1. Chapter 3 Building Customer Satisfaction, Value, and Retention

2. Kotler on Marketing
It is no longer enough to satisfy customers. You must delight them.

3. Chapter Objectives
In this chapter, we will address the following questions:
What are customer value and satisfaction, and how can companies deliver them?
What makes a high-performance business?
How can companies both attract and retain customers?
How can companies improve both customer and company profitability?
How can companies deliver total quality?

4. Customer Perceived Value
Is the difference between the prospective customer’s evaluation of all benefits and all the costs of an offering and the perceived alternatives.
Example: Caterpillar & Komatsu

5. Figure 3-1: Determinants of Customer Delivered Value

6. Total Customer Satisfaction
is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (outcome) in relation to his or her expectations.
Customer Expectations
Customers form their expectations from past buying experience, friends and associates’ advice and marketers’ and competitors’ information and promises. (High VS Low expectation).

7. Total Customer Satisfaction
Delivering High Customer Value:
Delivering a competitively superior value proposition aimed at a specific market segment, backed by a superior value-delivery system.
Value proposition: whole benefits a company promises to deliver.
Value-delivery system: all experiences the customer will have on the way to obtaining and using the offering.

8. Table 3-1: Tools for Tracking and Measuring Customer Satisfaction
Complaint and suggestion systems:
Customer satisfaction surveys:
A customer-centered organization makes it easy for customers to register suggestions and complaints. Some customer-centered companies-P&G, General Electric, Whirlpool—establish hot lines with toll-free numbers. Companies are also using Web sites and for quick, two-way communication.
Studies show that although customers are dissatisfied with one out of every four purchases, less than 5 percent will complain. Most customers will buy less or switch suppliers. Responsive companies measure customer satisfaction directly by conducting periodic surveys. While collecting customer satisfaction data, it is also useful to ask additional questions to measure repurchase intention and to measure the likelihood or willingness to recommend the company and brand to others.

9. Table 3-1: Tools for Tracking and Measuring Customer Satisfaction
Ghost shopping:
Lost customer analysis:
Companies can hire people to pose as potential buyers to report on strong and weak points experienced in buying the company’s and competitors’ products. These mystery shoppers can even test how the company’s sales personnel handle various situations. Managers themselves should leave their offices from time to time, enter company and competitor sales situations where they are unknow, and experience firsthand the treatment they receive. A variant of this for managers to phone their own company with questions and complaints to see how the calls are handled.
Companies should contact customers who have stopped buying or who have switched to another supplier to learn why this happened. Not only is it important to conduct exit interviews when customers first stop buying; it is also necessary to monitor the customer loss rate.

10. Total Customer Satisfaction
Measuring Satisfaction:
CSI (Customer Satisfaction Index)

11. Discussion Question
Would you feel more brand loyalty for a company that tried to immediately resolve a complaint via , or a company that had a customer service representative call within two business days to resolve the problem over the phone?

12. The High Performance Business (keys to Success)

13. The Nature of High Performance Business
Stakeholders
Processes
Resources
Core competency
Distinctive capabilities
Organization and Organizational Culture
Organization
Corporate culture
Scenario analysis

14. Discussion Question
Can you name a company that has changed the public’s perception of their corporate culture? Has this effectively rehabilitated that company’s image?

15. Delivering Customer Value and Satisfaction
How can a company creates and delivers superior value?
Understand customer value
Create customer value
Deliver customer value
Capture customer value
Sustain customer value
Value chain: is a tool for identifying ways to create more customer value.

16. Figure 3-3: The Generic Value Chain

17. Delivering Customer Value and Satisfaction
Benchmarks: estimation of the company competitor’s costs and performances against its own costs and performance.
Core Business Processes
The market sensing process
The new offering realization process
The customer acquisition process
The customer relationship management process
The fulfillment management process

18. Delivering Customer Value and Satisfaction
The Value Delivery Network (Supply Chain)

19. Attracting and Retaining Customers
Partner relationship management (PRM):
Building partnering relationship with specific distributors and suppliers to create a superior value-delivery network.
Customer relationship management (CRM):
Managing the detailed information about individual customers and carefully managing all the customer “touch points” with the aim of maximizing customer loyalty.

20. Attracting and Retaining Customers
Attracting Customers: (satisfaction & loyalty)
Computing the Cost of Lost Customers:
Possible causes: high price, shoddy product, poor service, little attention from suppliers …etc).
The solution: Listen to customers

21. On the Lands’ End Web site, customers can click a button to talk with a customer service representative

22. Attracting and Retaining Customers
The Need for Customer Retention:
Listen to the customer and respond quickly and constructively to the complaints.
Acquiring new customers can cost five times more than the costs involved in satisfying and retaining current customers.
A 5% reduction in the customer defection rate can increase profits by 25% to 85% depending on the industry.
Customer profit rate tends to increase over the life of retained customer.

23. Attracting and Retaining Customers
Measuring Customer Lifetime Value (CLV): present value of the stream of future profits expected over the customer’s lifetime purchases.
Customer Relationship Management (CRM): The Key
Customer equity: is the total of the discounted lifetime values of all of the firm’s customers.

24. Three drivers of customer equity
Value equity:
is the customer’s objective assessment of the utility of an offering based on perception of its benefits relative to its costs
Sub-drivers: quality, price, convenience.
Important when the products are differentiated (business markets).
Brand equity:
is the customer’s subjective and intangible assessment of the brand, above and beyond its objectively perceived value.
Sub-drivers: customer brand awareness, customer attitude, customer perception of brand ethics.
Important when products are less defferentiated and have more emotional impact.

25. Three drivers of customer equity (cont.)
Relationship equity:
is the customer’s tendency to stick with brand, above and beyond objective and subjective assessments of its worth.
Sub-drivers: loyalty programs, special recognition and treatment programs, community building programs, knowledge building programs.
Important where personal relationships count for a lot.

26. Figure 3-5: The Customer-Development Process

27. Attracting and Retaining Customers
Five levels of investment in customer relationship building:
Basic marketing: simply sell
Reactive marketing: sell & encourage to call
Accountable marketing: phone and ask for feedback.
Proactive marketing: contact from time to time.
Partnership marketing: work continuously to improve the company performance.

28. Figure 3-6: Levels of Relationship Marketing

29. Attracting and Retaining Customers
Forming Strong Customer Bonds: The Basics
Cross-departmental participation
Integrate the Voice of the Customer into all business decisions
Create superior offering for the target market

30. Forming Strong Customer Bonds: The Basics
Organize and make accessible a database of customer information
Make it easy for customers to reach the appropriate personnel
Reward outstanding employees

31. Forming Strong Customer Bonds: The Basics
Other three retention-building approaches:
Adding financial benefits:
Frequency programs (FPs): awards to customers who buy frequently and substantially (20/80).
Club membership programs: open or limited.

32. Forming Strong Customer Bonds: The Basics
Other three retention-building approaches (cont.):
Adding social benefits: by:
Individualizing and personalizing customer relationship.
Turning Customer into Clients (customers are nameless, part of mass, served by any one).

33. Forming Strong Customer Bonds: The Basics
Other three retention-building approaches (cont.):
Adding structural ties:
Create long-term contracts (newspapers)
Charge a lower price to consumers who buy larger supplies.
Turn the product into a long-term service (transportation instead of car)

34. Measuring Profitability
Customer Profitability, Company Profitability, and Total Quality Management
Measuring Profitability
Marketing is the art of attracting and keeping profitable customer.
20/80 rule and 20/80/30 rule.
Profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing that customer.
Two solutions to handle unprofitable customer: raise fees or reduce service support.
Customer profitability analysis (CPA).

35. Figure 3-7: Customer-Product Profitability Analysis

36. Figure 3-8: Allocating marketing investment according to customer value

37. Increasing Company Profitability
Customer Profitability, Company Profitability, and Total Quality Management
Increasing Company Profitability
Competitive advantage: is a company’s ability to perform in one or more ways that competitors cannot or will not match.
Sustainable competitive advantage (Microsoft)
CA must be seen by customers as a customer advantage (speed of service).

38. Customer Profitability, Company Profitability, and Total Quality Management
Implementing TQM
Total Quality Management: is an organizational wide approach to continuously improving the quality of all the organization’s processes, products and services.
Quality: is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.
Conformance quality VS performance quality (Mercedes & Hyundai).
Product and service quality, customer satisfaction, and company profitability are connected.