Building Customer Relationships

Unit 4.11 Building Customer Relationships

Learning outcome. The learner will: Assessment criteria. The learner can:
1. Understand the link between customer relationships and business performance 1.1 Analyse the role of customer service in creating a competitive advantage

1.2. Evaluate the implications for an organisation of poor customer service

This is the assignment task:

Unit 4.11   Building Customer Relationships

Level 4   15 Credits



You have started working in the HR department of Carmichael Sports Hotel. The hotel has tennis, golf, spa and gym facilities as well as three bars, a restaurant and conference facilities. The hotel is based in the countryside and offers regular transfers for hotel guests to the nearby town which has historical buildings, museums, theatres and shops.

Your line manager has formed a team of staff to develop a range of training materials. These materials will help colleagues across the organisation build stronger customer relationships.

Activity 1

Your task is to develop the first section of a staff training manual on Building Customer Relationships.

Write the first section of the training manual which must include:

  • An analysis of the role of customer service in creating a competitive advantage
  • An evaluation of the implications for an organisation of poor customer service

Assessment Criteria 1.1, 1.2



Sample Learner Work

Learner name: J. Kumar

Centre: Southern Hotel Management College

Unit: Building Customer Relationships

Unit number: 4.11

Activity 1: Section 1 of Staff Training Manual on Building Customer Relationships 

Carmichael Sports Hotel

Staff Training Manual: Building Customer Relationships

Mission Statement:

Carmichael Always Delivers Excellence

Section 1

  1. An analysis of the role of customer service in creating a competitive advantage

At Carmichael it is important that all staff know, understand and deliver the sentiments in the company mission. Statistically we know that it always takes more effort to win new customers than to get repeat business, so looking after our customers is of utmost importance. By providing excellent customer service we believe that we can deliver the mission, create a competitive advantage, improve income and grow the business.

Making and Generating Bookings and Sales

Our customers buy our services via a number of routes: they book rooms via internet search engines and hotel-finder websites which act as our agents; they phone us with questions about room availability and the services we provide; they book face to face at reception, with some customers turning up on spec; and some repeat bookings are taken face to face while the customer is staying with us.  We also have customers in our bars, restaurant, conference and sports facilities: some of these are also staying with us but some are day customers staying or elsewhere living locally and paying to use our facilities for part of the day.

Each time a customer books a room, buys a drink or books a tennis court you should:

  1. remember that it is not only a monetary transaction but an opportunity to establish a relationship and create customer loyalty
  2. go the ‘Xtra Inch through our Service’ (De Vere Hotels and Resorts Employee Handbook’)
  3. listen to the customer so you provide exactly what is required in a prompt and efficient manner
  4. gather and pass on any feedback from customers so that we can improve the quality of our services

By keeping customers happy, we retain or even grow our share of the market, and we operate at a profit, meaning that we can pay our staff a competitive salary and invest in maintaining and upgrading our facilities and in staff training. We thus retain high quality, loyal staff who are familiar with our business. Staff turnover remains low and we have minimal recruitment costs. When customers are happy they often give positive feedback which in turn builds staff confidence: ‘When staff receive positive customer feedback, they feel proud which in turn motivates them to deliver even better customer service.’ (


Good customer service also benefits the hotel when we are able to up-sell and cross-sell to existing customers. Up-selling is when you persuade a customer to buy a product or service of higher value and price than they had intended: for example, if a customer asks for a basic room and we persuade them to buy a mid-range room we have gained more income for the hotel. Cross-selling is when you sell the customer something else as well:  for example if they want to buy a round of golf and you also persuade them to buy a golf T-shirt. Up-selling and cross-selling are ways of keeping the customer happy by meeting needs and also bringing in income for the hotel.

Building a Reputation

We gain a competitive advantage when satisfied customers tell their friends about their experience at Carmichael Sports Hotel and our reputation grows. Last year, 20% of bookings were from recommendations, which meant that we spent 0% of our marketing budget to gain 205 customers. By serving customers well, we build customer loyalty and many will want to come back. Richard Branson, whose Virgin Group companies are renowned for their excellent customer service, said ‘Our emphasis on service… has helped us to build relationships with our customers. Over the years, we have won their trust, and their confidence gives us added impetus to give back in return.’ (Branson R, 2012).

The reputation of the hotel should be built on excellent customer service and help to foster the brand and brand loyalty. Today brand loyalty is increasingly difficult to maintain as so much information is readily available about alternative products and services. In a recent study by PricewaterhouseCoopers it was claimed that 80% of customers use online reviews before making major purchases. Carmichael Sports Hotel is not the only sports hotel in the area. The pool of customers who have the disposable income to stay with us and to use our facilities is not infinite.  If reviews start to become negative, potential customers will quickly choose a competitor. By offering excellent customer service we can make sure that our customer reviews are positive, helping us to keep and grow our share of the market.

In summary, customer service plays a key role in creating competitive advantage as customer loyalty creates a virtuous circle of improved profit, reinvestment, training, competitive staff pay and quality of services and products. It is not the only method of delivering competitive advantage but in a service industry such as Carmichael Sports Hotel it is key.


  1. An evaluation of the implications for organisations of poor customer service

If we were to provide poor customer service at Carmichael Sports Hotel, it would have a number of serious implications for the company.

Loss of Customers

Estimates put it that when a customer experiences good customer service, he tells one friend about his experience, but when he experiences poor customer service he tells ten friends about it. Thus, a company’s reputation can quickly go downhill through word of mouth, especially if the word of mouth is through digital media.  In fact, ‘TARP, a behavioural research company, found that customers who have a negative experience…tell an average of 12 people, and that those people tell an average of 72 more.’ (Whetten, B. 2014).


Maxim Wheatley, a US business owner, states ‘Although many businesses tend to think that price is the most critical factor in terms of customer loyalty, …research shows that customer service is generally the most pivotal component.’ (Wheatley, M. 2013). Wheatley has compiled research which shows that the main reason customers leave a vendor is because of customer service:

Author: Wheatley, M.)

Complaints and Damage to Reputation

When a customer receives poor service from us, there is an internal complaints process. If a customer makes a complaint to us, whether verbal or written, formal or informal, it takes time and resources for us to deal with it. We need to listen to the complaint, consider the customer’s point of view, investigate, resolve the problem, respond, apologise where appropriate and possibly compensate the customer. We may need to make a loss with this customer, which will affect profits.

The customer has the right to complain to the hotel ombudsman. The ombudsman will investigate and ask the Hotel and the staff questions. This takes time and attention away from the business of looking after our customers. We will need to work with the ombudsman to resolve the complaint.

The customer may choose to take legal action against the Hotel. Litigation can be very costly and time consuming. If we lose the case the Hotel may be required to pay a fine as well as legal costs.

A dissatisfied customer may choose to go public with his complaint, which is easy and cheap to do via social media, blogs, internet sites such as TripAdvisor and traditional media such as newspapers, radio and television. Where the customer can hide behind an alias, comments can be particularly vitriolic. Often when a message is posted there is no way of controlling it or of responding. Bad publicity such as this leads to loss of reputation and this can be very difficult to regain.



Reduction in Income and Profit

When business is lost due to poor quality of service customers simply move to a competitor so the competitor has gained customers at no cost to them. If this happens on a large scale the Hotel will lose market share.

This diagram shows that the demand and supply of hotel bedrooms and tables in the restaurant were in equilibrium at x.

The demand has fallen from D to D1. This means that the price that the Hotel can charge falls and the quantity supplied also contracts to y.

In these circumstances Carmichael Sports Hotel is earning less income.


The number of hotel rooms and tables are fixed so there is an on-going cost when rooms and tables are not booked and they remain empty. This will include staffing and premises costs. The hotel has a high level of staffing costs so the company will be forced in to considering reducing the hours that part time staff work, not filling vacancies as they arise or redundancies. The staff training budget may be cut.  Maintenance and refurbishment of the hotel and the other facilities could also be reduced or deferred.

This leads to a downward spiral: less investment in our facilities means they become out of date or broken, damaging our reputation still further.

Low Staff Morale

Poor customer service is likely to lead to staff, and others, spending significant time listening to customer problems and dealing with them. There is an opportunity cost associated with this work so it will leave less time to provide good customer service to remaining customers. Dealing with angry customers can lead to low morale and high staff turnover. Good quality staff may defect to competitors who have a better reputation, working atmosphere and pay.

Increased Recruitment and Training Expenses

If we provide poor customer service we will need to find the financial resources and time to train our staff on improving customer service. If there is high staff turnover we will also need to spend time and money on the recruitment and training of new staff.

Thus continued poor customer service leads to a vicious circle, where the impact on Carmichael Sports Hotel would have more and more serious implications for the company over time.

Strategy to Address the Issues

The CEO and senior managers will produce a strategy to overcome the problems in the short and longer term. In preparing the strategy the managers will consider the exact cause of the problems and training implications, cost/benefit analysis, market intelligence, timescales and the staff currently in post to lead the recovery. There will costs associated with both the time spent on producing the strategy and its roll out.




Branson, R.  Like a Virgin, 2012, Virgin Books

Cook, S. Customer Care Excellence: How to Create an Effective Customer

Focus, 2008, Kogan Page.


De Vere Hotels Employee Handbook


Article by Goodwright, E. in CSM eMagazine, Top 10 Customer Loyalty Tips, 2014,


Article by McQuerrey, L. in AZCentral, How Does Poor Customer Service Affect a Business?, 2014

Article by Richardson, M. in eHow, Effects of Poor Customer Service, 2013

Article by Surowiecki, J  in The New Yorker, Twilight of the Brands, 2014

Business case studies, 2014,


Article by Wheatley, M. in AlleyWatch, Why service is the new competitive advantage, 2013,,


Article in Huffington Post by Whetten, B. Companies that care: how to turn customer service into a compelling competitive advantage, 2014,