building customer satisfaction,value,retention

8/6/2019 Building Customer Satisfaction,Value,Retention

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BUILDING CUSTOMERBUILDING CUSTOMER

SATISFACTION,VALUE,RETENTIONSATISFACTION,VALUE,RETENTION

DEFINING CUSTOMER VALUE & SATISFACTION:DEFINING CUSTOMER VALUE & SATISFACTION:

Customer Perceived ValueCustomer Perceived Value--Is the difference betweenIs the difference between

prospective customers evaluation of all benefits & allprospective customers evaluation of all benefits & allcosts of an offering & perceived alternatives.costs of an offering & perceived alternatives.



Total Customer ValueTotal Customer Value--Is the perceived monetary value of Is the perceived monetary value of the bundle of economic,functional,psychological benefitsthe bundle of economic,functional,psychological benefitscustomer expects from given market offering. It customer expects from given market offering. It includesincludes--Product value, Service value, Personnel value,Product value, Service value, Personnel value,Image value.Image value.

Total Customer Cost Total Customer Cost--Is the bundle of costs customerIs the bundle of costs customerexpect to incur in evaluating,obtaining,using, disposingexpect to incur in evaluating,obtaining,using, disposing

of given market offering. Total cost includeof given market offering. Total cost include--BuyersBuyerstime,energy,psychic cost & Monetary cost.time,energy,psychic cost & Monetary cost.



Total Customer Satisfaction:Total Customer Satisfaction: Satisfaction is persons feeling of Satisfaction is persons feeling of

pleasure or disappointment resulting from comparing productspleasure or disappointment resulting from comparing products

performance in relation to his expectation.performance in relation to his expectation.

Delivering High Customer ValueDelivering High Customer Value-- The key to generateThe key to generate

customer loyalty. To deliver high customer value company designcustomer loyalty. To deliver high customer value company designsuperior value proposition which consist of whole cluster of benefitssuperior value proposition which consist of whole cluster of benefitsthe company promises to deliver, it is more than core positioning of the company promises to deliver, it is more than core positioning of offering.Eg. Volvo positioning is Safety but buyer is promised moreoffering.Eg. Volvo positioning is Safety but buyer is promised morethan safe car such as long lasting, good service, warranty period.than safe car such as long lasting, good service, warranty period.

Measuring SatisfactionMeasuring Satisfaction--If company increases satisfaction byIf company increases satisfaction by

lowering its price or increasing its services, result may be lower profits.lowering its price or increasing its services, result may be lower profits.



Tools for measuring customer satisfactionTools for measuring customer satisfaction

1.Complaint & Suggestion System1.Complaint & Suggestion System

2.Customer Satisfaction Survey2.Customer Satisfaction Survey

3.Ghost Shopping3.Ghost Shopping

4.Lost Customer Analysis4.Lost Customer Analysis

DELIVERING CUSTOMER VALUE & SATISFACTION: This involves 5DELIVERING CUSTOMER VALUE & SATISFACTION: This involves 5capabilitiescapabilities--Understanding customer value, Creating customer value,Understanding customer value, Creating customer value,delivering customer value, capturing customer value, sustainingdelivering customer value, capturing customer value, sustaining

customer value. To succeed company needs to use the concept of customer value. To succeed company needs to use the concept of value chain & value delivery network.value chain & value delivery network.



VALUE CHAIN: VALUE CHAIN: A tool to identify ways to create more A tool to identify ways to create more

customer valuecustomer value..

Nine activities that create value & cost in businessNine activities that create value & cost in business--InboundInboundlogistics,operation,outbound logistics, marketing & servicing primarylogistics,operation,outbound logistics, marketing & servicing primaryactivities)activities)

Procuement,technology,human resource & firm infrastructure cost Procuement,technology,human resource & firm infrastructure cost of general management,planning,finance,accountimg,legal)(support of general management,planning,finance,accountimg,legal)(support activities)activities)

VALUE= BENEFITS/COST= VALUE= BENEFITS/COST=

Functional benefits + Emotional Benefits/Monetary Cost Time Cost Functional benefits + Emotional Benefits/Monetary Cost Time Cost Energy Cost Psychic Cost Energy Cost Psychic Cost



VALUE DELIVERY NETWORK (Supply Chain): VALUE DELIVERY NETWORK (Supply Chain):

Company today partnered with suppliers & distributorsCompany today partnered with suppliers & distributorsto create superior value delivery network.to create superior value delivery network.

This is also called partner relationship management.This is also called partner relationship management.



ATTRACTING & RETAINING CUSTOMERS (Customer ATTRACTING & RETAINING CUSTOMERS (Customerrelationship management): This is the process of managingrelationship management): This is the process of managingdetailed information about individual customer * managingdetailed information about individual customer * managingall customer touch points to maximize customer loyalty.all customer touch points to maximize customer loyalty.

Attracting Customers: Attracting Customers: Here challenge is not to produceHere challenge is not to producesatisfied customer but challenge is to produce delighted & loyalsatisfied customer but challenge is to produce delighted & loyalcustomers.customers.

Computing the cost of lost customer:Computing the cost of lost customer:1.1. Company must define & measure its retention rateCompany must define & measure its retention rate

2.2. Company must determine cost distinguish the causes of customerCompany must determine cost distinguish the causes of customerattrition & identify those that can be managed better.attrition & identify those that can be managed better.

3.3. Co. needs to determine how much profit it loses when it losesCo. needs to determine how much profit it loses when it loses

customers.customers.4.4. Co. needs to figure out how much cost to reduce the defectionCo. needs to figure out how much cost to reduce the defectionrate, as long as cost is less than lost profit co. should spendrate, as long as cost is less than lost profit co. should spendmoney.money.



Need for Customer Retention: Key to customerNeed for Customer Retention: Key to customerretention is customer satisfaction.retention is customer satisfaction.

Highly satisfied customer stays longer, buys more, pays lessHighly satisfied customer stays longer, buys more, pays lessattention to competing brands, talks favorably about co.& product,attention to competing brands, talks favorably about co.& product,less sensitive to price, costs less to serve than new customer.less sensitive to price, costs less to serve than new customer.

96% customers do not complain they just stop buying.96% customers do not complain they just stop buying. Listening is not enough Co. must respond quickly to complaints.Listening is not enough Co. must respond quickly to complaints.

Satisfied customer create relationship capital. Some facts onSatisfied customer create relationship capital. Some facts oncustomer retention;customer retention;

1.Acquiring new customer cost 5 times more than cost involved in1.Acquiring new customer cost 5 times more than cost involved in

satisfying & retaining current customers.satisfying & retaining current customers.2.Average Co. loses 10% of customers every year.2.Average Co. loses 10% of customers every year.

3.5% reduction in customer defection rate can increase profit by 25% 3.5% reduction in customer defection rate can increase profit by 25% to 85%, depending on industry.to 85%, depending on industry.



MANAGING CUSTOMER LIFETIME VALUE:CLVMANAGING CUSTOMER LIFETIME VALUE:CLV describes thedescribes the

present value of the stream of future profits expected over customerspresent value of the stream of future profits expected over customerslifetime purchases. Co. must subtract from expected revenues thelifetime purchases. Co. must subtract from expected revenues the

expected cost of attracting, selling & servicing that customer.expected cost of attracting, selling & servicing that customer.

Eg. Co. analyses new customer acquisition cost Eg. Co. analyses new customer acquisition cost--

Cost of avg. sales call(salary,commission,benefits) $300Cost of avg. sales call(salary,commission,benefits) $300

Avg. number of sales call to convert into customer multiply by4 Avg. number of sales call to convert into customer multiply by4

Cost of attracting new customer $1200Cost of attracting new customer $1200

This is less because we r omitting the cost of adv, promotionThis is less because we r omitting the cost of adv, promotion

Suppose Co. estimates avg. customer lifetime value asSuppose Co. estimates avg. customer lifetime value as

Annual customer revenue $ 5000 Annual customer revenue $ 5000

Avg. number of loyal years multiply by2 Avg. number of loyal years multiply by2

Co. profit margin .10Co. profit margin .10

Customer lifetime value(CLV) $1000Customer lifetime value(CLV) $1000This Co. is spending more to attract new customer than they are worth, unlessThis Co. is spending more to attract new customer than they are worth, unless

co. sign up customer with fewer sales call, spend less/sales call, retainco. sign up customer with fewer sales call, spend less/sales call, retaincustomer longer it is heading towards loss.customer longer it is heading towards loss.



There are two ways for customer retention, one is to erect highThere are two ways for customer retention, one is to erect highswitching barriers. Customers are less inclined to switch to anotherswitching barriers. Customers are less inclined to switch to anothersupplier when it would involve high capital cost, high search cost.supplier when it would involve high capital cost, high search cost.

The better approach is to deliver high customer satisfaction.The better approach is to deliver high customer satisfaction.



CUSTOMER RELATIONSHIP MANAGEMENT: The aim of CUSTOMER RELATIONSHIP MANAGEMENT: The aim of CRM is to build high customer equity. Customer equity isCRM is to build high customer equity. Customer equity isthe total of discounted lifetime values of all firmsthe total of discounted lifetime values of all firms

customer. Three drivers of customer equitycustomer. Three drivers of customer equity--Value equity, Value equity,Brand equity, Relationship equity.Brand equity, Relationship equity.

Value equity Value equity-- Includes price, quality, convenience.Includes price, quality, convenience.

Brand equityBrand equity-- Includes brand awareness, customer attitude towardsIncludes brand awareness, customer attitude towards

brand, customer perception of brand.brand, customer perception of brand.

Relationship equityRelationship equity-- Customer tendency to stick with brand& includesCustomer tendency to stick with brand& includesloyalty programme,special recognition, community buildingloyalty programme,special recognition, community buildingprogramme, knowledge building programme.programme, knowledge building programme.



How much Co. should invest in building loyalty soHow much Co. should invest in building loyalty sothat cost do not exceed gainsthat cost do not exceed gains--5 Different levels of 5 Different levels of

investment in customer relationship building:investment in customer relationship building:

1.Basic Marketing: Salesperson simply sells the product.1.Basic Marketing: Salesperson simply sells the product.

2.Reactive marketing: Salesperson sells the product & encourages the2.Reactive marketing: Salesperson sells the product & encourages thecustomer to call if he has questions, comments or complaints.customer to call if he has questions, comments or complaints.

3.Accountable Marketing: Salesperson calls the customer to check3.Accountable Marketing: Salesperson calls the customer to checkwhether the product is meeting expectation.whether the product is meeting expectation.

4.Proactive Marketing: Salesperson contacts the customer from time to4.Proactive Marketing: Salesperson contacts the customer from time totime with suggestion about improved product uses or new product.time with suggestion about improved product uses or new product.

5.Partnership Marketing: Co. works continuously with its large5.Partnership Marketing: Co. works continuously with its large

customers to help improve their performance. GE has stationedcustomers to help improve their performance. GE has stationedengineers at large utilities to help them produce more power.engineers at large utilities to help them produce more power.

These levels of marketing depends on number of customers & profit These levels of marketing depends on number of customers & profit margin level.margin level.



High Margin Medium Margin Low MarginHigh Margin Medium Margin Low Margin

ManyManycustomers/districustomers/distributorsbutors

Accountable Accountable ReactiveReactive Basic orBasic orReactiveReactive

Medium no. of Medium no. of customers/districustomers/distributorsbutors

ProactiveProactive Accountable Accountable ReactiveReactive

Few customersFew customers PartnershipPartnership ProactiveProactive Accountable Accountable



Forming Strong Customer Bonds:Forming Strong Customer Bonds:

1.1. Adding Financial Benefits: Two benefits can be given Adding Financial Benefits: Two benefits can be given--

Frequency ProgramsFrequency Programs-- Are designed to provide rewards to customers who buy Are designed to provide rewards to customers who buyfrequently & in substantial amount.frequently & in substantial amount.

Club Membership ProgramsClub Membership Programs--To bond customer closer to Co. & they are open toTo bond customer closer to Co. & they are open toanyone or can be limited to some group or to those who willing to payanyone or can be limited to some group or to those who willing to paysmall fee. These programs are good for building database or snaggingsmall fee. These programs are good for building database or snaggingcustomers from competitors.customers from competitors.

2. Adding Social Benefits: Co. work on increasing social bond by2. Adding Social Benefits: Co. work on increasing social bond byindividualizing& personalizing customer relationship. Through this co. canindividualizing& personalizing customer relationship. Through this co. can

turn their customers into clients.Customers may be nameless to Co. but turn their customers into clients.Customers may be nameless to Co. but clients cannot be. Customers are served as a part of mass or segment clients cannot be. Customers are served as a part of mass or segment but clients are served as individual. Similarly customers are served bybut clients are served as individual. Similarly customers are served byanyone while clients are served by professional.anyone while clients are served by professional.



3.Adding Structural Ties: Can be done by various methods3.Adding Structural Ties: Can be done by various methods--

a.a. Create long term contracts.Create long term contracts.

b.b. Charge lower price to those who buy larger quantity.Charge lower price to those who buy larger quantity.

c.c. Turn product into long term service.Turn product into long term service.



CUSTOMER PROFITABILITY, COMPANY PROFITABILITY:CUSTOMER PROFITABILITY, COMPANY PROFITABILITY:

Measuring Profitability: Marketing is the art of attracting & keepingMeasuring Profitability: Marketing is the art of attracting & keepingprofitable customers. Profitable customers are those that over aprofitable customers. Profitable customers are those that over atime yields revenue that exceeds by acceptable amount thetime yields revenue that exceeds by acceptable amount thecompanys cost stream of atrracting,selling,& servicing that companys cost stream of atrracting,selling,& servicing that

customer.Here emphasis is on lifetime stream of revenue & cost &customer.Here emphasis is on lifetime stream of revenue & cost &not on particular transaction.not on particular transaction.

It is not necessary that always largest customer yields most profit.It is not necessary that always largest customer yields most profit.Largest customer demand considerable service & receive max.Largest customer demand considerable service & receive max.discount. The smallest customer pay full price, receive minimaldiscount. The smallest customer pay full price, receive minimalservice but cost of transacting with small customer reduce theirservice but cost of transacting with small customer reduce theirprofitability.profitability.

There are two solutions to handling unprofitable customersThere are two solutions to handling unprofitable customers-- Raise feeRaise feeor Reduce service support.or Reduce service support.



CUSTOMER PROFITABILITY ANALYSIS:CUSTOMER PROFITABILITY ANALYSIS:

Here Co. estimates al revenue coming from customer, less allHere Co. estimates al revenue coming from customer, less allcosts.These costs include not only the cost of making & distributingcosts.These costs include not only the cost of making & distributingthe product but also costs such as taking phone calls, visiting tothe product but also costs such as taking phone calls, visiting to

customer, offering gifts.customer, offering gifts.

building customer satisfaction,value,retention

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