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Lecture 4: Building Customer Satisfaction & Loyalty;
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Lecture 4
Building Customer Satisfaction And Loyalty
Objectives
At the completion of this lecture, you should be able to:
Define customer value, satisfaction and loyalty;
Understand the concept of CLV and describe how this can be
maximised;
Discuss how companies can retian as well as attract new
customers; and
Discuss how companies can cultivate strong customer
relations.
Commentary
Customer satisfaction is the outcome felt by buyers who have
experienced a
company performance that has fulfilled expectations. Customers
are satisfied when
their expectations are met and delighted when their expectations
are exceeded.
Satisfied customers remain loyal longer, buy more, are less
price sensitive, and talk
favourably about the company.
A major challenge for high-performance companies is that of
building and
maintaining vaible business in a rapidly changing marketplace.
They must recognize
the core elements of the business and how to maintain a viable
fit between their
stakeholders, proecesses, resources, and organizaion
capabilities and culture.
Typically, high performing business develop and emphasise
cross-functional skills
rather than functional skills (overall project management and
resutls versus
Essential Reading
Textbook: Kotler et al (2009)., Chapter 5.
Optional Reading
Reading 4.1: Payne, A., & Holt, S. (2001). Diagnosing
customer value: Integrating the value
process and relationship marketing. British Journal of
Management, 12, 159-182
Reading 4.2: Prahalad, C. K., & Ramaswamy, V. (2000,
January-February). Co-opting customer
competence. Harvard Business Review, 79-87
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faunctional strengths(best marketers, and so on)). They also
build their resources
into core capabilities that become core competencies,
distinctive abilities and
competitive advantages. This along with a corporate culture of
shared experiences,
stores, beliefs and norms unique to the organizaiton are the
keys to their success.
To create customer satisfaction, companies must manage their
value chain (the
concept of the value chain is discussed further in the next
topic) as well as the
whole value delivery system in a customer-centred way. The
companys goal is not
only to get customers, but even more importantly, to retain
customers. Customer
relationship marketing provids the key to retaining customers
and involves
providing financial and social benefits as well as sturctural
ties to the customers.
Companies must decide how much relationship marketing to invest
in different
market segments and individual customers. Much depends on
estimating customer
lifetime vlaue against the cost required to attract and retian
these customers.
Importance of Customer Value
In an era where customers are offered a smorgashord of products
and services to
choose from, it is important for organization to understand that
consumers make
choices based on a bundle of attitudes, perceptions,
expectations, emotions and
prior knowledge relevant to a particular purchase situation.
This issue of consumer
behaviour was covered in the previous lecture.
Business succeed by getting, keeping and growing customers.
Without customers, you dont have business.
See figure 5.1, p. 117
Figure explains traditional chart and modern customer-oriented
organization
chart.
Managers at every level must be personally involved in knowing,
meeting &
serving customers.
Customer advocacy strategy can bring the competitive
advantage.
Customer expect companies to connect with them, satisfy them
& delight
them, but also listen to them.
CompUSA, Customer Review on website, 20,000 more customers,
50%
increased sale.
Successful companies are the ones that fully satisfy their
customers
profitably.
Make your customer the center of your culture. CEO of Cisco
Read HP & Dell example in p. 117.
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Dell offered low cost computers, Filipino & Indian call
center, poor service,
call waiting, call transfer, no toll free numbers. Result?
Market share
declined.
Dell Confessed The team was managing cost instead of managing
service &
quality.
Educated customers have the tools to verify companies'
claim.
Customer Perceived Value(CPV)
In this lecture, we try to understand the determinants of
customer value and
satisfaction. Customer delivered value is the difference between
total customer
benefit and total customer cost. Customers will normally choose
the offer that
miximises the delivered value. A simple way of remembering this
is the formula:
CPV = Benefit Cost
CPV is the difference between the prospective customers
evaluation of all
the benefits & all the costs of an offering & perceived
alternatives.
Marketer can increase the CPV by offering some combination of
raising
economic, functional or emotional benefits and/or reducing one
or more of
the various types of costs.
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See the figure 5.2, p. 117
Kotler et al. (2009) argue that buyers will buy from the firm
that they percieve to
offer the highest customer delivered value. At the heart of the
concep of customer
delivered value are the following.
1. Total customer benefit: the bundle of benefits customers
expect from a given
product or service.
2. Total customer cost: the bundle of costs customer expect to
incur in
evaluating, obtaining and using the product or service.
In determining which organization offers the highest customer
delivered value,
customers would examine the relationship between customer cost
and perceived
value to help determine which product offering is the most
favourable. What is
important to note is that the customer and not the market
ultimately determines
customer value.
Applying Customer Value Concept
Read the example of Caterpillar & Komatsu, p. 118
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Competing salesperson explains their respective offers.
Buyer wants reliability, durability, performance & resale
value (Product
benefit). Caterpillar tractor has these benefits.
Buyer wants services, delivery, training & maintenance
(service benefits).
Caterpillar has these service benefits.
Caterpillar has knowledgeable & responsive personnel
(personnel benefits).
Caterpillar has strong corporate image & reputation (Image
benefits).
Now buyer adds up all these benefits & perceives Caterpillar
deliver greater
customer benefits.
Will buyer go for Caterpillar tractor?
Buyer will examine total cost of tractor.
Buyers total cost includes time, energy & psychological
costs expended in
product acquisition, usage, maintenance, ownership &
disposal.
Buyer adds up all these costs together with monetary costs to
form a total
customer cost.
If total customer cost is higher than total customer benefit,
then buyer might
choose Komatsu.
Lets help Caterpillar to sell its tractor.
First, increase benefits by improving economic, functional &
psychological
benefits of its tractors, services, personnel & image.
Second, Reduce non-monetary cost by reducing time, energy
&
psychological costs.
Third, reduce tractors monetary costs.
Choices & Implications of Customer Value Concept
1. The buyer might be under orders to buy at the lowest price.
Salesperson
need to convince that buying on price will result in lower
long-term profits.
2. If buyer is not convinced, then salesperson should convince
other people in
the company that Caterpillar delivers greater CPV.
3. The buyer enjoys long term friendship with the Komatsu
salesperson.
Salesperson need to show that Komatsu tractor will draw more
complaints
from operators when they discover its high fuel cost & need
for frequent
repairs.
Customer Satisfaction
Satisfaction is a persons feelings of pleasure or disappointment
resulting from
comparing a product perceived performance (or outcome) in
relation to his/her
expectations.
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Note the following,
If performance is below expectations then customer
dissatisfaction occurs.
If performance matches expectations then satisfaction
occurs.
If performance is greater than expectations then the customer is
highly
satisfied.
Creating high customer satisfaction (CS) is not ultimate goal
for a company.
Company can increase CS by lowering price. Low profit.
Spending more to increase CS might dis-satisfy Stakeholders.
Company must operate on the philosophy that it is trying to
deliver a high level
of customer satisfaction subject to delivering acceptable levels
of satisfaction to
the other stakeholders.
Read the example of the Orchid-an ecotel Hotel, p. 120 &
Kingfisher Airlines,
p. 121.
o Orchid Hotel delivers eco-friendly materials to its
customers.
o Kingfisher treats its customer as guests providing brand new
fleet
with charming crew & latest technology.
Ultimately, the challenge for any organization is how to
evaluate dynamic customer
expectations, and how to design and develop value propositions
that best suits a
particular market segment. To achieve the former, marketers need
to know more
about their customers. Hence the growth in CRM database which
provide marketers
with minute details on their customers. The aim of this
information is to provide
marketers with the knowledge to understand their customers
better and ultimately
develop products and services that satisfy their customers.
The growing realization that customer satisfaction is of
increasing importance is
highlighted by the fact that many leading organizations measure
their customer
satisfaction using it as a barometer to indicate the companys
standing in the
marketplace. However, you must never forget that increasing
customer satisfaction
comes at a cost.
Measuring Customer Satisfaction
It is crucial that organization monitor satisfaction levels as
they are an important
driver of customer retention. Companies need to monitor customer
loss rates,
competitors performance in delivering satisfaction, products and
service quality,
and internal staff morale as poor morale affects the capacity of
organizations in
delivering value to external consumers.
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A highly satisfied customer stays loyal longer, buys more, good
mouth, less
attention to other brands.
Greater CS linked to higher returns & low risk to stock
market.
Several ways to monitor CS: Periodic Survey, Customer loss rate,
Mystery
Shoppers.
Customer Complaints
Tallying complaints is not enough.
95% customers feel complaining is not worthy, or they do not
know how or
whom to complain.
54%-70% customer will do business again if their complaint is
resolved.
The figure can be up to 95% if customer feels the complaint was
resolved
quickly.
Dissatisfaction spreads quickly, exponentially.
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Ways to complain: Suggestion forms, toll-free numbers, Web sites
& email.
Procedure to recover goodwill:
Set up 7-day, 24-hours toll free hotline
Contact the complaining customer
Accept the responsibility & dont blame customer.
Use empathetic customer service people
Resolve complaints quickly
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Product & Service Quality
Quality: Fitness for use., Conformance to requirements., Freedom
from
variation.
Definition: Quality is the totality of features and
characteristics of a product
or service that bear on its ability to satisfy stated or implied
needs.
A quality company satisfies its customers needs most of the
time.
Difference between conformance & performance quality. A
Lexus provides
higher performance quality than a Hyundai. Yet we can say that a
Lexus and
a Hyundai deliver the same conformance quality if all the units
deliver their
respective promised quality.
How marketers can improve quality?
Correctly identify the needs
Communicate customer expectations properly to product
designers.
Customers orders are fulfilled correctly and on time.
Customers have received proper instructions, training and
technical
assistance in the use of the product.
Stay in touch with customers after the sale to ensure that they
are
satisfied and remain satisfied.
Gather customer ideas for product and service improvements
and
convey them to the appropriate departments.
Acquiring and Retaining Customers
In an environment where customers are increasingly hard to
please, the challenge
is to produce delighted and loyal customers. Organizations have
to balance the cost
of acquiring customers. Customer churn is a particular problem
in a number of
industries such as mobile telecommunications, subscription TV
(pay TV) and
internet service providers. Historically, many organizations
focused on acquiring
customers and paid less attention to the challenge of retaining
customers. CRM
software has been used increasingly within organizations to
nurture and manage
customer relations.
Relationship Marketing
The above discussion brings us to another marketing buzzword,
relationship
marketing. Essentially, relationship marketing is concerned with
attracting
customers, retaining customers, and eventually ending up in a
mutually beneficial
long-term relationship between the customer and the company.
Under a traditional approach the focus of marketing is on:
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The one off sale,
A shorter time scale,
Infrequent contact,
Emphasises product features,
Little emphasis on customer services,
Quality is seen as the responsibility of
production team.
By contrast the focus of a Relationship Marketing approach is
on:
Retaining the customer,
Longer time scale,
Continuous customer contact,
Focus on Customer value,
High focus on customer service,
Quality is seen as the responsibility of all staff.
CRM is the process of carefully managing detailed information
about individual
customers and all customer touch points to maximize customer
loyalty.
A customer touch point is any occasion on which a customer
encounters the
brand and product.
CRM provide real time customer service.
There are a variety of ways a company can enhance its
relationships with its
customers. They can use CRM systems to reveal information on
customer
preferences and past purchases then use this data to design a
customised offering
tailored to the customers needs. Customer loyalty programs, such
as Fly
Buys(Coles) or Frequent Flyer schemes (Quantas, etc.) are
examples of
companies attempting to maintain an on-going relationship with
their customers
and discourage brand switching behaviour. Nowadays you can
become a fan of
brands and products and add these to your Myspace or Facebook
profiles. You can
sign up on the company website to a members club and receive a
range of benefits
such as newsletters, product updates, special offers and
invitations to promotional
events. All these are relational techniques which try to
engender your loyalty to the
company and the product. But you need to think why you would
want to have a
relationship with the company that makes your razor blades or
butter! Consumers
only want a relationship with a company where it provides some
form of extra value
or saves time and eliminates inconvenience. So if you have to
regularly use rental
cars in your job, you may well appreciate a special relationship
with the company
READ
Reading 4.2: Prahalad, C. K., &
Ramaswamy, V. (2000, Janurary-
February). Co-opting customer
competence. Harvard Business
Review, 79-87
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as it may provide you with special services such as priority
check-in, discounted
hire rates and vehicle upgrades.
A four-step framework for one-to-one marketing:
Identify your prospects & customers: Dont go after
everyone.
Differentiate customers in terms of their needs and their value
to your
company.
Interact with customers to improve your knowledge about
their
individual needs and to build stronger relationship.
Customize products, services, & messages to each customer:
Facilitate
customer-company interactions.
Customer Centricity
Ultimately, customer centricity is what drives extraordinary
profiles and long-term
success. As Prahalad & Ramaswamy (200) suggest in Reading
4.2, this notion
embraces the idea that the customer is always right by
identifying that
organizations that tap into the minds of their customers and
actually involves them
in the production of the product, will ultimately be more
profitable.
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Conclusion
An understanding of the critical role of customer value is one
of the key factors in
organization success and prosperity. While markets can design
value proposition
statements for the products and services they market, ultimately
the consumer has
the final say whether the product represents an acceptable
trade-off between the
investments and sacrifices they have made relative to the
derived benefits they
realize from the exchange CRM systems potentially have the
capacity to enhance
the management of customer relations and identification of
customer value.
However, it is critical that these systems are used more than as
a customer
information storage facility. IT hardware and software can nor
replace authentic
human interaction.
References
Kotler, P., Keller, K. L., Koshy, A. & Jha, M. (2009).
Marketing Management: A
South Asian Perspective (13th Ed.). Pearson Education,
Delhi.
Varey, R. J. (2002). Relationship Marketing: Dialogue and
Networks in the E-
Commerce Era. Chichester: John Wiley and Sons.
Prepared by
Zaved Mannan Adjunct Faculty
University of Liberal Arts Bangladesh (ULAB)