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Life Long Learning in MSUmalaysia

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  • 1. The University of Choice W welcome to Management & Science University
  • 2. The University of Choice The Best Practices for Creating Customer Loyalty Across Multi-Channels in Service Industry
  • 3. The University of Choice  What are best practices for creating loyal customers in tourism and hospitality industry?  Why some loyalty programmes of tourism and hospitality business operators don’t work properly? Why others can?  How can the operators of tourism and hospitality industry use multiple channels to create a cross-channel experience with their customers?  How can segmentation and analytics help in driving loyalty?  How can in-store marketing services be used for creating customer loyalty?
  • 4. The University of Choice Managing Customer Relationships and Building Loyalty
  • 5. The University of Choice Contents • The Search for Customer Loyalty • Understanding the Customer-Firm Relationship • The Wheel of Loyalty • Building a Foundation for Loyalty • Creating Loyalty Bonds • Strategies for Reducing Customers Defections • CRM: Customer Relationship Management
  • 6. The University of Choice The Search for Customer Loyalty
  • 7. The University of Choice Why Is Customer Loyalty Important to a Firm’s Profitability? • Customers become more profitable the longer they remain with a firm: – Increase purchases and/or account balances • Customers/families purchase in greater quantities as they grow – Reduced operating costs • Fewer demands from suppliers and operating mistakes as customer becomes experienced – Referrals to other customers • Positive word-of-mouth saves firm from investing money in sales and advertising – Price premiums • Long-term customers willing to pay regular price • Willing to pay higher price during peak periods
  • 8. The University of Choice How Much Profit a Customer Generates Over Time 350 – 300 250 200 150 100 50 0 Year 1 Credit card Year 2 Industrial laundry Year 3 Year 4 Industrial distribution Year 5 Auto servicing
  • 9. The University of Choice Assessing the Value of a Loyal Customer (1) Must not assume that loyal customers are always more profitable than those making one-time transactions – Costs • Not all types of services incur heavy promotional expenditures to attract a new customer • Walk-in traffic more important at times – Revenue • Large customers may expect price discounts in return for loyalty • Revenues don’t necessarily increase with time for all types of customers
  • 10. The University of Choice Assessing the Value of a Loyal Customer (2) • • to stage of service in product life cycle – For example referrals and negative word-of-mouth have a higher impact in early stages Tasks – Determine costs and revenues for customers from different market segments at different points in their customer lifecycles – Predict future profitability Profit impact of a customer varies according
  • 11. The University of Choice Measuring Customer Equity: Lifetime Value of Each Customer • Acquisition revenues less costs – Revenues (application fee + initial purchase) – Costs (marketing + credit check + account set up) • Projected annual revenues and costs – Revenues (annual fee + sales + service fees + value of referrals) – Costs (account management + cost of sales + write-offs) • Value of referrals – Percentage of customers influenced by other customers – Other marketing activities that drew the firm to an individual’s attention • Net Present Value – Sum anticipated annual values (future profits) – Suitably discounted each year into the future
  • 12. The University of Choice Gap Between Actual and Potential Customer Value • What is current purchasing behavior of customers in each target segment? • What would be impact on sales and profits if they exhibited ideal behavior profile of: – (1) buying all services offered by the firm, – (2) using these to the exclusion of any purchases from competitors, – (3) paying full price? • How long, on average, do customers remain with firm? • What impact would it have if they remained customers for life?
  • 13. The University of Choice Understanding the Customer-Firm Relationship
  • 14. The University of Choice Relationship Marketing (1) • Transactional Marketing – One transaction or a series of transactions does not necessarily constitute a relationship – Requires mutual recognition and knowledge between the parties • Database Marketing: – Includes market transaction and information exchange – Technology is used to • (1) identify and build database of current and potential customers • (2) deliver differentiated messages based on customers’ characteristics • (3) track each relationship to monitor cost of acquiring that customer and lifetime value of resulting purchases
  • 15. The University of Choice Relationship Marketing (2) • Interaction Marketing: – Face-to-face interaction between customers and supplier’s representatives – Value is added by people and social processes – Increasing use of technologies make maintaining meaningful relationships with customers a marketing challenge • For example, self-service technology, interactive websites, call centers • Network Marketing: – Common in b2b context where companies commit resources to develop positions in network of relationships with stakeholders and relevant agencies
  • 16. The University of Choice The Wheel of Loyalty
  • 17. The University of Choice The Wheel of Loyalty 3. Reduce Churn Drivers  Conduct churn diagnostic  Address key churn drivers Enabled through:  Frontline staff  Account managers  Membership programs  CRM Systems  Implement complaint handling and service recovery  Increase switching costs  Build higher level bonds 1. Build a Foundation for Loyalty  Segment the market  Be selective in acquisition  Use effective tiering of Customer service.  Deliver quality Loyalty service. 2. Create Loyalty Bonds  Give loyalty rewards  Deepen the relationship
  • 18. The University of Choice Building a Foundation for Loyalty
  • 19. The University of Choice Customer Needs and Company Capabilities • Identify and target the right customers – How do customer needs relate to operations elements? – How well can service personnel meet expectations of different types of customers? • – Can company match or exceed competing services that are directed at same types of customers? Should result in a superior service offering in the eyes of those customers who value what firm has to offer
  • 20. The University of Choice Searching for Value—Not Just Volume • Focus on number of customers served as well as value of each customer – Heavy users who buy more frequently and in larger volumes are more profitable than occasional users – Avoid targeting customers who buy based on lowest price • • Firms that are highly focused and selective in their acquisition of customers grow faster “Right customers” are not always high spenders – Can come from a large group of people that no other supplier is serving well • Different segments offer different value
  • 21. The University of Choice Effective Tiering of Service : The Customer Pyramid Good Relationship Customers Which segment sees high value in our offer, spends more with us over time, costs less to maintain, and spreads positive word-ofmouth? Platinum Gold Iron Lead Poor Relationship Customers Which segment costs us time, effort, and money, yet does not provide return we want? Which segment is difficult to do business with?
  • 22. The University of Choice Loyalty (Retention) The Customer Satisfaction and Loyalty Relationship Apostle 100 Zone of Affection 80 60 40 Near Apostle Zone of Indifference Zone of Defection 20 Terrorist 0 1 2 Very Dissatisfied Dissatisfied 3 Neither Satisfaction 4 Satisfied 5 Very Satisfied
  • 23. The University of Choice Creating Loyalty Bonds
  • 24. The University of Choice Strategies for Developing Loyalty Bonds with Customers (1) • Deepening the relationship – Bundling/cross-selling services makes switching a major effort that customer is unwilling to undertake unless extremely dissatisfied with service provider – Customers benefit from consolidating their purchasing of various services from the same provider – See Research Insights : How do customers see relational benefits? • One-stop-shopping, potentially higher service levels, higher service tiers, etc.
  • 25. The University of Choice Strategies for Developing Loyalty Bonds with Customers (2) • Reward-based Bonds – Incentives that offer rewards based on frequency of purchase, value of purchase, or combination of both – Financial bonds • Discounts on purchases, loyalty program rewards (e.g., frequent flier miles), cash-back programs – Non-financial rewards • Priority to loyalty program members for waitlists and queues in call centers: higher baggage allowances, priority upgrading, access to airport lounges for frequent flyers – Intangible rewards • Special recognition and appreciation, tiered loyalty programs – Reward-based loyalty programs are relatively easy to copy and rarely provide a sustained competitive advantage
  • 26. The University of Choice Strategies for Developing Loyalty Bonds with Customers (3) Social Bonds – Based on personal relationships between providers and customers – Harder to build and imitate and thus, better chance of retention in the long term • Customization Bonds – Customized service for loyal customers • e.g., Starbucks – Customers may find it hard to adjust to another service provider who cannot customize service Source: PAL Library; Asset ID: AAFHKTO0
  • 27. The University of Choice Strategies for Developing Loyalty Bonds with Customers (4) • Structural Bonds – Mostly seen in b2b settings – Stimulate loyalty through structural relationships between provider and customer • Joint investments in projects and sharing of information, processes and equipment – Can be seen in b2c environment too • Airlines—SMS check-in, SMS e-mail alerts for flight arrival and departure times – Difficult for competition to draw customers away when they have integrated their way of doing things with existing supplier
  • 28. The University of Choice Creating Customer Bonds by Membership Relationships and Loyalty Programs (1) • Transform discrete transactions into relationships – Discrete transactions: Each usage involves payment to service supplier by an essentially "anonymous" consumer – Membership cards: Capture transactions, communicate customer preferences to frontline – Loyalty reward programs increasingly used by all businesses in response to competition • Frequent fliers program—rewards dominated in miles – Customers may get frustrated with reward programs • For example: Feel excluded from rewards program because of low balances, rewards seen as having little value, cumbersome redemption process – Don’t lose sight of broader goals of offering high service quality, nor allow service to other customers to deteriorate
  • 29. The University of Choice Create Customer Bonds by Membership Relationships and Loyalty Programs (2) • How customers perceive reward programs – Brand loyalty versus deal loyalty – Buyers value rewards according to: • Cash value of redemption award • Range of choice among rewards • Aspirational value of rewards • Amount of usage required to obtain award • Psychological benefits of belonging to reward program – Timing • Send customers periodic updates on account status and progress towards particular milestones
  • 30. The University of Choice Strategies for Reducing Customer Defections
  • 31. The University of Choice Analyze Customer Defections and Monitor Declining Accounts • Understand reasons for customer switching • Churn diagnostics common in mobile phone industry – Analysis of data warehouse information on churned and declining customers – Exit interviews: • Ask a short set of questions when customer cancels account; in-depth interviews of former customers by third party agency – Churn Alert Systems: • Monitor activity in individual customer accounts to predict impending customer switching • Proactive detention efforts—send voucher, customer service representative calls customer
  • 32. The University of Choice Addressing Key Churn Drivers • Delivery quality • Minimize inconvenience and nonmonetary costs • Fair and transparent pricing • Industry specific drivers – Cellular phone industry: Handset replacement a common reason for subscribers discontinuing services—offer proactive handset replacement programs • Reactive measures – Save teams: Specially trained call center staff to deal with customers who want to cancel their accounts – Be careful about how save teams are rewarded
  • 33. The University of Choice Other Ways to Reduce Churn • Implement effective complaint handling and service recovery procedures • Increase switching costs – Natural switching costs • For example, changing primary bank account—many related services tied to account – Can be created by instituting contractual penalties for switching • Must be careful not to be perceived as holding customers hostage • High switching barriers and poor service quality likely to generate negative attitudes and word of mouth
  • 34. The University of Choice CRM: Customer Relationship Management
  • 35. The University of Choice Integrated Framework for CRM Strategy Strategy Development Process Value Creation Process Multi-Channel Integration Process Information Management Process Performance Assessment Process
  • 36. The University of Choice Integrated Framework for CRM Strategy Development • Strategy Development – Assessment of business strategy – Business strategy guides development of customer strategy
  • 37. The University of Choice Integrated Framework for CRM Strategy: Value Creation • Value Creation – Translates business and customer strategies into specific value propositions for both customers and firm • Customers benefit from priority, tiered services, loyalty rewards, and customization • Company benefits from reduced customer acquisition and retention costs, and increased share-of-wallet – Dual creation of value: Customers need to participate in CRM to reap value from firm’s CRM initiatives
  • 38. The University of Choice Integrated Framework for CRM Strategy: Multi-Channel Integration • Multi-Channel Integration – Serve customers well across many potential interfaces – Offer a unified interface that delivers customization and personalization
  • 39. The University of Choice Integrated Framework for CRM Strategy: Performance Assessment • Performance Assessment – Is CRM system creating value for key stakeholders? – Are marketing and service standard objectives being achieved? – Is CRM system meeting performance standards?
  • 40. The University of Choice Integrated Framework for CRM Strategy: Information Management • Information Management – Collect customer information from all channels – Integrate it with other relevant information – Make useful information available to the frontline – Create and manage data repository, IT systems, analytical tools, specific application packages
  • 41. The University of Choice Common Objectives Of CRM Systems (1) (Service Perspectives ) • Data collection – Customer data such as contact details, demographics, purchasing history, service preferences, and the like • Data analysis – Data captured is analyzed and categorized – Used to tier customer base and tailor service delivery accordingly. • Sales force automation – Sales leads, cross-sell, and up-sell opportunities can be effectively identified and processed – Entire sales cycle from lead generation to close of sales and after- sales service can be tracked and facilitated through CRM system
  • 42. The University of Choice Common Objectives Of CRM Systems (2) (Service Perspectives ) • Marketing automation – Mining of customer data enables the firm to target its market – Goal to achieve one-to-one marketing and cost savings, often in the context of loyalty and retention programs – Results in increasing the ROI on its marketing expenditure – CRM systems also enable the assessment of the effectiveness of marketing campaigns through the analysis of responses • Call center automation – Call center staff have customer information at their fingertips and can improve their service levels to all customers – Caller ID and account numbers allow call centers to identify the customer tier the caller belongs to, and to tailor the service accordingly • For example, platinum callers get priority in waiting loops
  • 43. The University of Choice Common Failures in CRM Implementation • Service firms often equate installing CRM systems with having a customer relationship strategy • Challenge of getting it right with wide-ranging scope of CRM • Common reasons for failures – Viewing CRM as a technology initiative – Lack of customer focus – Insufficient appreciation of customer lifetime value (CLV) – Inadequate support from top management – Failure to reengineer business processes – Underestimating the challenges in date integration
  • 44. The University of Choice Key Issues in Defining a Customer Relationship Strategy • How should our value proposition change to increase customer loyalty? • How much customization or one-to-one marketing and service delivery is appropriate and profitable? • What is incremental profit potential of increasing share-of-wallet with current customers? How much does this vary by customer tier and/or segment? • How much time and resources can we allocate to CRM right now? • If we believe in customer relationship management, why haven’t we taken more steps in that direction in past? • What can we do today to develop customer relationships without spending on technology?
  • 45. The University of Choice Improving Service Quality and Productivity
  • 46. The University of Choice What Is Service Quality?
  • 47. The University of Choice Different Perspectives of Service Quality Quality = Excellence. Recognized only through Transcendent: experience Product-based: Quality is precise and measurable User-based: Quality lies in the eyes of the beholder Manufacturing- Quality is in conformance to the firm’s developed specifications based: Value-based: Quality is a trade-off between price and value
  • 48. The University of Choice Performance: Primary operatin.g characteristics Features: Bells and whistles Reliability: Probability of malfunction or failure Conformance: Ability to meet specifications Durability: How long product continues to provide value to customer Serviceability: Speed, courtesy, competence Esthetics: How product appeals to users Perceived Quality: Associations such as brand name
  • 49. The University of Choice Components of Quality: Service-based Tangibles: Appearance of physical elements Reliability: Dependable and accurate performance Responsiveness: Promptness; helpfulness Assurance: Competence, courtesy, credibility, security Empathy: Easy access, good communication, understanding of customer
  • 50. The University of Choice Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1) • Survey research instrument based on premise that customers evaluate firm’s service quality by comparing – Their perceptions of service actually received – Their prior expectations of companies in a particular industry • Poor quality – Perceived performance ratings < expectations • Good quality – Perceived performance ratings > expectations
  • 51. The University of Choice How Customers Might Evaluate Online Businesses: Seven Dimensions of E-S-QUAL • • Navigation: How easy is it to move around the site? • Design and presentation: Image projected from site? • Content and purpose: Substance and richness of site • Currency and accuracy • Responsiveness:Firm’s propensity to respond to e-mails • . Accessibility : Is site easily found? Interactivity, customization, and personalization • Reputation and security
  • 52. The University of Choice Other Considerations in Service Quality Measurement • In uncompetitive markets or in situations where customers do not have a free choice, researchers should use needs or wants as comparison standards – Time constraints • Services high in credence characteristics may cause consumers to use process factors and tangible cues as proxies to evaluate quality —halo effect – Process factors: Customers’ feelings
  • 53. The University of Choice The Gaps Model—A Conceptual Tool to Identify and Correct Service Quality Problems
  • 54. The University of Choice Customer needs and expectations . CUSTOMER 1. Knowledge Gap MANAGEMENT Management definition of these needs 2. Standards Gap Translation into design/delivery specs 4. Internal Communications Gap 3. Delivery Gap Execution of design/delivery specs 4. 5. Perceptions Gap Customer perceptions of service execution 7. Service Gap Customer experience relative to expectations Advertising and sales promises 6. Interpretation Gap Customer interpretation of communications
  • 55. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (1) 1. Standards gap: Specify SQ standards that reflect expectations – Set, communicate, and reinforce customer-oriented service standards for all work units – Measure performance and provide regular feedback 1. Knowledge gap: Learn what customers expect – Understand customer expectations – Improve communication between frontline staff and management – Turn information and insights into action – Reward managers and employees
  • 56. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (2) 3. Delivery gap: Ensure service performance meets standards – Clarify employee roles – Train employees in priority setting and time management – Eliminate role conflict among employees – Develop good reward system 3. Internal communications gap: Ensure that communications promises are realistic – Seek comments from frontline employees and operations personnel about proposed advertising campaigns – Get sales staff to involve operations staff in meetings with customers – Ensure that communications sets realistic customer expectations
  • 57. The University of Choice Prescriptions for Closing the Seven Service Quality Gaps (3) 5. Perceptions gap: Educate customers to see reality of service quality delivered – Keep customers informed during service delivery and debrief after delivery – Provide physical evidence 5. Interpretation gap: Pretest communications to make sure message is clear and unambiguous – Present communication materials to a sample of customers in advance of publication 5. Service gap: Close gaps 1 to 6 to meet customer expectations consistently
  • 58. The University of Choice Measuring and Improving Service Quality
  • 59. The University of Choice Soft and Hard Measures of Service Quality • • Soft measures—not easily observed, must be collected by talking to customers, employees, or others – Provide direction, guidance, and feedback to employees on ways to achieve customer satisfaction – Can be quantified by measuring customer perceptions and beliefs • For example: SERVQUAL, surveys, and customer advisory panels Hard measures—can be counted, timed, or measured through audits – Typically operational processes or outcomes – Standards often set with reference to percentage of occasions on which a particular measure is achieved – Control charts are useful for displaying performance over time against specific quality standards
  • 60. The University of Choice Defining and Measuring Productivity
  • 61. The University of Choice Productivity in a Service Context • Productivity measures amount of output produced relative to the amount of inputs. • Improvement in productivity means an improvement in the ratio of outputs to inputs. • Intangible nature of many service elements makes it hard to measure productivity of service firms, especially for informationbased services – Difficult in most services because both input and output are hard to define – Relatively simpler in possession-processing services, as compared to information- and people-processing services
  • 62. The University of Choice Service Efficiency, Productivity, and Effectiveness • • • Efficiency: Involves comparison to a standard, usually time-based (for example: how long employee takes to perform specific task) – Problem: Focus on inputs rather than outcomes – May ignore variations in service quality/value Productivity: Involves financial valuation of outputs to inputs – Consistent delivery of outcomes desired by customers should command higher prices Effectiveness: Degree to which firm meets goals – Cannot divorce productivity from quality and customer satisfaction
  • 63. The University of Choice Measuring Service Productivity: Variability Is a Major Problem • • • Traditional measures of service output tend to ignore variations in quality or value of service – Focus on outputs rather than outcomes – Stress efficiency but not effectiveness Firms that consistently deliver outcomes desired by customers can command higher prices; loyal customers are more profitable Measures with customers as denominator include: – Profitability by customer – Capital employed per customer – Shareholder equity per customer
  • 64. The University of Choice Improving Service Productivity
  • 65. The University of Choice Questions When Developing Strategies to Improve Service Productivity  How to transform inputs into outputs efficiently?  Will improving productivity hurt quality?  Will improving quality hurt productivity?  Are employees or technology the key to productivity?  Can customers contribute to higher productivity?
  • 66. The University of Choice Generic Productivity Improvement Strategies • Typical strategies to improve service productivity: – Careful control of costs at every step in process – Efforts to reduce wasteful use of materials or labor – Replacing workers by automated machines – Installing expert systems that allow paraprofessionals to take on work previously performed by professionals who earn higher salaries • Although improving productivity can be approached incrementally, major gains often require redesigning entire processes ? ? ?
  • 67. The University of Choice Long Waiting Times May Indicate Need for Service Process Redesign
  • 68. The University of Choice Improving Service Productivity: (1) Operations-driven Strategies • Control costs, reduce waste • Set productive capacity to match average demand • Automate labor tasks • Upgrade equipment and systems • Train employees • Broadening array of tasks that a service worker can perform • Leverage less-skilled employees through expert systems • Service process redesign
  • 69. The University of Choice Improving Service Productivity: (2) Customer-driven Strategies • Change timing of customer demand – By shifting demand away from peaks, managers can make better use of firm’s productive assets and provide better service • Involve customers more in production – Get customers to self-serve – Encourage customers to obtain information and buy from firm’s corporate websites • Ask customers to use third parties – Delegate delivery of supplementary service elements to intermediary organizations
  • 70. The University of Choice Backstage and Front-stage Productivity Changes: Implications for Customers • • Backstage improvements can ripple to front and affect customers – Keep abreast of proposed backstage changes, not only to identify such ripples but also to prepare customers for them • For example: New printing peripherals may affect appearance of bank statements Front-stage productivity enhancements are especially visible in high contact services – Some improvements only require passive acceptance, while others require customers to change behavior – Must consider impacts on customers and address customer resistance to changes – Better to conduct market research first if changes are substantial
  • 71. The University of Choice Be Better Tomorrow Than You Are Today With MSU Lifelong Learning workshop and training
  • 72. The University of Choice