Uppsala universitet

3.3 Customer Loyalty and the Return on Relationships
Today a company’s market share is often considered less important than its share of customer
(cf., Gummesson, 1997). This refers to how much of the customer’s potential engagement with
the services the company is able to provide is, in fact, realised and managed (a low share of
potential engagement indicates customers who buy from many sources). As Goldberg (1997)
noted, a customer must be “viewed and managed not as part of a large, homogeneous mass but
rather as a unique individual representing a unique business asset” (p. 29). Consequently,
service companies are trying to think in terms of possible ways of measuring the financial
implications of customer loyalty, as well as maximising the lifetime value of the customer to
the companies. Some ideas influencing approaches to the building of customer loyalty are to
sell more than a product; to be a partner, not just a vendor; to walk in the customers’ shoes to
understand their situation; and to decrease employee turnover in order to retain customers.
Understand and solve a customer’s business problem and the relationship is deepened. (Jacob,
1994)
Customer loyalty may be considered a key to profitability, but it is reasonable to state
that the creation of this sense of loyalty is not something that happens overnight. As an
example of this, there is research showing that in certain private insurance business it may take
as long as seven years before the individual customer gives the provider any profit from the
relationship (Gummesson, 1996). The “loyalty management guru,” Frederick Reichheld,
proposed accordingly that profit is not the primary goal. Although indispensable, profit is the

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consequence of value creation, which, together with loyalty, are the cornerstones of long-term
relationships (Reichheld, 1996).
The mission ranked at the highest level of priority in a loyalty-based effort is to make
sure that the company finds and keeps the “right” customers. The right customers are mainly
those to whom the best value possible can be delivered by the company over a long-term
period. The effects of marketing alone are not able to create sustainable loyalty; customers stay
loyal because of the value they receive, not because of a marketing program. Hence the role of
the marketing department is “to ensure that the efforts of each department are coordinated into
effective delivery of a unique value proposition, which will provide superior value and thus,
earn customer loyalty” (Reichheld, 1995, p. 238).
An enhanced level of customer loyalty includes the benefits of increased revenues from
repeat sales and referrals and increased employee job satisfaction. The Swedish researcher in
relationship marketing, Dr. Evert Gummesson, introduced the term return on relationship,
defined as “the effect on long term net financial outcome caused by the establishment and
maintenance of a company’s network of relationships” (Gummesson, 1997, p. 205). The
measure not only relates to customer-supplier relationships, but also to competitor
relationships. Following Gummesson’s reasoning, examples of ways to improve the return on
relationships are given below (Gummesson, 1997).