BOLSTERING CUSTOMER LOYALTY

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					 Building Customer Focus and Loyalty



Building Customer Focus and Loyalty

                John A. Daly
            University of Texas
               (512) 471-1948
           daly@mail.utexas.edu

                   Loyalty             1
   Building Customer Focus and Loyalty

I. The centrality of service
 - The central place of service in the workplace
 - The values of service
    1. People long remember poor service
    2. Business decisions are based upon service
       quality…and the customer, not the provider, defines
       quality and value


                             Loyalty                         2
  Building Customer Focus and Loyalty

- The values of service (cont'd)

   3. People tell others about service experiences
   4. Service is about people serving other people
   5. All it takes is one failure




                             Loyalty                 3
    Building Customer Focus and Loyalty
- The core principle of service:

    - People never buy a product, they buy what the product does for
       them—the result…the experience
    - Fall in love with what the customer values; what sorts of
       memories do you want your customers to walk away with?


Microsoft (pre 2000): “A computer on every desk and in every home”
Microsoft (2000-): “Empower people through great software anyplace,
                     anytime, and on any device”



                                 Loyalty                               4
Building Customer Focus and Loyalty

“What a customer buys and considers value is never just a product. It is
  always a utility, that is, what a product or service does for him” You solve
  customer problems
              - Peter Drucker, 2001


- The biggest question: If you were gone, what would your
  customers sorely miss?
  _____________________________________________________
  _____________________________________________________
  _____________________________________________________
  _____________________________________________________
  _____________________________________________________



                                      Loyalty                                    5
Building Customer Focus and Loyalty




  Defining Customer Focus




                Loyalty               6
   Building Customer Focus and Loyalty

II. Defining customer service
 A. Service focuses on your customers' expectations

                                        Deliver
    1. Service Quality =              -------------
                                      Expected

             Values:       < 1.0
                                       1.0
                                               > 1.0
                            Loyalty                    7
     Building Customer Focus and Loyalty

II. Defining customer service (cont'd.)
What do your                                             Are you exceeding
customers expect?                                        those expectations?

___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting
___________________________________   Exceeding    Meeting   Not Meeting


                                         Loyalty                               8
Building Customer Focus and Loyalty

2. Enhancing Service Quality


  a. Focus on deliverables
                                                               D
                                                               __
                                                               E
          - product deliverables
      You'll never win by competing on product deliverables; you
      have to have them, and they have to be good, but don't think
      they are everything



                              Loyalty                                9
Building Customer Focus and Loyalty
 2. Enhancing Service Quality (cont'd.)
    a. Focus on deliverables (cont'd.)
             - process deliverables
                    - processes allow or preclude great service

  Great             - redesign processes—the key is
 Systems                customer-centered redesign
 Make You               •   worry about the white spaces
                        •   search out root causes
Look Smart
                        •   manage optimization problems
                        •   understand the system



                               Loyalty                            10
Building Customer Focus and Loyalty
2. Enhancing Service Quality (cont'd.)
          psychological biases
   • segment the pleasures and collapse the pain
       – Separate gains--never wrap all the presents in one box
       – Separate small gains from big losses—grocery store notes how you
         saved $3.23 on a $70 bill
       – Consolidate losses—get it over with at once
       – People experience more pain from a loss of X than happiness from a
         gain of X—bad emotions feel worse than good emotions
       – People prefer a small certain gain over a larger risky gain; people
         will risk a large uncertain loss rather than accept a certain smaller
         one---insurance is sold not as a buffer against unpredictable losses
         but as a way to protect what you possess
       – People are comfortable with buy now/pay later
       – Giving up something is worse than never having it in the first place
   • recency effect

                                Loyalty                                     11
   Building Customer Focus and Loyalty

Eliminate the “White Spaces” Get Rid of the Hand-Offs




                               Loyalty                  12
    Building Customer Focus and Loyalty

   The Check-In Challenge: Consider the Entire Experience


Time 1                        Time 2
                              Guest arrives at airport      25 min
Guest enters hotel            Guest enters hotel
                     12 min                                 4 min
Guest gets key                Guest gets key                6 min
                              Guest is in room




                                Loyalty                              13
   Building Customer Focus and Loyalty
Link Customer Loyalty to Supply Chain

  “Companies that leverage their collaborative supply chains with a deep
  understanding of their loyal customers…are nearly 70% more profitable [than those]
  companies that perform below average on both supply chain collaboration and
  customer loyalty.”
                                      Deloitte Consulting, 2000




            Supply Chain                        Customer Relation
            Management                            Management




                                      Loyalty                                     14
Building Customer Focus and Loyalty
         Focus on the Entire Experience
• Customer receives catalog
• Customer can easily find product
• Customer can easily find telephone number
• Customer’s call is promptly answered
• Customer doesn’t have to go through too many links
• Customer’s exchange is speedy, pleasant, and informative
• Customer’s concerns and problems are quickly resolved
• Customer’s order to available
• Customer’s order is packed neatly and safely
• Customer’s address is correct
• Customer’s package is promptly mailed


                            Loyalty                          15
Building Customer Focus and Loyalty

2. Enhancing Service Quality (cont'd.)
   a. Focus on deliverables (cont'd.)


           - service ("people") deliverables

              It's almost impossible to "clone" service attitudes; this is the
              true competitive advantage




                               Loyalty                                           16
   Building Customer Focus and Loyalty

                                               Value Delivery Mode

                                           Through                        Through
                                           Product                        Service

                                            Quality                       Supply
                 Consistency
                                            Control                      Reliability

                                                                       Application
Value Creation   Customization            Matching
                                                                       Knowledge

                                                                      Taking on
                  Packaging              Packaging
                                                                    Responsibility

                                         Hill, McGrath, & Dayal, Strategy & Business, 1998
                               Loyalty                                                       17
Building Customer Focus and Loyalty

2. Enhancing Service Quality (cont'd.)
                                                                      D
                                                                      __
   b. Focus on expectations
                                                                      E
 - manage your customer's expectations

   KEY: when possible, choose your customers; there are some customers
    you don't want; the customer may not always be right, but the customers
    you choose to do business with are right!
     - Target customers who share your values and who are profitable
       to your organization
     - If possible, consider focusing on improving services to satisfied
       customers rather than always worrying about the dissatisfied
       customers
     - You cannot get everyone to like you, so focus on those who like
       you
                                Loyalty                                       18
Building Customer Focus and Loyalty
2. Enhancing Service Quality (cont'd.)
   b. Focus on expectations (cont'd.)


   - manage your customer's expectations (cont'd.)

        KEY: never oversell; underpromise and overdeliver
          But...you cannot underpromise too much...and...you should
          regularly exceed so that when you can't, people will forgive

        KEY: beware of being slaves to customer expectations
          An innovative organization exceeds customer expectations
          both by being responsive and creative; learn to create
          expectations
                                  Loyalty                                19
Building Customer Focus and Loyalty
                                  Massively interdependent; Repeat business;
       Customer Loyalty               Higher margins; Strong data base

                                    Deeply understand customers; What
       Customer Value                 benefits are we providing them?


  Customer Satisfaction        Assess satisfaction; Tie to compensation


   Customer Focus          Know our customers: Who’s profitable to us?


Customer Awareness        Product centered; Who are our customers?




                                        From Cooper, CRM Magazine, Nov, 2001

                              Loyalty                                          20
Building Customer Focus and Loyalty
3. Challenges of service
    a. The awareness issue
       - Who is your customer?
           - with some exceptions, the ultimate customer is always the
             "end-user“
       -How satisfied is your customer? How do you know?
         Collect and study data, not opinions!!!
       -What does the customer expect?
           - learn to ask
           - be careful of internal standards
           - Know what matters to customers
       -What drives satisfaction?
                                 necessarily causal
           - correlations are notLoyalty                                 21
Building Customer Focus and Loyalty
3. Challenges of service

    b. The progressiveness issue

       - Whatever is special today won't be special tomorrow
       – Handling the progressiveness issue
          » Assess true TCO (Total Cost of Ownership)
          » Evaluate long-term satisfaction potential
          » Understand necessary affinities (if offer X then Y is
            necessary)



                            Loyalty                                 22
Building Customer Focus and Loyalty

3. Challenges of service (cont'd.)
  c. The responsibility issue

       - Who is responsible for service? the best service you provide is a
          function of the least service oriented individual you have!

       - How you treat your "people" shapes how they treat the customers—
          we learn how to work with others by the way people treat us

       - Always remember your internal customers—they make everything
          possible—the quality of their service shapes the quality of service
          external customers receive




                                Loyalty                                         23
Building Customer Focus and Loyalty


          Why Customer Focus?

“Inside an organization, there are only cost centers. The only profit
       center is a customer whose check has not bounced”
                        Peter Drucker, 2001




                                     Loyalty                            24
  Building Customer Focus and Loyalty

B. Service has big payoffs

1. The financial rewards of service are incredible
      a. Why marketing is only part of the story in the private
        sector



           new                                    switch



                               Loyalty                            25
Building Customer Focus and Loyalty
Why retention matters
                                                                  Ideas & Suggestions
                                                                  for Improvements

                                                                  Word of mouth

                                                                 Reduced oper-
                                                                 ating costs
                                                                  Price premium*

                                                                  More purchases

                                                                  Base profits

            Acquisition costs
                                   time
                            *Long established customers are less price sensitive
                                Loyalty                                            26
          Defensive   Volume of
          Marketing   Purchases

                        Price
          Customer    Premium      Margins
          Retention   Operating
                       Costs
Service               Word of
Quality               Mouth         Profits
                       Market
                       Share

                      Reputation     Sales
          Offensive
          Marketing     Price
                      Premium      Zeithami, J Acad Mark Sci, 2000
   Building Customer Focus and Loyalty

B. Service has big payoffs (cont'd.)
   1. The financial rewards of service are incredible

       b. The cost of poor service
          - complaints and their value
              - less than one-third of unhappy customers complain to
                service providers


      c. Calculate the LVC (Lifetime Value of Customer)
          - what it the cost of acquiring a new customer versus obtaining
          another purchase from an existing customer

                                    Loyalty                                 28
   Building Customer Focus and Loyalty

B. Service has big payoffs (cont'd.)
   1. The financial rewards of service are incredible

       d. Focus on downward migration
          Most customers don’t leave initially. Instead they migrate
          downward reducing their purchasing. Catch them and save them!


          The reason for customer focus is so you won’t be surprised when
          customer change—you want to know it before anyone else




                                    Loyalty                                 29
   Building Customer Focus and Loyalty
                     Satisfied with product

                    Vulnerable              Loyal
                     customer              customer

Dissatisfied with                                                    Satisfied with
  relationship                                                        relationship
                    Saboteur                 Hopeful
                    customer                customer


                    Dissatisfied with product
                                              From eLoyalty in Customer Relationship Management, July 2000


                                 Loyalty                                                                     30
   Building Customer Focus and Loyalty
B. Service has big payoffs (cont'd.)
   2. Better employee satisfaction
      a. Reduced Turnover                    Better Under-
                                              Standing of
                                                 Tasks

                  Better
                Knowledge
               Of Customers
                                         Reduced             Enhanced
                                         Turnover            Teamwork


                                Better Grasp
                              Of Organizational
                                   Goals

                               Loyalty                                  31
   Building Customer Focus and Loyalty


                                     Higher
                                   Productivity

 Employee       Employee                                 Organizational
Satisfaction   Commitment                                  Success
                                     Positive
                                    Customer
                                    Orientation

                            Internal          External


                               Loyalty                                    32
  Building Customer Focus and Loyalty

B. Service has big payoffs (cont'd.)

   3. Marketing advantage
      a. Word of mouth
      b. Advertising

  4. Service is key to quality
       Customer driven quality is critical…but there are things customers don't know.
       Let customers define what they expect but continually try to innovate even
       beyond where customers imagine you should be.




                                       Loyalty                                          33
Building Customer Focus and Loyalty



  Achieving Customer Focus?

“There is only one valid definition of business purpose: to create a
                             customer”
                        Peter Drucker, 2001




                                   Loyalty                             34
   Building Customer Focus and Loyalty

III. Achieving outstanding customer loyalty

 A. Outstanding service providers are attentive
    and responsive

    1. Act attentive
       - acting attentive, being polite, demonstrating friendliness
          and courtesy




                                Loyalty                               35
   Building Customer Focus and Loyalty

A. Outstanding service providers are attentive
   and responsive (cont'd.)
    2. Be responsive
       - Use technology to systemize service (GE Turbine)
       - See things from the perspective of the customer
         what matters to you might not matter to the customer

       - Focus on the concerns of your customer; it is absolutely
          critical to understand the "values" of your customer


                                 Loyalty                            36
Building Customer Focus and Loyalty

Grasp the "values" of your customer; Different customers
have different major "values"

Customer____________ Customer____________ Customer____________
       _____________         ____________         ____________
       _____________         ____________         ____________
       _____________         ____________         ____________




                            Loyalty                              37
   Building Customer Focus and Loyalty

Shopping
                                              Economic
Orientations        Recreational              Consumer
                     Shopper

                                Identifying
                                 Shopping
               Apathetic          Types           Personalized
               Consumer                            Consumer


                                 Ethical
                                Consumer

                           Loyalty                               38
   Building Customer Focus and Loyalty
Shopping Motives for
Recreational Shopper
                             Thrill of              Social
                            the Chase             Experience


                                       Understanding
                                        Recreational
                       Instant           Shopping         Sharing
                       Status                            Common
                                                         Interests

                                       Interpersonal
                                         Attraction

                             Loyalty                                 39
   Building Customer Focus and Loyalty

Know Who Your Core Customer Is

Nike           Not the Spectator               Aspiring Athlete
SW Airlines
      Sports   Not the corporate traveler      Fly for Cheap
Starbucks      Not the casual coffee drinker   Self styled gourmet
Schwab         Not the “I need care”           Self directed




                                Loyalty                              40
   Building Customer Focus and Loyalty
                                        Rarely assess purchase; feel strongly the
             Emotive Loyalist
                                        chosen brand is best for them

              Inertial Loyalist         Infrequently assesses purchasing;
 Loyalist                               uninvolved; change is not worth it

            Deliberative Loyalist       Frequently assesses purchase decision;
                                        reaffirm chosen through rational criteria


              Need Downward             Reassess purchase decisions because of
                 Migrators              change in needs

Downward       Deliberative             Frequently reassesses decision; choose
Migrators   Downward Migrators          new brands through rational decisions

               Dissatisfied            Actively dissatisfied; prompted to
            Downward Migrators         reassess because of specific experience

                                                      McKinsey Quarterly, 2002, no. 2
                                    Loyalty                                             41
The importance of “face” sensitivity

   -Face refers to who we want to be seen as
   -Most of us have two very basic face concerns:
           autonomy and positive evaluation
   -All of us have individual face concerns- When
   our face is “stepped on,” we react by
       seething, lashing out, or being resistant
   - We need to know others’ face concerns
           - by observation
           - by listening
-We can also communicate in face sensitive ways

            Case: Someone is late for work

Face threatening: “That has to be one of the stupidest
questions I’ve heard”
Face sensitive: “I not sure I understand what you mean by
that”


                 Give them a way out!
Building Customer Focus and Loyalty


- Emphasize understanding over agreement
     A case: Saying “No”
            - Focus on what you can do, not
            what you can’t do
            - A three step model:


                                          Propose
         Empathize         Explain
                                        alternatives




                             Loyalty                   44
   Building Customer Focus and Loyalty
                  Responding to Criticism
                         When a giant wave
Paraphrase the
                      rushes towards you, you       Take a pause;
speaker’s ideas
                       can either stand up and       Deep breath
 and emotions
                      get knocked down, or you
 Ask for specifics         can simply dive
                             underneath           Speak slowly
   (also guess)

     Agree with the                                 Show
         facts                                   involvement

       Agree with the                        Stay calm;
        perceptions                          Don’t argue
                                Loyalty                             45
Building Customer Focus and Loyalty

- Secret tests customers have about you and your
  organization

      - you cannot not communicate
      - different folks have different tests
      - everyone is an “accountant”

- Devise and use a Performance-Importance Matrix




                         Loyalty                   46
   Building Customer Focus and Loyalty
     strong




Performance




      weak

              low                high
                    Importance


                      Loyalty            47
  Building Customer Focus and Loyalty

     strong



Performance



      weak
              low   Importance   high



                      Loyalty           48
  Building Customer Focus and Loyalty


B. Outstanding service providers build loyalty


                                       Intrinsic   Extrinsic
   1. Using rewards
                      Spontaneous



                       Calculated


                             Loyalty                           49
  Building Customer Focus and Loyalty

B. Outstanding service providers build loyalty (cont’d.)

   2. Use service surprises
      - Major in the minors; surprise people with details
          What are some minors that matter?
      - Demonstrate extra effort

      - Create positive rituals (a negative-neutral one is the sound of static during
        dial-up)




                                     Loyalty                                        50
Building Customer Focus and Loyalty
3. Creating a context for employee pride




                                   Customer
  Employee
                                     pride
    pride



                        Loyalty               51
Building Customer Focus and Loyalty

  Creating Pride:

        - accomplishments
        - distinctive
               - thinking of service as a sport:
                        - there is a clear way to win
                        - the rules are clearly communicated
                        - there is a way to keep score

        - challenging
        - personal responsibility
        - value
                        Loyalty                                52
  Building Customer Focus and Loyalty

B. Outstanding service providers build loyalty (cont’d.)



   4. The ultimate criteria for loyalty:


          Are you making my organization
          (or me personally) more successful?



                             Loyalty                       53
   Building Customer Focus and Loyalty

C. Outstanding service providers are highly consistent and
   highly reliable

   1. Never make customers' apathetic;
      learned helplessness
   2. Guarantee reliability; set high standards for quality
      and dependability; be consistent on core
      deliverables




                             Loyalty                          54
   Building Customer Focus and Loyalty

Ground rules:
     - specific
      - measurable
      - doable
      - believable
      - important to the customer
      - ethical




                              Loyalty    55
  Building Customer Focus and Loyalty
C. Outstanding service providers are highly consistent
   and highly reliable (cont'd.)

   3. Be careful of bureaucratic consistencies—stupid
      consistencies that make it difficult for the customer to
      do business with you
             Know when consistency matters
                    - be careful not to confuse core elements
                    of service with non-core ones


   4. Work with customers to achieve reliability; reciprocity


                               Loyalty                           56
Building Customer Focus and Loyalty

5. Defining the notion of fairness

  - Equity theory in action

          outcome fairness              OA
                                        IA
          equity theory                 OA = OB
                                        IA   IB
  - Why procedural justice matters more

  - The role of interactional fairness

                              Loyalty             57
  Building Customer Focus and Loyalty
D. Outstanding service providers are excessively competent



1. Competent about their performance; bench- marking; you
   know your service better than anyone

     Task: Know your 20 questions

      Be proactive in demonstrating your competence (e.g., build
      monitoring systems into your products; call customers to let
      them know the status of their order)

                              Loyalty                                58
    Building Customer Focus and Loyalty
 Understand how your customer thinks
• Odd numbered prices (e.g., $199, 99 cents) are perceived to be significantly
  lower than the next highest even, round number ($200, $1.00)
• Prices ending with odd numbers create the impression of being more different
  from each other than do pairs of prices ending with even numbers ($5.99 vs
  $7.99 in comparison to $6.00 vs. $8.00)
• A five percent decrease in price is where the decrease starts to get noticed
• We are more sensitive to price differences when shopping for necessities
  than luxuries
• Women are more discriminating of price differences than are men
• It takes a smaller price increase to deter poor shoppers than rich ones
• Price drops are weighted more heavily for name-brands than for generic store
  brands. A name-brand product requires a smaller discount to be perceived as
  a bargain than does a generic store brand
• Customer use the previous price they paid as an anchor—begin at that price
                                                   Levine, Power of Persuasion, 2003
                                     Loyalty                                           59
   Building Customer Focus and Loyalty
D. Outstanding service providers are excessively competent


  2. Competent about their customers; know their needs;
     never stereotype your customer
      - Check your organization for biases—language is one such bias; age is
         another
      - Successful organizations adapt to their customers; they don't force
        their customers to adapt to them
      - Identify unique characteristics of each customer




                                  Loyalty                                     60
Building Customer Focus and Loyalty
The Changing Demography of Language in the
                  U.S.

                                   40%

               15.3%
                                   35%
      12.3%
                                   30%


                                   25%


      1990      2000                 Hawaii   NY     Texas        New               CA
                                                                 Mexico
    Percentage of People
                                              States with Highest
 Speaking a Foreign Language
                                                 Percentages
           at Home
                               Loyalty                   Source: 2000 U.S. Census    61
Building Customer Focus and Loyalty
            PEOPLE AGE 60 AND OVER AS A PERCENT OF TOTAL
               POPULATION 20 AND OLDER IN 2015 AND 2035

 50
 45
 40
 35
 30                                                                                    2015
 25
 20                                                                                    2035
 15
 10
  5
  0




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     ly




                                 en
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            ain




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                       an




                                                           tai
                                        an


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  Ita




                               ed
          Sp

                     rm




                                                          Bri
                                         ll

                                               Fra
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                  Ge




65% of the people who have passed age 50 in the history of
  mankind are still walking the earth today
                                                                 Business Week, 5/15/2000; WSJ, June 17, 2003
                                         Loyalty                                                         62
Building Customer Focus and Loyalty


   In 1900, only 4% of 50-year-old adults could say
     that both parents were still alive; in 2000, 27%
     could make the same claim. In fact, in 2000, 44%
     of 60 year-old Americans had at least one parent
     who was still alive




                                          NYT, 12-1-03, C8



                          Loyalty                            63
Meanings are in people, not in words or
behavior
A. Words don’t mean, people do
         - Cross-cultural misunderstandings
          happen because people assume words
          have meaning
The Dairy Association’s huge success with the campaign “Got Milk?” prompted them to
expand advertising into Mexico. It was soon brought to their attention the Spanish
translation read “Are you lactating?”

Coors put its slogan “Turn it loose” into Spanish, where it was read as “Suffer from
diarrhea.”

Scandinavian vacuum manufacturer Electrolux used the following in an American
campaign: “Nothing sucks like an Electrolux.”

Pepsi’s “Come alive with the Pepsi generation” translated into “Pepsi brings your
ancestors back from the grave,” in Chinese.

Frank Perdue’s chicken slogan, “It takes a strong man to make a tender chicken” was
translated into Spanish as: “It takes an aroused man to make a chicken affectionate.”
Even within a culture misunderstandings arise
because people assume words have meaning
     - Mrs. Jones is an older woman.
              How old is she?
     - Jack smokes too many cigarettes.
              How many does he smoke each day?
     - Court collects records.
              How many records does he have?
     - Mary makes a lot of money each month.
              How much does she make?
Meanings are in people, not in words
or behavior, (cont’d.)
B. Behavior doesn’t mean, people do
Meanings are in people, not in words
or behavior, (cont’d.)
C. What shapes meaning?
          - need for inclusion
          - need for control
          - need for affection
          - need for efficacy

  When a need isn’t met, everything you say gets
    interpreted in terms of that unmet need.
  Building Customer Focus and Loyalty

D. Outstanding service providers are excessively competent


3. Competent about recoveries—know your recovery
   strategies; what do you do to make it right; what could go
   wrong
   - Know your moments of truth; learn from mistakes




                              Loyalty                           69
Building Customer Focus and Loyalty
 Why Do Customers Complain?

 •Expectations not met
 •When they have to wait
 •When promises are not kept
 •When mistakes are made
 •When they believe they’ve been treated unfairly
 •
 •
 •
 •

                           Loyalty                  70
   Building Customer Focus and Loyalty
  Some Facts About Consumer Complaints
• Dissatisfied customers often do not complain
             Why don’t customers complain?
                    - it isn’t worth the time and trouble
                    - they don’t know how or where to complain
                    - the don’t believe the company will do anything
• Customers often do not directly identify the course or cause of the
     problem
• Complaints often do not directly identify the source or cause of the
     problem (employee caused; company caused; customer caused)
• Most customers complain to “front-line” personnel


                                  Loyalty             Tarp, 1997         71
    Building Customer Focus and Loyalty
   Some Facts About Consumer Complaints

 Retail and field service systems filter and discourage complaints
 Central offices (e.g., corporate headquarters) are not open to complaints
 Increasing the ease of access to the company/provider can reduce the
complaint “multiplier”
 The propensity to complain is directly proportional to the perceived
severity of the problem and the damage to the person
 Complainers tend to be the heaviest users of the product/service
 Problems which result in a out-of-pocket monetary losses have a higher
complaint rate than issues relating to mistreatment, quality, and
incompetence
 By merely getting customers to articulate a problem, brand loyalty can be
enhanced
                                    Loyalty            Tarp, 1997             72
   Building Customer Focus and Loyalty
Resolving complaints quickly matters
                                                                   Minor problem
                                                                   Major problem (>$100 loss)


100%
 90%
 80%
 70%
 60%
 50%
 40%
 30%
 20%
 10%
  0%
       Complaint Resolved Complaint Resolved       Complaint Not      Non-Complainants
            Quickly                                  Resolved
                                         Loyalty                      Tarp, 1997                73
Building Customer Focus and Loyalty
Some rules about a service recovery:
              - have an established over reward procedure
              - It should be personal
              - Empathize, even when customers are “wrong”
              - Show you care about the problem and resolving it
              - It must be fast; speed of recovery matters
              - It should happen at point of first contact
              - Customers should be informed (to the degree desired)
                        - why it happened
                        - what you’ll do to prevent future occurrences
              - Perceived fairness is critical (procedural and equity)
              - You can only make the mistake once
              - Discovery should precede resolution-make sure you
              understand the real complaint



                             Loyalty                                     74
Building Customer Focus and Loyalty

Set the Tone
       - get on their level (sit, eye contact)
       - show concern nonverbally
       - pay attention
       - find private setting
       - let them vent




                                 Loyalty         75
Building Customer Focus and Loyalty

Get the Facts
       - people believe they are right
       - ask open questions
       - ask follow-up questions (“and then what happened?”
       - take notes
       - ask how the person feels about the event; and why




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Take Action
   - acknowledge what they are right about (“It does sound like….)
   - graciously admit the error if it is your fault
   - think of how you would represent customer to your organization
   - ask the customer what she/he would expect you to do to resolve the
   problem
   - help customer to avoid doing anything that would make the problem
   worse
   - explain what you are going to do and the expected time line
   - as soon as you can, talk to someone in authority who can help the
   customer
   - don’t act resentful


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       Discovery                             Fulfillment
                                               Answering Questions
                                               Providing Information
          Asking Questions
                                                    Resolving
         Obtaining Information
                                                  Recommending
               Listening
                                                      Telling
               Learning
                                                    Promoting
                                                      Selling

Complete discovery before moving to fulfillment. Jumping to fulfillment too
quickly creates more problems (e.g., because information is missing,
mistakes occur …when mistakes occur, customer confidence erodes).




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To Discover, You Need to Understand:
  Issue
   What do they need?
                                 Scope
                                  Significance
                                  Size, quantity
             Urgency              Seriousness
              Urgent action?      Frequency
              Urgent response?    Effects
              Deadlines           What’s unusual
                                  Special conditions
                                  History

                                              Expectations
                                                Preferred outcome
                                                Receptivity to alternatives



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  Handling the complaint
         Some rules:
               - Don’t argue; you won’t ever really win
                 - Don’t feel the need to “make a point”
                 - Allow the customer to vent
                 - Stay calm
                 - Practice strategic silence
                 - Personalize the conversation (e.g., use name)
                 - Avoid scripting
                 - Remember the customer’s “face”
                 - Blame doesn’t matter; solutions do
                 - Try to identify the real issue (interest vs position)



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       If you resolve a problem, positive word of mouth
    happens; if you don’t, negative word of mouth gets even
                             worse

Number of people customers tell about a satisfactory of unsatisfactory
                     response to a complaint

                             Issue < $100                 Issue > $100

              Satisfied           4-5                          8

            Dissatisfied         9-10                         16
                                             TARP, 1999


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E. Outstanding service providers are hassle-free

   1. How do you hassle your customer? Make them work too hard;
      never punish the customer for being a customer.
      - In today’s world people want organizations to make their lives easier
        and better
      - Don’t confuse the customer (e.g., how many different Web sites are
        available to customers…is that too many?)
      - More segments (more steps) mean more hassle
      How does your unit hassle its customers?
      ______________________________________________________________
        ____________________________________________________________
        ____________________________________________________________
        ____________________________________________________________

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E. Outstanding service providers are hassle-free


  2. Make the experience effortless but make sure they're
     aware of the effort
       What can we do to show how much effort we
       expend offering our customers a great experience?




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E. Outstanding service providers are hassle-free


  3. If you cannot eliminate a hassle, becomes the world's
     expert at that hassle
         What is one hassle we cannot solve but that we might
          become the world's expert at?




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Waiting time as an example:
       - subjective time matters more than objective time
       - lines ought to be fair
       - distractions matter (idle time feels longer than
                busy time)
       - predictability helps (uncertain waits feel longer)
       - unexplained waits feel longer (information is
                valued)
       - preprocess time feels longer than in-process
       - solo waits feel longer than group waits



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E. Outstanding service providers are hassle-free

  4. Flexibility and adaptability; custom-designed
       - Find ways of customizing for your customers while maintaining core
          deliverables
           - be careful about not confusing core elements of service with
              non-core ones
       - Different customers value different aspects of your business
       - Devise “customer preference” systems
       - You make lots of money doing this (you can charge a lot more)




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E. Outstanding service providers are hassle-free

  4. Flexibility and adaptability; custom-designed
       •   M&M’s can be ordered via the web in 21 different colors
       •   P&G allows web customers to customize their makeup
       •   Land’s End lets customers design their own pants for a perfect fit
       •   Nike lets people have customized sneakers
       •   Branches Hockeys lets customer custom order their sticks
       •   GE lets customers pick among 1000 kinds of plastics and then lets
           them use simulations to see product performance

                                           Business Week, December 2, 2002, page 68-73


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Web versus traditional customer focus
            Reach: size of audience

               Richness: intricacy and
               customization of services

                 Affiliation: responsive to
                 customer interests
 In the physical world, these are traded off one another;
 not so in the “net” world
                                              Evans & Wurster, (1999) “Blown to bits”
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E. Outstanding service providers are hassle-free

   5. Outstanding service providers are personal

         - Develop skills to create a personal relationship
         - Devise technologies to allow personal service (e.g., Disney
           custodian brooms)

                         What could we personalize?



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Most visits;    Service Relationships: Customer has repeated
greatest        contact with same provider
satisfaction

                PsuedoRelationship: Customer interacts with
                different provider each time, but within a single
                organization
Least visits;
least           Service Encounter: Customer interacts with
satisfaction    different provider each time

                                  Gutek, Bhappa, Liao-Troth, Cherry, 1999

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E. Outstanding service providers are hassle-free


  6. Outstanding service providers are accessible

        - How accessible are you? Time? Location?
        - Speed of service is becoming a critical competitive
          advantage: What would happen if you could serve your
          customers faster?




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                        Drive to the Office
                          Park Your Car
                          Walk To Office
                             Sign In
                         Complete Forms
                      Wait in Waiting Room
                  Move & Wait in Examining Room
                         Nurse Interview
                     Wait in Examining Room
                       Meet with Physician
                             Pay Bill
                           Drive Away

What percentage of your time is dedicated to what you value?
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E. Outstanding service providers are hassle-free


  6. Outstanding service providers are accessible

        - The critical formula:
              Quality Service (Processes) + Results
Value     = -----------------------------------------------
              Access Costs + Service (Product) Costs




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E. Outstanding service providers are hassle-free


7. Outstanding service providers empower customers and
   organizational personnel
      - Empowerment = ƒ (control, awareness, accountability, responsibility, and
         equity in outcomes)
      - Customers want ”one-stop shopping.”
        (e.g., whoever gets the call, handles it)
      - How do we listen to our employees in order to improve service?




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F. Outstanding service providers are
   clear and informative
  1. Teach your customer your business

   2. Know what the customer needs to know in his or her language
   3. Work on clear communication…it is critical for
      any activity
   4. Understand how to talk with your customer




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Some Ground rules
•Be honest with the bad news, but resolve it positively
•Do it quickly
•Offer multiple channels for communication with customers;
seamlessly integrate them
•Be massively redundant
•Discover who needs to know and be proactive to insure they get the
message
•Be careful of selling when communicating: Don’t oversell when
focusing on customer issues

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  Ask questions
   A. The way you ask questions matters
       - closed versus open questions

                                         Open questions are broad
Closed questions restrict the            allowing respondents freedom
sorts of answers a person offers         about how much and what
to a narrow range of responses.          information to offer.

“Are you over 30 years of age?”          “Tell me about yourself?”
“Did you go to the meeting?”             “What happened at the
“Have you had training in Y?             meeting?”
                                         “What do you know about
                                         process Y?”

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                                  Thought
Types of        Typical Response     Questioner
                                                         Provoking
                                      Control
Questions                                         Time


   Closed             Yes/No           High       Low       Low




    Content           Facts


                  Explanations,
                 hypotheses, and
    Open         underlying issues       Low      High     High

              Richness of Response

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  Is everything working?
    Do you understand?
Creativity is the top criteria
   for deciding, isn’t it?


   Open questions lead to “iceberg statements”




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B. Probe!
      - silence, nudging, follow-up questions,
      mirror probes
C. Seek advice
D. Listen for the answer
E. Avoid taking a position too soon



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Use empowering questions

Focus on…                                    Rather than…
Results (e.g., What can we do to on time)    Reasons (e.g. Why are we late?)
Solutions and opportunities                  Problems and threats
What we want                                 What we don’t want
What we can do                               Who is to blame
What is working                              What is not working

Try these:

1. What’s your problem with this customer?___________________________
2. What must we do to avoid losing market share?_______________________
3. What are we doing to hurt our reputation with our customer?____________
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VII. Listening

   A. Listen so as to tell someone else what
       you heard
    B. Plan to listen
    C. Eliminate distractions
    D. Use internal summaries
    E. Limit counter-arguing




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VII. Listening, (cont’d.)

   F. Take some notes
   G. Listen for what isn’t said
   H. Listen for the relational messages
    I. Find applications
   J. Engage in active listening




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Implementing A Service Initiative

               John A. Daly
            University of Texas
             (512) 471-1948


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I. Make service your focus; everything else
   is defined in terms of the customer

Create missions emphasizing service
  - Corporate mission statements; why they don't work
  - Create a simple, customer-focused mission
  - Create project-based mission statements
  - Create personal mission statements

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II. Create a service strategy
                                            Devise strategies that
                                            integrate these three
What are the most important                 questions
 service attributes to meet and
exceed customer expectations?
                                     On what service attributes are our
                                       competitors most vulnerable?


            What are our current and potential
                   service capabilities?


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III. Leadership is Key
If you don't have the obvious and serious support of leadership, don't
    waste your time
Leaders need to commit time and effort to
  any project
Symbols matter; never underestimate the importance of symbolic
  commitments
Involve middle management from the start—
   without their buy-in, little will be accomplished

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IV. Listen, listen, listen to your customer
There are many different ways (e.g., focus groups, surveys, 800 numbers,
  comment cards)
Make sure your listening focuses on services; not on marketing
Let the customer talk (avoid close ended measures, avoid creating internal
   categories)
Don't get defensive; remember, you want complaints
Clearly understand why your customers defect


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V. Involve your customer;
    build them into your system

   Why CRM (Customer Relationship Management)?


     Enabling            Customer           Competitive
    Technology          Expectations       Differentiation




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What is CRM?
 Interact      Connect                 The Right Customer
                                       the Right Offer, at the
                                       Right Time, using the
   Relate      Know                    Right Channel(s)




    …an enterprise approach to understanding and influencing
    customer behavior through continuous relevant
    communication to improve customer acquisition, customer
    retention, and customer value—current and lifetime

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CRM is Customer focused marketing, sales, and service,
with themes of:

• anytime, anywhere access and navigation to
• friendly, capable, proactive resources which have
• organizational memory and can execute a
• streamlined, personalized, secure process to create
• consistent and totally satisfactory customer experience while
demonstrating a track record of
• continuous improvement and
• superior performance




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                                CRM Process Roadmap
     Analyze                Model                Personalize                Optimize                Interact

                                           •Generate personalized      •Prioritize and limit   •Deploy outbound
•Analyze customer     •Build and analyze   offers to customers         communication by        or manage pending
  profiles/behavior   predictive models    • Build priority rules      channel                 inbound/event
 •Target customers    •Score customers                                 •Regulate frequency     driven
•Evaluate response                              Communicate            and quality of          communication
  •Analyze events                                                      contacts by channel     •Manage workflow
                                           •Plan continuous            •Optimize customer      of interactions
                                           dialogues                   communication via
                                           •Define batch & real time   contact modeling
                                           event rules & triggers




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Why CRM?

• Business: Globalization, deregulation, consolidation
• Technology: Client/server, internet, data warehousing/mining
• Marketing: New marketing and distribution channels, product
proliferation and commoditization, new interactive media; demand for
personalization
• Societal: Increasing customer sophistication, consumer technology
proliferation, diversity, globalization



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What inhibits CRM?

• Business: Mergers and acquisitions, rapid change, unknowable
future requirements, product-centric cultures and structures,
nonaligned compensation systems
• Technology: New skill set requirements, multiple/nonintegrated
systems and databases, lack of standards, rapid obsolescence
• Societal: Privacy concerns, security fears, perceptions of
discrimination




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                             Customer Relationship Management Model
                                                           Products/Channels


                                     Customer Retention and Expansion

                                                        Direct        Product &
               Proactive       Relationship                                                  Reporting &
 Initiatives                                          Marketing        Service
                Selling        Management                                                    Assessment
                                                      Initiatives    Development                               Customers/
                                                                                                               Customer
                                                                                                               Segments
  Analytics     Segmentation                         Profitability                      Modeling
                                Internet/Intranet
               Warehousing




                                                                              Distribution


                                                                                                 Specialized
                                                                               Push/Pull




                                                                                                  Systems
                                                                Mining
                                                    OLAP
                  Data




Technologies                                                     Data




                                                                         Source: Gartner Group
  Building Customer Focus and Loyalty

What Does CRM Get You?

Increased Revenues

      - Maximize Value of Current Customers
          -cross selling (seek affinities—burgers & fries), up-
          selling, more product usage, retention, selective non-
          retention, reactivation, reduced cost of services
      - Enhance customer acquisition
          - improved selection, value, retention of new
          customers

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What Does CRM Get You?
Efficiency/Expense Management
        - Sales Efficiencies
        - Service Efficiencies
        - Marketing Efficiencies
        - Operational Efficiencies
Enhanced Competitiveness
        - Increased Customer Knowledge
        - Increased Market Awareness
        - Increased Competitor Intelligence
        - Enhanced Customer Service

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Understanding CRM (Customer Relation Management)

 Core Principle: Develop an Intimate Relationship with Customers by
 Managing The Interactive Relations the Firm has with Each Customer.
 It Requires the Firm to:
               - Collect Extensive Data
               - Do Deep Analyses of These Data (rules and analytics)
               - Develop Multiple Ways to Interact With Customers
               - Manage the Various Interrelationships Among
               Customers, Suppliers, and the Firm

 CRM integrates sales, marketing, customer service, and technology in
 search of greater profitability through seamless processes that are
 focused on individual relationships with each customer
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Collecting Customer Information in a CRM Environment

   - Customer Profiling (e.g., demographic factors; locations;
   number of employees; revenues)
   - Customer Segmentation (logical, unique groups of
   customers sharing similar characteristics and demonstrate
   similar behaviors towards purchasing and products)
   - Customer Research (deeply understanding your customers’
   needs, attitudes, and issues)
   - Customer Valuation: (how much each customer (group)
   contributes to your profitability)

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  Data Quality is Key to CRM


                     Data Needs to Become
Data Reliability                                    Data Accessibility
                         Information!!!

     Data Coverage                               Data Precision

           Data Accuracy                    Data Relevancy

                   Data Usability        Data Consistency


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Collecting Customer Information in a CRM Environment

What points of contact are there?

                       Customer
                     Service/Support
     Sales                                      Distribution


             Staff Functions             Marketing

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CRM is A Move to Creating an Individual Relationship With
Each Customer

    Mass
 Transactions
             Promotion
           Opportunities
                         Targeted
                        Campaigns
                                      Individual
                                     Interaction

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CRM requires constant an consistent measurement

   • transaction patterns (what is brought, when, how)
   • pricing decisions (what is the impact of sales, increases)
   • profitability (direct/indirect costs vs. income)
   • trends in purchasing (more, less, channels)
   • penetration (product, channel)
   • preferences (billing, contacts)
   • complaints (dissatisfaction)
   • logistical issues (speed, inventory)
   • interrelationships (conditional relationship—likelihood of buying A
   given a purchase of B)
   • competitor knowledge
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The ultimate challenge for CRM:
     Complete Integration
                                               Marketing
                                               Automation
                 Loyalty/Sales                            Sales
     Customer                                           Automation
     Relations
                  Web Relations
                                               Accts
                                             Receivable
                                                       Planning &
          Data Mining         Decision
                              Support                   Logistics
                  Mapping &
                   Planning
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                Loyalty   Source: eloyalty   125
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VI. Master technologies to integrate customer
    issues into decision-making




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VII. Have everyone come to know your
   customer; everyone deals with external
   customers
Constantly discover, and rediscover, how you
  "make your money"




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VIII . Measure, measure, measure
 • Do you know how to win with your customers?
 • Calculate the value of a customer—and what it costs to
   lose one
 • Do we find out why defecting customers left us




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VIII . Measure, measure, measure
                                                             (cont’d.)

 Tie complaints to loyalty
    - Do we know when a customer is dissatisfied?
    - How do we respond to their dissatisfaction?
    - Do we have ways of hearing complaints
    - Do we systematically analyze complaints as well as product
      and service problems?
    - How do we assure ourselves that the complaints and
      problems have been resolved?
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VIII . Measure, measure, measure
                                                           (cont’d.)



   Link loyalty to measures of profitability
       - Calculate the lifetime value of a customer. Make sure
         everyone knows that value...
           Communicate the value of the customer, and any
             other customer centered measures, to everyone in
             the organization


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Case Study: Cost of a customer’s response to an unsatisfactory
first call to their utility (aka: monopoly)

Letter to a regulator or elected official                                    $300
Complaint to an officer                                                    $150-$300
Request for detailed billing account study                                 $100-$500
Request for meter check                                                       $80
Request for meter re-check                                                    $20
Delay in payment of $250 bill for 2 months because of                         $20
need to check complaint
Call to supervisor to ―shop the system‖                                       $8-$16
Extra calls to ―shop the system‖ for the ―right‖ answer                       $3-$8
                                                From TARP, 1999 analysis of 30 utilities
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VIII . Measure, measure, measure
                                                            (cont’d.)

 Focus on both processes and outcomes—but in the end, the
   outcome is the key

    - measure, and establish, "facts" constantly




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IX. Build rewards and consequences for
    service excellence
 When someone provides great service, what is the
  reward?
       - How do you recognize great service providers?
       - How do you reward “retention?” Too many firms still
         reward only the acquisition of the customer
 When someone fails a customer, what is the
  consequence?

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IX. Build rewards and consequences for
    service excellence
 Manage the “emotional labor” of people with customer
   contact

 Make sure you can “catch” every employee doing
   something right (look for “field” employees or “back of
   the house” employees)


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X. Choose the right people for
    your organization

Poor hiring practices are highly correlated with poor service
   implementation
Hire those who have the values you want and need to meet your service
   objectives




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X. Choose the right people for
    your organization
 Do we have focused profiles for hiring frontline people?
 Do we have quick tests of the adequacy of frontline people (e.g., hiring
    tests, probationary periods?)
 Invest specially in front-line personnel when
      - personal service is important
      - customer perceives risk involved in the product/service
      - service needs to be customized at point of contact
      - absolute consistency is not essential
      - new ideas generated from customers are valued
      - front-line personnel can affect the amount of business generated
      - there is sufficient time and money to train front-line personnel
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XI. Remember your internal customers
 How you treat your customers "within" shapes how they treat your
   external customers
 Everything you do for your external customers you should do for
   your internal customers
 If the people within your organization are not proud of your product
     or service, your customers never will be proud of that product or
     service




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When Organizations Merge, Service Often Suffers
Percentage of customers
  who say service has
  deteriorated at their:

           30

           25

           20

           15
                                                                                      Merged within 6 months
           10                                                                         No Merger
             5

             0
                  Cable  Internet     Cell    Long    Local
                                                            Anderson Consulting (June 2001) in Business Week (7/6/2001),
                 Company Provider    Phone Distance Phone                              p10
                                    Company Company Company
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XII. Find your service zealots; let people
     involve themselves; create teams that
     cross functions
People never really do anything they don't want to do
Zealots believe something can be improved and want to do it. Find
  these people and let them take charge; let people involve
  themselves in service.
Create teams that cross functional categories. Focus on customer
  oriented processes.
Build and sustain commitment constantly

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XIII. Borrow ideas from others

 - Steal
 - Beg
 - Borrow
 - Study others’ techniques


     Imitation is the sincerest form of flattery

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XIV. Learn from mistakes. It's okay to make a
     mistake once. But make sure it doesn't
     happen again.
 Know, understand, and practice recovery strategies
 Train, train, and train again…but it is always easier to hire the right
    people than it is to train the wrong people
 Remember that the best service you can provide is a function of the
   worst service oriented person you have
 Make sure people have the necessary skills, tools, and opportunities to
   perform outstanding service

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XV. Go for small wins. Find and harvest the
     "low hanging fruits."

 Discover the obvious and work for quick improvements
 Make those improvements obvious to all
 Create momentum for change
 Accumulate small wins to create big ones




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XVI. Remember, it is easy to come up with
      ideas. It is extraordinarily hard to
      implement ideas.

 Implementation is the key to any successful project
 Celebrate when tasks are completed




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XVII. Find your special "niches." Segment your
      customers, your employees, and your
      services.
 You cannot be all things to all customers
 Choose your niche and become great
 Customers are not always right. But the customers you choose to
   serve are always right.




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XVIII. Consider non-obvious customers
 Suppliers are key to success
        - Is it easy to be a good supplier, vendor, provider to our
           organization?
 People in other parts of our organization are also key
 Conduct a supply chain analysis
        - Know every step; identify steps that can be eliminated; the
          critical issue is hand-offs; these create the most problems


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           high    Major                      Optimal
                   Problem                    Vendor
                                              Relation
Your Dependency
 On The Vendor
                                              Beware;
                                              Vendor May
            low                               Leave


                  low             How Reliable    high
                                  The Vendor Is

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XIX. Focus on the big service wins that can
      save you money

 Better service doesn't have to cost more; in fact, by reducing costs you
   often improve service
 Create a service wins; cost / wins matrix




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XX. Watch for “Turf” Battles

 Many organizations are not built around customers. Instead, they are
   organized by product or geography. To change this means you will
   step on “turf.”

 The solution: Take power away from some of the barons and publicly
   give it to others who buy the change




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XXI. Make sure you have the necessary tools
Processes and systems make it possible for people to offer great service

Technology improvements can often enhance your service quality. Choose those
   that:
         (1) reflect you service objectives
         (2) automate already efficient activities
         (3) offer greater control, and
         (4) retain the "personal" touch
Ensure that everyone has the necessary tools



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 XXI. Create service myths and legends: an
       ideology of service

People work, and organizations maintain themselves, because of the
  legends and myths that bring them together
Most myths and legends focus on sales or personal issues. You need to
  focus on service accomplishments




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XXII. Create a community of customers
      People get attached to communities.
       - user groups
       - The Harley experience
             - a magazine since 1916
             - The H.O.G. (Harley Owner’s Group)—
                     - 750,000 members in 100 countries
                     - language of community “Harley brothers
                     and sisters”
                     - photo album on the Web
                             Loyalty                            152
   Building Customer Focus and Loyalty

XXIII. Optimism is Key!!




                       Loyalty           153

				
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