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Lesson 10  customer relationship managememt (crm)

Lesson 10 customer relationship managememt (crm)






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    Lesson 10  customer relationship managememt (crm) Lesson 10 customer relationship managememt (crm) Document Transcript

    • Marketing Management Unit 1 Examining Concepts of Marketing Management Chapter 3 - CRM Lesson 10 - Customer relationship managememt (CRM)Hello students! (CRM) is to produce high customer equity. Cus- tomer equity is the total of the discounted life-In the first unit by analyzing the meaning of mar- time values of all of the firm’s customers. Clearly,keting and its core concepts we understood that the more loyal the customers, the higher the cus-marketing starts and ends with the customer. So tomer equity. Rust, Zeithaml, and Lemon distin-in this unit you would be introduced to the con- guish three drivers of customer equity: value eq-cepts of customer value and satisfaction. And uity, brand equity, and relationship equity.46we shall analyze the relation between customer Value equity is the customer’s objective as-satisfaction and customer loyalty. sessment of the utility of an offering based on price, and convenience. Each industry hasNowadays we find companies coming up with to define the specific factors underlying eachlot of activities or programs to maintain their cus- subdirver in order to find programs to improvetomers, so our unit proceeds with a discussion on value equity. An airline passenger might de-the importance of customer retention for the busi- fine quality as seat width: a hotel guest mightness. In customer retention, we discuss a very define quality as room size. Value equity Animportant concept that is spoken about in every airline passenger might define quality as seatorganization i.e. customer lifetime value. width; a hotel guest might define quality as room size. Value equity makes the biggestCustomer relationship management ( CRM): the contribution to customer equity when prod-key ucts are differentiated and when they are more complex and need to be evaluated. Value equity especially drives customer eq- uity in business markets. Brand equity is the customer’s subjective and intangible assessment of the brand, above and beyond its objectively perceive and in- tangible assessment of the brand, above and beyond its objectively perceived value. The subdrivers of brand equity are customer brand awareness, customer attitude toward the brand, and customer perception of brand eth- ics. Companies use advertising, public rela- tions, and other communication tools to af- fect these subdrivers. Brand equity is more important than the other drivers of customerAs the heading suggests the CRM is the key. All equity where products are less differentiatedthe activities of value, satisfaction etc , their mea- and have more emotional impact.surement and delivery will be judged finally from Relationship equity is the customer’s ten-the fact that how much customer equity we have dency to stick with the brand, above and be-been able to create. Then what is customer eq- yond include loyalty programs, special rec-uity? We shall find answers to these questions in ognition and treatment programs, communitythis lesson. building programs, and knowledge-building programs. Relationship equity is especiallyThe aim of customer relationship management important where personal relationships count16.101G © Copy Right : Rai University 55
    • Marketing Management for a lot and where customers tend to con- challenge is to turn clients into members by start- tinue with suppliers out of habit or inertia. ing a membership program that offers benefits to customers who join, and then into advocates, cus-This formulation integrates value management , tomers who enthusiastically recommend the com-brand management , and relationship manage- pany and its products and services to others. Thement within a customer-centered focus. Compa- ultimate challenge is to turn advocates into part-nies can decide which driver (s) to strengthen ners.for the best payoff. The researchers believe theycan measure and compare the financial return of Some customer inevitably become inactive or dropalternative investments. Companies now have a out. The challenge is to reactivate dissatisfiedbetter frame-work for choosing strategies and customers through win-back strategies. It is of-actions based on which would provide the best ten easier to re-attract ex-customers ( becausereturn on marketing investments. the company knows their names and histories ) than to find new ones. The key is to analyze theFigure 3.5 shows the main steps in the process causes of customer defection through exit inter-of attracting and keeping customers. The start- views and lost customer surveys. The aim is toing point is everyone who might conceivably buy win back only those customers who have strongthe product or service ( suspects). From these profit potential.the company determines the most likely prospects,which it hopes to convert into first-time custom- How much should a company invest in build-ers, and then into repeat customers, and ing loyalty so that the costs do not exceed the gains? We need to distinguish five differentFig 3.5 The Customer –Development Process levels of customers who have strong profit potential. 1. Basic marketing: The salesperson simply sells the product. 2. Reactive marketing: The salesperson sells the product and encourages the customer to call if the or the has questions, comments, or complains. 3. Accountable marketing: The salesperson phones the customer to check whether the product is meeting expectations. The sales- person also asks the customer for any prod- uct – or service – improvement suggestions and any specific disappointments. 4. Proactive marketing: The company works continuously with its large customers to help improve their performance. ( General Elec- tric, for example, has stationed engineers at large utilities to help them produce more power.then into clients – people whom the companytreats very specially and knowledgeably. The next56 © Copy Right : Rai University 16.101G
    • Marketing Management5. Partnership marketing: The company works It provides customized alerts to the device of the continuously with its large customers to helo customer’s choice, detailing stock movements and improve their performance. analysts’ recommendations. The company’s Web site permits online trading and provides access to( General Electric,for example, has stationed en- a variety of research tools. Ameritrade devel-gineers at large utilities to help them produce more oped an investing tutorial called Darwin that itpower.) offered free on CD-ROM to its customers. Cus- tomers responded to this new focus on their needs:Most companies practice only basic marketing Ameritrade grew from fewer than 100,000 ac-when their markets contain many customers and counts in 1997 to 1.3 million in 2000.47their unit profit margins are small. Whirlpool isnot going to phone each washing machine buyer Forming Strong Customer Bonds: The Basicsto express appreciation. At best, it may set up acustomer hot line. At the other extreme, in mar- Companies that want to form strong customerkets with few customers and high profit margins, bonds need to attend to the following basics:most sellers will move toward partnership mar- Get cross-departmental participation in plan-keting. Boeing, for example, works closely with ning and managing the customer satisfactionAmerican Airlines in designing airplanes that fully and retention process.satisfy American’s requirements. As Figure 3.6 Integrate the Voice of the Customer in allshows, the likely level of relationship marketing business decisions.depends on the number of customers and the Create superior products, services, and ex-profit margin level. periences for the target market. Organize and make accessible a database ofThe best relationship marketing going on today is information on individual customer needs,driven by technology. GE Plastics could not tar- preferences, contacts, purchase frequency,get its e-mail effectively to different customers if and satisfaction.it were not for advances in database software.Dell Computer could not customize computer Make it easy for customers to reach appro- priate company personnel and express theirordering for its global corporate software. Dell needs, perceptions, and complaints.Computer could not customize computer order-ing for its global corporate customers without Run award programs recognizing outstand-advances in Web technology. Companies are us- ing employees.ing e-mail, Web sties, call centers, databases, anddatabase software to foster continuous contactbetween company and customer. Here is howone company used technology to build customervalue: Berry and Paraguayan have gone beyond these basics and identified three retention-building approaches.48 adding financial benefits, adding social benefits, and adding structural ties.Ameritrade The discount brokerage serviceAmeritrade provides detailed information to itscustomers, which helps to create strong bonds.16.101G © Copy Right : Rai University 57
    • Marketing ManagementADDING FINANCIAL BENEFITS limited to an affinity group of to those willing to pay a small fee. Although open clubs are good for building a database or snagging customers from competitors, limited membership clubs are more powerful long-term loyalty builders. Frees and membership conditions prevent those with only a fleeting interest in a company’s products from joining. These clubs attract and keep those customers who are responsible for the largest portion of business. Some highly successful clubs include the following: Apple Apple encourages owners of its computer to form local Apple-user groups. By 2001, there were over 600 groups rangining in size from fewer than 25 members to over 1,000 members. TheTwo financial benefits that companies can offer user groups provide Apple owners with opportu-are frequency programs and club marketing pro- nities to learn more about their computers, sharegrams. Frequency programs (FPs) are designed ideas, get product discounts, and they sponsorto provide rewards to customers who buy fre- special activities and events and perform com-quently and in substantial amounts. Frequency munity service. A visit to Apple’s Web site willmarketing is an acknowledgement of the fact that help a customer find a nearby user group.4920 percent of a company’s customers might ac- Harley-Devidson The world-famous motorcyclecount for 80 percent of its business. company sponsors the Harley Owners GroupAmerican Airlines was one of the first compa- ( H.O.G.) , which now numbers 600,000 mem-nies to pioneer a frequency program in the early bers in over 1,200 chapters. The first-time buyer1980s, when it decided to offer free mileage credit of a Harley-Davidson motorcycle gets a free oneto its customers. Hotels next adopted FPs, with – year membership H.O.G. benefits include aMarriott taking the lead with its Honored Guest magazine called Hog Tales, a touring hand-book,Program. Shortly thereafter, car rental firms spon- emergency road service, a specially designed in-sored FPs. Then credit-card companies began to surance program, theft reward service, discountoffer points based on card usage level. Sears of- hotel rates, and a Fly & Ride program enablingfers rebates to its Discover member customers members to rent aHarleys while on vacation. Thewith discounts on particular items. company also maintains an extensive Web site devoted to H.O.G., which includes informationTypically, the first company to introduce an FP on club chapters, events, and a special membersgains the most benefits, especially if competitors – only section.50are slow to respond. After competitors respond,FPs can become a financial burden to all the of- ADDING SOCIAL BENEFITSfering companies, but some companies are more Company personnel work on increasing socialefficient and creative in managing an FP. For bonds with customers by individualizing and per-example, airlines are running tiered loyalty pro- sonalizing customer relationships; Table 3.2 con-grams in which they offer different levels of re- trasts a socially sensitive approach with a sociallywards to different travelers. They may offer one insensitive approach to customers. In essence,frequent-flier mile for every mile flown to occa- thoughtful companies turn their customers intosional travelers and two frequent – flier miles for clients. Donnelly, Berry, and Thompson draw thisevery mile flown to top customers. distinction:Many companies have created club membership Customers may be nameless to the institution;programs to bond customers closer to the com- clients cannot be nameless. Customers arepany. Club membership can be open to everyone served as part of the mass or as part of largerwho purchases a product or service, or it can be segments; clients are served on an individual ba-58 © Copy Right : Rai University 16.101G
    • Marketing Managementsis. Customers are served by anyone who hap- People can be loyal to their country, family, andpens to be available; clients are serviced by the beliefs, but less so o their toothpaste, soap, orprofessional assigned to them.51 even beer. The marketer’s aim should be o in- crease the consumer’s proclivity to repurchase the company’s keter’s Good Things Bad Things aim should be to increase the consumer’s proclivity to repurchase Initiate positive phone Make only callbacksMake the company’s brand. callsMake recommendations justifications Accommoda- Candor in language Use tive languageUse correspon- Here are his suggestions for cre- phoneShow appreciation dence Wait for misunder- ating structural ties with the cus- Make service suggestions standings Wait for service tomer: Use “We” problem - solv- requests Use “owe-us” legal Create long-term contracts. A ing language Get to problems language Only respond to newspaper subscription replace the Use jargon or shorthand Per- problems Use long-winded need to buy a newspaper each day. sonality problems aired Talk communications Personality A 20-year mortgage replaces the of “our future together” problems hidden Talk about need to re-borrow the money each Routinize responses Accept making good on the past Fire year. A home heating oil agreement responsibility Plan the future drill and emergency respon- assures continual delivery without siveness Sift blame Rehash renewing the order. the past Charge a lower price to con- sumer who buy larger suppliers. Offer lower prices to people who agree toADDING STRUCTURAL TIES be supplied regularly with a certain brand ofThe company may supply customers with spe- toothpaste, detergent, or beer.cial equipment or computer linkages that help Turn the product into a long-term service.customers manage orders, payroll, and inventory. Daimler-Chrysler is considering selling milesA good example I s McKesson Corporation, a of reliable transportation instead of cars, withleading pharmaceutical wholesaler, which in- the consumer able to order different cars atvested millions of dollars in EDI capabilities to different times, such as a station wagon forhelp independent pharmacies manage inventory, shopping and a convertible for the weekend.order-entry processes, and shelf space. Another Gaines, the dog food company , could offer aexample is Milliken & Company, which provides Pet Care service that includes kennels, in-proprietary software programs, marketing re- surance, and veterinary care along with food.search, sales training , and sales leads to loyal customer profitability, company profitability andcustomers total quality management Measuring Profitability We have so far discussed value satisfaction their measurement,and also how to estimate the cus- tomer lifetime value,The aim is finally to attract and retain those customers who are profitable. How will you arrive at the profitability of a cus- tomer or a company ? Ultimately, marketing is the art of attracting and keeping profitable customers. According to James V. Putten of American Express, the best cus- tomers outspend others by ratios of 16 to 1 inLester Wunderman, one of the most astute ob- retailing, 13 to 1 in the restaurant business, 12 toservers of contemporary marketing, thinks talk 1 in the airline business, and 5 to 1 in the hotelabout “loyalizing” customers misses the point.52 and motel industry.53 Yet every company loses16.101G © Copy Right : Rai University 59
    • Marketing Managementmoney on some of its customers. The well-known Note that the emphasis is on the lifetime stream20-80 rule says that the top 20 percent of the of revenue and cost, not on the profit from a par-customers may generate as much as 80 percent ticular transaction. Here are two illustrations ofof the company’s profits. Sherden sug-gested customer lifetime value.amending the rule to read 20-80-30, to reflect theidea that the top 20 percent of customers gener- GM When car buyers look at cars on the lot,ate 80 percent of the company’s profits, half of they often experience sticker shock. $15,000which are lost serving the bottom 30 percent of may seem like a lot of money to pay for a Cava-unprofitable customers.54 The implication is that lier, but that sum is nothing compared to thea company could improve its profits by “firing” $276,000 that General Motors estimates its life-its worst customers. time customers to be worth on average. The six-figure value is a graphic illustration of the importance of keeping the customer satisfied for the life of the automobile to better the chances of a repeat purchase.56 Taco Bell When tacos cost less than a dollar each, you would not think Taco Bell would fret over lost customers. However, executives at Taco Bell have determined that a repeat customer is worth as much as $11,000. By sharing such estimates of cus-tomer lifetime value with its employees, Taco Bell’s managers help employees un- derstand the value of keeping customers satis- fied.57Furthermore, it is not necessarily the company’s Although many companies measure customerlargest customers who yield the most profit. The satisfaction, most companies fail to measure in-largest customers demand considerable service dividual customer profitability. Banks claim thatand receive the deepest discounts. The smallest this is a difficult task because a customer usescustomers pay full price and receive minimal different banking services and the transactionsservice, but the costs of transacting with small are logged in different departments. However,customers reduce their profitability. The midsize banks that have succeeded in linking customercus-tomers receive good service and pay nearly trans-actions have been appalled by the numberfull price and are often the most profitable. This of unprofitable customers in their customer base.fact helps explain why many large firms are now Some banks report losing money on over 45 per-invading the middle market. Major air express cent of their retail customers. There are only twocarriers, for instance, are finding that it does not solutions to handling unprofitable customers: raisepay to ignore small and midsize international ship- fees or reduce service support.pers. Programs geared toward smaller custom-ers pro-vide a network of drop boxes, which A useful type of profitability analysis is shown inallow for substantial discounts over letters and Figure 3.7.packages picked up at the shipper’s place of busi-ness. In addition, United Parcel Service (UPS)conducts seminars to instruct exporters in thefiner points of shipping overseas.55What makes a customer profitable? A profitablecustomer is a person, household, or company thatover time yields a revenue stream that exceedsby an acceptable amount the company’s coststream of attracting, selling, and servicing thatcustomer.60 © Copy Right : Rai University 16.101G
    • Marketing ManagementCustomers are arrayed along the columns and tors at a sufficiently low cost. Competitive ad-products along the rows. Each cell contains a vantage is a com ability to perform in one or moresymbol for the profitability of selling that product ways that competitors cannot or will not Michaelto that customer. Customer 1 is very profitable; Porter urged companies to build a sustainablehe buys three profit making products ( P1,P2, competitive advantage.60But few competitiveand P4). Customer 2 yields a picture of mixes advantages are sustainable. At best, they mayprofitability; he buys one profitable product and be leverageable.A leverage able advantage is oneone unprofitable product. Consumer 3 is a losing that a company can use as a spring board to newcustomer because he buys one profitable prod- advantages, much as Microsoft has leveraged itsuct and two unprofitable products. operating system to Microsoft Office and then to networking applications. In general, a companyWhat can the company do about that hopes to endure must be in the business ofcustomers 2 and 3? continuously inventing new advantages.(1) It can raise the price of its less profitable products or eliminate them, or(2) It can try to sell them its profit-making products.Unprofitable customers who defect should notconcern the company. In the company shouldencourage these customers to switch to competi-torsCustomer profitability analysis (CPA) Any competitive advantage must be seen by cus-It is best conducted with the tools accounting tomers as a customer advantage. For example,technique called Activity-Based Costing (ABC). if a company delivers faster than its competitors,The company estimate revenue coming from the this will not be a customer advantage if custom-customer, less all costs. The costs should mc1ude ers do not value speed. Companies must focusnot only cost of making and distributing the prod- on building cus-tomer advantages. Then they willucts and services, but also such costs as taking deliver high customer value and satisfaction,phone calls from the customer, traveling to visit which leads to high repeat purchases and ulti-the customer, entertainment and giving all the mately to high company profitability. (For a co-company’s resources that went into serving that gent view of how to measure profitability, seecustomer. When this is done each customer, it is “Marketing Insight: Marketing’s Goal: To In-possible to classify customers into different profit crease Shareholder Value.”)tiers: plat customers (most profitable), gold cus-tomers (profitable), iron customers (low profit but Activity-3desirable), and lead customers (unprofitable and With the advent of e-commerce, question haveundesirable). arisen about invasion of privacy —both o-line and off-line ——by the firms. Concerns are also be-The company’s job is to move iron customers into ing felt about potential on line credit card infor-the gold tier and gold customers into the plati- mation or other potentially sensitive or confiden-num tier, while dropping the lead customers or tial financial information. Other view is that thesemaking them profit a raising their prices or low- fears are unfounded and that security issues ex-ering the cost of serving them. The company’s ist virtually everywhere in the world, and it is uptomarketing investment ought to be higher in the the consumer to protect his interests.higher profit tiers (see Figure 3.8) For Instructor: Please conduct a 10 minute dis-Increasing company profitability: cussion on the abovementioned topic. Perfor-Companies must not only be able to create high mance during the discussion shall form part of‘absolute value, but also high active to competi- the continuous evaluation.16.101G © Copy Right : Rai University 61
    • Marketing ManagementActivity-4 the function of product’s perceived performanceDiscuss the measures that the following busi- and his expectations. and since satisfaction is di-nesses are taking to retain the existing custom- rectly related to loyalty ,many firms are todayers striving for what we can call as Total Customera) A hospital Satisfaction.(TCS)..b) A retail outlet We have evaluated that losing customers can bec) Clubs a very costly proposition for the cost of attract- ing a new customer is five times more than theFor completing this activity you need to select cost of keeping a current customer happy. ALSOthe organization of your choice in all the busi- THE KEY TO RTAINING CUSTOMERS ISnesses mentioned above. Analyse the individual RELATIONSHIP MARKETING. In order toprograms used in those organizations and finally keep customers happy , marketers may add othercomment on how the programs differ in each of benefits or create structural ties between thethese industries and why? company and the customers. Another key is theChapter Summary total quality which creates value and leads to to- tal customer satisfaction. In such quality con-In this chapter we have dealt with issues that are sciousness companies , marketing managersclosely related to customer. How does he per- should not only participate in formulating strate-ceive value? How is he satisfied? How to mea- gies but also deliver marketing quality alongsidesure value and satisfaction. Ultimately he will buy production quality.from the firm which provides maximum customerderived value——the difference between total In the end we shall conclude by saying that eachcustomer value and total customer cost. marketing activity –beit marketing research, sales training ,advertising, customer service must beYou have seen that a customer’s satisfaction is performed to high standards. Point to remember62 © Copy Right : Rai University 16.101G
    • Marketing Management16.101G © Copy Right : Rai University 63
    • Marketing Management64 © Copy Right : Rai University 16.101G
    • Marketing Management Tutorial - B and the opportunity for marketers to know their customers on a more personal level. Ever-in-Activity: creasing competition has forced marketers to seekDiscuss the measures that the following busi- out the information necessary to provide custom-nesses are taking to retain the existing custom- ers with the products and services they truly de-ers sire. Technology, when used to create a customera) A hospital database, is one way marketers are answering to this new trend. Product development will beb) A retail outlet discussed in a later chapter; for now, we will fo-c) Clubs cus on building satisfaction through customer re-For completing this activity you need to select lationship development activities.the organization of your choice in all the busi- The concept of perceived value is based onnesses mentioned above. Analyse the individual Kotler’s explanation of customer delivered value.programs used in those organizations and finally Customers, like marketers, seek to profit fromcomment on how the programs differ in each of an exchange. Perceived value is aptly namedthese industries and why? because it supports the notion that the customerCreating Customer Relationships that Last and not the marketer determine value. The marketer’s responsibility is to create value, in bothThis lecture is intended for use with Chapter 3, product and service quality, that lead to increased“Building Customer Satisfaction, Value, and Re- satisfaction and encourage a high perceived value.tention.” The focus is on the increasingly power-ful role of customers in the marketing process For example, service excellence is determinedand the need for marketers to provide value that by customer perceptions and motivated by cus-exceeds customer expectations. The concept of tomer needs. Ken Blanchard, author of The Onerelationship marketing is also presented for fur- Minute Manager, says that the secret to com-ther discussion, providing a link with other areas peting successfully in today’s environment is toof the text. provide customers with service that is so far above their expectations that it is perceived to beLearning Outcome legendary. To understand the changing role of the cus- tomer in today’s marketplace Marketers, with both large and small organiza- To explain the concepts of product and ser- tions, can engage in activities that exceed expec- vice quality as they contribute to perceived tations and lead to customer delivered value. value for the customer Marketers with large organizations have the ability To present specific methods whereby mar- to tap into a sophisticated database, utilizing past keters can engage in value-creating activi- purchase data to customize marketing programs. ties These marketers also can become experts at “guerrilla marketing,” or the implementation ofDiscussion local promotions for the purpose of getting closer to customers. Furthermore, large organizationIntroduction marketers also have the ability to create Web siteIn the contemporary marketplace, it is hard to and store-specific marketing programs that cre-believe there was ever a time when customers ate retailer loyalty, build differentiation, and in-were not treated as an integral part of the ex- crease sales in desired market areas.change process. Prior chapters consider someof the many shifts taking place in today’s mar- Small business marketers, however, also haveketing environment. Competition in the market- many opportunities to create strong customerplace, along with advancing technology, affords relationships. By placing extra focus on whatcustomers the ability to learn significantly more might generally be considered a commodity prod-about the products they will consider purchasing. uct, these marketers can stimulate demand and compete with large rivals in the same industry. IfThe same factors also have created both the need a company is small enough, its top executives can16.101G © Copy Right : Rai University 65
    • Marketing Managementserve as the communication link for the company deliveries? The companies become, in essence,and various external publics, such as customers share-of-customer marketers.and retailers. Even internal publics, such as thesales staff, should be encouraged to make sug- A marketer’s primary task in the one-to-one fu-gestions to top management. Finally, database ture is not to find customers for the marketer’sprograms are becoming more and more afford- products but rather to find more products andable, making direct-mail programs a viable op- services for its customers. Consider that mosttion even for smaller firms. This leads to a dis- retail chains have not really tried to figure outcussion of an evolving direction for relationship how to offer such conveniences as homemarketing. delivery, because they don’t want to consider this for various internal reasons. They want custom-Relationship Marketing Expanded ers to need to come in to the store (or into theEven though it is becoming increasingly possible, virtual store) because they like to have custom-why would any rational customer actually want ers walking up and down the aisles (or virtuala “relationship” with the company that makes his aisles), making last-minute impulse purchases. Foror her razor blades, or dishwasher soap, or toilet a large part of their business, today’s retailerspaper? The answer is that the consumer depend on inconveniencing customers by requir-probably would not necessarily desire a “relation- ing them to drive to their store (or virtual store)ship” with these companies, but the customer will location to do their shopping.want more spare time. Accordingly, he or she However, consider that marketers today jammight like to have routine or repeat purchases twice as many products in the average super-for soap, paper towels, grocery staples, and so market as there were just over a decade agoforth automated. (30,000 products now, compared with 15,000 inWhat if you could turn on your personal com- 1985). Furthermore, commercial messagesputer or your interactive television set, call up a abound for these products, the overwhelminglist of last week’s grocery purchases, make a few majority of which do not now appeal to any par-changes, and then simply order them delivered to ticular consumer. Instead, we must all fight ouryour door? And what if, when you did this, the way through the increasing number of advertis-computer reminded you to order certain items ing messages to pick out the information we need,such as toothpaste and paper towels because you just as we must struggle through the proliferatingmight be running low on those items? What if, to barrage of products in or out of stores just to se-help choose the groceries you wanted for your lect the ones we want to buy. Every shoppingfamily, you asked the computer for a week’s trip becomes an increasingly difficult attempt toworth of dinner menus, specifying recipes and accomplish the same basic task, thus adding toingredients? the increasing use of the Internet.In many product categories, you don’t really care Having an ability to buy these products more con-what brand the computer selects, but in some veniently doesn’t mean people will completelyproduct categories you have a list of “approved” stop going into stores, nor does it meanbrands, as well as brands you never want to see advertising will cease to exist. But if getting youragain. The computer automatically seeks out the regularly consumed products could be madeleast expensive basket of products that meet these nearly as convenient as “pushing a button,”criteria. Once you confirm it, your order is paid wouldn’t you go into the store less frequently?for via credit card or direct debit. The elapsed Wouldn’t you, for the most part, prefer not hav-time for all this shopping was just seven minutes. ing to shop for routine things? You could always choose to go out if you wanted to—after all, shop-Now, from the marketer’s side of the equation, ping is often a social experience, as well as aconsider the immense business opportunity in necessity.serving your customers more thoroughly. Deliv-ering grocery staples is one thing. But what about As with stores and other enterprises that cater topharmaceuticals? Dry cleaning and laundry? the interests of the interactive consumer (includ-Ready-made meals? FedEx and other pickups and ing information and entertainment providers), the66 © Copy Right : Rai University 16.101G
    • Marketing Managementmanufacturer will be able to succeed competi- mance, as what we actually do is sometimes un-tively only by relying on individual feedback. For der-appreciated or unseen by a critical customer.the manufacturer, success in the one-to-one mar-keting environment will mean soliciting informa- Usually we help set up these expectations,tion from consumers, individually, and then using through advertising or through the sales process.that feedback to customize an offering to each When this happens, and we don’t deliver, we haveindividual customer, one at a time. This is the es- no one but ourselves to blame. Over-promising,sence of one-to-one marketing. then delivering less than promised, is a surefire way to create customer dissatisfaction. This canAdditional Reading be true even if our performance is still better thanThe Quest for Customer Satisfaction that of our competitors. The fact that the cus- tomer believed something different colors the pic-First...do we know what we’re even looking ture against us.for? On the other hand, when the customer gets moreby Dick Barnes, Principal, The Freeland Group than they bargained for they think we’re the greatest. They are completely satisfied, evenNowadays it seems everyone is talking about how thrilled. The down side, of course, is that whenimportant their customers are, how well they treat they reorder they do so with newly heightenedtheir customers, and how their customers are loyal expectations. If we perform as before, they arebecause they are satisfied. But how do we know simply satisfied, but if we don’t over-performif our customers are satisfied, super satisfied, truly once again, they become dissatisfied. It’s likeloyal, or just hanging with us until someone better walking a tightrope.walks in the door? In truth we really don’t know,nor do we even consider dividing customers into And it’s a very shaky tightrope. We want to sellthese different camps. ourselves and our firms, but we don’t dare oversell, but if we sell too little a competitor mayIf we want to improve our bottom line, we need beat us out, and if we promise just enough to beatto know what our customers really think, and we the competition then we don’t dare fail to deliver.need to pinpoint what we do that does satisfythem and what does not. Better yet, we should Recall the “snake oil” salesmen of old. Theywant to discover what they consider just satis- would sell cough syrup out of their horse drawnfactory, what they are happy about, what they’re wagons, claiming the elixir would cure everydelighted or thrilled about, and what they simply disease of mankind. When the product did nottolerate until something better comes along. deliver, the salesman was often tarred, feathered, and run out of town on a rail. They created veryUntil recently, most firms simply lumped all cus- unsatisfied customers. This wouldn’t have hap-tomer attitudes into satisfied or unsatisfied. This pened if the salesman had simply promised toblack and white approach did little to help us find sooth a cough. He wouldn’t have sold as muchways to improve service and customer product, but he would have enjoyed his leave-retention…and customer retention is vitally im- taking a great deal more.portant to our profit line. Measuring and qualify-ing customer satisfaction issues can be extremely All of this doesn’t mean the modern dayinstructive if we know what to look for and what customer relationship is so complicated as to beto do with that information. hopeless. After all, your competition is in the same boat and your customers are probably in there asTo begin the process of measuring customer sat- well; being that they also have customers to worryisfaction we should first define what we are look- about. So even your most finicky consumers haveing for. Customer satisfaction is normally thought some degree of tolerance and understandingof as the relationship between what the customer when things don’t go exactly as planned.expects and what the customer receives; in otherwords, expectations versus performance. More In the modern business transaction, there are aaccurately, we should label it perceived perfor- number of areas we can look at to help us mea-16.101G © Copy Right : Rai University 67
    • Marketing Managementsure overall customer satisfaction. Generally we immediately for a competitor.look at the product or service itself, its price, thedelivery, the billing and collecting process, the In other words, ninety percent of your customersordering or re-ordering process, the personal re- might be unsatisfied and just waiting for the rightlationships involved, and the customer service salesperson to walk in the door and steal themafter the transaction. Your firm might have a dif- away. There is an obvious value in finding theferent selection of functions or processes that hole in the fence and fixing it before the critterscould be measured as well. escape. A survey may allow you to do this, and stop those customers from becoming ex-custom-Next we look at ways to measure the level of ers.satisfaction with those functions. There are fourproven methods to go about this; the lost cus- Customer satisfaction surveys should normally betomer analysis method, the test shopping analy- designed and carried out by a third party, andsis, a complaint analysis, or a customer satisfac- might be done blindly so as not to unduly influ-tion survey. Different functions are sometimes ence results either pro or con.better analyzed by different methods, or combi-nations of these methods. An important aspect of any of these measuring systems is to keep track of results and compareThe lost customer analysis can be a very simple them over time. Without doing so we can neverthing. A manager might make a telephone call or discover whether we have made improvementspersonal visit, or a third party might do the calling or not. In the same vein, the method of gatheringto help prevent bias. Sometimes the information information must be the same each time, or thegained can actually get your salesperson back in results could be misleading.the door at a later date, but the real intent of thispractice is to be able to build a list of events that Next month we’ll get into some different meth-created dissatisfaction. ods of tracking the information we gather, orga- nizing that information, then using it to enhanceTest shopping is the practice of using a third party our customer satisfaction measures along withto pose as a prospect. They can then report in our bottom line.great detail what happens throughout the process.They can even go as far as making a purchase, Case Studythen returning the purchase for a refund or re-questing customer support after delivery. Every Marketing Spotlight-Charles Schwabfirm should run this type of trial at least once, if Charles Schwab founded the discount brokeragenot on a regular basis. named for him in 1974. The company’s no-frills investment offerings were predicated on CharlesComplaint analysis is similar to the lost customer Schwab’s distaste for traditional brokers, who heanalysis, but you don’t have to hunt down the labeled “hucksters of inside information, alwaysproblems encountered by customers. They are trying to get me to buy this product or invest-kind enough to make sure you know what the ment.” Until 1993, Schwab’s brokers were in-problems are. I state it that way because a com- structed not to offer investment advice, but ratherplaining customer should be considered a gift. It’s to refer curious customers to publicly availablean opportunity to see your weaknesses from research from Standard & Poor’s or Morningstar.another’s viewpoint and to come up with solu-tions. If you are not tracking and graphing com- Schwab benefited from the online trading boom.plaints you are missing vital information that could Long before any of the traditional brokeragegenerate some healthy returns. houses considered an e-commerce move, in 1997 Schwab was one of the first discount brokeragesA customer satisfaction survey might be the most to offer online trading. It offered online trades atexpensive and time-consuming method of the four. $29.95 for the first 1000 shares, compared withIt might also be the most accurate. Studies indi- the per-trade fees that exceeded $100. Startingcate that only five to ten percent of dissatisfied at zero in 1995, online trades accounted for 85customers will make a complaint, or leave you percent of all trades executed by Schwab by 2001.68 © Copy Right : Rai University 16.101G
    • Marketing ManagementThe company’s retail assets grew threefold to does the Schwab marketing effort reflect?almost $1 trillion during the same time period, How has Schwab effectively anticipated theputting it in league with the biggest brokerages in needs of the market?America. Between 1997 and 2000, daily trades 2. Draw on recent economic developments torose 183 percent, while profits increased 112 per- anticipate where the next changes likely willcent during that time frame. be for Schwab. Consider what past and fu- ture events might have a substantial impactSchwab’s marketing activities helped the com- on the way it operates in the future.pany become a household name synonymous withonline trading. Early ads used real Schwab cus-tomers and employees in testimonial advertise- Essay Questionsments. In 1999, the company enlisted celebrityspokespersons to advertise its full-service online 1. From your own personal standpoint, stateinvesting offerings. The humorous ads featured three ways in which you create your expec-sports stars such as football player Shannon tations about your purchases as a consumer.Sharpe and tennis star Anna Kournikova in 2. Core competencies are important for a busi-cameo roles as Schwab customers who surprised ness to recognize in themselves in order tocompetitors with their knowledge of investing be competitive. Core competencies haveprinciples. The tagline served to reinforce three characteristics. State them.Schwab’s difference from online-only brokerages: 3. What is the difference between a visionary“We’ve created a smarter kind of investing. company and a comparison company?We’ve created a smarter kind of investor.” Theseads were part of Schwab’s $200 million market- Multiple-Choiceing budget for 1999. 1. ______________ is the difference betweenIn 2001, as online trading slowed in the wake of the prospective customer’s evaluation of allthe dot-com crash, Schwab sought to expand its the benefits and all the costs of an offeringbusiness by providing its customers with a greater as compared to the perceived alternatives.number of services. Rather than rely on a highvolume of low-cost trades to drive revenues, a) Total customer valueSchwab began focusing on providing investment b) Customer perceived valueadvice to its clients. In new brokerage offices, c) Total customer costSchwab placed financial advisers from whom d) Customer gainsclients could seek investment tips and other ser-vices for a fee. Schwab also considered offering 2. Customers develop their expectations aboutproprietary stock research for its customers. In- a product they will purchase from all of thedustry experts expected these new services would following sources except:recast Schwab in a role more similar to tradi- a) unread e-mailtional brokerage houses. A former Schwab ex- b) friendsecutive predicted, “Schwab will be a lot closer to c) past experienceMerrill Lynch than it is to the Schwab of yester- d) peersday.”(Sources: John Gorman. “Charles Schwab, Ver- 3. Which of the following is not a tool for track-sion 4.0.” Forbes, January 8, 2001, pp. 89-95; ing and measuring customer satisfaction?Charles Gasparino and Ken Brown. “Schwab’s a) Complaint and suggestion systemsOwn Stock Suffers From Move into Online Trad- b) Customer satisfaction surveysing.” Wall Street Journal, June 19, 2001, p. A1; c) Ghost shoppingRebecca Buckman and Kathryn Kranhold. d) All of the above“Schwab Serves Up Sports-Themed Ads.” WallStreet Journal, August 30, 1999, p. B9.) 4. ___________ companies are increasingly1. What changes in the marketing environment focusing on the need to manage core busi-16.101G © Copy Right : Rai University 69
    • Marketing Management ness processes such as new-product devel- c) direct mail opment, customer attraction and retention, d) phone calls and order fulfillment.a) Big 10. Which of the following descriptions wouldb) High-profile best characterize a highly satisfied customer?c) High-performance a) Buys more products and servicesd) Highly competitive b) Visits competitors on a regular basis c) Try other brands to make sure they are loyal5. Which of the following are not resources that to a company are needed by companies to carry out its d) Would not complain so they can appear to business processes? remain loyala) laborb) commercials 11. Which of the following would best describec) materials the calculation of a customer’s lifetime value?d) information a) The present value of the stream of future costs expected over the lifetime6. A company’s _________ consists of its b) The present value of the stream of future structures, policies, and corporate culture, all income increases expected over the lifetime of which can be dysfunctional in a rapidly c) The future value of the stream of future costs changing business environment. expected over the lifetimea) organization d) The present value of the stream of futureb) rules profits expected over the lifetimec) policiesd) culture 12. ____________ is the customer’s objective assessment of the utility of an offering based7. _______________ companies are ac- on perceptions of its benefits relative to its knowledged as the industry leaders and cost. widely admired; they set ambitious goals, a) Relations equity communicate to their employees, and em- b) Brand equity brace a high purpose beyond making money. c) Value equitya) Utopian d) Net equityb) Encouragingc) Comparison 13. There are five different levels of investmentd) Visionary in customer-relationship building. They are basic, reactive, proactive, partnership, and8. The primary activities that represent creat- what? ing value for customers as part of the value a) Subjective chain tool include all of the following except: b) Accountablea) inbound logistics c) Objectiveb) operations d) Accountingc) technologyd) marketing and sales 14. Creating structural ties with customers is a long-term process for a company. Which of9. Some of the ways that a company can seek the following would not be a good suggestion to increase their profits and sales by search- for creating those ties? ing for new customers include all of the fol- a) Concentrate on current sales lowing except: b) Create long-term contractsa) ads c) Charge a lower price to consumers who buyb) reading the obituaries larger supplies d) Turn the product into a long-term service70 © Copy Right : Rai University 16.101G
    • Marketing Management15. A _________________ advantage is one 7. Examples of resources that a company can that a company can use as a springboard to use to carry on its business processes are new advantages. labor, materials, and information.a) customer a) Trueb) relationship b) Falsec) contractuald) leverageable 8. The shared stories, experiences, beliefs, and norms that every employee has and sharesTrue or False within a company are called policies. 1. Total customer value is the bundle of costs a) True customers expect to incur in evaluating, ob- b) False taining, using, and disposing of the given mar- ket offering. 9. Visionary companies are acknowledged in-a) True dustry leaders and are widely admired, setb) False ambitious goals, communicate to their em- ployees, and embrace a high purpose beyond2. A person’s feelings of pleasure or disappoint- making money. ment resulting from comparing a product’s a) True performance (or outcome) in relation to his b) False or her own performance (or outcome) is called satisfaction. 10. A value chain is a tool used by a company toa) True identify ways to create more customer valueb) False through its activities. a) True3. Customer expectations are created by buy- b) False ing experience, friends’ and associates’ ad- vice, and marketers’ and competitors’ infor- mation and promises. 11. The process of calculating a company’s cus- tomer defection rate is called customera) True scrambling.b) False a) True b) False4. A value inquest consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the of- 12. A highly satisfied consumer stays loyal longer, fering. buys more products talks favorably about the company, and shops at competitors regularlya) True to keep up with price comparisons.b) False a) True b) False5. One of the tools used to track and measure customer satisfaction is a complaint and sug- gestion system. 13. Customer lifetime value describes the present value of the stream of future profits expecteda) True over the customer’s lifetime purchases. [Hint]b) False a) True b) False6. Companies that navigate all the pitfalls to reach their customer value and satisfaction goals are called high-performance companies. 14. Value equity is the customer’s subjective and [Hint] intangible assessment of the brand, above and beyond its objectively perceived value.a) True a) Trueb) False b) False16.101G © Copy Right : Rai University 71
    • Marketing Management15. A customer advantage is something that a company can use as a springboard to new advantages.a) Trueb) False72 © Copy Right : Rai University 16.101G