews, some
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defected members decided to downgrade their Corporate and Business memberships to the cheaper, Individual membership level. One can see that those companies and individuals who decided to join the SACC from the first beginning had expectations of enhancing their relationships with Swedish companies and meeting potential customers in the U.S. These members were looking to get business from Swedish clients and create a business network. The second expectation was to meet Swedes and to create a social network on a private level. Unfortunately, defected members did not feel that their expectations were met. When analyzing the question of whether the defected members would consider rejoining the SACC the answer was pretty clear: they all wanted to be sure of the value for them. The interviews indicated that customers were and are in it for different needs, some more social other business oriented. From the amount of respondents in this case study there seemed to be a tendency of Americans firms having a strong need of a business-oriented approach. The services expected might thus this be different depending on the cultural background. However, this would need a further investigation. Parasuraman et al.’s (1985) Gap Model includes the aspect of customers having different needs and what then might be interesting for an international organization as SACC is to as well investigate if the personal needs have any cultural patterns. 5.1.2 Precived and expceted service
During the interviews, one of the past Corporate members stated that: “The relationships that I have with Swedish companies have made me stay away from wasting time with Swedish business people, which have made me go to other country's business meetings”. Another explained the situations as follows: “The German Chamber of Commerce brings companies over here to visit me and they have arranged for four companies to come and visit me and to buy my food. And I didn’t get that from SACC”. This shows that if members do not receive the service quality they expected, they will simply take their business to a competitor. This is in line with Errget & Ulagas (2002) theory, which states that value creation can be compared to competition. If a firm can manage to deliver a better trade-off, whose products and services offer greater benefits; they can provide their customers with better value than their competitors. In this case, a better value trade off has been offered from a competitor. When analyzing the main gap in this case study, it is evident that it has to do with Gap 5 in Parasuraman et al.’s (1985) Gap Model. Most of the interviewed members were expecting to
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receive more business-oriented service, but they did not perceive that from the Chamber. Meaning that there were mismatches between the expected and perceived service. Looking back at the theory, Parasuraman et al. (1985:42) state that “a gap between the expected service and the perceived service in different functions in a service company's production can be seen from two different perspectives; from a company’s perspective and from the costumer’s point of view”. Therefore it is important to take into consideration that this is the subjective point of view from the old members of SACC Chicago. The diagnosed gap between the demand on the market and the capacity of the Chamber needs to be better understood and further examined, but the main reasons why the gap is widening is due to the fact that members are not perceiving the expected business value that they thought they would get by joining the Swedish American Chamber of Commerce in Chicago.
5.2 Management Improvements 5.2.1 Hands-on tasks
The interviews with the Board at the SACC show that there are various opinions as to the degree the organization is aware and managing their old customers. Some stated that there should be more time spent on investigating old customer defection; another claimed that the focus should remain on customer acquisition. This inconsistency in opinions among the Board of Directors indicates that there is not a common view of how to look at defected customers and how vital it is for business. As Reichheld & Sasser, Jr. (1990) stress, it is important for everyone to be aware of the problem and working in the same direction to achieve a common goal. The organization is thus aware of the problem to an extent. One of the Board members is charged with the responsibility of working with defected members, thus showing that they do look into their past in order to examine failures. However, as previously established, if the view of the importance of customer defection is not shared amongst the Board of Directors, it will inhibit the value of time spent on investigating members that have defected. As Reichheld & Sasser, Jr. (1990) state, the insight these lost members provide can help managers improve their business. This information thus needs to be well managed. There is still a strong focus on acquisition of new members, as first noted during the internship, and later supported by interviews. Several respondents mentioned new customers. The main reasons why they lost members, as stated by the respondents, are economic downturn, lack of engagement, and time. However, they also do not believe that the members
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saw the value of membership. This is due to the weak communication on what actually is in there for them, which all respondents seemed to agree on. 5.2.2 Service and relationship quality
This view described above is thus a bit contradictory since the Chamber also believed that the defected customers were satisfied with the service provided. As Jones & Sasser, Jr. (1995) argue, there is a difference between satisfied and completely satisfied customers when it comes to loyalty. Examining the theory proposed by Jones & Sasser, Jr (1995), when a customer is completely satisfied, they tend to stay very loyal in the relationship. This means that relationship quality is achieved and that customer expectations are met. But, when the customer is just satisfied, the company can easily lose the customer; if a customer is dissatisfied, this means that they may stop being loyal, which could end the relationship completely. The members who defected were in many cases just satisfied or dissatisfied, and that was why they decided to terminate their relationships with SACC Chicago. Jones & Sasser, Jr. (1995) explain that the interaction between the customer and management must to be high. The management has to listen to their customers to find out how they perceive the service they are being provided with, figure out what they are demanding, and then provide them with that. “The gap between satisfied customers and completely satisfied customers can swallow a business.” (Jones & Sasser, Jr, 1995:2). In this particular case, this also indicates that the relationship quality is affected by poor service quality. As Keaveney (1995) points out, even satisfied customers can switch or terminate a relationship. Shepard (1999) claims that the customer always has a subjective point of view of how good or bad the expected service quality is. Overall, it seems that there are some quality and value improvements that can be made in this field. Especially when it comes to providing the members with more business oriented services that can come in great hand for companies that are member of SACC Chicago. Therefore, when measuring service quality, SACC Chicago should include an analysis of the defected customers and their valuable opinions, which can lead them to see what they need to prioritize when it comes to quality improvements (David Sheperd, 1999). At this point, SACC is not measuring service quality from defected customers, which makes it impossible for them to prioritize which quality improvements need to be done. The qualities of the service provided have been an attempt to
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find out what beliefs exist among current members - thus solely existing ones and not defectors. 5.2.3 Value
Looking at the value concept, one can clearly see that most of the defected members felt that they did not gain enough response or business referrals. They joined the Chamber due to the expectation that there would be something in it for them, but when they saw that the interaction between their American firm and the Swedish firms in the American market was not high; they stopped seeing the value for themselves or their company. As Hills & Jones (1998:88) state, that value occurs “when a firm is able to advance and come up with something that is unique for its customers, something that fulfills and satisfies the customer’s needs”. Further, Reicheld (1996) stress that the value that a customer perceives is the most important factor when looking at the loyalty aspect in a relationship between an organization and a customer.
In this case, the Chamber was not able to advance or come up with
something exclusive enough for their members so that their expectations would be met and fulfilled. All of the members who were more business-oriented rather than socially interested in the Chamber, had a hard time seeing the value due to the lack of matching companies and their needs with SACCs members. Old members explained that they did not think about calling the Chamber when they needed help with something, even if it could have been something that the Chamber could have helped them out with. This demonstrates that there was potential for the Chamber to do something, but it also shows that the interaction between some of the members and the Chamber was not particularly high. Reicheld (1996) says that the main reason why many organizations and firms fail and start losing customers is because they lose focus. They start to look at different measurements and focus on analysis and profit instead of focusing on value creation. This seems to be ring true with the SACC Chicago, as they grew more focused on their incomes as a non-profit organization to survive, instead of focusing on fulfilling their purpose: coming up with services that are of great value for their members. Listening to their old members, higher fees did not generate more business opportunities. Being an old member or not, at the end of the day everyone wants to be sure what type of value is in there for them and their businesses.
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6. Conclusions This last section will summarize the most important findings and further discuss their implications in order to elaborate on future research on the topic of customer defection. It is time for the SACC to make defected customers everyone’s concern and spend time analyzing why members have and are leaving. Looking into the past and examining their failures will bring new insight that will take them forward. Defected customers are the ones with most information (Reicheld, 1996). This case study has made the initial step in identifying the main problem regarding the current strategy towards customer defection, and also investigated some of the defected customer’s reasons for their membership termination. It has been noted that there are diverse views of how vital defected customers are, especially the time to be spent on them. The SACC is still prioritizing acquisition over customer defection strategies. This study has only investigated a portion of defectors - however, this portion has provided a lot of valuable information for future improvements and advice on how to win defected members back. A continued investigation in this field will increase the understanding of what has been lacking, and provide greater knowledge for future improvements. A first step for the SACC would be to design and structure an approach. The strategy concerning defected customers needs to be improved, such as with the implementation of a “zero defect culture”, where everyone in the organization shares a common view and works toward a mutual goal. The customers who have terminated their membership with the SACC in Chicago between the years of 2009 and 2011 were in the manufacturing, health care, transport/material, finance/brokers, consultants, food industry, sales/trade and technology industries. There were some industries that had more defectors than others, primarily the health care sector, finance and brokers, consultants, and people working in the transport business. These are the specific sectors that SACC Chicago needs to concentrate on. The main reason for termination amongst respondents was the SACC’s inability to create a business network. There was a lack of value and business opportunities. It seems as many people became members to score customers to their own businesses. Another conclusion that can be drawn is that members have their social needs filled up - business oriented meeting is what is needed. This fact should be an indicator to the SACC Chicago to concentrate more on the business aspect and have a good and open dialogue with their members, and especially to
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appeal more to business-oriented members. A minor indication of an cultural effect was also noted, however further research have to be done in order to validate this data. A clear pattern was that members felt that their memberships were lacking value. Once again, the SACC needs to make sure that their members get value for the money they are paying on their memberships. This aspect is very important in the long run: if members see the value in the Chamber’s activities, they will decide to stay active within the organization and in that way, the organization will be able to survive long-term. Again, the most important first step for the SACC Chicago should entail working towards the same goal by making everyone on the Board fully aware of this problem and becoming more business oriented in the activities offered to members.
6.1 Further Research With the case study of the Chamber, the authors aimed to contribute to this field and make it more interesting for further research. There are many more aspects in this field that one can delve deeper into. Due to time restrictions, a comparison between SACC Chambers in other U.S. cities was not been possible. However, this was considered since it could be of interest to see whether these findings simply are a global trend and thus this not necessarily related to solely the Chamber in Chicago. It thus a comprehensive study to conduct and the further exploration of the remaining defected customer can as well give even more new insight. For further research one can for example use cultural theory to investigate more in this specific field. An investigation of the environmental effects would as well be suitable as further research in order to see its impact on customer defection.
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References Articles Athanasopoulou, P., (2009). "Relationship quality: a critical literature review and research agenda". European Journal of Marketing, Vol. 43 Iss: 5/6, pp. 583 – 610. Berry, Leonard L. (1983). "Relationship Marketing," in Emerging Perspectives on Services Marketing”. American Marketing Association, 25-28. Bolton, R. N., “Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Satisfaction”. Marketing Science, Vol. 17, No. 1, pp. 45-65. Day, S, G., (2011). “Closing the Marketing Capabilities Gap”. Journal of Marketing, Vol. 75, No.183, pp. 183-195. Dubois, A., & Gadde, L., (2002). ”Systematic combining: an abductive approach to case research”. Journal of Business Research, Vol. 55, No.7, pp. 553-560. Eggert, A. & Ulaga, W,. (2002). “Customer-Perceived Value: A Substitute for Satisfaction in Business Markets”. Journal of Business and Industrial Marketing, Vol. 17, No.2-3, pp. 107118. Gallarza, M, G., Gil-Saura, I., & Holbrook, M, B., (2011). “The value of value: Further excursions on the meaning and role of customer value”. Journal of Consumer Behavior, Vol. 10, Issue 4, pp. 179–191, Grant, Alan W. H. and Leonard A. Schlesinger (1995), "Realize Your Customers' Full Profit Potential". Harvard Business Review, Vol. September- October, pp. 59-72. Grönroos, C., (1993). "A Service Quality Model and its Marketing Implications". European Journal of Marketing, Vol. 18, No. 4, pp. 36 – 44. Hart, C. W.L., Heskett, J. L and Sasser, E. Jr,. (1990). "The Profitable Art of Service Recovery". Harvard Business Review, Vol. 68, No.4, pp. 148-156. Heskett, J.L., Jones, O. T., Loveman., G.W., Sasser, E. Jr and Schlesinger, L., (1994). ”Putting the service-profit chain to work”. Harvard Business Review. Vol.72, No. 2, pp. 164174.
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Homburg, C., Wayne D., Hoyer & Stock, R, M., (2007). “How to get lost customers back?”. Journal of the Academy of Marketing Science, Vol. 35, No. 4, pp. 461-474. Jones, T.O., and Sasser, Jr, W. E., (1995). “Why Satisfied Customers Defect”. Harvard Business Review, Vol. 73, pp. 88-99. Keaveney, S. M., (1995). “Customers switching behavior in service industries”. Journal of Marekting, Vol. 59, No. 2, pp. 71-82. Lin, G, T-R. and Lin, T., (2006). “Ethical Customer Value Creation: Drivers and Barriers”. Journal of Busniess Ethics, Vol. 67, No. 1 pp. 93-105. Parasuraman, A., Valarie A., Zeithaml and Leonard L., (1985). “A Conceptual Model of Service Quality and Its Implications for Future Research”. Journal of Marketing, Vol. 49, No. 4, pp. 41-50. Reicheld, F., (1996). “Loyalty Effect: The Hidden Face Behind Growth, Profits, and Lasting Value”. Harvard Business School Press, Reicheld, F.F., Jr., and Sasser, W.E., (1990). “Zero defections: quality comes to services”. Harvard Business Review, Vol. 68, No. 5, pp. 105-111. Roberts, K., Varki, S., and Brodie, R., (2003). "Measuring the quality of relationships in consumer services: an empirical study". European Journal of Marketing, Vol. 37 Iss: 1/2, pp.169 – 196. Shepherd, D., (1999). “Service Quality and the Sales Force: A Tool for Competitive Advantage”. The Journal of Personal Selling and Sales Management, Vol. 19, No. 3 pp. 7382. Tokman, M., Davis, L. M., and Lemon, K. N., (2007). “The WOW factor: Creating value through win-back offers to reacquire lost customers”. Journal of Retailing, Volume 83, Issue 1, pp 47–64. Zeithaml, V. A., and Berry, L. L., (1985). “A Conceptual Model of Service Quality and Its Implications for Future Research”, Journal of Marketing, vol. 49, no. 4, pp. 41-50.
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Books Hill, C. W.L., & Jones, G. R., (1998). Strategic Management: An Integrated Approach. 9th Edition. South-Western Cengage Learning., USA. Patel, R. & Davidsson, B., (2003). Forskningsmetodikens grunder: att planera, genomföra och rapportera en undersökning. Studentlitteratur: Sweden. Yin, R.K. (2003). Case study Research: Design and Method, 3 ed, Sage., London. Saunders, M., Lewis, P. & Thornhill, A., (2009). Research Methods for Business Students, fourth edition. Harlow: Prentice Hall.
Online sources Hart, Heskett, Sasser Jr - Harvard B.J. Read: 2012-02-24, retrieved at: http://www.busi.mun.ca/jbarnes/b6230/HartHeskett-ServiceRecovery.pdf Reicheld- Harvard Business School. Read 2012-03-02, retrieved at: http://www.profitmatters.ca/Articles/HBR%20Customer%20Defections.pdf Swedish American Chamber of Commerce Chicago. Read 2012-05-20, retrieved at: www.sacc-chicago.org Swedish American Chamber of Commerce USA. Read 2012- 05-10, retrieved at: www.sacc-usa.org
Other sources Swedish American Chamber of Commerce Chicago Membership Directory, 2009 Swedish American Chamber of Commerce Chicago Membership Directory, 2010 Swedish American Chamber of Commerce Chicago Membership Directory, 2011
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Appendix 1. Members benefits These are the main benefits which SACC offers to their member: Business Matchmaking Service We connect you to individuals within the network that can provide you with professional services such as attorneys, bankers, real estate agents, marketing consultants etc. This is what we call 'Business Matchmaking' and it has become one of our most popular services.
Informative Events and Networking You will be invited to participate in SACC-Chicago's seminars, conferences and other informative events. Meet many interesting speakers, special guest, and well-placed executives and officials from the Americas and Sweden. Network with your colleagues in the rapidly growing Swedish-American business community in Chicago. Meet and share information and experiences with executives and members of many regional and bi-national chambers of commerce and international business organizations in Chicago.
Corporate Branding, Marketing and Sales Programs We put together corporate programs, which are custom-tailored branding, sales and/or marketing programs for corporations that are looking to expand on the U.S. market, make their brand(s) known, reach new customers and increase sales.
Custom Tailored Trade Missions We custom tailor Trade Missions for companies interested in a new market. Through our local chambers we ensure that products, services and information are presented in the right way to the right people. Trade missions should be considered as a first step for companies to evaluate their potential to establish/expand in the U.S. and for business regions to form strategic alliances that are mutually beneficial for their region and their potential U.S. partner(s) as well as attracting companies to their region.
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Swedish American Entrepreneurial Days SACC invites you to the Swedish American Entrepreneurial Days which has become the most important trade and networking event providing a platform for trade, commerce and investments between Sweden and the U.S. For the past ten years the Entrepreneurial Days has enabled small-, medium- and large companies to connect and develop new business relations. A key trade and networking event providing an effective platform for trade and commerce between the U.S. and Sweden. The event is a prime venue for linking Swedish and U.S. businesses. What makes this business to business event so worthwhile and successful is that it brings together entrepreneurs and experts from a variety of fields-all sharing their expertise and knowledge of the American and European markets. Currents & eCurrents We distribute Currents -a high quality journal with news and information relating to our Swedish-American business network as well as regional Chamber events. Currents are read with interest by more than 21,000 entrepreneurs and executives. Our electronic newsletter eCurrents reaches more than 4,500 recipients. J1 Visa Service We offer a J-1 Trainee-Visa that provides young professionals with work experience abroad. Member companies get access to SACC-USA's database with highly qualified trainee candidates. A host company may also utilize the SACC-USA J1-Visa Service for internal rotation or training programs. Membership Directory We publish an essential resource for Midwest Networking: the SACC-Chicago Membership Directory. SACC-Alliance We offer member discounts on brand name products and services, and special rates on hotels throughout the US and in Sweden.
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SACC Membership Deals & Discounts Program We offer a package of deals and discounts across the U.S and Sweden. We provide a balanced package of airfare, lodging, supplies, advisory and IT/communication services, all essential when doing transatlantic business. For more information please click here. Source: www.sacc-chicago.org
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Appendix 2. Interview SACC Chicago Table 1. Respondents Background
Respondents
Experience
Type of interview
SACC Chicago VP of
Product group manager at
In-depth semi-structured
Membership
Astra-Zeneca, Finance and
interview
Administration Manager at Tetra Pak in Korea, President of SWEA Chicago, Project manager at the Swedish Trade Council in Chicago. SACC Chicago Board of
Strategic Consulting
In-depth semi-structured
Directors/ Membership
Services, senior consultant at
interview
committee
Edgewater Ranzal, double major in economics and international studies at Northwestern University.
SACC Chicago Executive
Scandinavian Airlines, The
In-depth semi-structured
Administrator
Swedish Trade Office,
interview
Consulate General of Sweden, South African Consulate-General.
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Initial Outline questioner: Boards of directors
The questioner is solely made to facilitate the authors during the in deep interviews with the respondents. The aim is to follow the respondents “story” and if necessary lead the discussion. The purpose is also to connect the questions with figure 2.2 in the theoretical summary in order to map the problem. Hands-on management tasks 1. Do you devote time to your lost members? (Why, how much time? or why not?) 2. Are you trying to win back old members? 3. Do you think that the Chamber of Commerce should lay more focus on gaining back customers that have decided to determinate their membership? 4. Do you have any strategies for lost customers? (What is it including?) Service quality and relationship quality 5. Do you measure the service quality you provide? 6. Why do you believe these members have determined their relationship? If so why? What is your experience?
7. Do you feel that the interaction between the chamber and its members is good and active? 8. According to you, what can be improved by chamber regarding the service quality? 9. Do you feel that your members are committed and active members? Or passive?, Why? 10. How would you describe your relationship with your members? 11. What can be done better from the chambers side regarding the relationship quality? Value 12. Who do you think plays the most essential role when it comes to service delivery in the SACC? 13. What do you do so that members feel that they gain value in return for the time and money that they spend with SACC?
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Appendix 3. Interview defected members Tabel 2. Respondents Background
Respondents
Experience
Type
of Type of interview
Membership Three old members
Health care, materials
Corporate,
In-depth semi-
from the year of
handling, brokers.
Individual,
structured
Business.
Interview.
2009, women, ages between 35-65. Two old members
Car industry, logistics
Corporate,
In-depth semi-
from the year of
and insurance.
Business.
structured Interview.
2010, men, ages 4570. Seven old members
Consultants, trade
Corporate,
Shared their
between the year of
specialist, lawyers,
Individual,
experience through
2009-2010, men and
finance, students.
Business, Young
mail.
Professional.
women, ages 27- 55.
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Initial Outline questioner: Defected members
The questioner is solely made to facilitate the authors during the in deep interviews with the respondents. The aim is to follow the respondents “story” and if necessary lead the discussion. The purpose is also to connect the questions with figure 2.2 in the theoretical summary in order to map the problem. Termination factors 1. Why did you determine the membership at SACC? 2. Did you switch to another organization with similar service? If yes, how come? What was the reason? Gap between Expected and Perceived Service 1. 2. 3. 4. 5. 6.
The service that was provided, was it the service you expected? What kind of service did you expect? From were or whom was these expectations (promises) given? Where you dissatisfied with the outcome of the service? (Why or why not?) Where you dissatisfied with the interaction with SACC? (Why or why not?) According to SACC, as a member of SACC Chicago there are different benefits to gain, for example Business Matchmaking Service, Corporate Branding, Marketing and Sales Programs, Custom Tailored Trade Missions, Invitation to Swedish American Entrepreneurial Days and Monthly Membership E-Paper. Did you felt that you gained these benefits? Which ones did you gain? Which ones did you not gain? What could have been done better?
Gap between Expected and Perceived Service – Focus on Relationship Quality 1. When you were a member, how would you describe your relationship with the chamber? 2. Did you feel that the interaction between you and the chamber was good and active? 3. Were you a committed and active member? Or a passive one? Why? 4. Did you rely on the organization? 5. Did you feel that SACC was enough concerned of your welfare? 6. Why or why not where you satisfied with the relationship towards SACC? 7. Where there any problems in the relationship? 8. If problems occurred, were you satisfied with the process of working them out? 9. What could have been done better from the chambers side regarding the relationship quality?
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