1. foundations of Chapter M A R K E T I N G Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Ensuring Total Customer Satisfaction and Managing Customer Relationships 6

2. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Objectives 1. Explain the importance of striving for total customer satisfaction in marketing planning and implementation. 2.Explain the concept of value and the importance of creating value for customers. 3.Illustrate the concept of Lifetime-Customer Value. 4.Outline and explain the value-adding chain. 5.Explain the concept of bench marking and its application in producing customer satisfaction and company competitiveness. 6.Explain the important features of customer relationship marketing and how it is applied. 7.Explain the concept of performance gap analysis. 8.Outline the steps involved in a marketing effectiveness audit. 6 Ensuring Total Customer Satisfaction & Managing Customer Relationships 6-1

3. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Total Customer Satisfaction Providing a good or service that fully and without reservation conforms to the customer’s requirements. 6 Ensuring Total Customer Satisfaction & Managing Customer Relationships 6-2

4. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Lifetime-Customer Value (LCV) The sum of all future-customer revenue streams minus product and servicing costs, acquisition costs, and marketing costs. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-3

5. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Lifetime-Customer Value Development Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Investment phase StrangerProspectCustomer Loyal, lifetime customer Repeat customer + _ Recoup costs Increasing profit Relationship building Business expansion Reordering, Loyalty generation Figure 6.1 6-4

6. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. An LCV Approach to Marketing Management Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Figure 6.2 Marketing Management (LCV orientation) Acquisition Retention Add-on selling Products Pricing Marketing Communications Distribution Customer management Marketing mix management 6-5

7. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Customer-Based Intangible Resources: Development Paths and Company Value Organizational and Marketing Knowledge Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Figure 6.3 Organizational and Marketing Knowledge Customer Satisfaction Trust Image Loyalty Reputation Relationship Marketing Management (LCV orientation) Source: Michele Costabile, “Customer Satisfaction and Trust into Resource-Based Perspective. Research Propositions Endorsing the Confirmation/Disconfirmation Paradigm,” in Market Relationships, Track 1, ed. Per Andersson (Stockholm: European Marketing Academy, 1998), p. 77. Reprinted with permission. 6-6

8. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Value A subjective term that is defined by the customer; part of customer expectations, which are a combination of cost, time, quantity, quality, and human factors. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-7

9. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Market Challenges for Providing Value Escalating customer expectations Competitive forces Cost pressures Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-8

10. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Value-Adding Chain Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Figure 6.4 CULTURE Norms, values, rituals, and relationships SYSTEMS Operating, Administrative control, and reward PERFORMANCE Employee Behaviour RESULTS Quality, productivity, and service outcomes VALUE Customer satisfaction and competitive advantage Source: Adapted from Jac Fitz-enz, Benchmarking Staff Performance: How Staff Departments Can Enhance Their Value to the Customer (San Francisco: Jossey-Bass, 1993), p. 16. Copyright 1993. This material is used by permission of John Wiley & Sons, Inc. 6-9

11. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Customer’s Views of Value Leaders (1 of 2) Operational Excellence “They provide a great deal” –excellent/attractive price –minimum acquisition cost and hassle –lowest overall cost of ownership “A no-hassles firm” –convenient –consistent quality Performance Superiority “They’re the most innovative” “Constantly renewing and creative” “Always at the leading edge” Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Table 6.1 Source: George Day, adapted from “CSC Index” presentation at ASAC Conference, Lake Louise, May 1993. Reprinted with permission. 6-10a

12. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Customer’s Views of Value Leaders (2 of 2) Customer Responsiveness “Exactly what I need” –customized products –personalized communication “They’re very responsive” –handling of exceptions –inducing/building relationships Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Table 6.1 Source: George Day, adapted from “CSC Index” presentation at ASAC Conference, Lake Louise, May 1993. Reprinted with permission. 6-10b

13. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Benchmarking The comparison of performance with industry best practices. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-11

14. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Requirements for Using Benchmarking as a Tool 1.Know your operation. 2.Know the industry leaders and competitors. 3.Incorporate the best. 4.Develop superiority. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-12

15. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. The Five Stages in the Benchmarking Process 1.Planning 2.Analysis 3.Integration 4.Action 5.Maturity Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-13

16. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Performance Gap The difference between the company’s performance and that of the best of the best. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-14

17. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Marketing Audit A comprehensive appraisal of the organizations marketing activities. It involves a systematic assessment of marketing plans, objectives, strategies, programs, activities, organizational structure, and personnel. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-15

18. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Customer Relationship Marketing (CRM) Identifying and establishing, maintaining and enhancing, and, when necessary, also terminating relationships with customers and other stakeholders, at a profit, so that the objectives of all parties are met, through a mutual exchange and fulfillment of promises. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-16

19. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Customer Satisfaction Management (CSM) A program that focuses on identifying key performance areas to meet or exceed the average customer’s expectations. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-17

20. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Database Marketing Creation of a marketing plan based on the use of database technology to define the characteristics and needs of customers. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-18

21. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. CRM Software Software designed to analyze a customer database and determine customer needs and characteristics. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-19

22. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 Table 6.3 A Relationship View of Marketing 6-20

23. Chapter Copyright © 2003 by Nelson, a division of Thomson Canada Limited. Mass Customization Organizing to make production of products more flexible to meet specifically stated customer requirements. Ensuring Total Customer Satisfaction & Managing Customer Relationships 6 6-21