International E-Business -
Building Online Customer Loyalty with Relationship Management

Diplomarbeit / Diploma Thesis

Zur Erlangung des akademischen Grades
eines Magisters der Sozial- und Wirtschaftswissenschaften

Institut für Unternehmensführung
Sozial- und Wirtschaftswissenschaftliche Fakultät
der Leopold-Franzens-Universität Innsbruck

von 

Wolfgang Katsch

Innsbruck, im September 2001

Table of contents

List of Figures ... iii
List of Tables ... iv
Preface ... v

1 Introduction ... 1

1.1 Problem Statement ... 2
1.2 Objective ... 2
1.3 Relevance of the Topic ... 3
1.3.1 Theoretical Relevance ... 3
1.3.2 Practical Relevance ... 3

2 Literature Review and Theoretical Framework ... 5

2.1 State of Research: Descriptive instead of Conception ... 6
2.2 Methodology ... 7
2.2.1 Definition and Limitation of Research Topic ... 7
2.2.2 Research Structure ... 8

3 Loyalty and Customer Relationship Management ... 10

3.1 Definition of Loyalty and Relationship Management ... 11
3.1.1 Benefits of Relationship Management & Customer Loyalty ... 13
3.1.2 Transactional View versus Relationship View ... 16
3.1.3 The Evolution of Relationship Management ... 18
3.2 General Approaches to Relationship Management ... 20
3.2.1 IMP Interaction Approach ... 20
3.2.2 Five-phase Profit Chain by Bruhn ... 22
3.2.3 Dynamic Framework by Dwyer, Schurr & Oh ... 24
3.3 Evaluation Criteria for a Concept of Relationship Management ... 27
3.4 Chosen Concept ... 28

4 International E-Business ... 29

4.1 Definition of E-Business ... 30
4.2 Value Adding Characteristics/Opportunities of E-Business ... 31
4.2.1 Interactivity, Dialogue, Individuality ... 33
4.2.2 Customer-Integration and Innovation ... 36
4.2.3 Changing Structure of the Value-adding Process ... 37
4.2.4 Market-pull and Customized-push instead of Market-push ... 40
4.2.5 Global, 24-hour Access ... 41

5 Customer Loyalty and International E-Business ... 43

5.1 New Model for Customer Loyalty & Relationship Management in E-Business ... 43
5.2 Individuality and Interactivity during the Relationship Process ... 45
5.3 E-Business Relationship Process ... 50
5.3.1 Stage 1: First Contact - Online Surfer ... 50
5.3.2 Stage 2: Customer Satisfaction - Online Buyer ... 52
5.3.3 Stage 3: Customer Loyalty ... 54
5.3.4 Stage 4: Customer Retention - Repeat Business Contacts ... 54
5.3.5 Stage 5: Economic success & Long-term Profitability ... 57
5.3.6 Influencing factors: External and Internal ... 58
5.4 Instruments for Customer Loyalty in the World of E-Business ... 60
5.4.1 Knowing your Customers - Customer Profiles & Database ... 60
5.4.2 Online Communities ... 64
5.4.3 Complaint Management System ... 73
5.4.4 Membership Clubs ... 82
5.4.5 Datamining ... 86
5.4.6 Customer-Integrated Product Innovation ... 94

6 Conclusion ... 102

References ... 104

Preface

In the year 1876 Jules Verne finished his book "The Propeller Island". He portrays the life on an artificial island, which is constantly moving around the pacific, following the most favorable climate. The inhabitants employ the latest technology in order to enjoy their live in an ideal world.

One visitor, who is shown around on the island, arrives at a shopping center. "I can′t see any customers" the visitor notes "maybe it is to early". "Not necessarily, but most of the shopping is done in a tele-autographic way" explains the guide. "We use a machine, which transmits the handwriting like a telephone the voice. With the help of this machine purchase orders are taken, bills are sent and contracts are made."
What Jules Verne illustrates at the end of the last century is nothing else than E-Business. But not until the development of computer, modem and internet should this fiction become reality.

1 Introduction

This chapter

• points out the problem around E-Business and customer loyalty
• describes the objective of the thesis
• explains both the theoretical and practical relevance of the thesis

1.1 Problem Statement

For many years, successful neighborhood merchants, restaurants and pubs had real customer relationships. They knew their customers personally, understood what they wanted, and, as best they could, satisfied their needs through personalized service. As a result, they earned loyalty and a large share of their customers′ business. Some of the best examples of building customer loyalty can be found in those traditional small businesses.

Now the question arises how customer relationships can be built in the world of E-Business. E-Business - the buying and selling of products and services over the Web - and its impact is comparable with the industrial revolution at the end of the last century. After hysteric times of E-Business startups and well known bursting bubbles the point of disillusion has come. Some internet companies recognize that traditional business concepts are not necessarily outdated. They realize that focusing only on customer acquisition is not enough. Acquiring customers on the international marketplace of E-Business is enormously expensive and unless those customers stick around and make lots of repeat purchases over the years, profit will remain uncertain. For lasting success companies have to intensify their efforts towards customer loyalty and customer relationship management. Without loyalty even the best-designed E-Business model will collapse.

The described problem leads to the following objective.

1.2 Objective

The objectives of the thesis are

• to combine the concept of customer loyalty with the characteristics of E-Business
• show how companies can build loyalty with customer relationship management

1.3 Relevance of the Topic
1.3.1 Theoretical Relevance

Concerning E-Business there exist plenty of literature mainly from a technical point of view. On the other hand, academic discussions about business concepts like customer loyalty and relationship management have a long tradition among researchers.

The drawback is that although loyalty and relationships are seen as very important factors in the context of international business, the question has obtained scarce attention in literature about E-Business. Existing studies in this area mainly have descriptive character or try to offer quick-fix over-optimistic internet solutions, which become obsolete pretty fast.

The theoretical contribution of this thesis is to fill that gap and offer a more conceptual/systematic as well as critical perspective towards the topic.

The thesis

• Transfers the concept of relationship management into the environment of EBusiness
• Points out potential conflicts
• Demonstrates benefits and show ways to increase online customer-loyalty

1.3.2 Practical Relevance

Companies in E-Business already realize that focusing only on customer acquisition is not enough for lasting success and are therefore intensifying efforts towards customer loyalty. According to recent studies only a small part of the companies know how many visitors they have on their Websites. And only some of them know the number of frequent/loyal buyers. A lack of customer knowledge and relationships with customers can get dangerous, especially in a scenario, where the competitive offer is only one “click” near by.

The benefits of customer loyalty are directly measurable, knowing that the costs of taking care after loyal customers are many times below those of customer acquisition. From a practical point of view the aim of the thesis is to show how companies can build loyal online-customers in order to develop long-term business relationships.

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