Beyond Customer Satisfaction

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					         Chapter 11

Building Customer Loyalty
     Through Quality

    Poor quality costs 25% of gross sales
           in manufacturing firms;
     40% of gross sales in service firms
                  - Tom Peters
       Chapter Objectives
   Define customer value and customer satisfaction.
   Understand the difference between customer satisfaction
    and customer loyalty.
   Discuss attracting new users and retaining current
    customers by developing relationship marketing.
   Know tactics for resolving customer complaints and
    understand the importance of resolving complaints.
   Define quality and discuss the importance of the benefits
    of quality.
   Implement capacity and demand management tactics.
             Key Concepts
• Customer centered          Functional quality
• Customer-delivered
                             Product features
• Customer loyalty           Relationship marketing
• Customer partnerships      Societal (ethical) quality
• Customer retention         Technical quality
• Expected service
• Freedom from
                 Product-centric vs.
                  customer centric
   To win in today’s market companies must be customer
   To win in the marketplace, organizations must be
   They must deliver superior value to their target
   Organizations must become adept in building customers,
    not just building products.
         Customer Delivered
                                           (Products, services,
          Total Customer Value            personnel, and image
                                               values) (*)

Minus          Total Customer            (Monetary, time, energy,
                     Cost                 and psychic costs) (**)

            Customer Delivered                 (“Profit” to the
Equals            Value                          consumer)

* Refers to benefits and ** refers to costs, including mental costs
          Customer Satisfaction

The customer’s satisfaction depends on the product’s
  or service’s performance relative to the customer’s

Product/service performance = Customer Expectations
                   Satisfied customers
Product/service performance > Customer expectations
                  Delighted customers
 Product/service performance < Customer expectations
                  Unsatisfied customers
          Customer Satisfaction vs.
             Customer Loyalty

 Customer satisfaction measures how well a
  customer’s expectations are met.
 Customer loyalty measures how likely customers are
  to return and their willingness to perform partnership
  activities for the organization.
 Customer satisfaction is a prerequisite for customer
 However, customer satisfaction does not mean your
  customers will certainly return.
            Relationship Marketing
           A relationship that leads to customer loyalty

   Relationship Marketing: Creating, maintaining, and
    enhancing strong relationships with profitable customers
 Extends to relationships with all “stakeholders” including
  employees and marketing intermediaries.
 The focus is on one-to-one relationships with individual
 Three customer value building approaches: financial
  benefits, social benefits, and structural ties, e.g, airline CRS
    systems for travel agents.
      Approaches to Relationship
   Marketing tools for customer relationships
 Adding financial benefits (e.g., frequent flyer
 Add social benefits (e.g., recognizing repeats
  guests and greats them by name)
 Add structural ties (e.g. reservation systems
  for travel agents, special phone lines, flexible
  check-in, check-out time for best customers,
  send limousine)
      Five Levels of Relationships

                   The company sells the product but does not
       Basic       follow-up

                   The company sells the product and
                    encourages the customer to call when the
    Reactive       have problems or questions.

                   The company’s representative checks on
                    customer after the sales and the event to make
 Accountable       sure things were satisfactory and to get

                   The salesperson or others in the company
   Proactive       phone customers from time to time to seek

                   The company works continuously with the
 Partnership       customer to discover ways to develop better
         Relationship Marketing Compared
             With Traditional Marketing

 Relationship marketing                 Traditional Marketing
Orientation to customer retention       Orientation to single sales

 Continuous customer contact         Discontinuous customer contact

   Focus on customer value              Focus on product features
                                             Short time scale
       Long time scale
                                    Little emphasis on customer service
High customer service emphasis
                                      Limited commitment to meeting
  High commitment to meeting              customer expectations
     customer expectations
                                      Quality is the concern of the
 Quality is concern of all staff            production staff
          Benefits of Customer
Cost of Lost Customers: When a customer is
 lost, the cost is the customer’s lifetime value
 to the organization.                  LCV
Resolving Customer Complaints: A critical
 component of customer retention. A problem
 is that most customers do not complain.

              Complaint is a gift
                   Retaining Customers
         The cost of gaining a new customer is about six times
          the cost required to retain an existing one.
         A dissatisfied guest will tell 10 other people about the
         91% of customers who have an unresolved complaint
          will not return.
         65% to 85% of switchers are dissatisfied guests.
         Only 4% of dissatisfied customers will complain.
         More than 65% of customers who will not return do so
          because of the way they were treated, not because of
          the product.
Source: Rowe, M. (1998, February), “Why Service Still Stinks.” Lodging Hospitality, pp. 18-20
         The Link Between Marketing
                 and Quality
• Quality and customer service are the top priorities
• Quality service has emerged as an important area in the
  hospitality management.
• In 1992, Ritz-Carlton became the first hospitality
  company to win the Malcolm Baldrige National Quality
• The hospitality industry involves a high degree of contact
  and coordination between employees and guests
• The pursuit of quality is a never ending journey in the
                  What is Quality

-Quality: Conformance to specifications, an act controlled
  by the firm
-Quality: Meeting or exceeding the guest’s expectations.
The first two distinctions:
1. Product features: Enhance customer satisfaction
  while increasing the costs of the product or service.
2. Freedom from deficiencies: Increase customer
                 What is Quality

Three categories of service quality:
   Technical quality: What the customer is left, with
    after the customer-employee interactions have been
   Functional quality: The process of delivering the
    service or product. (Ex. check-in process)
   Societal (ethical) quality: A credence quality that is
    hard for customers to evaluate.
     --Some products can provide satisfaction in the short term but
       may have long-term adverse effects for their users.
Chapter 11:
Figure 11-2:
Managing the
service quality
              Benefits of Service Quality

1. Customer Retention: High quality builds loyal customers and creates
   positive word of mouth.
       To get a customer first time costs $10, but only $1 to get this guest to
       Satisfied guest will tell five others, dissatisfied guest will tell ten
       Hospitality firms that seek excellent quality set a goal of zero errors
2. Avoiding of price competition: High quality helps to avoid price
   competition and maximize potential revenue.
3. Retaining good employees: Good quality operations retain good
4. Reduction of Costs: There is a cost to poor-quality products and
               Capacity and Demand

 Quality in the hospitality industry requires a different
  focus from the quality in manufacturing firms.
 Hospitality products are produced and consumed
 In the hospitality industry during periods of peak demand,
  quality controls became difficult to carry out !!!
 When demand exceeds capacity and customers receive
  a poor quality product, some will go away unhappy.
                  Capacity and Demand
                  Managing                Capacity
1. Involve the customer in the service delivery system
     Self-service food and beverage operations
     Self check-in counters
     Get your own drinks in fast food restaurants
2. Cross-train employees
3. Use part-time employees
4. Rent or share extra facilities and equipment
     If there is no space in the property, rent an outdoor place
     Work with sister properties
              Capacity and Demand
            Managing Capacity
5. Schedule downtime during periods of low capacity
     Schedule repairs and maintenance during the low season.
     Employees can take vacations during low periods
6. Extend service hours
     Increase capacity by extending service hours
7. Use technology
     Automatic wake-up
     Checking the bills from the room TV’s
8. Change configuration of the service
     Airlines shift planes to reduce or increase capacity
               Capacity and Demand
          Managing Demand
1. Use price to create or reduce demand
  Use yield management techniques
2. Use reservations
    When there is more demand, save capacity for more
     profitable segments
    Purchase tickets in advance, prepay or ask deposit

3. Overbooking
    Overbooking in hotels
    Overbooking in airlines
          Capacity and Demand

                 Managing Demand
4. Revenue management (Yield management)
   A sophisticated approach to demand management
5. Use queuing
   Inform guests about the estimated waiting time
          Capacity and Demand
                Managing Demand
6. Shift demand
  If the date is flexible the manager will shift the
  demand to a lower-demanded period.
7. Change the salesperson’s assignment
8. Create promotional events
  Casinos have slot tournaments and table game
  tournaments during their slow periods.