Chap016 customer retention

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  • 1. McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
  • 2. Chapter 16Customer Retention and Maximization
  • 3. THE NATURE OF A CUSTOMERCustomer Relationships can be found at any levelAlways-A-Share Highest Level Customer Relationship THE KEY FACTOR: SWITCHING COSTS The Direct and Indirect costs a buyer will have to pay to go to another supplierLost-For-Good Lowest Level Customers Relationship 16-3
  • 4. DEFINING THE EXTREMES OF CUSTOMER NATURE LOST-FOR-GOOD ALWAYS-A-SHARECustomers are tied to a Customers can allocatesystem. Switching their purchases tocosts may include: several vendors . A • Specific investments period of no purchases • Cancellation penalties can be followed by a • Setup costs for a new number of purchases. supplier Doesn’t want to rely on •Retraining a single vendor. •Finding/Evaluating a Suppliers are largely new supplier interchangeable Exhibit 16-1 16-4
  • 5. PAYOFFS TO SELLERS FROM LONG TERM CUSTOMER RELATIONSHIPS• GROWS ADDITIONAL BUSINESS OPPORTUNITIES for new products or increased purchases• PREMIUM PRICES result from giving first-rate service and product quality• REDUCED SELLING COSTS from tighter coordination of production and logistics• ADDITIONAL REVENUES POSSIBLE from customers’ referrals and joint sales calls with customers 16-5
  • 6. RELATIONSHIP BENEFITS TO SELLERS 500 400 Referrals Reduced 300 costs Profits Price 200 Premium Increased 100 Purchases Base profit 0 1 2 3 4 5 6 Years in Relationship Exhibit 16-5 16-6
  • 7. TWO REASONS COMPANIES STAY IN A BUSINESS RELATIONSHIPREASON 1. THEY HAVE TO No alternatives, binding actions such as contracts, product tiesREASON 2. THEY WANT TO Relationship is satisfying because of cooperation and meeting financial objectives 16-7
  • 8. TIES THAT BUILD RELATIONSHIPS• SUPERIOR PERFORMANCE at a good price (value)• SOCIAL RELATIONSHIPS created by frequent interaction• TECHNICAL DEPENDENCIES brought about by reliance on a supplier’s products or support• FORMAL AGREEMENTS involving investments or contracts 16-8
  • 9. SOURCES OF COMPETITIVE ADVANTAGETO BUILD CUSTOMER LOYALTY, DEVELOP A COMPETITIVE ADVANTAGE BY PROVIDING1. Superior performance2. Quality products and support as defined by the customer3. Distinctive and reliable service 16-9
  • 10. THE IMPACT OF TRUST AND COMMITMENT ON BUSINESS RELATIONSHIPS Relationship Termination Acquiescence Costs + + Relationship + Propensity Benefits Relationship - To leave Commitment + +Shared Values + Cooperation + + Trust + + Communication Functional Conflict - - Opportunistic Behavior Uncertainty Exhibit 16-8 16-10
  • 11. COMMUNICATING WITH CUSTOMERSTelephone Confirm appointment Answer a questionnaire about deliveryFax Summarize yesterday’s meeting FYI: an article in a trade magazineE-mail Request the name of a former consultant Give congratulations on a story in the press Request easy-to-find data in a planning documentBusiness Formally introduce a new account representativeLetter Summarize reasons for next quarter’s price increase Thank you for the orderFace-to-face Negotiate production commitments Resolve dispute about marketing effort Exhibit 16-9 16-11
  • 12. A TOOL FOR CUSTOMER RETENTION: CUSTOMER SATISFACTION SURVEYS REQUIREMENTS FOR A USEFUL SURVEY:1. CHOOSE MAIL OR TELEPHONE TO DO THE SURVEY2. DETERMINE THE KIND OF INFORMATION YOU NEED • Ascertain satisfaction with overall relationship • Measure specific aspects of the relationship • The unspoken concerns of customers • Determine what will get measured regarding customer expectations (The TERRA model works well) • Having meaningful and measurable ratings and scores 16-12
  • 13. 4-QUESTION SATISFACTION SURVEY 1 General overall Satisfaction question Process 1 Process 2 Process 3 Process 4 Process 5 (Parts handling) (Parts reps) (Service manuals) (Technical Support) (etc.) Attribute 1 Attribute 1 Attribute 1 Attribute 1 Attribute 1 Attribute 2 Attribute 2 Attribute 2 Attribute 2 Attribute 2 Attribute 3 Attribute 3 Attribute 3 Attribute 3 Attribute 3 Suggest Suggest Suggest Suggest Suggest2 change for change for change for change for change for improvement improvement improvement improvement improvement Loyalty questions 3 • Willingness to recommend 4 • Repurchase intentions Exhibit 16-10 16-13
  • 14. MEASURING SATISFACTION AFTER THE SURVEYS MANAGEMENT QUESTIONS1. WHAT DO THE SURVEYS TELL US?2. HOW DO WE USE THE INFORMATION WE HAVE?3. HOW RELIABLE IS THE INFORMATION? 16-14
  • 15. SATISFACTION SURVEYS: GUIDELINES FOR USE1. LOOK AT OVERALL SCORES2. COMPARE SCORES TO PREVIOUS MEASURES, PREFERABLY OVER SEVERAL YEARS3. ARE TRENDS UP, DOWN, STABLE?4. HOW MANY FACETS OF SATISFACTION DO WE MEASURE?5. HOW MANY ATTRIBUTES FOR EACH FACET SHOULD WE MEASURE6. WHAT IS OUR RELATIONSHIP FACET PERFORMANCE SCORE (RFPscore )? 16-15
  • 16. DETERMINING THE RFP SCORE sales reps. report cards, warranty claims, productOVERALL SATISFACTION = f lit., tech support, etc. 3.2 + .82 (RFPwarranty) OVERALL SATISFACTION = + .53 (RFPrep) + .06 (RFPlit ) + .12 (RFPtech support) + e THE REGRESSION COEFFICIENTS SHOW RELATIVE IMPORTANCE OF EACH FACET. 0.82 FOR WARRANTY CLAIMS IS MOST IMPORTANT FOR OVERALL SATISFACTION, FOLLOWED BY SALES REP PERFORMANCE 16-16
  • 17. STRONG STATISTICAL MODEL OF CUSTOMER SATISFACTIONSatisfactionScore Warranty Service RFP Exhibit 16-12 Score 16-17
  • 18. WEAK STATISTICAL MODEL OF CUSTOMER SATISFACTIONSatisfactionScore Technical Support RFP Exhibit 16-13 Score 16-18