The development of customer relationship by rural SMES

Small firms rely on repeat business for the bulk of their income (Spence and Schmidpeter, 2003) and on customer referrals for the majority of their new customer acquisition (Chaston and Mangles, 2002). Loyalty and word-of-mouth are considered to derive from satisfaction with service quality (Heskett et al., 1997). An understanding of customer wants is considered to be essential for the effective development of service quality (McNaughton et al., 2002). However, small firms do not carry out systematic market research, privileging action over planning. This study examines the approaches to service quality of 12 small rural firms in the southwest of Scotland to understand how the customer loyalty on which they depend is encouraged. It finds that firms prioritise goods over service, and transactions over relationships. However, they also demonstrate ethical, customer-focused approaches which are valued by customers. Satisfied customers are more likely to return and to give positive word-of-mouth and this relationship is cumulative, building over a series of successful transactions into relationship quality. The term Customer Relationship Capital (CRC) is adopted to describe the aggregate relationship quality which is developed with customers. CRC is an asset for firms creating a source of competitive advantage and protecting them from occasional lapses in service standards.