Long-Term Contracts in the Cellular Phone Industry

Abstract

A service company’s major goal often tries to identify profitable customers and to retain those customers through long-term relationships (e.g., Reinartz & Kumar, 2003). Retention has been shown as a sound strategy for long-term success (e.g., Reichheld & Sasser, 1990). Frequently, companies employ a market orientation strategy to reach their retention goals. Market orientation occurs when organizations base their procedures and structures around the customer (Narver & Slater, 1990), with the intention of garnering customer loyalty through superior customer satisfaction. The importance of the customer and the delivery of quality service has been illustrated in many literature sources, (e.g., Zeithaml, Berry, & Parasuraman, 1996) yet many companies continue to use policies that exploit the customer or service quality in favor of bottom line profits. Long-term contracts may be such a policy.