Businesses are increasingly looking to adopt various relationship marketing methods to connect more intimately with their customers. They are asking questions around the value of customer engagement, why should customers be engaged, and how to keep their attention.
In our 2017 paper, The Interrelationships Between Relationship Marketing Constructs and Customer Engagement Dimensions, we examine the links between perceived value, customer satisfaction, trust, affective commitment and customer engagement. The paper hypothesises that a customer satisfaction and a sense of perceived value will lead to greater trust and commitment which, in turn, result in more engaged customers.
Customer satisfaction and perceived value lead to trust.
Customer engagement is defined by Jamid Ul Islam and Zillur Rahman in their 2016 paper entitled, The transpiring journey of customer engagement research in marketing: A systematic review of the past decade as: “The readiness of a customer to actively participate and interact with the focal object (e.g. brand/organisation/community/website/organisational activity), [which] varies in direction (positive/negative) and magnitude (high/low) depending upon the nature of a customer’s interaction with various touch points.”
Engaged customers pay more attention to the brand...
There are a number of positive outcomes for businesses that are able to effectively engage their customers. Engaged customers pay more attention to the brand, are absorbed by the brand, identify with the brand, are enthusiastic about it and willingly promote it, especially through word of mouth. Ultimately engaged customers contribute to the sustainable competitive advantage of a business.
Engaging to beat the odds
Our study focused on the short-term insurance industry in Gauteng, South Africa and several findings were evident. The first thing to note, however, is that short-term insurance, as a product offering, is a grudge purchase. Secondly, being a service offering, insurers have no tangible product to sell. When customers buy insurance they are buying a promise that will only pay out at a later date, and only if it is needed, which is usually in the event of an unfortunate circumstance. Getting engagement in this type of environment is extremely difficult, but marketers need to realise that achieving engagement is important in this increasingly competitive landscape.
In South Africa, the short-term insurance industry is well-developed and mature. Companies such as Santam, Mutual & Federal, Hollard and Outsurance hold more than 50% of the market share collectively. But with a growing middle class and tech innovations like smartphones impacting the market, insurers are going to face additional – and stiff – competition. If they are not careful they could wind up being outsmarted by young dynamic insurance providers.
In addition, in an industry like short-term insurance, or any other financial services offering, customers are increasingly fickle, meaning that consumers will easily switch between companies based on factors like cost. So we believe that going forward insurers are going to need to develop strategies focusing on customer engagement to ensure they not only maintain but also grow their market share.
Engaging customers through relationship marketing
Our study found that customer satisfaction and perceived value lead to trust. This then leads on to affective commitment and then ultimately customer engagement. What we are saying is that satisfaction and value will improve the relationship with the customer – increasing the trust in the business and the affective commitment towards the business – and will ultimately lead to a more engaged customer. The result is that the customer will most probably buy more and, more importantly, become an advocate of the brand by spreading positive word of mouth. This applies whether they are buying a pair of jeans, a Harley Davidson, or paying for short-term insurance.
The short-term insurance industry is first and foremost an incredibly price-sensitive sector. But that is not the only deciding factor for consumers. Depending on what customers are looking for, service providers are being challenged to provide better customer service and greater perceived value, in order to meet the unique needs of their customers. As such, short-term insurers need to be innovative in their value propositions which can include price, pay-out times, or even offering incentives like Outsurance’s Outbonus, a reward Outsurance pays its customers for not claiming. Customer engagement is enhanced by firms not only delivering on these promises but also going the extra mile.
The constructs that businesses need to consider when it comes to their relationships with customers with the aim of ultimately increasing customer engagement are:
· Customer satisfaction – which occurs when customers experience a positive confirmation of their expectations.
· Customer perceived value – the value perception a client has is based on the price paid in relation to the expectations of the product, the quality obtained in relation to the price paid, and what the consumer received. According to Valarie A. Zeithaml’s 1988 journal article Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence, it is based on the customer’s perception of the utility of the product.
· Trust – which talks to the perceived credibility of the firm providing the service.
· Customer commitment – achieved when customers make an effort to maintain a relationship with their supplier. Affective commitment is defined in the study as: ‘[measuring] the feelings and emotional attachments customers may develop towards the firm providing the service’.
Our research finds that these constructs are enhanced when a company’s value proposition is marketed to its employees, which ensures buy-in across all levels of the firm. This, in turn, ensures excellent levels of service are maintained and results in an increase in perceived value.
Measuring engagement – how enamoured are your customers really?
Talk is cheap. Understanding the value of customer engagement is one thing but without tangible measures, how do you know whether your strategy is working? Of course there are formative measures that are easy to measure when using digital platforms – like the number of clicks, the number of tweets, the number of likes and comments a digital post will receive. But how do you measure real, yet intangible, engagement?
In our research, we constructed a self-reporting questionnaire that asked 500 short-term insurance customers to indicate their preference towards statements measuring the constructs of the study with existing scales. These include things like customer satisfaction, customer value, trust, affective commitment and customer engagement. Each statement requires a numerical rating of one to five. People were able to reflect on their short-term insurers with respect to each of the constructs of the study.
Using a measurement tool like this can give marketers great insight into how enthusiastic and ‘passionate’ a customer is about the insurer, for example. They can predict whether or not they are going to engage in positive word-of-mouth recommendations, will interact with the brand, and actively want to learn more about the brand. Insurers can use this as a tool to see what the level of their customer engagement is. If it is done on a monthly basis they can start tracking customer engagement levels and evaluate the relationship they have with their customers.
It is important for businesses to understand that a very good predictor of customer engagement is how well they satisfy their customers and the perceived value they offer. This study indicated that customer satisfaction and perceived value predict trust and commitment that ultimately predict customer engagement. In other words, building strong relationships predicts customer engagement.
Business action: Quick tips on how to increase perceived value
· It is important to remember that customer engagement, according to So, King and Sparks’ 2014 journal article Enhancing customer relationships with retail service brands: the role of customer engagement, is all about customers:
o Interacting with others, for example, customers conversing with others about the business beyond the purchase, both on and offline.
o Paying attention to the business, for example, learning more about the business.
o Being absorbed with the business, resulting in an unwillingness to separate from the business.
o Identifying with the business, for example, seeing the business’s success as their own success.
o Being enthusiastic about the business, for example, being an ardent and vocal supporter of the business.
· Deliver value and consistency. Perceived value is about living up to your competitive advantage and delivering to your market segment through a number of streams, including price, service, pay-out period, bonuses, online applications and claims.
· If you consistently satisfy your customer through giving them value, you will get a greater level of trust and effective commitment and ultimately engagement.
· Thoroughly understand your market segment and design your strategy to meet their needs.
Danie Petzer is a Professor and Director of Research at GIBS. He holds a PhD (Marketing Management) specialising in services marketing and is an NRF-rated researcher. His research focus area is uncovering consumer responses to organisational efforts to build, maintain and restore relationships with customers in a services context. He lectures on the GIBS doctoral programme, MBA, postgraduate diplomas and custom programmes.
Estelle van Tonder is an Associate Professor at the North-West University in South Africa where she teaches Retail Management and Strategic Marketing. She has a doctorate degree in Marketing Management and her research has been published in journals such as The International Review of Retail, Distribution and Consumer Research, European Business Review, The Service Industries Journal and the International Journal of Bank Marketing. Her main research fields are relationship marketing, consumer helping behaviour from a citizenship perspective and informal knowledge sharing behaviour among consumers.
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