Critical Phases in Customer Relationships

1. Critical Phases in Customer Relationships Bo Edvardsson & Tore Strandvik Presentation at AMA Doctoral Consortium, Miami October 28th 2004 Bo Edvardsson is professor, Service Research Center (CTF), University of Karlstad, Sweden Tore Strandvik is professor, CERS Centre for Relationship Marketing and Service Management, HANKEN Swedish School of Economics and Business Administration,Helsinki, Finland

2. Traditional CI definition “ A critical incident is one that contributes to or detracts from the general aim of the activity in a significant way. We define criticalincidents as specific interactions betweencustomers and service firm employees thatare especially satisfying or especially dissatisfying.Hence, not all service incidents were classified,only those that customers found memorablebecause they were particularly satisfying ordissatisfying” Bitner, Booms and Tetreault 1990, p. 73

3. Another traditional CI definition “ For an incident to be defined as critical,the requirement is that it can be describedin detail and that it deviates significantly,either positively or negatively, from what isnormal or expected. In this study we consideronly negative critical incidents, i.e. customerencounters that do not proceed normally butcreate friction, irritation and dissatisfaction.” Edvardsson 1991, p. 3

4. History of our study 2000 Critical incident studies (exploring criticality) ”Directive Incidents” = incidents changing the direction of a relationship 2002 ”Critical Phases” = period of time with increased sensitivity in the business relationship that may change the actors’ attitude and/or behaviour in the relationship 2004 Background

5. Directive Incidents? ” ...a need for a redefinition of the concept ”critical incident”. As these incidents may redirect and affect the future evolution of a customer relationship, it might be more relevant to use the concept ’directive incident’ to depict the function these incidents have on the relationship. Directive incidents would represent ... turning points in the relationship” Edvardsson and Strandvik 2000 Turning points, breaking points, inflection points, very critical critical incidents ... is what we are looking for Background

6. Aim of the study The aim is to explore the contents and drivers of criticalphases in business-to-business relationshipsWe take a customer management view thus we areinterested in understanding customer perceptions ofthe relationship and customer behaviour related to therelationship Two explorative studies: IT consultants and Advertising agencies. A small number of cases but focused datacollection considering contextual and dynamic aspects. Background

7. Motivation for the study and potential outcome Better insight into what kind of situations,factors and processes that lead to changes in customer relationships.This would give an understanding of the roots of relationship dynamics.Instead of structural and cause-effect models we envision process models, consideration of configurations, systems. A different way of seeing and depicting compared totraditional research concerning business relationship dynamics.Managerially implications would be increased effeciencyin listening to the other party and managing own activitiesand resources. Background

8. Delimitations and limitations Only the buyer is interviewed about the critical phase.In a business relationship, however, both parties areactive and may have diverging perceptions.Bias because of the retrospective view. Things may notbe recalled as they happened but are (re-)constructed.On the other hand, this interpretation is present in thebuyer’s mind and is thus the ”interpretation-in-use”. Background

9. Early impulses directing our work • Incidents that traditionally would be defined as critical are not • criticalfor the customer relationship. Still there were cognitive • effects and word-of-mouth effects. As these incidents are remembered • they may accumulate over time and may be combined with similar • or different observations leading to a reaction on the relationship • level. (Edvardsson and Strandvik 2000) • Making fuzzy expectations precise, implicit expectations explicit, and • unrealistic expectations realistic, facilitates long-term quality and • customer satisfaction in professional services. (Ojasalo 2001) • The ending process (of a business relationship) is always both • temporally and contextually embedded and to a significant degree • actor-driven: a picture of idiosyncrasy rather than deterministic • development. (Halinen and Tähtinen 2002) Framework

10. Inspiration for our thinking ”Precipitating events bring change to the existing relationship and function as impulses for the parties to take actions to end their relationship. These events may be sudden and dramatic or part of a series of events creating pressure for relationship change. Precipitating events occur during the relationship and even during its ending process and are perceived by the managers as reasons to act towards its termination” (Halinen and Tähtinen 2002) ”In the proposed model (of relationship ending) we have suggested that different factors in varying combinations influence the ending process. Managers’ interpretations of these factors and subsequent actions and decisions concerning the relationship are crucial for its future development. Depending on the history of the relationship and on managers’ interpretations of its current situation as well as future potentials, the ending process is likely to vary in terms of its stages. ... Thus it is highly probable that every process of relationship ending is somewhat unique”. (Halinen and Tähtinen 2002) Framework

11. More current inspiration Tikkanen and Alajoutsijärvi 2002: a need for contextual view of customer satisfaction and relationship dynamics Flint et al. 2002: changes in Customers’ Desired Value (=expectations) are contextually driven and related to tension perceived in the relationship Holmlund 1997, 2004: different analytical levels/units that can be used to analyse business relationships, hierarchically ordered and dialectically related Dubois et al 2004: changes in a company’s supplier base over time was due to complex interplay between continuity and change in several dimensions Tähtinen 2002: Relationship ending may happen simultaneosly at different levels, multiple ending paths are possible, several stages (that have not to follow each other in a particular order, might be simultaneosly present) are identified Framework

12. Indication The literature reviewed seemed to indicate that a perspective on single critical incidents or events is too constrained. If a change in a relationship is framed as related to an ”incident” it will perhaps result in an explanation with a too high focus on the incident. Perhaps the perspective should be a system perspective with an interest in identifying when the system is falling down or changing. Framework

13. The CIRC model(Critical Incidents in a Relational Context) External context Critical Incident in the Relationship Relationship history Relationship future Internal context Framework

14. The CRIP model(Critical Phases in a Relational Context) External context A Critical Phase in the relationship Relationship history Relationship future Critical Incident Outcome Initial state Process Internal context Framework

15. Empirical studies • Customers to IT-companies (Sweden 2000) 14 relationships 25 processes reported • Customers to advertising agencies (Sweden 2001) 14 relationships 14 processes reported • Retrospective Interviews based on the CIRC-model, start with a ”critical incident”, detect the outcome • Customers’ narratives were analysed using the CRIP-model, compare cases with different out- comes to detect distinguishing features. Empirical study

16. External context ? 4 1 Relationship future Relationship history ? 3 5 ? 2 ? Internal context Interview guide Two exploratory empirical studies were carried out concerning companies' evaluationof their IT consultants and advertising agencies respectively. Data was collected inloosely structured personal interviews. The perspective is thus the business customers' perspective. Empirical study

17. Analysis of the stories We classified the effects of the incidents from the first study into three categories; broken relationship and negative attitude change (dissolved relationship), negative attitude change (fading relationship) and unchanged attitude change (sustained relationship). The second study included also positive incidents which thus gives an additional category; a strengthened relationship. Empirical study

18. Incidents in the studies IT-consultants/Ad agencies 25/14 Attitude change? No Yes 10/2 15/12 Behavioural change? Behavioural change? No No Yes 6/5 9/4 10/2 Fading Sustained Dissolution -/3 Strengthened D i r e c t i v e i n c i d e n t s Critical phases in the current study Findings

19. Reactions to directive incidents Cognitive reaction Emotional reaction Changed behaviour Changed intentions Changed attitude Outcome Dissolved Fading Sustained Strengthened

20. Observations 1 Directive incidents seem to be related to thewhole context. Although some general featurescould be found there is a multitude of patternsleading to a change. A similar view has been proposed in a studyfocusing on relationship ending processes (Halinen and Tähtinen 2002) Findings

21. A negative attitude forms the basis for a more careful assessment of the relationship with the service provider and a search for alternative service providers. The narratives indicate that many factors and activities are combined and that lack of both technical and social competence escalates the situation and trigger a negative process. A high quality relationship may erode quickly even if the customer has been happy for many years with the service provider. Observations 2 Findings

22. Our interpretation of fading processes is that lack of competence resulting in unfulfilled promises may well be solved if the service provider demonstrates a proactive and service oriented attitude resulting in proactive problem solving A combination of factors in the history of the relationship with the service provider together with the existing market situation and switching barriers form the basis for a critical phase. The social competence seems to hold back switching while lack of technical competence will drive customers away. Observations 3 Findings

23. Some drivers of critical phases tend to come back over and over again. They seem to be built into the service system, service processes or service offerings. We found that some IT-service providers tend to over promise; others lack the social and technical competencies needed to solve customer problems the way the customer expects or information-problems e.g. unclear or misunderstood contracts. Observations 4 Findings

24. Observations 5 Communication is essential in the relationship in order to manage expectations and experiences. Listening and understanding as well as teaching and influencing. This happens in business relationships through key (contact) persons. A change of the person will cause turbulence and possible critical phases and change in the relationship. Social competence is a part of this aspect. This observation can be related to the idea of different types of expectations (Ojasalo 1999) Findings

25. Lack of Communication may lead to Critical Phases caused by fuzzy, implicit and unrealistic expectations Seller High risk for Critical Phases Communication Communication Fuzzy expectations Focusing Precise expectations Lower risk for Critical Phases Implicit expectations Revealing Explicit expectations Unrealistic expectations Realistic expectations Calibrating Adapted from: Ojasalo 2001 Buyer

26. Lack of Competence leads to Critical Phases even when Communication is efficient Seller High risk for Critical Phases High risk for Critical Phases if lack of competence Communication Communication Fuzzy expectations Focusing Precise expectations Lower risk for Directive Incidents Implicit expectations Revealing Explicit expectations Unrealistic expectations Realistic expectations Calibrating Ojasalo 2001 Buyer

27. Future research • Many factors seems to influence a change in relationships. The contextual CRIP model depicts a “garbage can”-type model that indicates that critical phases may arise from idiosyncratic processes. What would be needed are models, concepts and language to describe: processes, change, phases, contextual configurations. A critical phase and a change process can be perhaps be managed, at least influenced if diagnosed. Future research

28. Case: Advertising Agency

29. Fading Dissolution

30. Case: Advertising Agency

31. Strengthened Sustained

32. Case: IT-consultancy

33. Fading Dissolution

34. Case: IT-consultancy

35. Sustained Dissolution

36. Thank You !