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Customer Satisfaction Value and Retention

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									Customer Satisfaction, Value,
and Retention
Recall:
   When offerings deliver value and satisfaction to the
    buyer, they are successful.
   Value = Benefits/Cost ($, time, energy, psych)


   How can value be enhanced?
       Raising benefits.
       Reducing costs.
       Raising benefits while lowering costs.
       Raising benefits by more than the increase in costs.
       Lowering benefits by less than the reduction in costs.
    Customer Value
   How do customers make their value-based choices?

   Customers seek to maximize value by:
       estimating which offer (product/firm) delivers the most value
        (Within their limits of knowledge, mobility, and income,
        customers are value-maximizers)
       forming an expectation of value and acting upon it (purchase)
       evaluating their usage experience against the expectations


   Implication: Firms need to understand expectations and
    deliver value
Customer Value
  Determinants of Customer Delivered Value
             Each component is critical
    Scenario
   A Xerox salesperson is working with a client
    who is debating the purchase of a photocopier
       Choices are either Xerox or Canon
   Assume Xerox delivers better value. Ideally,
    the client examines total benefits & cost
    associated with each brand and choose Xerox
   But, what if the client chooses the brand which
    delivers lower value?
       Based on your understanding of value formation,
        recommend strategies to the salesperson to “win”
        the sale in the following scenarios
Scenario
   The buyer is focused on lowest price,
    regardless of delivered value
       Convince the buyer that price sensitivity may
        harm long term profit
   The buyer will retire/resign before realizing
    that Canon is more expensive to operate
       Demonstrate Xerox delivers long-term value;
        Convince other people
   The buyer and the Canon salesperson are
    buddies
       Convince buyer that Canon may draw
        complaints because of poor product value and
        need for repairs/maintenance
Customer Satisfaction

   Satisfaction is defined as . . .
    “a person’s feelings of pleasure or
      disappointment resulting from comparing a
      product’s perceived performance (or
      outcome) in relation to his or her
      expectations.”
     i.e., Performance - Expectation

   Satisfaction results when expectations
    are equaled or surpassed.
Customer Satisfaction

   High satisfaction triggers re-purchase
    intentions and emotional attachment
    with the brand (i.e., loyalty)
       Xerox found that “completely satisfied”
        customers are SIX times more likely to
        repurchase than less satisfied customers
    Customer Satisfaction
   Remember:
       Satisfaction = Expectations – Performance
       How are expectations set?
   Develop a sound value proposition
       i.e., a promise of value
       Or, a summary of consumption experience
   To maximize satisfaction . . .
       Don’t exaggerate the product / service’s capabilities in
        advertising or other communications
           Dissatisfaction will result
           FTC may become involved
       Don’t set expectations too low
           Market size will be limited
Examples
   Walmart - everyday low prices
    BMW - the ultimate driving machine
    7up - the uncola
    McDonald's - consistency
    Domino's pizza - fast delivery
    Google - fast, extensive searches

   Good - Krispy Kreme- "Hot Donuts" (who would have
    thought?)
    Bad - Panera Bread - Gourmet Bagels (is there such a thing?).
    Ugly - Carl's Jr. Hamburgers - "If it doesn't get all over the
    place, it doesn't belong in your face"
But…

   Is it possible or even worthwhile to
    spend resources to keep all customers
    satisfied?
High Performance Businesses
How to retain customers?
   96% of dissatisfied customers do not
    complain!!!
       They simply stop buying or defect
   So, make it easier for customers to complain
       Set up toll free numbers, suggestion forms, e-
        mail, etc…Listen and Respond
           3M: 2/3rd of product improvement ideas come from
            customer complaints
           54-70% of those who complain will buy again if
            complaint resolved
           95% of customers who complain will buy again if
            complaint resolved quickly
                                                 R. Best, Market-Based Management, 2005.



        Customer Satisfaction and Retention

                                                    75% Retained     3
                                 4% Complain
                                                      25% Exit       1
     100 Dissatisfied
       Customers                                    5% Retained
                                     96%                             5
                                   Do Not
                                   Complain
                                                   95% Exit         91

Each of the 100 dissatisfied customers tells 8 to 10 other         100
people of his or her dissatisfaction. This word of mouth
makes both retention of existing customers and acquisition of
new customers very difficult.
Customer Retention
   On average companies lose 10% of
    customers every year



       By reducing defection by even 5%, profits go up
        by 25-85% depending on the industry
Customer Development Process
Customer Retention
   Reducing customer churn (defection) is
    highly desirable
       Define and measure retention rate
       Identify causes of attrition
       Estimate profit lost from customer defection
        (customer lifetime value)
       Estimate cost to reduce defection; take
        appropriate action
           One study says it costs six times more to win new
            customers than to retain existing customers
      Lifetime Value of a Customer in
      the Credit Card Business

                       $60
Credit Card Customer



                                                                    55
                                                            49
                                              42     44
Average Profit Per




                       $40
                                       30
                       $20

                        $0

                       -$20

                       -$40
                               -51
                       -$60
                                0      1      2      3       4      5
                                       Years Customer Retained


                              R. Best, Market-Based Management, 2005.
Strong Customer Bonds?

   Adding Financial Benefits
       Frequency programs, Club memberships
   Adding Social Benefits
       Personalize customer relationships
   Adding Structural Ties
       Create long-term contracts
       Charge less for ongoing purchases
       Link product to long-term service
Industry Examples

   Federal Express Corporation
       categorizes business customers
        internally as the good, the bad, and the
        ugly-based on their profitability.
       Rather than marketing to all customers in
        a similar manner, the company now puts
        its efforts into the good, tries to move the
        bad to the good, and discourages the
        ugly.
Industry Examples

   First Union, the sixth-largest bank in the
    U.S., codes customers by color squares on
    computer screens using a database
    technology known as "Einstein."
       Green customers are profitable and receive
        extra customer service support while red
        customers lose money for the bank and are not
        granted special privileges such as waivers for
        bounced checks.
 20 – 80 – 30 Rule

20 20% of your customers
 80 Generate 80% of your profit
  30 Half of your profit is lost
          serving the bottom 30%
          of your customer base
Implications of 80/20 rule

   Increase share of customer rather
    than market share
   Serve current customers rather
    than focus on acquiring new
    customers
Customer Relationship
Management (CRM)
   Customer Relationship Management
    (CRM):
       “A holistic process of identifying, attracting,
        differentiating, and retaining customers.”

   CRM Stakeholders:
       Employees
       Supply Chain Partners
       Lateral Partners
       Customers
Paradigm shift from acquiring
“customers” to maintaining “clients”
“The Relationship People”
                               Quality

   Quality: totality of all features and characteristics of
    product or service that satisfy stated or implied
    needs.
   Understanding the Role of Quality
       The core product is not enough
       Supplemental products are critical
   Delivering Superior Quality (four issues)
       Understand customers’ expectations, needs, and wants
       Translate customer research into specifications for quality
       Deliver on specifications
       Promise only what can be delivered
Quality and Total Product Offering
        Summary: Retaining Customers
        Over the Long Term
   Satisfaction vs. Quality vs. Value
       Expectations

   Customer Satisfaction and Customer Retention
       Understand what can go wrong
       Focus on controllable issues
       Manage customer expectations
       Offer satisfaction guarantees
       Make it easy for customers to complain
       Create loyalty programs
       Make customer satisfaction measurement an ongoing
        priority
Examples of Satisfaction Guarantees

								
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