1

In: Swartz, Teresa A, David E. Bowen and Stephen W. Brown (eds.), Advances in Services
Marketing and Management, Volume 4, London: JAI Press Inc., 1995.

The Nature of Customer Relationships in Services

Veronica Liljander and Tore Strandvik1

1
The authors have contributed equally to the paper. Correspondence: Swedish School of
Economics and Business Administration, P.O.Box 479, 00101 Helsinki, Finland. Tel. +358-0-
40 30 32 88 (V. Liljander), +358-0-40 30 32 90 (T. Strandvik), fax: +358-0-40 30 32 87
 2

EXECUTIVE SUMMARY

A paradigm shift is taking place in services marketing. The shift is from a transaction-oriented
“marketing mix” view of exchanges to a relationship marketing view (Grönroos 1993a). The focus is
turned away from how to acquire new customers to how to develop, enhance, maintain and
terminate relationships. The dominating view within services marketing on the exchanges between
service providers and customers has, however, been static. Service quality models usually only
consider the quality of one specific service episode. They do not account for how the customer’s
perception of service quality evolves over time when the customer continues to use the service.
There is as yet a limited understanding of the nature of relationships between customers and service
providers. The conceptual analysis presented in this paper is an attempt to fill this gap. The analysis
draws on research from both industrial and services marketing.

In the industrial marketing literature relationships have been described as the exchange between
mutually committed parties. Within services marketing the issue has not been clearly discussed. It is
our view that the simplest form of a relationship is when the customer has purchased from the same
service provider at least twice. In its purest form, however, a relationship is characterized by positive
commitment by both the customer and the service provider. We propose that a relationship should
be defined from the customer’s point of view as this corresponds to a market oriented perspective.
The customer can be negatively or positively committed toward the service provider, or s/he can be
indifferent. A negatively committed customer will try to end the relationship as soon as possible, but
is usually unable to do so in the short run because of different bonds which serve as exit barriers.

The strength of a relationship is affected both by the degree of commitment between the customer
and service provider and the strength of the bonds between them. Bonds within consumer markets
differ somewhat from bonds recognized in industrial markets. We suggest that consumer-service
provider related bonds are a) economic (e.g. budget restrictions) b) legal (e.g. a bank loan contract
which is hard to break), c) technological (e.g. brand specific repair service), d) geographical (e.g.
long distance to other service providers), e) time (e.g. the service provider has suitable business
hours) f) knowledge (e.g. the service provider knows the customer and his/her history from previous
occasions which facilitates the transactions), g) social (e.g. the customer is well know and trusted by
the service provider), h) cultural (the customer may e.g. prefer a service provider who speaks his/her
native language) i) ideological (e.g. preferring a service provider who is concerned about “green”
 3

values) and j) psychological (e.g. brand image). A relationship may be strong although either or both
parties are no longer committed to the relation. Thus, bonds and commitment are two independent
variables, each of which makes its own unique contribution to the strength of the relationship.

Perceived relationship quality is also suggested as a new important concept when studying
relationships. A dynamic perceived service quality model, which incorporates both episodes and
relationships is presented. In the model both service quality and satisfaction with the service can be
perceived on two levels, an episode level and a relationship level. It is argued that the service quality
that was received in one episode can be compared to the customer’s sacrifices (price and other
customer effort) connected to that episode. This results in an evaluation of episode value. It is
proposed that the perceived episode value will affect how satisfied the customer is with the episode.
In a relationship perspective we can compare all the perceived episode values from prior
experiences with the service provider and make an evaluation of relationship value, i.e. the perceived
quality over all previous episodes compared to the perceived sacrifices. The perceived relationship
value will affect the customer’s satisfaction with the relationship. It can be expected that all episodes
will not affect the relationship value and satisfaction equally. The customer may give a higher weight
to some of the episodes. One or several bad experiences may not make the customer break the
relationship if his image of the service provider is otherwise positive. This can, however, differ
between groups of consumers. The commitment of the customer to the service provider and the
bonds that exist between them will affect how easy it is for the customer to break the relationship and
how willing s/he is to do so.

Applying the perspective suggested here will from a managerial point of view focus the attention on
the core of customer dynamics and customer profitability.
 4

ABSTRACT

Customer relationships in services have been insufficiently studied compared to service interactions.
In this paper findings from research on relationships within industrial marketing are applied to
consumer services. To manage customer relationships new concepts are needed in addition to those
used in static service quality models. A conceptual framework is presented where perceived service
quality and customer satisfaction are related to relationship characteristics. It is suggested that the
nature of the relationship is determined by the commitment of both the customer and the service
provider to the relationship and by the bonds that exist between them.

BACKGROUND

It has been argued that long lasting relations2 with customers would be beneficial for a service
company. Relationship marketing has emerged as a new important approach by which marketing
management can achieve customer retention. Customer retention is assumed to depend critically on
the quality of and satisfaction with the service. The role of separate interactions, episodes in relation
to the perception of overall quality has, however, not been scrutinized. One reason for this is that the
question arises only when a dynamic perspective is applied. Both service quality and satisfaction
have traditionally been approached from a static perspective (Grönroos 1993a). Empirical studies
often use cross-sectional surveys to measure the service quality at a certain point of time, although
initial attempts have been made to make static service quality models dynamic (Boulding et al. 1993).
Customer retention indicates customer loyalty or some kind of relationship between the customer
and the firm. The relationship concept gives a quite different view of the exchange processes on the
market compared to the static view.

In the service quality literature there is currently a discussion on the interrelationship between quality,
satisfaction and value (see e.g. Anderson and Fornell 1994; Oliver 1993; Parasuraman, Zeithaml and
Berry 1994; Rust and Oliver 1994). In this paper we will present a dynamic service relationship
quality model that clarifies the relation between these concepts. In the model a distinction is made
between episode quality and relationship quality. Satisfaction, service quality and value may all be
 5

experienced on both an episode and a relationship level. We will extend the discussion on
satisfaction, quality and value by including customer relationship characteristics. The question of
relationship strength, which is closely connected to relationship quality will also be discussed. The
paper draws on both traditional service quality literature and relationship studies within industrial
marketing. We are, however, only focusing on the relation between private customers and service
providers.

In the next section the customer perceived service quality model is presented. The focus of the
following discussion will be on those aspects that are directly linked to customer relationships.

A PERCEIVED RELATIONSHIP QUALITY MODEL

There are four basic ideas behind the model. One important aspect is the division into two levels, an
episode and a relationship level. These will be discussed in detail following the description of the
model. Another issue is the relation between service quality, satisfaction and service value. The third
aspect is the extended disconfirmation framework that the model is based on. The fourth aspect is
the inclusion of variables describing customer behavior variables in addition to the perceptual
variables used in earlier models.

All possible relations are not depicted in the model since these depend on situational characteristics
and the type of service that is studied. Likewise, not all concepts are needed in all situations and the
importance of them in determining satisfaction or behavior may vary. The model is presented in
Figure 1 and a short summary description of the elements is given in Table 1.

2
. The terms relationship and relation are both used within industrial marketing studies and service
marketing studies. No meaningful difference can be made between the two terms either by
definition (see e.g. Reber 1985) or in practice. We will use the terms interchangably.
 6

Figure 1: A relationship quality model

Relationship Comparison
performance Disconfirmation standard

Zone of tolerance

Relationship value

Relationship Relationship
quality sacrifice

Relationship
satisfaction

Behavior
Bonds Image /
* loyalty
Commitment
* commitment

Episode Comparison
Disconfirmation
performance standard

Zone of tolerance

Episode value

Episode Episode
quality sacrifice

Episode
satisfaction
 7

Table 1: Description of concepts in the relationship quality model

Concept Episode level Relationship level

Comparison standard All comparison standards suggested in the All comparison standards suggested in the
literature (e.g. predictive expectations, brand literature except predictive expectations.
norm, adequate, product norm, best brand
norm, excellent service, ideal, competitor).
Disconfirmation Direct or inferred disconfirmation of any Direct or inferred disconfirmation of any
comparison standard. comparison standard except predictive
expectations.
Performance Perceived performance of one particular Perceived performance across all episodes in
episode. the relationship.
Zone of tolerance The accepted variation in performance The accepted accumulated variation in the
levels. A plateau in the quality function. performance within the relationship.
Quality Customers’ cognitive evaluation of the Customers’ cognitive evaluation of the
service of one episode compared to some service across episodes compared to some
explicit or implicit comparison standard. explicit or implicit comparison standard.
Sacrifice Perceived sacrifices (price, other sacrifices) Perceived sacrifices (price, other sacrifices)
connected to the service episode compared across all service episodes in the
to some explicit or implicit comparison relationship compared to some explicit or
standard reference price. implicit comparison standard.
Value Episode quality compared to episode Relationship quality compared to
sacrifice. relationship sacrifice.
Satisfaction Customers’ cognitive and affective Customers’ cognitive and affective
evaluation based on the personal experience evaluation based on the personal experience
of one service episode. across all service episodes within the
relationship.
Image The holistic perception of a service provider that filters performance evaluations and can in
itself constitute a comparison standard. It is also the attitudinal component of commitment in
a relationship. All types of bonds can affect the image positively or negatively. Image itself is
more likely to affect and strengthen the psychological bonds.
Commitment Commitment is defined as the parties’ intentions to act and their attitude towards interacting
with each other. High relationship value will affect commitment positively.
Behavior Purchase behavior and communication behavior (word of mouth, complaints). Loyalty which
is based also on positive commitment by the customer indicates a stronger relationship than
if it based on mere repetitive purchase behavior. The behavior is also affected by the bonds
between the customer and the service provider. By using the same service provider the
bonds might be strengthened.
Bonds Exit barriers that tie the customer to the service provider and maintain the relationship. These
are legal, economic, technological, geographical, time, knowledge, social, cultural, ideological
and psychological bonds.
 8

Service quality, satisfaction and value

One important aspect in the model is that service quality and satisfaction can be experienced both at
an episode and a relationship level. There has been some confusion regarding the differences
between service quality and satisfaction. It is only recently that the conceptual and empirical overlap
between the two concepts has raised a debate among service quality researchers (Anderson and
Fornell 1994; Bitner and Hubbert 1994; Bolton and Drew 1994; Dabholkar 1993; Liljander and
Strandvik 1993b; 1994; Oliver 1993; Parasuraman, Zeithaml and Berry 1994; Patterson and
Johnson 1993; Rust and Oliver 1994). The debate has been concerned with similarities and links
between the concepts and the discussion has mainly been kept on a conceptual level. In their latest
article Parasuraman, Zeithaml and Berry (1994) changed their view on satisfaction and service
quality compared to earlier publications. Instead of stating that satisfaction is connected to
transactions and service quality to a global attitude of the service, it is suggested that quality precedes
satisfaction and that satisfaction can be measured also for several transactions. Oliver (1993) also
argues that quality is an antecedent of satisfaction. In our view quality precede satisfaction both when
the customer evaluates an episode and a relationship.

In our view perceived service quality can be seen as an outsider perspective, a cognitive judgment of
a service. Although the evaluation of quality is usually based on experiences of the service, a
judgment of quality can also be made without service experience (Oliver 1993). Quality judgments
can, e.g., be based on knowledge about a service provider through word-of-mouth or advertising.
Satisfaction, on the other hand, seems to refer to an insider perspective that is always connected to
an actual service experience. Satisfaction is affected by the combination of perceived service quality
and perceived sacrifices (Strandvik and Liljander 1994). In this sense a customer could very well
respond on a questionnaire that a particular hotel is of high quality, even if this would not mean that
this customer would be satisfied visiting the hotel. It might be too expensive for this customer, or
might not fit the customer’s preferences. It is thus assumed that satisfaction is closer connected to
future behavior than quality is.

Earlier service quality models did not include the customer's sacrifices (money, effort in time spent,
other sacrifices). Lately, however, some researchers have suggested that at least price should be
included (Koelemeijer, Roest and Verhallen 1993; Parasuraman, Zeithaml and Berry 1994). In our
 9

model we consider sacrifice (Monroe 1990; Liljander and Strandvik 1993a) to be an important part
of the satisfaction process. If the perceived quality and perceived sacrifices connected to one
episode are in balance, or if quality exceeds the sacrifice, the customer will perceive high value and
will probably be satisfied. Liljander (1994b) found that episode value for a restaurant service had a
strong effect on satisfaction, but also that the model which explained satisfaction best included also
service performance and direct disconfirmation of predicted expectations. She also found that there
were dissatisfied customers who nevertheless perceived positive episode value, and likewise satisfied
customers who perceived negative episode value.

Relationship sacrifice refers to all perceived sacrifices made across the episodes, and is compared to
relationship quality. The customer thus evaluates what s/he gets (relationship benefits) with what s/he
gives (relationship sacrifice). Relationship sacrifice includes also switching costs caused by possible
exit barriers. This comparison leads to a perception of relationship value. Although the value of one
episode may be perceived as low, the relationship value might still be high due to all the benefits
received on previous episodes. The same is true for relationship satisfaction, which is the overall
satisfaction of several episodes. The relationship value affects behavior through perceived
relationship satisfaction. One dissatisfactory episode does not have to break the relationship if the
previous episodes have been satisfactory.

The value perception will affect the general image (Grönroos 1990) of the service provider. The
image in turn affects the predictive expectations of the next service episode. The image can also
serve as a filter when the customer evaluates the relationship performance. An occasional lower level
of service performance will not substantively affect the global evaluation of performance if the image
of the company is otherwise good.

Disconfirmation

In line with prior research (see e.g. Liljander and Strandvik 1993b) it is suggested that perceived
performance of the episode can affect episode quality either directly or indirectly through
disconfirmation of a comparison standard. The comparison standard may be any of the standards
mentioned in satisfaction and service quality literature (Woodruff et. al. 1991; Zeithaml, Berry and
Parasuraman 1993; Liljander and Strandvik 1993b). Which standard is in fact used by the consumer
may depend on the service in focus, situational characteristics and personal characteristics of the
 10

consumer. A comparison standard may also influence the customer's perceived quality directly, as
has been shown in some studies (Liljander and Strandvik 1994; Liljander 1994a). Disconfirmation
can be measured either directly or as an inferred measure. Within service quality research an inferred
measure has usually been used although a direct measure may give better results (Liljander and
Strandvik 1993b). It can also be argued that perceived performance already contains an implicit
comparison with some comparison standard. Perceived performance is the consumer's cognitive
evaluation of a service.

Relationship quality can in the same way as episode quality be determined by direct or inferred
disconfirmation or by relationship performance alone. In our view it would be possible to compare
relationship performance to any of the standards proposed in the literature, with the exception of
predictive expectations which are specifically connected to one service episode. Relationship
performance can be seen as a function of all previous experiences. Performance as measured by
Servqual can be considered an evaluation of the relation (Parasuraman, Zeithaml and Berry 1988)3.
It has recently been shown that relationship performance has a greater effect than episode
performance on intended behavior (Liljander 1994; Strandvik and Liljander 1994).

The core idea behind tolerance zones is that customers may accept variations in service performance
within a certain range. Earlier service quality models have postulated that customers react on all
discrepancies between the comparison standard and performance. If tolerance zones exist, this effect
is moderated by them and less direct. The concept of tolerance zones can be generalized to concern
the shape of the quality function (Strandvik 1994). The quality function might not be linear as has
been assumed in earlier service quality models leading to important measurement and management
implications. It is proposed that tolerance zones also can be present on the relationship level,
capturing the accepted accumulated variance of performance.

3
Parasuraman, Zeithaml and Berry specify performance as a global assessment of perceptions of
performance (Parasuraman, Zeithaml and Berry 1988; 1994). We have interpreted their
measure as one type of relationship performance measure. Those who fill out the Servqual
questionnaire may, however, not have a relationship with the service provider. Some customers
may be first-time visitors or may not otherwise meet the definition of a relation.
 11

Customer behavior

Usually only intended behavior is measured in both service quality and satisfaction studies. Still more
important is, however, to study the effect of satisfaction and bonds on customers’ actual behavior
(loyalty and commitment).

Relationship quality can affect commitment directly or through perceived relationship value. Positive
commitment can be seen as intentions leading to adaptation processes and other behavior, for
example, positive word-of-mouth. It is, however, also possible that negative commitment is present,
leading to negative word-of-mouth. Both commitment and purchase behavior are proposed to be
related to bonds that the customer has with the service provider. Bonds are important as they
influence the customer’s behavior introducing inertia to the choice process.

We have here given an overview of the complete perceived relationship quality model. In the next
chapter we will go deeper into the anatomy of customer relationships.

CUSTOMER RELATIONSHIPS

Relationship marketing as a concept has been contrasted with transactional marketing. The traditional
view of marketing, transaction marketing, is claimed to be focused on seeking new customers, while
relationship marketing aims at long-term lasting relationships (Christopher, Payne and Ballantyne
1991; Grönroos 1993b). Relationship marketing has been defined as establishing, maintaining,
enhancing and terminating relations with customers and other partners. This focus is dominant in
industrial marketing within the network paradigm, where marketing is defined as all activities that
build, maintain and develop customer relations. Miettilä and Törnroos (1993) list three assumptions
that are implicitly or explicitly present in the Interaction Approach of industrial marketing. First,
interaction is mediated through human actors, which means that their perceptions, beliefs, attitudes
and behavior are central. Secondly, business interaction means mutual dependability, problem solving
and adaptation. Thirdly, relationships evolve over time and include the present situation, future goals
and their own histories. A comparison of these three statements to consumer service relationships
reveals differences. The first statement is probably valid also for consumer services. The second,
might not be as important as in industrial relations. The third is, on the other hand, important.
 12

Within the interaction-network paradigm, relationships are thought to lead to bonds (Easton and
Araujo 1989; Wilson and Mummalaneni 1986). This implies that the partner is tied to the firm in
different ways. In the industrial marketing literature it has been suggested that such bonds can be
economic, legal, social, technological etc. Bonds have also been divided into higher level bonds
comprising attraction, trust and commitment, and lower level bonds, for example, economic and
social bonds (Miettilä and Möller 1990; Möller and Wilson 1988). The idea is that higher level
bonds are more abstract than lower level bonds. Changes in commitment and trust reflect essential
changes in the relationship. Bonds can also be found in consumer markets although they may be
somewhat different from the ones found in industrial markets. Different types of bonds and their
effect on a customer service relationship will be discussed.

In the following section we will describe the relation between service episodes and customer service
relationships. Aspects that characterize a relationship, like commitment, bonds, number of
relationships and relationship strength, will be presented.

Episodes

Different terms are used in the literature to represent the division into a local and global view of
performance, quality and satisfaction. We use the terms episode and relationship, as these are
already used within the Interaction Research tradition in industrial marketing, and seem to reflect the
current trend (Håkansson 1982). An episode can be defined as an event of interaction which has a
clear starting point and an ending point and represents a complete service exchange. Within the
episode there can exist several interactions (acts). It is clear that the operationalization of episodes
vs. acts should be service-specific. Figure 2 shows as an example the relation between the concepts
by illustrating a customer who has stayed several times at a given hotel.

The stay at an hotel represents an episode, consisting of a number of interactions or acts including
check-in, breakfast, the room, bathroom, dinner etc. When the guest stayed at the hotel for the first
time (Episode 1) s/he used check-in services (Act 1), the room (Act 2), breakfast (Act 3) and
check-out (Act 4). The second time the customer stayed at the hotel the same services were used
but in addition the guest also had dinner there, etc. It is thus possible to distinguish between different
acts within an episode. The importance of the different acts, which compose the episode may vary in
explaining episode satisfaction (Danaber and Mattsson 1994). An episode may also consist of only
 13

one act, depending on the service (e.g. drawing money from an ATM). The concepts are relative to
the level of analysis. It is difficult in some cases to exactly define the limits of an episode. Such are
continuous services like insurances, where the interaction might be very limited for years, including
only one-way contact from the insurance company (bill, information) and the customer responding by
paying the bill or requesting more information.

Figure 2: The relation between the concepts: relation, episodes and acts

Relation: (Hotel Grand )

Episode 1 Episode 2 Episode 3

May 1992 August 1993 January 1994

Act 1 Act 2 Act 3 Act 4 Act 1 Act 2 Act 3 Act 4 Act 5 Act 1 Act 2 Act 3

Check- Room Break Check- Check- Room Dinner Break Check- Check- Room Check-
in fast out in fast out in out

Time

In earlier research a number of different concepts have been used which can be seen as synonyms or
related to the concepts episode and relationship. These are “transaction-specific/global”,
“local/global”, “service encounter/overall” (Bitner and Hubbert 1994), “incident specific/cumulative”
(Rust and Oliver 1994), “transaction-specific/ brand-specific” (Anderson and Fornell 1994). Within
industrial marketing episodes are often called transactions. Webster (1992, p. 6) defines transaction
at its purest level as “a one-time exchange of value between two parties with no prior or subsequent
interaction”. This is in line with other researchers’ interpretation of a transaction in an industrial
market (Dwyer, Schurr and Oh 1987; Heide 1994).

The term episode is used within the Interaction Research tradition (Håkansson 1982), where it is
defined as having four elements: a) product or service exchange, b) information exchange, c) financial
exchange and d) social exchange. It is in their view important to distinguish between an individual
episode and the longer-term aspects of a relationship that both affects and is affected by each
episode. We feel that this definition could be used also in consumer markets.
 14

Another concept, service encounter, which is often used within service quality research, intuitively
refers only to the personal interaction between seller and buyer (Bitner, Booms and Tetreault 1990;
Czepiel 1990; Solomon et al. 1985). Interactions (Storbacka 1993) have also been used as
synonyms for episodes. Transactions and interactions give, however, more limited connotations
compared to episodes as defined above. As interactions are often used to cover the interaction
between people in a service situation, or can be interpreted as one act within an episode, we prefer
the episode concept.

It is, however, important to distinguish our episode concept from how the same term is used in
critical incident studies. There an incident is considered to be of an episodic nature, in contrast to a
multiattribute-approach (Stauss 1993).

Relationships

A distinction between episode dominated and relationship dominated services can be made
according to whether the service is of discrete nature (the customer makes a separate decision each
time which service provider to use) or continuous nature (the customer makes a contract about
service delivery with the service provider). There are also services, which fall in-between discrete
and continuous services. They have a long duration but are of a discrete type, e.g. holiday travel
packages, educational services and medical services. These services can consist of many episodes
and acts (different courses, lectures and assignments) that taken together can be described as a
relationship. A distinction can also be made according to how often the service is consumed.
Services of a discrete type, which are seldom used can be said to be episode dominated. In the
other cases relationships grow in importance. Time is here a relative concept.

A relation consists of a number of episodes. One episode, i.e. the first purchase from a service
provider would not yet represent a relation. It is the necessary starting point for a relation but it might
be the first, and at the same time last, contact with the service provider. If the service is of a
continuous type a relation is established when the contract is signed (e.g. Cable TV, subscription
services, membership). If, on the other hand, the service is of a discrete type we argue that some
kind of relation is established when the second purchase is made (e.g. hotel, restaurant). It is,
however, not sufficient to focus on only repurchase events as this gives a very simple picture of
relationships. Consideration is neither given to whether the customer has a choice or not, nor to the
 15

customer’s commitment towards the service firm. Thus, buying the service twice is only a minimum
requirement for a relationship.

A long-term relationship in industrial markets has been defined as a contract between the parties
(Dwyer, Schurr and Oh 1987; Heide 1994, Webster 1992), or when there is a repeat purchase
situation (Dwyer, Schurr and Oh 1987; Heide 1994). Thus, Dwyer, Schurr and Oh suggest that
”relational aspects start to appear when the buyer pays by check or the seller schedules delivery for
next week” (p.12), and Heide states that “Generally, when discrete exchange is abandoned, some
form of a relationship is crafted” (p. 74).

If a more strict view on relations is adopted, as used within the Interaction Approach of industrial
marketing, there will be a difference between loyalty based on repeat buying and a “true” relation,
where both parties are committed to the relation. A third factor characterizing a relationships is
different kinds of bonds between the customer and the firm. Thus, a customer who has purchased
twice from the company, feels some positive commitment to it, and/or has bonds with it, has a
stronger relationship than someone who has purchased twice without being committed and/or having
bonds. Bonds can be studied at both company and individual levels. Thus a customer may be
committed to, feel trust for and have a social bond to a specific person in the company, without
feeling commitment and trust for the company as a whole.

Commitment and Loyalty

Commitment and loyalty are related concepts, although they emanate from different research
traditions. No clearcut definition of either concept exists. Loyalty has been defined in numerous
different ways (Jacoby and Chestnut 1978; Kunöe 1993) but in the marketing model building
tradition loyalty is defined as observed purchase behavior. This is consistent with the transactional
perspective used within traditional consumer marketing. Commitment has been used within the
Interaction Approach of industrial marketing. It refers there to adaptation processes, which are the
result of the parties’ intentions to act and positive attitudes towards each other. As the purchase is
intertwined in the whole interaction process there is not the same focus as in consumer marketing.
We will use the concepts in the following manner. Loyalty is defined only as purchase behavior and
refers to the existence of a relationship as it was defined earlier. Commitment is defined as the
 16

parties’ intentions to act and their attitude towards interacting with each other. These definitions seem
to reflect the core meaning in earlier definitions of the concepts.

According to our definition of a relation, loyalty is always present. Loyalty can occur with three
different types of commitment, positive, negative or no commitment. A negatively committed
customer shows a negative attitude but might still buy repeatedly because of bonds.

Trust

Trust in that the other party will fulfill its promises and obligations in the long-term is considered
important in business exchanges in the industrial market (Miettilä and Möller 1990; Swan, Trawick
and Silva 1985) and also in consumer markets (Crosby, Evans and Cowles 1988). Trust is a
precondition for increased commitment (Miettilä and Möller 1990). Trust can usually be gained only
over time, after the customer having experienced the service and found it to be trustworthy.
However, when a service is highly intangible the customer will have to trust that the service provider
can perform the service well before s/he chooses it for the first time. A customer may visit the same
hairdresser because s/he trusts the competence of the firm or the competence of a specific
hairdresser. S/he may buy a holiday package from a company which sells more expensive packages
than other, because s/he trusts that this company will not go bankrupt before the holiday has been
enjoyed. Trust is certainly more important in services like banks and insurance companies, or in other
cases where credence qualities (Darby and Karni 1973) of the service dominate (merchants, general
practitioner vs. a specialist etc.), than in services like restaurants and hotels.

Bonds

Within the Interaction Approach six different types of bonds have been suggested in the industrial
market. These are social bonds, technological bonds, knowledge bonds, planning bonds and
legal/economic bonds. Planning bonds refer to the company’s ability to fit new relations into its time
table. Although these six bonds can also be found in consumer markets, they are somewhat limited
for this purpose. In addition to these bonds, we suggest that the consumer may also have
geographical, cultural, ideological and psychological bonds to a service provider. We also prefer to
use the term time bonds instead of planning bonds since this term refers more directly to the time
restrictions of the consumer. The bonds and some examples of what they may be are listed in Table
2.
 17

Table 2: Different types of bonds between customers and service providers

Type of bond Examples

Legal bond A contract between the customer and service provider (e.g. telephone company, cable TV,
electricity, gas, bank services)
Economic bond Lack of resources may force the customer to buy a service that fits the customers budget,
price reductions based on relationship
Technological bond The purchase of a specific brand which requires the use of a specified dealer for
repairs/maintenance and/or original spare parts from manufacturer or retailer
Geographical bond Limited possibilities to buy the service from other than one or a few service providers because
of distance and/or lack of transportation.
Time bond A service provider may be used because of suitable business hours or because of a flexible
appointment system. Customers are limited by business hours set by service providers (e.g.
child care from 8-16) or employers (office hours and limited lunch hour).
Knowledge bond The customer may have an established relationship with a doctor who knows the customer’s
medical history. A customer’s relation to a bank clerk may be strong because of the clerk’s
knowledge about the customer’s business, which facilitates the transactions. It also works the
other way, so that the customer gains knowledge about the service provider (e.g. the scripts
of how to behave are known to the customer, which reduces uncertainty)
Social bond Social bonds exist when the customer and the service personnel know each other well, contact
is easy, there is mutual trust (services can be handled by phoning the bank, the customer
does not have to go there personally) .
Cultural bond Customers may identify themselves with a subculture (e.g. language, country) and therefore
relate more strongly to certain companies or products made by certain countries
Ideological bond Customers may be inclined to prefer some service providers because of certain personal
values (e.g. green products, avoiding companies that exploit the nature, support home-
country products)
Psychological bond The customer is convinced of the superiority of a certain service provider (brand image)

The five first bonds in the table, legal, economic, technological, geographical and time bonds,
constitute effective exit barriers for the consumer. They are contextual factors that cannot easily be
influenced by the customer but can be observed and managed by the service firm. We propose that
they are more likely to be perceived in a negative sense than the other five bonds. It is, for example,
very costly for the customer to switch banks if s/he is tied up with a housing loan in one bank. One
may also be stuck with the expensive maintenance services of the car manufacturer, because doing
the repairs oneself or letting an unauthorized repair service company do it will lower the second hand
value of the car. The nature of the bonds is thus, that they can prevent the customer from switching
service provider even when the service given is of very low quality.

The remaining five bonds, knowledge, social, cultural, ideological and psychological bonds, represent
more positive connotations for the consumer. They are also perceptual factors, which are difficult to
 18

measure and manage by the service firm. Knowledge and social bonds depend on the service
provider being active and creating these bonds to the customer. Even so, it is the customer’s
perception of the existence, and importance, of such bonds that count. These bonds will make the
service episodes more individual and business transactions smoother. The other bonds, cultural,
ideological and psychological are directly connected to the customer’s values and preferences, i.e.
they are created in the mind of the customer. A psychological bond where the customer is convinced
of the superiority of a brand is a very effective bond and exit barrier. Cultural and ideological bonds
can be strong in themselves or be found in connection to other bonds which tie the customer to one
particular service company.

A characteristic of bonds is that if the customer has one or more of these bonds with a service
company, s/he will accept lower levels of service quality compared to other service companies,
without breaking the relationship.

Bonds can be compared with the distance concept, which has been used mainly within the Network
Approach concerning international markets. Some distances, which affect the relationship have been
suggested; social distance, technical distance, cultural distance, geographical distance and time
distance (Ford 1980). The distance concepts refer to the degree to which the two interacting
companies are similar to each other and their familiarity with each other. A customer is, for example,
unlikely to use a service provider which is located geographically further away than other service
companies and which has working methods that are unfamiliar to the customer (cultural distance).
The difference between bonds and distance is in our view that bonds constitute exit barriers for the
customer while distance is a descriptive characterization of the relation between the buyer and the
seller.

Different types of relationships

When talking about consumer services we feel that the focus of the relationship has to be on the
customer’s side. In industrial markets mutual commitment is often present (Håkansson and Snehota
1993), which might not be the case in relations between private customers and service providers.
Business exchanges between industrial firms usually involve some degree of adaptation between the
parties, which is usually not the case in consumer markets. In consumer services it is usually easier to
change supplier. Often the service provider in consumer markets does not know its customers (e.g.
 19

hamburger restaurant). Therefore, in consumer markets, it is more relevant to define a relation based
on the customers’ attitudes and behavior. A definition of when a relation is broken is also needed. If
the service is of a continuous nature the discontinuation of the contract is the demarcation line.
Discrete services represent a less clear case. The customer might know that the relation is broken,
but from the firm's point of view this is revealed only over time when the customer does not appear
again.

If a firm through direct marketing repeatedly approaches a customer, without this customer having
any bonds with the firm, or him/her showing any positive attitude or loyalty to the firm, there is no
relation. It might only be concluded that the firm is engaged in relationship marketing, with the aim to
create a relationship with the customer.

Figure 3 lists the different combinations in a customer-service firm dyad regarding commitment to a
relation between the two parties. The list is structured with priority given to the customer’s point of
view. The customer’s commitment to a service provider is affected by his/her perception of the
quality of the service and the bonds that exist between him/her and the company.

Three different types of relationships can be identified, a valued relation, an indifferent relation or a
forced relation. The customer is respectively either positively committed, indifferent, or negatively
committed towards the service provider. In the same way that the customer can be committed to a
service provider, the service provider can be committed to the customer which shows as behavior
(actively contacting the consumer, giving individual information, extra benefits etc.), and attitude
(have a positive attitude towards the customer, preferring the customer to others etc.).

Consequently we have nine different types of relations based on the minimum requirement that repeat
purchasing can be observed or that a contract is made. More important is, however, to notice the
situations where a relation is based on the customer’s positive commitment. In these cases the
customer has a positive attitude towards the company, which is a future oriented asset from the
firm’s point of view. Case 1 represents an ideal relation, following the definition within industrial
marketing.
 20

Figure 3: Different types of relations

1 C+ S+ Valued relation
2 C+ S?

3 C+ S-

4 C? S+ Indifferent relation

5 C? S?

6 C? S-

7 C- S+ Forced relation

8 C- S?

9 C- S-

C= customer, S= Service firm, + = commitment to establish and maintain relation, ? = indifference regarding
relation, - = commitment to prevent or end relation

Valued relations

In a valued relation the customer is positively committed to the firm. The relationship is strong from
the customers’ viewpoint; i.e. s/he has a strong interest in keeping the relation alive. Case number 1
is a relation characterized by mutual commitment. Both parties are interested in establishing,
maintaining and enhancing the relation. This is the type of relation that has been in focus in industrial
marketing. In an analytical framework for business relationships in industrial markets Håkansson and
Snehota (1993) define relationship as mutually oriented interaction over time between two parties,
involving commitment and interdependence. They particularly stress the notion of mutual commitment
as this represents a departure from the transaction-oriented view of exchange on the market. This
definition and view on a relation is typical (when it is defined at all) within the interaction/network
approach of industrial marketing. In the industrial context mutual commitment leads to multiple
activity links, resource ties and actor bonds (Håkansson and Snehota 1993, p. 4-5). In the consumer
market this type of intensive interaction might be more rare.

In case two the customer is very positive and loyal towards the company but the company treats him
like all the other customers. There is no interest on the firm’s part to distinguish between customers
 21

who have a relation with the company and those who have not. In case three the customer wants to
remain a customer of the company but the service provider does not want to maintain the
relationship. This could be the case in, for example, some bank relationships, where the customer is
extremely unprofitable but because of legal contracts the bank is unable to terminate the relationship.
The customer, on the other hand, may be interested in keeping the relation because s/he has financial
difficulties and is unable to switch banks.

Indifferent relations

In an indifferent relation the customer uses the company’s services but s/he does so out of habit, and
is neither positively, nor negatively committed to the company. The customer is not in any way
involved in the service; it has no particular importance to him. S/he might feel that there are small, if
any, differences between different service providers, and his/her bonds to the service provider are
probably weaker than in the cases where the customer is positively committed to the relationship.
There may, however, also be strong economic, legal or technological bonds, but the customer still
feels that all companies are the same. The idea of, for example, changing bank has never occurred to
him. It is also possible that this is his/her second or third relationship in a portfolio of relations, and
that s/he knows so little about the provider that this is the reason for indifference. Still s/he uses the
company in a way that may be called a relation based on repeat purchase behavior. In case four the
service company is interested in the customer and would like him to take a greater interest in the firm
(e.g. deposit a greater proportion of his/her savings into this bank). In the fifth case both parties are
indifferent, which could be the case for customers of for example, a regular hamburger restaurant or
pizzeria. The customer perceives no, or small, differences between the available service firms. In the
sixth case the service company is negatively committed to the consumer, which could happen if a
customer no longer fits into the firm’s business concept (the size of savings in the bank is too small,
the customer does not dress “correctly” for a fine restaurant etc.)

Forced relations

Customers who have a forced relation with a service provider are negatively committed to the
company. They would like to switch service provider if possible but they are restricted by formal
bonds, or by the lack of alternatives. The latter can be seen as an exceptional case. A customer who
is truly negative can still be an interesting customer for the service provider, who may thus be positive
 22

towards the relationship. Something may have occurred which turned a positive or indifferent
customer into a negatively committed. The bank may have made a mistake, which the customer
cannot accept, and s/he is prepared to switch banks as soon as it will be possible. The bank can
either have an interest in keeping the customer, no particular interest in the customer or be happy to
end the relationship.

Episodes related to the relationship

A problem becomes apparent when we wish to measure the customer’s perception of a service
episode versus his/her perceptions of a relationship. We will only point out some measurement
problems here as it is beyond the scope of this paper. A discussion on the relative importance of the
concepts can be found in Strandvik and Liljander (1994). When we measure only one particular
episode, we make an assumption that this is a reliable sample of how the service provider is generally
perceived. It does not take into account that the provider may have a particularly bad day, that the
personnel may act differently because the customers are evaluating them, or that the customer may,
or may not, have visited the company before. Figure 4 illustrates four fictive customers’ perceptions
of a company at different points in time.
 23

Figure 4: Different patterns of episodes in four customers’ relationships

Customer Pattern characteristics

Small variance
+ x High last episode
A x x
Low frequency
- Long relation

Large variance
+ x x x Low last episode
B x x
High frequency
- x x x Long relation

+ x Large variance
C Low last episode
- x Low frequency
Short relation

+ x x Large variance
D x x Low last episode
- x High frequency
Short relation
Decreasing trend

History Now Future

Evaluation of
Time x = episode
= relation

In the example the quality of service has clearly varied somewhat over time. When customers are
asked to fill out a questionnaire, they all have different perceptions of the company for the present
episode (now). Thus the company will know that different customers perceive them differently but
they do not know if this is how the customers normally perceive the company. The four fictive
customers (A-D) in Figure 4 have different service histories. Customer C has only one previous
encounter with the company and customer A has two previous encounters. For customer A, the
variation in service between encounters is low, but for customer C it is very high. For customer D the
trend is clearly downward and it is not likely that s/he will continue to frequent this company for long
if the trend does not change. Customer B has all kinds of experiences with the company. What
happens then when we ask the customers to give an evaluation of their relation over time with the
company? In the example they have all marked the same spot on the scale. How is this possible?
The problem with measuring a service relationship is that we do not know the importance that the
customers give to different episodes. We may get an average of all episodes, as far as the customer
 24

can remember, or an average of some of the last episodes, or the value may be affected by one
particular memorable episode. If the customer gives an average, we will not spot positive or negative
trends in the service evaluations. Thus to understand the relation as it is presently perceived, we need
information about its history. It would be possible to ask the customer also for the range of service
performance that s/he has experienced with the company, but it should then be done in a way which
does describe only the best and worst performance, but also what is “normal” performance.

Number of relationships

A customer can have simultaneous relations with several competing service providers. A hypothetical
situation is depicted in Figure 5.

Figure 5: A customer’s portfolio of relationships with three different service providers.

Service
provider
Pre-relation Relation Post-relation
A period period

1 2 3 4 5

No One Three Two One Time

relation relation parallel parallel relation
relations relations

A customer’s portfolio of relationships

When we look at a customer’s history of relations with a service, we will probably find that the
number of relations have changed over time (situations 1-5 in Figure 5). There is a pre-relation
 25

period (situation 1) when the potential customer is aware of alternatives, has some information,
attitudes and beliefs, but has still not had the need for a relation. This would be the case of, for
example, children who do not yet have a bank account, or are not old enough to go to a
discotheque. Then one relation begins, then perhaps after some time another, and later a third
relation is established. Over time, some of these relations will be dropped (the customer moves,
some force is applied on the relationship) and other relationships may be established. To get a better
understanding of customers’ relationships we need to study their histories, how they were started and
why they were ended.

Relationship strength

Relationship strength is connected to the degree of commitment that the customer feels for the
service provider, the degree to which s/he concentrates his/her purchases to the firm and the bonds
that exist between him/her and the firm.

A relationship is obviously strong when the customer is positively committed to the service provider.
If the customer is satisfied with the relationship s/he will have a positive attitude and behave positively
towards the firm. Bonds, in a positive sense, will be created with the service firm. However, an
unsatisfied customer may also have a strong relationship because of bonds that create exit barriers, at
least in the short run. Thus, the nature of the bonds are important for understanding relationship
strength. Relationship length is usually considered as some kind indicator of strength. It is, however,
extremely difficult to determine what constitutes a long relationship (Easton and Araujo 1989). This
would have to be determined by the researchers separately for different services.

Relationship strength has not been discussed in detail in the relationship marketing literature.
Customer loyalty can implicitly be seen as a synonym of strength there. Christopher, Payne and
Ballantyne (1991, p. 22), for example, mention this concept when discussing different levels in the
customer relationship. They see increasing loyalty in “the relationship marketing ladder of customer
loyalty” where a customer can be a “prospect”, “customer”, “client”, “supporter”, or “advocate”.
The traditional 4 P:s are thought to be effective in transforming a prospect to a customer, but to
reach the higher levels other elements of marketing should be involved. It is considered to be a
question of taking the customer beyond “satisfaction” to “delight” by delivering services that exceed
 26

expectations. The same idea is also present in much of the service quality literature (e.g. Rust and
Oliver 1994).

DISCUSSION

Contribution and directions for future research

This paper has attempted to delineate a conceptual framework that would direct the focus to
relational aspects in service management research. This framework is not only intended for designing
quantitative studies but can also be used for structuring qualitative studies. It has been proposed that
the nature of customer relationships in services is based on customer commitment, bonds and
relationship satisfaction.

In this paper a conceptual model relating episodes to a customer relationship has been proposed.
This is, however, only a first step in exploring relationship quality. The concepts included in the model
are based on earlier service quality models and research concerning customer satisfaction and
industrial interaction. The mechanism behind the evolution of customer relationships is a vast area for
research. What the implications would be when measuring relationship quality is beyond the scope of
this paper but such aspects as the frequency of problems in quality, resolution of problems, variation
in performance, the trend in performance, the customer’s rate of adaptation or learning - all dynamic
aspects - should be addressed. When customers evaluates relationship quality it is possible that they
will be affected more by recent episodes and will not consider the actual whole range of experience
performances. They may also be affected mainly by one or more critical episodes, positive or
negative. This remains to be studied. Relationship performance could also be measured as a range of
performance levels (Poiesz and Bloemer 1991, Strandvik 1994).

Qualitative studies would be needed to capture the perceived essence of a customer relationship.
Studying a dynamic phenomenon does not have to be based on a research design where
measurements are done at different points of time. An approach where customers give both
retrospective accounts of their relationship and explicate their future intentions might be sufficient.
This kind of approach will probably reveal certain episodes that have had an significant effect on the
customers’ perception of the episode.

In a relationship a certain episode always has a history and a potential future. It is likely that the
customer’s evaluation of an episode is influenced by these factors. A customer who is interviewed at
 27

a certain point of time would likewise evaluate his/her relation with the service provider based on the
history of the relation and on anticipation of the future. In traditional service quality measures there is
no recognition of the dynamics within a relation. Unfolding the static service quality rating along the
time dimension would direct the attention to the processes by which quality is developed, maintained
and lost. Such an approach would also recognize the need to look at customers as investment
objects and good relationships as a potential for profitability.

An interesting question is also to what extent the dimensions of quality differ between episode quality
and relationship quality. Are the dimensions the same or different? Does the importance of the
dimensions differ between episodes and relations?

A relationship is characterized by the existence of some kind of bonds between the customer and the
firm. It has been proposed in this paper that these bonds can be of different kinds. Bonds represent
exit barriers, making it more or less difficult to break the relationship. An important issue for further
research would be to study the nature and strength of different bonds on the consumer service
market. Easton and Araujo (1989) give a conceptual overview of bond strength within the Network
Approach. They stress that high bond strength is often taken for granted in industrial relationship
studies, and mostly companies with high strength are chosen for research. Bond strength is also often
inferred from the nature of the bond. Thus, if technological and social bonds are present, a strong
relationship is assumed. Easton and Araujo suggest that the strength of a bond can only be known
when it is put to the test, i.e. when one studies the force that it takes to break the bond. The authors
suggest different strains which may appear in the relationship. Because of environmental changes one
of the partners may start to loosen the relationship with the aim of changing partner. Another external
force could be alternative partners who try to disrupt the relationship. One partner can also start to
move away from the other on some dimension within the relationship, or both partners may have
been forced into a relation they prefer not to have.

The issues mentioned by Easton and Araujo seem to be important also in consumer markets. The
strength of the bonds between consumers and service providers should be studied in different
services. All ten bonds mentioned earlier are of interest. One interesting area of research would be to
study the processes which lead up to the breaking of bonds. When bonds are stretched to a
breaking point it would be possible to study more in depth the nature of them.
 28

It may be difficult to measure bond strength by direct questions on the nature of different bonds.
Getting individual attention from the service personnel may constitute a strong positive social bond
for one group of customers and no bond for others. To understand the strength of bonds, a
qualitative study on customer relations would probably give the best information. One could look at
actual incidents (positive and negative) that the consumer has experienced with the company. How
did they affect the relationship? If a negative incident did not break the relationship, then why did it
not? Where the bonds too strong, and in that case, what type of bonds were they?

Customers could also be confronted with hypothetical situations and asked how they would react if
that situation occurred, and why they would react in a certain way. Would a customer, for example,
continue to shop in a certain department store if s/he moved to another part of town? How far would
she be prepared to travel? How much would the bank have to raise the interest rates or charges
before the customer switches banks? Would his/her social bonds with the personnel keep him/her in
the old bank, even if it would become more expensive than to switch banks? Will the customer
continue to shop in a store if the personnel doesn’t speak his/her language anymore (cultural bond)?
Will the customer continue to use the only hardware store in town (geographic bond) if transport to a
city with better equipped stores becomes easier?

Indications of different degrees of relationship strength could thus be the strength of the ten bonds
and different degrees of commitment. Commitment could be expressed, for example, by a) talking
positively/negatively about the company, b) the customer complaining to the personnel/service
provider, c) only using company X / simultaneously using also competing service companies d)
his/her involvement in the company (e.g. reading news and advertisements), e) the degree to which
the customer feels that his/her service company is better/worse than competing companies and f) if
the customer would end his/her relation with the service company if there was an alternative and g)
the degree to which customers tolerate mistakes without being upset with the company.

Another interesting area for future research would be related to the customer’s portfolio of
relationships concerning a particular service. How many parallel relationships do customers have?
What are the reasons for starting a new relationship or terminating an existing relationship taking into
consideration the customer’s other relationships. Does the customer in fact manage the situation as a
portfolio of relationships. These are a few of the questions raised by recognizing that customers often
have several parallel relationships.
 29

MANAGERIAL IMPLICATIONS

A relationship should be defined from the customers’ point of view. The existence of a data base
does not mean that all the consumers in that data base have a relationship with the service company.
Therefore managers should monitor how the customers perceive their relationship with the firm. The
strength of the relationships should be investigated by studying the customers’ bonds with and
commitment to the company. Firms should try to strengthen the bonds to their profitable customers
and find out what would make these customers more committed. As proposed in this paper, there is
a distinction between different types of services which makes it necessary in some cases to
concentrate more on the customer’s perception of a relation than his/her perception of a service
episode. Managers should also understand the customer’s path through the service process. How
does s/he perceive the different acts that may be present within an service episode? What is their
importance in determining satisfaction with an episode, and which episodes are critical in forming the
customer service relationships?

The significance of episodes lies in the power of detecting which episodes represent relationship
breaking incidents, or episodes that weaken the relationship, and which kind of episodes result in a
deeper, stronger relationship between the customer and the firm.

Service providers should study the number of relationships that their customers have, since this is
linked to the profitability of the customers. The most profitable customers are usually those who
concentrate their purchases to one service provider. There are, however, exceptions. In some
services, as in e.g. banks, there are profitable and non-profitable services. A customer who is very
loyal to one bank may at the same time be very unprofitable for the bank if s/he uses mostly high-
cost services (e.g. withdraws money at the desk and not from an ATM).

From a service provider’s perspective a strong relationship, when the customer is positive toward
the firm, represents an economic asset. Within the marketing mix paradigm of consumer goods the
concept brand equity has been introduced (Aaker, 1991). Brand equity is defined as "a set of brand
assets and liabilities linked to a brand, its name and symbol, that add to or subtract from the value
provided by a product or service to a firm and/or to that firm's customers." (Aaker, 1991, p. 15).
Keller (1993) has defined customer-based brand equity as the differential effect of brand knowledge
on consumer response to the marketing of the brand. Brand equity is seen as an intangible asset that
is based on the consumer's response to a brand.
 30

This view is heavily based on the marketing mix foundation, focusing on transactions with anonymous
customers. Interesting is that the reason for introducing the concept, is to point to the value of the
brand over time. To relate brand equity to relations in this form, the definition has to be stretched, or
given a wider interpretation, keeping the underlying, implicit meaning of the concept. A service firm
can be considered to be a "brand". Brand equity should be conceived as relative value, i.e.
compared to some standard, for example competitors, or not using the service at all. We propose
that relationship equity should be defined as the differential economic value of the customer's
response to the service firm. From a managerial point of view relationship equity thus represent an
interesting factor to measure and monitor.

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