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

Diploma Thesis 2001 120 Pages

Business economics - Marketing, Corporate Communication, CRM, Market Research, Social Media

Excerpt

Table of contents

List of Figures

List of Tables

Preface

1 Introduction
1.1 Problem Statement
1.2 Objective
1.3 Relevance of the Topic
1.3.1 Theoretical Relevance
1.3.2 Practical Relevance

2 Literature Review and Theoretical Framework
2.1 State of Research: Descriptive instead of Conception
2.2 Methodology
2.2.1 Definition and Limitation of Research Topic
2.2.2 Research Structure

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

4 International E-Business
4.1 Definition of E-Business
4.2 Value Adding Characteristics/Opportunities of E-Business
4.2.1 Interactivity, Dialogue, Individuality
4.2.2 Customer-Integration and Innovation
4.2.3 Changing Structure of the Value-adding Process
4.2.4 Market-pull and Customized-push instead of Market-push
4.2.5 Global, 24-hour Access

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

6 Conclusion

References

List of Figures

Figure 2-1 Limitation to Business-to-Consumer Processes

Figure 2-2 Structure of the Thesis

Figure 3-1 Stakeholder Relationships

Figure 3-2 Kano's Model: Expectations, Differentiation and Customer Satisfaction

Figure 3-3 The Transition to Relationship View

Figure 3-4 IMP Interaction Approach

Figure 3-5 Profit Chain of Customer Loyalty

Figure 3-6 Relationship Development Process

Figure 4-1 E-Business Builds Customer Value

Figure 4-2 Value-Adding Characteristics/Opportunities in E-Business

Figure 4-3 Traditional One-To-Many Mass Communication Model

Figure 4-4 Interpersonal Communication

Figure 4-5 Many-to-Many Communication in E-Business

Figure 4-6 Evolution or Revolution of Existing Business Systems?

Figure 5-1 New Model of Customer Loyalty & Relationship Management in E-Business

Figure 5-2 Implications of Communities

List of Tables

Table 3-1 18

Table 3-2 28

Table 5-1 46

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 E-Business
- 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.

2 Literature Review and Theoretical Framework

This chapter

- describes the state of research concerning the topic of the thesis
- points out how the problem of this thesis is solved in order to reach the objective and why exactly this way
- explains the limitations of the research topic

2.1 State of Research: Descriptive instead of Conception

The proliferation of the internet is unparalleled in the history of communications. No surprise then that the phenomenon has become a hot topic in the popular press. Use of the internet as a business platform is quickly capturing the attention of management academicians as well, despite the fact that transactions on the Internet form a minuscule part of the total trade through all possible avenues.[1] A number of demographic studies exist concerning the development around E-Business. Traditional demoscopic institutes expand their comprehensive and representative surveys with topics about spreading of technology and use of the internet (e.g. number of users). However those studies are only descriptive. Due to the dynamic development the mentioned studies merely have a short-term value and get obsolete pretty fast. Although the basic growth trend of E-Business is confirmed, the studies hardly can function as a basis for sound management planning.

An exception are studies of international consulting companies like Accenture, Arthur D. Little, Booz, Allen & Hamilton, Boston Consulting Group, McKinsey & Company, KPMG, Roland Berger & Partner etc. Those studies could contribute to the conceptual building of E-Business know-how, since they go beyond demoscopic surveys and work on problem-oriented solutions. Unfortunately the studies are normally not public accessible, because of their preparation during consulting projects. Often consulting companies publish only excerpts or single results in press releases or on their Websites.[2]

2.2 Methodology

How is the problem solved/the objective reached and why exactly this way?

2.2.1 Definition and Limitation of Research Topic

In general relationship management works as a term for the effort of companies to develop closer relationships with the end customer through personalized communication, customized services, and so forth. The term is widely used as synonymous with database marketing as well. Relationship management seems to also describe the phenomenon of tightening relationships with fewer suppliers as firms consolidate the supplier base, and bring the suppliers into the firm’s continuous improvement process.[3]

illustration not visible in this excerpt

Figure 2-1 Limitation to Business-to-Consumer Processes[4]

In this thesis the term relationship management is used in context with business relationships to end customers in order to build customer loyalty (business-to-consumer, B-2-C). Relationships to other stakeholders including suppliers (business-to-business, B-2-C) are not focused on. Furthermore the thesis focuses not on electronic databases, also known as Customer Relationship Management (CRM)-systems, although the topic is considered important in the process of online-relationship management and therefore covered in a later chapter of the thesis. It should be clear that the concept of the thesis has a business perspective, in contrast to a more technical or IT orientation.

2.2.2 Research Structure

The author attempts to reach the objective of the thesis as follows:

illustration not visible in this excerpt

Figure 2-2 Structure of the Thesis[5]

First the concepts of loyalty and customer relationship management are explained and distinguished. The literature proposes several concepts and definitions of loyalty and relationship management. In the next part the author will explain E-Business and its unique value-adding characteristics.

After having described customer relationship management (chapter 3) on the one hand and E-Business (chapter 4) on the other hand, the two concepts are combined in chapter 5. In other words the business concept of relationship management is transferred into the environment of the internet and a new model is developed. Now potential conflicts, benefits and synergies can be demonstrated. It is possible to show how companies can build customer loyalty in the world of E-Business.

Methodical characteristics of the thesis are

- Drawing from international management literature, focusing on recently published articles in order to take into consideration the developments in the changing marketplace of information technology.
- Successful online companies and their practical experience should illustrate the application of different concepts and methods in a practice-oriented way.
- Systematic/structural approach: Instead of a cursory discussion of loyalty and E-Business, this thesis is written in a systematic and logical manner.
- International perspective: When discussing the topic E-Business, an international perspective is always a prerequisite. Customers around the world have access to a company’s Website. Therefore business relationships cannot be explained from a narrow, local point of view. As soon as E-Business is discussed, it is about business on the international marketplace of the internet.

3 Loyalty and Customer Relationship Management

This chapter

- describes the evolution of customer relationship management
- presents different approaches to relationship management and customer loyalty
- shows an evaluation of different concepts in order to use one concept later in the thesis for model building of customer loyalty in E-Business

3.1 Definition of Loyalty and Relationship Management

Successful competition, whether local, regional or global, can be based on cost leadership, superior customer value, time leadership, reliable relationships or a combination of these categories of competitive advantage.[6]

Reliable relationships, that is, a network of positive personal and institutional relations with all the important stakeholders in the relevant business system.[7] Possible stakeholders are suppliers, employees, competitors (e.g. strategic alliances), public organizations (e.g. governments, interest groups) and customers.[8]

illustration not visible in this excerpt

Figure 3-1 Stakeholder Relationships[9]

A definition that covers all forms of relational exchange and focus on the process of relationship management is:

Relationship management refers to all management activities directed toward establishing, developing and maintaining successful relational exchanges.[10]

Research on industrial business networks and on service firms in highly industrialized regions of the world as well as experience from Arab, Asian and African countries demonstrates how companies can very successfully build their competitive strategies on personal as well as institutional relationships with important stakeholders. Some companies have discovered that the most important factor for long-term success in their markets is the establishment and maintenance of close relationships with their customers. It is much less expensive to keep existing customers than continuously build new customers.[11]

In the literature a number of definitions exist for the term customer relationship management. Originally the concept is based on Berry[12] who describes relationship management as “attracting, maintaining and...enhancing customer relationships”[13]

The building of customer relationships will call for a process of modifying customer behavior over time and learning from every interaction, customizing customer treatment, and strengthening the bond between the customer and the company.[14]

While its objective is still to add profit to the company, it accomplishes that goal by concentrating on customer benefits and values rather than what a company wants to sell, thereby strengthening the relationship between the customer and the company. It is not an overnight cure but rather a long-term profit builder. It takes business away from the traditional objective of new customer acquisition at any cost to customer loyalty, from developing short-term transactions to developing customer lifetime value[15]

A final interpretation of relationship management with the link to customer loyalty could be:

Customer Relationship Management involves creating a relationship between producer and individual customer, interacting with the customer and collecting information about him/her, adapting products more closely to the customer’s need, and maintaining two-way communication with the customer, so that the customer becomes loyal.

3.1.1 Benefits of Relationship Management & Customer Loyalty

A range of authors claim, that ongoing customer relationships are the company's most important business asset.[16] The main contribution of relationship management to the firm is fivefold. First, it builds up loyalty. Second, it enhances profits form existing customers. because the longer customers are with a company, the more willing they are to pay premium prices, make referrals, and spend more money.[17] Third, it helps reducing marketing expenditures, mainly because the cost of attracting a new customer may be as large as six times that incurred for retaining an old customer.[18] Fourth, it facilitates a direct dialogue with customers that in turn increases the attentiveness level of the organization to clients’ needs.[19] Moreover relationship management helps firms to protect themselves against attacks of new entries and of changing preferences.[20]

For a better understanding of relationship management the connection between underlying reasons for relationships, differentiation and critical success factors are discussed in the following.

It was mentioned that customer relationships often enable a company to reduce costs. Business relationships, however, might allow a company not only to cut costs, but also other forms of differentiation of its products and services from competitor’s offerings. Furthermore both, reduced costs (which is a kind of differentiation itself) and other forms of differentiation, create barriers to entry to competitors.

Competitive costs are very important in international markets. However, they are usually only a pre-requisite for success in the long-term, because of the enormous competition many companies are facing. Reasons for this big competition are the ongoing globalization of markets (for products and resources), the reduction of trade barriers and trade restrictions through the liberalization of world trade, the deregulation of industries as well as technological advances, e.g. information technology.[21] In such a situation, success can only be achieved if a company possesses those capabilities and resources which are needed in order to fulfil the decisive expectations and aspiration of customers and other stakeholders. These capabilities and resources, which are so-called critical success factors, allow a company to differentiate its offering positively from those of competitors. Traditionally, such critical success factors have been those allowing a company to provide high quality standards for competitive prices to customers.[22]

In today’s competitive environment however, differentiation in many markets is hardly attained through quality standards or competitive prices alone, because these factors for many businesses have become a pre-requisite for the existence on the international marketplace. Put differently, providing high quality standards and competitive prices are often related to capabilities and resources a company needs to possess, in order to be regarded as a relevant supplier. These core factors do not allow a company to differentiate itself positively from competitor.[23] Core factors are related to aspirations and requirements of customers and stakeholders, which must be fulfilled (“Must-requirements”). Success factors on the other hand are related to aspirations and requirements whose fulfillment allows a positive differentiation. “Should requirements” allow a positive differentiation and customer satisfaction if they are fulfilled above a certain minimum degree. “Can requirements” are aspirations and requirements without a minimum degree of fulfillment, because customers and stakeholders have no experience with them. However, if differences in the fulfillment of the requirements are recognizable, they might be rewarded and can fill the customer with enthusiasm. A positive differentiation can be obtained in this case (see following figure).[24]

illustration not visible in this excerpt

Figure 3-2 Kano's Model: Expectations, Differentiation and Customer Satisfaction[25]

The increasing importance business relationships have obtained is related to the fact, that relationships are often connected to the fulfillment of should- and can-requirements of customers and stakeholders. In this case, relationships relate to capabilities that are honored by the marketplace and which allow a positive differentiation from competitors.

If a business relationship does not relate to capabilities which are needed in order to fulfil the decisive expectations and aspirations of customers, investments that have been made into relationship specific assets can be regarded as sunk costs. Put differently, in certain environments are long-term relationships not necessarily ideal and feasible because they do not allow a company to positively differentiate itself from competitors.[26]

3.1.2 Transactional View versus Relationship View

In Webster' call for a paradigm change, he observed that the narrow conceptualization of management as a short-term profit maximization function seems increasingly out of date. He identified the change as one that focuses on relationship management rather than transaction management.[27] Understanding relationship management requires distinguishing between the discrete transaction, which has a distinct beginning, short duration, and sharp ending by performance and relational exchange, which traces to previous agreements and is longer in duration, reflecting an ongoing process.[28]

illustration not visible in this excerpt

Figure 3-3 The Transition to Relationship View[29]

The emphasis in the management literature has shifted from a so-called “transactional” to a “relationship” view. The exchange of a product as the outcome of the production process is at the core of the transactional view. In contrast the relationship view puts the main emphasis on the interaction process between the business partners. In this process a supplier of good or services represented by people, technology, systems and know-how interacts with its customer and other decision makers.[30] The following table by Webster provides a contrast of the two views.[31]

illustration not visible in this excerpt

The ethics and values of relationship management are different from the practice of conventional marketing. Although relationship between a company and a customer is commercial, it is a relationship and that requires a long-term view, mutual respect, a win-win strategy, and the acceptance of the customer as a partner and coproducer of value and not just a passive recipient of a supplier’s product. In relationship management, the customer is recognized first as an individual, second as a member of a community or affinity group, and only thereafter as an anonymous member of a segment or a fraction in a large anonymous mass.[32]

3.1.3 The Evolution of Relationship Management

The importance of developing a lasting relationship with the customer has been an issue discussed the past twenty years. Although Bagozzi[33] raised the importance of the issue in 1975, until recently it has been only occasionally touched on in the literature. Levitt[34] noted that the nature of the product of business might dictate the need to develop long-term relationships with customers to provide the company with a return on the resources used in consummating the first sale.[35]. When marketing emerged as an management discipline in the early 1960’s, it was dominated by the marketing mix theory of the 4 Ps and primarily applied to consumer goods marketing.[36] The theory of the 4 Ps focuses on how to use the four parameters of product, price, promotion and place to manipulate consumers into buying mass manufactured standardized goods. In reaction to the narrow focus on consumer goods marketing, service marketing and industrial marketing, or business-to-business marketing, evolved in the late 1970’s.[37] Today service marketing is globally known and acknowledged.[38] Central to the theories of service marketing is the point of interaction with customers, the “moment of truth”, which also, is a key factor in relationship management.[39]

Business-to-business marketing broadens this concept to considers the entire network of interactions.[40] The company is viewed as a node in a network of complex interactions with customers, suppliers, distributors, partners, etc. This network approach emphasizes long-term stable relations with a number of stakeholders, which is an important contribution to relationship marketing as well.[41] The network approach is well established in Europe, but not in the United States.

Services marketing and the network approach have three variables in common: relationships, networks, and interaction.[42] Relationship management emerged from service and business-to-business marketing, but is described as a more general theory, not limited to certain types of products or customers. In spite of the claims that relationship management is a universal theory, most academic literature on the topic continues to be analyzed primarily in the context of business-to-business marketing. A driving force to focus consumer marketing on relationships is today’s database and on-line communication technology and more tightly targeted media, which make it possible to create personal relationships with a mass market.[43]

To sum up, what seems to be a new buzzword, namely “relationship management”, is nothing new to business life. What is new, is the purposeful development of relationships to achieve strategic goals. Relationships between buyers and sellers have always existed since people have started trading goods and services. These relationships from the earliest days of trade evolved, as trust, commitment or even friendship between buyers and sellers developed trough continuous and repeated transactions.[44]

3.2 General Approaches to Relationship Management

In the following different concepts for relationship management and the building of customer loyalty are described. The scientific discussion around relationship management evolves from the relationships in industrial markets. The IMP model represents these business-to-business markets and not business-to-consumer markets. Nevertheless, the model is of great use in explaining relationships and relational exchange as opposed to transactional exchange, also in business-to-consumer markets.

3.2.1 IMP Interaction Approach

The IMP Group set out originally to research buyer-seller and distribution channel relationships in industrial markets. The results of a large scale pan European research project, containing the study of buyer seller-relationships were first published in 1982 by the IMP Group.[45] The study described what came to be known as the IMP Interaction Approach, a descriptive and explanatory approach which points out, that maintaining close, collaborative and mutually profitable relationships between industrial/business-to-business partners is the best way of achieving long term stability and success of a company. The Interaction Approach has its roots in two major theoretical models, namely the Inter-Organization Theory and the New Institutional Economic Theory.[46]

The model contains four major elements as can be seen in the following figure[47]:

illustration not visible in this excerpt

Figure 3-4 IMP Interaction Approach[48]

The interaction process

Relationships between buying and selling companies are frequently long term. Thus the IMP Group distinguishes between the individual episodes in a relationship, e.g. the placing or delivering of a particular order, and the longer-term aspects of that relationship. The episodes which occur in an relationship involve exchange between two parties. There are four elements which are exchanged: product or service exchange, information exchange, financial exchange, social exchange.

The participants in the interaction process

The process of interaction and the relationship between buyers and sellers will depend not only on the elements of the interaction but also on the characteristics of the parties involved. It also includes the product which the selling company offers, the production and application technologies of the two parties and their relative expertise in these areas.

[...]


[1] Sindhav, 1998, pp. 120-121

[2] e.g. Boston Consulting Group, 1999, BCG E-Commerce Studie;
Roland Berger & Partner, 1999, Erfolgsfaktoren im E-Commerce;
McKinsey & Company, 2001, Qualitysearch, URL: http://www.qualitysearch.mckinsey.de/archive

[3] Cooper/Gardener, 1996, p. 146

[4] Source: own illustration

[5] Source: own illustration

[6] Wright/Kroll/Chan/Hamel, 1991, pp. 245-254.

[7] Mühlbacher/Dahringer/Leihs, 1999, p. 385.

[8] Hinterhuber, 1996, pp. 2-3.

[9] Source: own illustration

[10] Morgan/Hunt, 1994, p. 22.

[11] Mühlbacher/Dahringer/Leihs, 1999, p. 385.

[12] Backhaus, 1998, p. 21.

[13] Berry, 1983, p. 25.

[14] Newell, 2000, p. 2.

[15] Newell, 2000, pp. 1-11.

[16] Webster, 1992, pp. 1-17.

[17] Duncan, 1998, pp. 1-13.

[18] Rosenberg/Czepiel, 1983, pp. 45-51.

[19] Shani/Chalasani, 1992, pp. 330-342.

[20] Laker/Pohl/Dahlhoff, 2000, pp. 127-140.

[21] Hill, 1998, pp. 10-15.

[22] Mühlbacher/Dahringer/Leihs, 1999, pp. 310-319.

[23] Mühlbacher/Dahringer/Leihs, 1999, pp. 310-319.

[24] Bailom./Hinterhuber/Matzler/Sauerwein, 1996, pp. 117-126.

[25] Source: from Kano, 1984, pp. 39-48 quoted in: Matzler/Bailom, 2000, p. 220.

[26] Mühlbacher/Dahringer/Leihs, 1999, pp. 310-319.

[27] Webster, 1992, pp. 1-17.

[28] Dwyer/Schurr/Oh, 1987, p. 13

[29] adapted from Payne, 1992, p. 30.

[30] Grönroos, 1997, pp. 322-340.

[31] Webster, 1992, pp. 1-17.

[32] Gummesson, 1998, pp. 242-243.

[33] Bagozzi, 1975, pp. 32-39.

[34] Levitt, 1983, pp. 87-94.

[35] Berry, 1995, pp. 236-245.

[36] Gummesson, 1987, p. 10.

[37] Homburg/Bruhn, 1999, pp. 3-35.

[38] Gummesson, 1998, pp. 243-244.

[39] Moriarty/Gronstedt/Duncan, 1996, pp. 162-163.

[40] Ford/Håkansson/Johanson, 1986, pp. 26-41.

[41] Moriarty/Gronstedt/Duncan, 1996, pp. 162-163.

[42] Gummesson, 1998, pp. 243-244.

[43] Moriarty/Gronstedt/Duncan, 1996, pp. 162-163.

[44] Wilson/Jantrania, 1996, pp. 55-66.

[45] Easton, 1992, p. 4.

[46] IMP Group, 1982, pp. 10-27.

[47] IMP Group, 1982, pp. 10-27.

[48] Source: IMP Group, 1982, p. 16.

Details

Pages
120
Year
2001
ISBN (eBook)
9783638103763
ISBN (Book)
9783638909730
File size
1.4 MB
Language
English
Catalog Number
v550
Institution / College
University of Innsbruck – Institute for Corporate Leadership
Grade
very good
Tags
International E-Business Building Online Customer Loyalty Relationship Management

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Title: International E-Business – Building Online Customer Loyalty with Relationship Management