Customer Satisfaction, Value and Retention Lecture 2

CPV Total Customer Value Product Value Services Value Personnel Value Image Value Total Customer Cost Monetary Cost Time Cost Energy Cost Psychic Cost Customer Delivered Value

Class Exercise Two Brands: Toyota (Vitz) Suzuki (Alto) Cost / Benefit Analysis Assumptions: Customer concerned lives in Mirpurkhas He is purchasing his car for his office There are no Toyota Dealers/Workshops in Hyderabad Suzuki Alto has a better mileage Toyota has a better re-sale value Toyota is more durable Alto’s initial price is lower than that of Vitz

Class Exercise - Questions 1. Which one would the customer purchase and why? What would be the perceived value? How will you calculate that? 2. Is there a possibility that the buyer might opt for the lower value proposition? Why would he do that? 3. How would you convince the customer to buy your product given you are A. Toyota marketer B. Suzuki Marketer

Concluding Notes Suppose buyer perceives Toyota’s value to be Rs. 6,50,000/- and the Cost of manufacturing, assembling and delivering the car for Toyota is Rs. 5,45,000/- How much of the benefit should be passed on to the customer and how much should be retained by the company as profit?

Customer Satisfaction Satisfaction = Perceived performance – Expected Performance Measures of Satisfaction: 1. Complaint and Suggestion Systems 2. Customer Satisfaction Surveys 3. Ghost Shopping 4. Lost Customer Analysis

Customer Satisfaction Is having satisfied customers enough? Do you have the information needed to make strategic decisions on how to manage your customers? Do you know how you stack up against competitors in the eyes of your customers?

Customer Satisfaction & Value Simply understanding how satisfied your customers are with your services is not enough. A deeper understanding of what customers value is critical to any organization. Understanding the value of an individual customer can be shown to be a significant driver of profitability. Conversely, the customer's perspective of the value you deliver to them is the reason they return, or defect.

Without understanding both sides of the value coin: How will you develop and promote your product/service from a strategic point of view, unless you can incorporate customer feedback indicating what they value? How will you separate high value from low value customers and develop retention strategies? How will you identify acquisition targets or prospects and a strategy for winning them over? How will you allocate scarce resources such as customer service, or special promotions? Will customers simply be satisfied, or will they extract such value that they become loyal evangelists? How will you understand what drives value for customers, and how customers make choice decisions?

Two types of value the value that individual customers bring to your organization and what customers value about your products/services and your organization in general.

Process Definition and Mapping identify all potential client points of interaction or "touch points" and map their contribution to an overall picture of service delivery for your organization

Market Segmentation Develop an approach to segmenting your customers into groups to understand strategic drivers of value

CVM Measurement Leveraging a number of data collection methodologies, collect detailed feedback from your customers. Wherever feasible, collect detailed feedback from your competitors' customers to learn how you are positioned in the competitive landscape

Unlocking the drivers of value provides the key to realizing many internal and external gains. Specific benefits that clients have realized include: clear vision of your competitive value position, and how choice decisions are made tools to manage your customer base optimization of resource allocation facilitates customer attractiveness, strategy and scenario planning Other benefits of CVM include: lower customer turnover better competitive customer targeting better marketing ROI Benefits

Nature of High Performance Business Stakeholders Processes Resources Organization Set Strategies to Satisfy Key Stakeholders …by improving critical business processes …and aligning resources and organization

Core Competency? Is a source of competitive advantage and contributes significantly to the perceived customer benefits Has a breadth of applications to a wide variety of markets It is difficult for competitors to imitate

Delivering Customer Value and Satisfaction Understanding Value Creating Value Delivering Value Capturing Value Sustaining Value Value Chain + Value Delivery Networks

Value Chain Firm Infrastructure Human Resource Management Technology Development Procurement Support Activities Primary Activities Inbound Logistics OperationsOutbound Logistics Marketing and Sales Service Margins

Value Delivery Network OrderDelivery Order Delivery DuPont - Fibers Milliken & Company - Fabric Levi’s - Apparel Sears - Retail Customer

Cost of Lost Customers Question 1. A Company has 64,000 customer accounts 2. It loses 5% of its accounts due to poor service 3. The average lost account represented $40,000 of lost revenue 4. The company’s profit margin is 10% 5. How much did the company lose in actual value due to its lost accounts?

Cost of Lost Customers 1. Define and measure the retention rate 2. Identify causes of customer’s attrition and determine those that can be improved on 3. Determine how much is lost in terms of profits 4. Figure out how much it would cost to reduce the attrition rate 5. Calculate if it will be feasible to attempt reducing the attrition rate 6. Listen to the Customer

Interesting Facts about Customer Retention 1. Acquiring customers can cost up to five times more than the cost of retaining a customer 2. Companies lose 10% of their customers each year on an average 3. A 5% reduction in the customer attrition rate can increase profits by 25% - 85% depending on the industry 4. The customer profit rate tends to increase over the life of a retained customer

Customer Lifetime Value (CLV) CLV is the PRESENT VALUE of the stream of future profits expected over the customer’s lifetime purchases Example: Cost of an avg. sales call$300 Avg. no. of sales calls to convert a prospect into a customer4 Cost of attracting a new customer = $1200

Customer Lifetime Value (CLV) Annual Customer Revenue$5000 Avg. No. of loyal years 2 Company profit margin 0.10 CLV$1000