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Chapter 1 CUSTOMERS WANT TOP VALUE . EIGHT FACETS OF THE VALUE THEORY. CULTURE. Organizational Culture. Employee Values. SUPPLIER VALUES. CUSTOMER VALUES. 3RD PARTY VALUES. Competitor Values. Owner’s Values. WHY VALUE ?. People respond to value Value Attracts Customers

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slide2

EIGHT FACETS OF THE VALUE THEORY

CULTURE

Organizational

Culture

Employee

Values

SUPPLIER

VALUES

CUSTOMER

VALUES

3RD PARTY

VALUES

Competitor

Values

Owner’s

Values

why value
WHY VALUE?
  • People respond to value
  • Value Attracts Customers
  • Value Energizes an Organization
  • Value creates the potential for a competitive advantage
creating customer value key questions

What is meant by customer value?

How is customer value created?

What is

superior

customer value?

How is value delivered throughout the:

1) organization, 2) marketing channel?

Does maximizing customer value

increase: sales, profits, market share?

Conquest or relationship marketing?

Creating Customer Value: Key Questions
the customer value triad
The Customer Value Triad

Value-based Prices

Customer value can be achieved only when product quality, service quality and value-based prices are in harmony and exceed customer expectations.

Customer

Value

Product

Quality

Service

Quality

customer value basics

The customer defines the appropriate

quality, service,

price

and

Value expectations are relative to the

competition

Value expectations are dynamic

Quality and service delivery are the

responsibility of the whole channel

Maximizing customer value requires

total organizational commitment

Customer Value Basics

Source: Naumann, E. (1995)

how southwest airlines creates superior value
How Southwest Airlines Creates Superior Value

Clear Service

Focus

Process

Mastery

Recruitment

and Training

Treat Employees

as Customers

Maverick

Culture

Teamwork

southwest airlines relational coordination
Southwest Airlines – Relational Coordination
  • Lead with credibility and caring.
  • Invest in frontline leadership.
  • Hire and train for relational competence.
  • Use conflict to build relationships.
  • Bridge the work/family divide.
  • Create boundary spanners.
  • Measure performance broadly.
  • Keep jobs flexible at the boundaries.
  • Make unions your partner.
  • Build relationships with suppliers.
how starbucks creates superior value
How Starbucks Creates Superior Value

Service

Consistency

Roasting

Technology

Recruitment

and Training

Create the right

Store Atmosphere

Treat Employees

as Partners

Brand Consistency

5 tenets of the starbucks experience
5 Tenets of the Starbucks Experience
  • Make it Your Own (“5 ways of being”)
    • Be welcoming
    • Be genuine (connect, discover, respond)
    • Be considerate
    • Be knowledgeable
    • Be involved
  • Everything Matters
  • Surprise and Delight
  • Embrace Resistance
  • Leave Your Mark
starbucks and quality
Starbucks and QUALITY
  • Quality of its coffee being defined as fresh as possible, i.e. actively giving off 3 to 20 times its volume in aromatic gas, “quality is in the details”
  • Starbucks worked to develop packaging that enable them to keep the coffee fresh , not for 7 days, but for up to six weeks.
  • Starbucks suppliers’ dedication to quality was key!
  • Service Standard: ensure that Starbucks coffee can be delivered fresh anywhere in the world (utilizing design-in quality via improved packaging and a 7-cent valve that lets gases out of the bag but does not allow air to enter)
christine day interview
Christine Day Interview

The following questions were posed to Christine Day, Chief Administrative Officer for Starbucks by Harvard Business School Professor John Quelch:

  • Who is Starbucks’ customer?
  • Does the Brand means the same thing it’s always meant?
  • How do you attract new customers?
  • What happened a couple of years ago, when you invested more in existing stores
  • What kind of effects would service slow downs have
  • What measures did Starbucks take to address the in-store experience
  • What were the results from improving the in-store experience?
  • Talk about the technology-based innovations to enhance the service experience
  • Looking back over the last 3 years….lost the plot (ground plan)….relate organizational importance to the marketing function
blended products goods services
Blended Products: Goods & Services

"Pure" Product " Pure" Service

e.g. hardware restaurant insurance

continuum of services

Potential for Service Failure

Pre-sale Services

Transaction Services

Post-sale Services

Continuum of Services
the value matrix

Well- Intentioned

Value-Creating

Adversarial

Bureaucratic

The Value Matrix

High

Purpose

Low

Low

High

Process

Adapted from Capowski, G. (1995)

pursuing value in new market space
Pursuing Value in New Market Space

Look Across the Buying Center

Look Across Time

Look Across Substitute Industries

Look Across Type of Appeal

Look Across Complements

Look Across Strategic Groups

BLUE OCEAN —creating products or services for which there is no direct competition—look beyond conventional industry boundaries and find unoccupied market positions.

Adapted from Kim, W. and Mauborgne, R. “Creating New Market Space” Harvard Business Review, Jan-Feb., 1997

slide20

“Starbucks has succeeded because

we’ve focused on the need states of our

consumers. We knew they wanted a

whole lot more than just a cup of

coffee. Once we really understood the

needs of our consumers, things fell into

place. We figured out what our role had

to be.”

---------- Howard Schultz, CEO, Starbucks

value creation index
Value Creation Index
  • Innovation **
  • Quality
  • Customer Relations
  • Management Capabilities **
  • Alliances
  • Technology
  • Brand Value
  • Employee Relations **
  • Environmental & Community Issues

NOTE: Relatively small changes in the VCI produce significant changes in market value: a 10

per cent change in the VCI is associated with an approximate 5 per cent change in the market value

Source: Kalafut, P. and Low, J. (2001) “The Value Creation Index”, Strategy and Leadership, Vol. 20, No. 5, 9-15.

90

strategic customer focus model
Strategic Customer Focus Model
  • Develop PLANS to deliver customer value
  • Manage PEOPLE to enhance customer satisfaction
  • Manage PROCESSES to maximize customer value
  • Provide PRODUCTS and SERVICES that add value for customers
  • Set PRICES that reflect customer value

Manage the ‘Moments of Truth’

Build On-going Relationships

Measure and Improve

develop plans to deliver customer value
Develop Plans to Deliver Customer Value
  • Conduct market research and customer research to:
    • understand the marketplace,
    • identify target customers, and
    • define their needs and expectations.
  • Create a business model that produces unique customer value.
  • Commit to a vision, mission and values that focus on customers.
  • Define goals, strategies, measurement systems and controls to achieve the vision.
  • Define a value proposition that offers product and service benefits at fair prices that win and retain targeted customers and deliver significant profits for the business. Address the three key elements of a value proposition:
    • What market segments are we addressing?
    • Who are our targeted customers?
    • What benefits (functional & emotional) are we delivering to them?
manage people to enhance customer satisfaction
ManagePeopleto Enhance Customer Satisfaction
  • Build a culture committed to delivering customer value.
  • Hire people with customer value in mind.
  • Provide training to support customer value.
  • Empower employees to enhance value for customers.
  • Recognize and reward performance that enhances customer value.
  • Constantly communicate the vision and values.
  • Align actions with the vision and values. Walk the talk!!!
manage processes to maximize customer value
Manage Processes to Maximize Customer Value
  • Define business processes and institute process improvement strategies to improve quality and reduce costs.
  • Use value chain analysis to insure that primary and support processes add value.
  • Utilize information technology to improve systems and processes and to create unique customer value.
  • Use quality tools to improve processes.
  • Empower teams to improve processes.
  • Focus on continuous quality improvement.
provide products and services that add value for customers
Provide Products and Servicesthat Add Value for Customers
  • Research customers’ needs, wants and even their unknown desires.
  • Move up the steps from Basic and Expected to Desired and Unanticipated levels of service.
  • Add attributes that demonstrate value. E.g.:
    • Superior quality
    • Personalized service
    • Customization of the product or service
    • Immediate availability (speed)
    • One-stop shopping
    • Ambiance
    • Reduced hassle
    • Solve a specific customer problem

Faster – Better – Cheaper

set prices that reflect customer value
Set Prices that Reflect Customer Value

NOTE: Value is basically a tradeoff between

the benefits customers receive from a product/service

and the price that they must pay for it.

  • Set prices relative to perceived product/service benefits and competitors’ product/service benefits.
  • Use a price-value grid and value map to compare price and quality.
  • Use prices as a signal of quality.
  • Manage customers’ perceptions and expectations by identifying reference prices and communicating value versus competitors.
manage the moments of truth
Manage the Moments of Truth
  • Moment of Truth – any interaction where the customer comes into contact with the organization and gets an impression of its service.
  • Manage all of the PEOPLE interactions where employees come into contact with customers.
  • Manage all PROCESSES and systems, policies and procedures that impact customers.
  • Manage the entire “service cycle” - the series of ‘moments of truth’ a customer goes through to get a service.
  • Remember, every employee personally controls many ‘moments of truth.’ It’s his/her job to make those moments positive and rewarding.
build on going relationships
Build On-Going Relationships
  • Build long-term relationships with profitable customers!
  • Gather and maintain a customer/marketing information database to provide actionable information. E.g., conduct RFM (Recency-Frequency-Monetary Value) and other usage analysis.
  • Develop close on-going relationships and intimate knowledge of customers to create value by:
    • Better understanding their needs, wants, expectations and their problems,
    • Providing more opportunities to meet their needs and solve their problems,
    • Partnering with customers to develop mutually-beneficial projects/activities, and
    • Making customers feel really valued.
  • Insure that the value proposition rewards loyal, long-term, profitable customers.
  • Customer relationship management (CRM) systems and strategies enable the business to acquire and retain customers with the highest profit potential.
measure and improve
Measure and Improve
  • Measure customer satisfaction
  • Benchmark against the ‘best-in-class’ organizations.
  • Commit to continuous improvement: Good enough is never good enough!
  • Establish a performance measurement system to monitor key success factors, including customer satisfaction and customer retention.
slide31

Strategic Customer Focus Model

PLANS

Revise

PEOPLE

PROCESSES

Improve

Measure

PRODUCTS

&

SERVICES

Improve

Measure

PRICES

Customer Value

Moments of Truth

Relationships

Measure

CUSTOMERS

MOODY-09/25/06

slide32

Generic Strategies

  • Overall Cost Leadership
  • Differentiation
  • Focus
differentiation questions
Differentiation QUESTIONS
  • Is it really different: Do any of my competitors offer this? Do any of them do it as well or better than I do?
  • Can it be leveraged:Is it the best relative point of strength versus my competitors? Is it proportionally the strongest driver in my value proposition? How will I use this point of difference to my advantage?
value disciplines
VALUE DISCIPLINES

OPERATIONAL EXCELLENCE

CUSTOMER INTIMACY

PRODUCT LEADERSHIP

leader
LEADER
  • EXPAND TOTAL MARKET
    • create new users
    • create new uses
    • create more usage
  • FLANKING
  • BLOCKING
  • PRE-EMPTIVE STRIKES
  • BUNDLE/UNBUNDLE
slide36

CHALLENGER

  • FRONTAL ATTACK
    • need 3 : 1 advantage in resources
    • find weakness in leader’s strength
  • FLANK ATTACK
  • BYPASS
  • GUERILLA
  • REDEFINE COMPETITIVE SCOPE
slide37

MARKET NICHER

  • BY END USE
  • BY CUSTOMER SIZE
  • BY PRODUCT LINE
  • BY CHANNEL OF DISTRIBUTION
  • BY GEOGRAPHY
  • BY SPECIFIC CUSTOMER
value driven management
Value Driven Management
  • What makes VDM different from other management and decision-making models?
  • What factors lead to value “adders” and value “destroyers” in an organization?
the commodity trap
The Commodity Trap
  • How is value “manageable”?
  • Why is value a “comparative” concept?
  • What makes value a “dynamic” concept?
  • What does unpacking hidden value mean?
  • How can companies avoid the commodity trap?
value development exercise
Value Development Exercise
  • Select one of the following businesses:
    • auto dealership
    • gas station/minimart
    • airline
    • mid-priced hotel chain (business travelers)
    • Quick Service Restaurant (i.e., KFC
    • )
  • Prepare a 2-column chart with GOTS on the left side and COSTS on the right side
  • Brainstorm ways to increase GOTS and reduce COSTS
the new value seeking customer

Choice-seeking

Demanding

Knowledgeable

Less loyal

Price conscious

Self-seeking

Time impoverished

Self-configuring

The "New" Value-Seeking Customer
market orientation

CUSTOMER

ORIENTATION

LONG-TERM

FOCUS

PROFITABILITY

COMPETITOR

INTERFUNCTIONAL

ORIENTATION

COORDINATION

Market Orientation

Source: Narver/Slater (1990)

designing a customer oriented organization
Designing a Customer-Oriented Organization

Implement the marketing concept

Build a customer-driven organization

Establish a good marketing info system

Marketing plans should be based on

segmentation analysis

Hire the best talent

Stress operational efficiency

Develop customer-centered programs

Continually measure and fine-tune

your customer focus

slide45

Market Orientation Scale

The statements below describe norms that operate in business. Please indicate your extent of agreement about how well the statements describe the actual norms in your business.

Please answer in the context of your strategic business units (Circle one number for each line.)

STRONGLY

AGREE

STRONGLY

DISAGREE

DISAGREE

NEUTRAL

AGREE

1.

Our business objectives are driven primarily by customer satisfaction.

We constantly monitor our level of commitment and orientation to serving customer needs.

We freely communicate information about our successful and unsuccessful customer experiences across all business functions

Our strategy for competitive advantage is based on our understanding of customers’ needs.

We measure customer satisfaction systematically and regularly.

W have routine or regular measures of customer service.

We are more customer-focused than our competitors.

I believe this business exists primarily to serve customers.

We poll end users at least once a year to assess the quality of our products and services.

Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis.

1 2 3 4 5

2.

1 2 3 4 5

3.

1 2 3 4 5

4.

1 2 3 4 5

5.

1 2 3 4 5

6.

1 2 3 4 5

7.

1 2 3 4 5

8.

1 2 3 4 5

9.

1 2 3 4 5

1 2 3 4 5

10.

Source:Deshpande, R. and Farley, J. (1996).Understanding Market Orientation a Prospectively Designed Meta-Analysis of 3 Market Orientation Scales. Marketing Science Institute

customer orientation 3 types
Customer Orientation: 3 Types

Company

INTERNAL

EXTERNAL

Value

Employees

INTERACTIVE

Customers

Source: Kotler, P. (1997)

slide47

“If I asked the consumer what they wanted, they would have said a faster horse”

__________ Henry Ford

“Our Goal is to lead the public with new products rather

than ask them what kind of product they want. The public does not know what is possible, but we do”

_________ Akio Morita, former CEO, Sony

““Customers are notoriously lacking in foresight” __________ Hammer and Prahlhad

the bias for action continuum

ANTICIPATORY

PROACTIVE

RESPONSIVE

REACTIVE

NON-RESPONSIVE

The Bias for Action Continuum
  • invest in research, get close to the customer, innovate, accept reasonable risks
the link between process and value
The Link Between Process and Value

GOAL: Maintain Fit Between Value and Process

Process

Value

  • Process Delivers Value through:
  • Quality
  • Cost Reduction
  • Flexibility
the marketing cycle and process model

-customers

-suppliers

-publics

-shareholders

CORE BUSINESS

PROCESSES

SELLING

CUSTOMER SENSITIVITY

DISTRIBUTION

DISTRIBUTION

CUSTOMER SERVICE

MARKETING CYCLE

SERVICE MANAGEMENT

SALES

BILLING

LOGISTICS

PRICING

ORDERING

SERVICE

PROMOTION

PRODUCT/SERVICE DEVELOPMENT

The Marketing Cycle and Process Model

MARKET CONSTITUENTS

PROCESS

INDICATORS

CAPACITIES

YIELDS

WASTE LEVELS

CYCLE RESPONSE TIME

CUSTOMER SATISFACTION LEVELS

COST/EFFICIENCIES

TIME TO MARKET

slide52

Core Marketing Processes

Market

sensing

Customer

relationship

management

New offering

realization

Fulfillment

management

Customer

acquisition

determinants of core capabilities
Determinants of Core Capabilities

Capabilities of

Transformation

People

Processes

Information

Resources

the deming cycle
The Deming Cycle

Act

Plan

Never Ending Improvement

Check

Do

slide55

Value deployment matrix

Core processes

Competitivestrategydevelopment

Invoicing andcollections

New ProductDevelopment

Financial resourcesacquisition

Suppliermanagement

Human resourcesacquisition

Order fulfillment

Order acquisition

Customer Value criteria

Quality

Service

Cost/price

Scoring:

LowImpact =1

Medium impact = 2

Highimpact = 3

Time

Total Score

process support of value statement

High

B

Process

Effectiveness

A

C

Low

Strong Support

Weak Support

Value Statement Support

Note: circle size corresponds to process size and relative impact of improvement effort

Adapted from Feather, J. (1998)

Process Support of Value Statement
strategic marketing information and business processes

Business Process Customer Need Internal Metric

Reliability(40%) % Repair Call

Product (30%) Easy to use (20% % Calls for Help

Features/Functions (40%) Function/Performance Test

Knowledge (30%) Supervisor Observations

Sales (30%) Response (25%) % Proposal Made On Time

Follow-Up (10% % Follow-Up Made

Delivery Interval (30%) Average Order Interval

Overall Quality Installation (10%) Does Not Break (30%) % Repair Reports

Installed When Promised (10%) % Installed on Due Date

No Repeat Trouble (30%) % Repeat Reports

Repair (15%) Fixed Fast (25%) Average Speed of Repair

Kept Informed (10%) % Customers Informed

Accuracy, No Surprises (45%) % Billing Inquires

Billing (15%) Resolve on First Call (35%) % Resolved First Call

Easy to Understand (10%) % Billing Inquiries

Strategic Marketing Information and Business Processes

Adapted from Kordupleski, R. et.al. (1993)

service flow diagram

Customer

Travel Consultant

Data Processing

Ticketing Department

Counter Person

Service Flow Diagram

Calls on telephone

Requests booking

Fills out travel request

Walks in

Makes booking

May pay in advance

Prints ticket

Issues ticket

Fills out “tracker”

Posts ticket data to computer

Holds tracker; waits for ticket

Delivery to customer

Pulls tracker; puts with ticket

Customer pickup

Puts ticket in hold box

Mails or delivers ticket

Walks in for ticket

Collects Payment

Receives ticket

Gets customer signature

Updates tracker

Updates computer with final data

Source: Albrecht, K. (1990)

figure 3 8 control chart example
Figure 3.8 Control Chart Example

A.

Upper Control Limit (UCL)

Measurement

Mean (Average)

Lower Control Limit (LCL)

time

Process is in control

B.

UCL

Measurement

Average

LCL

time

Process is NOT in control (special cause)

C.

UCL

Measurement

Average

LCL

time

Process is NOT in control (4 common causes

in sequence)

figure 3 10 pareto chart online banking

% of Bank Deposits

Figure 3.10 Pareto Chart (Online Banking)

80%

70%

60%

50%

40%

30%

20%

10%

Customer Online Activity

“Vital Few” line

Obsessives – daily

Regulars -once a week

Occasionals - twice a month

Laggards - once

a month or less

0%

40 110 435 95

Number of Customers per user segment

BJ:SEL:H3

fishbone diagram
Fishbone Diagram*

Equipment

Policies

Broken

Information desk delays

Centrifuge

Analyzers

unavailable

not

available

Lab Result

Delays for

In Process

Emergency

Department

Hemolyzed

Not in room (x ray)

Patients

Delay in

Insufficient

producing

Patient

Specimen

slips

Ability to draw

specimen

Not enough

Staff related

quantity

Transport

Procedures

People

High volume

*The Fishbone, or cause and effect, diagram (sometimes called an Ishikawa diagr

am,

named after the Japanese quality control leader) is drawn during a brainstormin

g

session. The central problem is visualized as the head of the fish, with the s

keleton

divided into branches showing contributing causes of different parts of the pro

blem.

prescription for customer accelerated change
Prescription for Customer Accelerated Change

Tools to Leverage the Customer’s Voice

  • WHAT IS OUR VISION?
  • WHAT IS OUR CURRENT REALITY ?
  • WHERE ARE OUR LEVERAGE POINTS ?
  • HOW DO WE OPERATIONALIZE ?
  • HOW DO WE SUSTAIN THE CHANGE ?
slide64

VISION

  • LONG-TERM
  • SOMETHING TO BE PURSUED
  • A MOTIVATING STATEMENT
  • PROVIDES GUIDANCE/INSPIRATION
slide65

VISION STATEMENTS

MICRO- Empower people through great software anytime,SOFT: any place, and on any device.

McDonald’s Offer the world’s best quick service experience

COCA- To put a Coke within an arm’s reach of every COLA : consumer in the world

JAPANESE AUTO CO. “Beat Benz!”

BELLSOUTH: Be Customer’s Best Connection to Communications, Information, and Entertainment

rubbermaid commercial products inc
Rubbermaid Commercial Products, Inc.

“Our vision is to be the Global Market Share

Leader in each of the markets we serve. We

will earn this leadership position by

providing to our distributor and end-user

customers innovative, high-quality, cost-

effective and environmentally responsible

products. We will add value to these products

by providing legendary customer service

through our uncompromising Commitment

to Customer Satisfaction.”

slide67

MISSION

  • OVERALL DIRECTION FIRMS WANT TO GO
  • SOMETHING TO BE ACCOMPLISHED
  • A BUSINESS PHILOSOPHY
  • FIRM’S CORE PURPOSE FOR BEING
slide68

MISSION STATEMENTS

Google: To organize the world’s information and make it universally accessible and useful

Baxter: We shall be the leading healthcare company by HEALTH- providing the best services and products for CARE our customers, emphasizing innovation, operational excellence, personal and business ethics, & the highest quality in everything we do

Walgreen’s: To offer customers the best drugstore service in America…guided by century-old tradition of fairness, trust, and honesty as we continue to expand out store base and offer career opportunities to a fast- growing and diverse group of men and women…our goal is to develop people who treat customers—and each other—with respect and dignity…we will support these efforts with the most innovative retail thinking, services, and technology…the success we achieve will allow us to reinvest in the future and build long-term financial security for our employees and shareholders.

slide69

"If you don't know where you're heading, you're likely to end up somewhere else."

____ Yogi Berra

customer value analysis
CUSTOMER VALUE ANALYSIS

1. Identify price-performance factors

2.Assess Quantitative Importance of factors

3. Assess Quantitative Importance of factors

  • Use a Value Map to Plot company/
  • Competitor ratings

5. Monitor Customer Value over time

slide71

CUSTOMER VALUE MAP: LUXURY CARS

Higher

1.25

Inferior Customer

Value

*

Lexus

LS 400

BMW

5-Series

Relative

Price

*

1.25

Cadillac CTS

*

*

Acura

Legend

Superior Customer

Value

.75

Lower

60

80

100

Relative Performance: overall score

what is quality
What is Quality?
  • "Conformance to requirements"
  • The ability to satisfy stated or implied needs; a good/service free of deficiencies (ASQC)
  • Define in terms of success (failure) that occurs within/outside of company

2 key concepts : employee empowerment

the internal customer

WHY QUALITY MATTERS?

slide77

QUALITY RACE HEATS UP

Consumer-reported problems per 100 new vehicles in 2001 model year

Change from 2000

Toyota

Honda

Nissan

115

-1

+10

- 4

133

145

GM

Industry Avg.

Daimier Chrysler

Volkswagen

Ford

-18

-7

-13

-30

+4

146

147

154

159

162

Source: J.D. Power & Associates

BJ:SL#3

airline quality ratings
AIRLINE QUALITY RATINGS

AIRLINE OVERALL BAGGAGE ON TIME

RANKING HANDLING ARRIVAL

Alaska 1 1 11

US Airways 2 2 5

Northwest 3 4 4

Southwest 4 4 1

Delta 5 3 6

American 6 7 7

American West 7 5 8

Continental 8 6 3

United 9 9 9

American Eagle 10 11 10

Trans World* 11 10 2

Source: Brent D. Bowen and Dean E. Headley.The Airline Quality Rating, 2002

BJ:SEL#3

the trinity of quality
The Trinity of Quality

STRUCTURE

PROCESS

OUTCOMES

quality problems some symptons
Quality Problems: Some Symptons
  • Outgoing products normally contain deviations from the standards
  • Company has an extensive field service/dealer network
  • Management does not provide a clear performance standard
  • Management denies that it is the cause of the problem
the four stages of quality
THE FOUR STAGES OF QUALITY

Market Perceived Quality Vs Competitor

Customer Value Management

Conformance Quality

Customer Satisfaction

Target Market &

Performance Vs

Competitors

Quality/Value in

Overall Strategic

Framework

Customers

Internal

Operations

Focus

contributions from the quality gurus
Contributions from the Quality Gurus
  • Deming - 14 points of quality (pp. 66-67)
  • Imai - kaizen (continuous improvement)
  • Juran - "Pareto analysis" 80% defects caused by 20% of the problems
  • Crosby - 4 absolutes (see next slide)
crosby s 4 absolutes about quality
Crosby's 4 Absolutes About Quality
  • Q conforms to customer requirements
  • Q should be built into the process (prevent rather than appraise)
  • Performance standard = zero defects
  • Measure Q in terms of the price of conformance & non-conformance

other points:

1. Quality is free - "unquality" is expensive

2. Do it right the first time! D.I.R.F.T.

3. Build a Q-driven corporate culture

slide87

After Office Depot installed a new scanning system in their warehouse

“The biggest cost driver in the warehouse was the redo (emphasis mine), when we shipped the wrong thing”

_________CFO Charlie Brown

Question: How was quality affected?

the three service levels

SATISFIERS

THE THREE SERVICE LEVELS

HYGIENE FACTORS

CORE BENEFIT

2 factor model of service quality

AVERAGE

FIRM

cause of

attitude

LEADER

satisfiers

hygiene

FIRM IN

factors

CRISIS

extreme extreme

dissatisfaction satisfaction

2 Factor Model of Service Quality

Adapted from Naumann, E. (1995)

determinants of service quality
Determinants of Service Quality
  • Reliability
  • Responsiveness
  • Competence
  • Access
  • Courtesy
  • Communication
  • Credibility
  • Security
  • Understanding/Knowing the customer
  • Tangibles

Source: Parasuraman, et al. (1985)

relative importance of service dimensions when respondents allocate 100 points
Relative Importance of Service Dimensions When Respondents Allocate 100 Points

RELIABILITY 32%

TANGIBLES 11%

RESPONSIVENESS

22%

EMPATHY 16%

ASSURANCE 19%

Source: A. Parasuraman, Univ. of Miami, 2002

serv qual model gap analysis

1.

Research gap

customer expectations<->mgt. perceptions

2.

Planning & design gap

mgt. perceptions<->service specifications

3.

Implementation gap

service specifications<->service delivery

4.

Communication gap

service delivery<->external communication

5.

Reality gap

customer expectations<->the experience

Serv-Qual Model: Gap Analysis
slide93

GAP 3 – Service Performance Gap

Team Work

Employee Job Fit

Technology Job Fit

Perceived Control

Supervisory Control Systems

Role Conflict

Role Ambiguity

Service Performance Gap

bbbk service guarantee
BBBK “Service Guarantee”
  • “You don’t own one penny until all pests on your premises have been eradicated”
  • “If you are ever dissatisifid with BBBK’s service, you will receive a refund for up to 12 months of the company’s services – plus fees for another exterminator of choice for the next year”
  • “If a guest spots a pest on your premises, BBBK will pay for the guest’s mean or room, send a letter of apology, and pay for a future meal or stay”
  • “If your facility is closed down due to the presence of roaches or rodents, BBBK will pay any fines, as well as all lost profits, plus $5,000”
service quality ratings
Service Quality Ratings

School of Business and Entrepreneurship MBA Graduate Students

Values

Student Ranking of Importance

Knowledge

Accuracy

Professionalism

Promptness

Individuality

Courtesy

1

2

3

4

5

6

slide96

Service Quality Ratings

School of Business and Entrepreneurship Staff Responses

Staff Ranking of Importance

Value

Accuracy

Promptness

Courtesy

Knowledgeable

Professionalism

Individuality

1

2

3

4

5

6

slide99

CUSTOMER SATISFACTION MEASUREMENT

  • Traditional Customer Satisfaction Measurement (CSM) tends to be misleading - according to Bain Research, 65-85 percent of customers who abandon a business report they were either “satisfied” or “very satisfied”
  • Measuring “customer value” serves as a better indicator of long-term customer commitment and loyalty
  • Measure not just the “foundational” (hygiene factors) but the “leverageable” aspects of the product/service (ie., satisfiers)
  • CSM needs to capture two important items of information: (1) how important each product/service attribute is; (2) how well a company performs on each product/service attribute (use “Quadrant Analysis”)
slide100

QUADRANT ANALYSIS

  • Comm. Skills

Weaknesses

Strengths

Critical

  • Product Quality
  • Customer Service

Over-Emphasized Issues

Monitor Importance

  • Ease of Doing Business

Not Important

  • Billing Accuracy

Very Poor

Excellent

Perception of Performance

rediscovering the customer mckinsey article
Rediscovering the Customer (McKinsey Article)
  • How do successful firms achieve maximum value from their customer satisfaction programs?
  • What role do “breakpoints” have on the purchase decision and loyalty behavior?
  • What are the keys to building a “customer-centric” organization?
a satisfied customer is loyal
A Satisfied Customer is Loyal

apostle

100%

80

60

40

20

Zone of Affection

Zone of Indifference

Loyalty (Retention)

Zone of Defection

terrorist

1 2 3 4 5

extremely satisfied

somewhat dissatisfied

slightly dissatisfied

satisfied

very satisfied

Satisfaction Measure

slide105

Determinants of Service Quality

Reliability

Responsiveness

Competence

Assurance

Courtesy

Communication

Credibility

Empathy

Know the customer

Tangibles

types of customer satisfaction
Types of Customer Satisfaction
  • Transaction Performance - selling, servicing
  • Functional Performance - ability to satisfy customer’s needs
  • Reliability Performance - how long-lasting, maintenance-free was the service
global customer satisfaction measures
Global Customer Satisfaction Measures
  • In general, how satisfied are you with our company, on a scale ranging from “completely satisfied” to “completely unsatisfied”
  • How well did our company meet your expectations, on a scale from “did not meet my expectations” to “exceeded my expectations”
  • When thinking of your “ideal” company, how well does our company compare on a scale ranging from “very far away” to “to very close to ideal”
value questions
Value Questions
  • The price charged by XYZ is consistent with the quality they offer
  • I am willing to pay more for what I buy from XYZ
  • I get what I pay for at XYZ
  • Given the tradeoffs, I have made the right decision to buy from XYZ
expectations perceived value satisfaction and loyalty
Expectations, Perceived Value, Satisfaction and Loyalty

Customer Complaints

Perceived Quality

Customer Satisfaction

Perceived Value

Customer Loyalty

Customer Expectations

employee satisfaction and customer satisfaction

Employee Satisfaction and Customer Satisfaction

A 1-unit increase in employee satisfaction leads to a .31 –unit increase in customer satisfaction. *

* Source: Forum for People Performance Management, 2005

b2b customer satisfaction
B2B CUSTOMER SATISFACTION
  • Product Quality
    • Quality Consistency
    • Quality Packaging
    • Price-Quality Relationship
  • Sales Interface
    • Meeting Frequency
    • Knowledge of Product
    • Response Time
    • Salesperson Commitments
  • Delivery Service
    • Delivery Terms
    • Completeness of order
    • Delivery on Time?

Source: Chumpitaz, R. and Swaen, V. (2002) AMA Summer Educator’s Conference,

slide112

Customer Satisfaction and

Customer Loyalty Relationship

100%

80%

60%

Loyalty(retention)

40%

20%

Satisfaction measure

1 2 3 4 5Extremely Somewhat Slightly Satisfied Verydissatisfied dissatisfied dissatisfied satisfied

Source: Jones, T. and Sasser, E. (1995) “Why Satisfied Customers Defect”, Harvard Business Review, Nov-Dec

slide115

Customer Satisfaction and Profitability in the Hotel/Motel Industry

$20

76

75

74

73

72

71

70

Industry Satisfaction Rating

$18

Industry Profitability

$16

$14

Industry Satisfaction Level (0-100 Scale)

$12

Industry Profitability (Billions)

$10

$8

$6

$4

1994 1995 1996 1997 1998 1999

Customer Satisfaction and Profitability for Wal-Mart

82

$4.5

81

$4.0

80

79

$3.5

Net Income (Billions)

Satisfaction Level (0-100 Scale

78

77

$3.0

76

75

$2.5

74

73

$2.0

1994 1995 1996 1997 1998 1999

Satisfaction Rating

Net Income

slide116

Customer Satisfaction and Profitability for Southwest Airlines

$500

$450

$400

$350

$300

$250

$200

$150

$100

79

78

77

76

75

74

73

72

71

70

69

Net Income (Millions)

Satisfaction Level (0-100 Scale)

1994 1995 1996 1997 1998 1999

Satisfaction Rating

Net Income

Customer Satisfaction and Profitability for Colgate Palmolive

87

86

85

84

83

82

81

80

79

78

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

$100

Satisfaction Level (0-100 Scale

Net Income (Millions)

1994 1995 1996 1997 1998 1999

Satisfaction Rating

Net Income

slide117

% of consumers who say this industry generally does a good job serving customers by Type of Industry:

2001 2002

71%

74%

Banks

67%

73%

Hospitals

67%

Car manufacturers

64%

51%

Airlines

63%

80%

Computer software

60%

78%

Computer hardware

59%

57%

59%

Pharmaceutical, drug

61%

Telephone

58%

60%

Life insurance

55%

38%

Health insurance

51%

Oil

38%

27%

29%

Managed care

33%

28%

Tobacco

25%

Source: Harris Interactive Inc. Rochester, N.Y. Sept.2002

slide118

THE VALUE HIERARCHY

DESIRED END STATES

CONSEQUENCES

ATTRIBUTES

Attributes describe the product/service; Consequences describe user/product interaction; Desired End States describe the goals of the person organization

the chaining of customer requirements
The “Chaining” of Customer Requirements

Values

Consequences

Attributes

Attributes

Consequences

Values

“Fat Free” Chip

Eat More

Self-Esteem

Good Tasting

Better Figure

service quality exercise
Choose One of the Service Quality Situations:

Auto repair

Hospital visit

Theme park

Hair cut

Supermarket

QSR

Air travel

Answer these questions:

How unique/standardized is product and/or service?

Type of service, i.e., experience, search, etc.?

Pure service or product-service blend?

What factor most affects service quality?

After service is delivered, is corrective action possible?

Service Quality Exercise
definition of e service quality
Definition of E-Service Quality
  • E-service quality is the extent to which e-commerce providers effectively and efficiently manage customer interactions involving searching, shopping, purchasing and order fulfillment.
11 major dimensions of perceived e service quality
11 Major Dimensionsof Perceived E-Service Quality

Site aesthetics

Reliability

Access

Efficiency

Assurance

Responsiveness

Customization/

personalization

Empathy

Price knowledge

Flexibility

Ease of Navigation

price knowledge and customer expectations
Price KnowledgeandCustomer Expectations

☛ Price knowledge refers to the ability of online shoppers

to determine shipping , comparison, and total prices

☛ Online consumers are pretty clear

about what they expect online

☛ A recent study conducted by Mercer Management Consulting confirms the importance of information and convenience and why consumers value using the Internet

e service quality and customer loyalty
E-Service QualityandCustomer Loyalty
  • e-Service quality is essential in creating customer e-satisfaction
  • Customers must continue doing business with most online firms for at least 2-3 years just for them to recover their initial acquisition costs
how to improve e service quality
How to Improve E-Service Quality

Research has proposed that 5 components be considered in delivering e-service quality:

  • The core service
  • Facilitating services
  • Supporting services
  • Complementary services
  • The user interface

(how the customer accesses services)

improving e service quality
Improving E-Service Quality

Personalization

Access

Responsiveness

Navigation

Assurance

Price Quality

e service a new paradigm
E-Service: a New Paradigm
  • What according to the authors is the scope of the “e-service” concept
  • What role does “technology” play in e-service?
  • What are the features of an “e-service orientation”?
the internet as a brand integrator
The Internet as a BRAND Integrator
  • What according to the author are the 3 major integrating mechanisms used to create greater brand “involvement”?
  • What are the keys to using the Internet as a “brand integrator”?
the value proposition
The Value Proposition

The whole cluster of benefits the

company promises to deliver

characteristics of the value proposition
Characteristics of the Value Proposition

Value propositions should be:

Consistent over time

Credible

Concise

Clear

examples of positioning statements
Examples of Positioning Statements
  • Astra/Merck - customized health care solutions
  • AT& T - the right choice
  • Dell Computer - custom computers sold direct
  • FedEx - when it absolutely, positively has to get there overnight
  • General Electric - we bring good things to life
  • Publix Super Markets - where shopping is a pleasure
  • Snapple -natural beverages, natural ingredients
  • Visa - it is everywhere you want to be
  • Wal-Mart - everyday low prices; made in America
slide134

Positioning Statement and Value Proposition (Volvo)

Positioning Statement

Volvo, offering the utmost in safety and durability.

Value Proposition

  • Target Market: Upscale American Families
  • Benefits Offered: Safety, Durability
  • Price Range: 10% Premium Over Similar Cars (Acura) due to superior safety design
slide135

We focus on product quality and innovation,

customer satisfaction and financial performance.

Reliable processes help us improve product quality,

meet customer demand, reduce costs and ensure

responsible environmental performance.

_________ Weyerhaeuser Pulp, Paper, and

Packaging Business

ikea s value proposition
IKEA’S VALUE PROPOSITION

IKEA OFFERS IMMEDIATE DELIVERYOF A WIDE

ASSORTMENT OF HOME FURNISHINGS WITH

DISTINCTIVE SCANDINAVIAN DESIGNS AND

IMAGES IN A PLEASANT SHOPPING ENVIRONMENT

TO SHOPPERS WHO ARE WILLING TO ENGAGE IN

SELF-SERVICE, SELF-ASSEMBLY AND SELF-

TRANPORTATION.

slide137

CDW’s VALUE PROPOSITION

“SERVICE: even the smallest customer gets a dedicated salesperson—called an “account manager” to handle orders and serve that client over time; CHOICE: sells 80,000 products from hundreds of companies; SPEED—99 percent of customer orders are sent out the day they’re received, so long as the product is in stock”

slide138

VALUE PROPOSITION

“ANYWHERE, ANYTIME MUSIC STORE AND YOU MAKE THE SELECTIONS FROM THE LARGEST CLASSICAL MUSIC INVENTORY IN THE WORLD”

a healthcare consumer value equation
A Healthcare Consumer Value Equation
  • VP = Benefits - Costs
  • VP = (Quality + Service + Intangibles)

- (Price + Nonmonetary costs), where:

a) Quality or outcome is the correct diagnosis and treatment,prevention of illness, etc.

b Service includes accessibility, compassion, dependability,employee knowledge, etc.

c) Intangibles are the reputation of the provider, special services, long-term outcomes, use latest technology

d) Price is the consumer’s expenditure for the service

e) Non-monetary costs include time, energy, and psychological stress

Adapted from Ettinger, W.H. Jr. (1998)

the sqip diamond
The SQIP Diamond

Service

VALUE

Price

Image

Quality

Johnson/Weinstein 2004 - NOVA SOUTHEASTERN UNIVERSITY

slide142

Designing a Value Proposition

Price

Quality

Service

Image

Innovation

Intangibles

+

assessing a company s value position

High

Best Value Expensive value

Fair Value

Discount value Poor value

Benefits

Low

Cost

Low

High

Assessing a Company’s Value Position

Adapted and expanded from Reidenbach, R.E. (1996)

critiquing your value proposition
Critiquing Your Value Proposition

1. Does it take the customer’s perspective?

2. Is it easy to understand?

3. Does it encapsulate the value you offer to: your people, the sales channel, the press, and your customers?

4. Is it strategically compatible with your business?

5. Is it acceptable given your organizational culture?

6. Is it honest?

7. Is it promotable?

Source: Dovel (1990)

developing unique value propositions
Developing Unique Value Propositions
  • Change the rules of the game
  • Break business/industry compromises
  • Exploit unnecessary concessions to find a competitive advantage
  • As markets change, VPs must change
  • Drive the market through competitive, customer & corporate capability analyses to tap niches and secure new marketspace
price benefits and value

Perceived product or service attributes

Perceived substitute product or service attributes

Perceived benefits

Perceived price

Value =

Perceived product or service price

Perceived substitute product or service price

Price, Benefits, and Value
pricing methods
Pricing Methods
  • Price-driven Costing
  • Demand-based Pricing
  • Price Customization
  • Price Differentiation
  • Value-based Pricing
slide152

Value-Added Strategies

  • Less for Less
  • More for More
  • More for the Same
  • Same for Less
  • More for Less
demand based pricing example
Demand-Based Pricing Example

This hotel has fixed its exchange rate.

US $1 = Rp 5.000.-

Since inception, we’ve focussed on delivering the best value for money. And in these difficult times, we’ve decided to make your life a little easier. So, its out with the US Dollar, in with the Indonesian Rupiah. What’s more, we have a whole list of pleasant surprises for your guest:

*Buffet Breakfast

*Free Pressing (2 pcs)

*Coffee/Tea Making Facilities

*Fruit Basket

*Welcome Drink

*Late Check-Out

*Credit facilities on application

For attractive corporate discounts, please call our Sales Dept. at (021) 2700800, 2700888

AMBHARA RUPIAH

H O T E L

J A K A R T A

AMBHARA

4 STAR

Source: Jakarta Post, February 12, 1998

perceived value caterpillar example
PERCEIVED VALUE(Caterpillar Example)

$ 90,000 - Price of Competitor’s Tractor

+

$ 7,000 - Premium for Superior Quality

+

$ 6,000 - Premium for Superior Reliability

+

$ 5,000 - Premium for Superior Service

+

$ 2,000 - Premium for Longer Parts Warranty

$110,000 - Price to cover Value Package

-

$ 10,000 - Discount

$100,000 - FINAL PRICE

sources of pricing pressures

Equilibrium Price

Sources of Pricing Pressures

Changes in technology

Customer Price Sensitivity

Customer experience

Increased internal expectations (forecast) and sales force reactions

Price driven competition or changes in competitive management

Service enhancements

Price

deflectors

Product extensions

FUD

Inflation

Adapted from Mitchell, E. (1989)

price quality strategies
Price/Quality Strategies

Source: Kotler, P. (1997)

differentiation strategies

SERVICE

UNIQUE

QUALITY

SELLING

PRICE

PROPOSITION

IMAGE, INNOVATION, INTANGIBLES

Differentiation Strategies
3 levels of product positioning
3 Levels of Product Positioning

short, intermediate, long-term

adding value to products
Adding Value To Products
  • Additional features and benefits
  • Affordability
  • Branding
  • Customer involvement
  • Customization and choice
  • Enhanced quality
  • Exceptional service
  • Frequency marketing incentives
  • Simplifying or bundling the offering
  • Solving customer problems
  • Technological leadership
  • Uniqueness
  • Warranties
creating superior customer value

Unanticipated Value

Desired Value

Expected Value

Basic Value

Creating Superior Customer Value

Source: Albrecht, K. (1994)

promoting value via an integrated marketing communications program

PUBLIC RELATIONS

ADVERTISING

DATABASES

SALES PROMOTION

SALES FORCE

Promoting Value Via an Integrated Marketing Communications Program

IMC for target markets

customer retention a strategic issue
In an annual survey of CEOs conducted by The Conference Board, nearly seven hundred CEOs globally were polled about the challenges facing their companies in 2002. 12 CEOs identified “customer loyalty and retention” as the leading management issue ahead of reducing costs, developing leaders, increasing innovation, and improving stock price, among other issues.Customer Retention: a Strategic Issue
why focus on customer retention
Why Focus on Customer Retention?
  • U.S. companies lose 1/2 their customers in 5 years
  • Typical defect rates are 10-30% annually
  • A 5% increase in retention leads to a 25-100% increase in profits
  • It costs 5 times more to get a customer than keep a customer
customer service statistics
Customer Service Statistics
  • It costs between five and six times more to attract a new customer than to keep an existing customer.
  • Companies can boost profits from 25 percent to 125 percent by retaining 5 percent more existing customers.
  • Only one out of 25 dissatisfied customers will express dissatisfaction to you.
  • Happy customers tell at least four others of a positive experience. Dissatisfied customers tell as many as 12 about a negative experience.
  • Two-thirds of customers do not feel valued by those serving them.
  • Acquiring new customers can cost five times more than satisfying and retaining current customers.
  • A 2 percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.
  • The average company loses 10 percent of its customers each year.
  • The customer profitability rate tends to increase over the life of a retained customer

Source: Perriello, B (2007). 8 Tips to Improve your Customer Service. Industrial Distribution

slide171

How Important is CUSTOMER RETENTION?

  • A 10 percent improvement in in retention increases the value of a firm’s customer base by about 30 percent; in contrast a 10 percent improvement in acquisition cost improves value by only 1 percent
  • In E-Commerce, customers must stay on board for at least Two-Three Years just for a company to recoup its initial acquisition investment
  • In apparel “E-tailing”, repeat customers spend more than twice as much in months 24-30 of their relationships than they do in the first six months
  • Primary drivers of “E-Loyalty”
    • order fulfillment
    • product performance
    • post sale service and support
kotler on customer retention
Kotler on CustomerRetention

The key to customer retention is

customer satisfaction

Satisfied Customers

  • Stay loyal longer
  • Talk favorably about the organization
  • Pay less attention to the competition
  • Are less price sensitive
  • Offer service ideas to the organization
  • Cost less to serve than new customers
switching motives
Switching Motives
  • Core service (25%) - mistakes, billing errors, service catastrophes
  • Service encounter failures (19%) - uncaring, impolite, unresponsive, unknowledgeable
  • Inconvenience (12%)- location, hours, waiting time
  • Response to failed service (10%) - negative response, no response, reluctant response
  • Competition (6%) - found better service
  • Other (5%) - tangibles, crowding, problems with other customers and seldom-mentioned incidents
  • Ethical problems (4%) - cheat, hard sell, unsafe, conflict of interest
  • Involuntary switching (3%)- customer or service provider moved

Adapted from Keaveney, S.M. (1995)

slide174

“Exceed your customers expectations. If you do, they’ll come back over and over. Give them what they want---and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses---apologize. Stand behind everything you do. ‘Satisfaction Guaranteed’ will make all the difference.”

___________ Sam Walton

why customers leave
Why Customers Leave

Poor Service

9%

9%

Product

Dissatisfaction

Better Prices

13%

69%

Other

Source: Michaelson & Assoc.

customer satisfaction customer retention
Customer Satisfaction & Customer Retention
  • According to Walker Information Inc (Indianapolis Research and Consulting firm) customer satisfaction does not equal loyalty
    • 80 percent of B2B purchasers said they were satisfied with their vendors but less than ½ described themselves as loyal
  • “Earning loyalty means establishing a high level of relationship with customers”
  • “Satisfaction with products seem to be a ‘threshold’ evaluation”
  • Jeff Marr of Walker Information advises companies to “elevate service and technical support to the same level as sales & marketing”

Source: Weisman, R. (2004) “Products Alone Won’t Retain Customers” Boston Globe, Aug. 6, 2004 p. B2

the cost of lost business hospital example
The Cost of Lost Business - Hospital Example

15,000 patients annually

20% defection rate = 3,000 defections

(note: This is a 80% retention rate)

Average revenues per patient = $2,000 annually

Lost revenues = $6,000,000

Profit margin 10% = 600,000

Conclusion:

INVEST IN A CUSTOMER RETENTION PROGRAM!

the key to retention is customer satisfaction
The Key to Retention is Customer Satisfaction*

Satisfied customers:

  • stay “loyal” longer
  • talk favorably about the organization
  • pay less attention to the competition
  • are less price sensitive
  • offer service ideas to the organization
  • cost less to serve than new customers

*Adapted from Kotler, P. (1997)

the customer retention value model

Customer Attraction

Shareholder Value

Customer Value

Customer Satisfaction

Business Performance

Loyalty

Customer Retention

The Customer Retention/Value Model
customer retention measures
Customer Retention Measures
  • Current retention rate
  • Weighted retention rate
  • Segmented retention indicators --

(sub-group analysis)

  • Share-of-customer measure
  • Targeted retention rate
  • Lifetime value (LTV)
  • Recency, frequency, and monetary value (RFM)
how to determine customer lifetime value ctv
How to Determine Customer Lifetime Value (CTV)
  • Compute average profit per sale (total sales revenue minus advertising, marketing, and product or service fulfillment costs divided by the number of sales)
  • Determine how many times the average customer will purchase from you, say over a 2-year period
  • Calculate the amount of profit made from that customer in two years.
clt example
CLT Example

MOBILE PHONE INDUSTRY

-- Average Monthly Bill ($52)

-- Average Cost to Serve a Customer per month ($30)

-- Average Cost to Acquire (AC) a New Customer ($370)

-- Average Churn Rate per month (2 percent)

-- Interest rate (5 percent)

clt example solution
CLT EXAMPLE (solution)

Lifetime Value (LTV) = LTV formula: (M/1 – r + i) - AC

(22 x 12) / (1 - .76 + .05) - 370 = $540

Where:

M – margin customer generates per year ($22 per month);

Annual retention rate 1 – annual churn rate 02 x 12 months = .24)

what is a customer worth
GM Cadillac

Gateway Computers

Pizza Hut

Proctor & Gamble

Safeway

$ 426,000

$ 25,000

$ 12,400

$ 10,000

$ 4,800

What is a Customer Worth?
  • Proof:
  • The top 6% of cellular phone users represent 69% of total usage.
  • The top 6% of the United Kingdom cola users represent 60% of all consumption.
  • 25% of cars are rented by the top 0.02% of clients.

Source: Watt Solutions, Inc., 2002

slide187
How to Do an RFM Analysis
  • Access a summary of each customer’s RFM transaction history.

This includes most recent purchase, frequency of purchases, and monetary value spent per order.

  • Sort customers by purchase dates in reverse chronological order. Divide the customer list into 5 equal segments. Tag the most recent customer quintile as 1 while the least recent purchases are quintile 5.
  • Sort your customers by frequency(number of orders) and apply the same methodology as in #2.
  • Sort your customers by monetary value (average $ amount of each order) and apply the same methodology as in #2.
  • You now have created RFM scores for each of your customers, from your best customer segment (111) to your worst (555).
slide188

DIFFERENTIATED SERVICE LEVELS

Type of Acct.

A

B

C

D

Profit Level

4

I

1

2

3

II

8

5

6

7

III

9

10

11

12

designing a customer retention cr program
Designing a Customer Retention (CR) Program
  • Determine your current CR rate
  • Analyze defection problems
    • identify disloyal customers
    • understand why they left
    • develop strategy to overcome switching behavior
  • Establish a CR objective based on organizational capabilities and benchmarks (industry, sector, companies, units)
  • Invest in a targeted CR plan to enhance loyalty
  • Evaluate the success of the CR program
loyalty building strategies
Loyalty Building Strategies
  • Send salespeople to work at the offices of your best customers
    • Participate in customers events
      • Interview your customers’ customers
        • Hold a retreat with a major customer to share best practices
          • Invite customers to participate in training seminars
          • Set up a Customer Advisory Council
4 tier usage segmentation
4-Tier Usage Segmentation
  • Platinum Tier – the company’s most profitable customers
  • Gold Tier – seek price discounts, less loyal, and use multiple vendors
  • Iron Tier – essential customers who provide the volume to utilize the firm’s capacity, but their spending levels, loyalty, and profitability do not merit special treatment
  • Lead Tier – customers who cost the company money. They demand more attention than they are due given their spending and profitability - sometimes problem customers that complain and tie up resources.

(Rust, Zeithaml, and Lemon, 2000/2003)

linking service quality to retention
Linking Service Quality to Retention
  • Willingness to recommend
  • Propensity to switch
  • Willingness to pay more
  • External response to problems, eg., complaints
ultimate question

Ultimate Question

"On a scale of zero to 10, how likely is it that you would recommend us to your friends or colleagues?"

net promoter
Net Promoter

PROMOTERS

Minus

DETRACTORS

Net Promoter =

Highly

Unlikely

Highly

Likely

Likely to Recommend

0

10

PROMOTERS

DETRACTORS

Source: Reichheld, F. (2006) “The Ultimate Question”, Harvard Business School Publishing,

ge capital solutions example
GE Capital Solutions (example)
  • GE is now using NPS (net promoter score) in all of its businesses
  • GE Capital Solutions Satisfaction Scale
    • How willing are you to recommend us to a friend or associate?
    • How would you rate our ability meet your needs?
    • How would you rate our people?
    • How would you rate our processes?
    • What is your impression of our market reputation?
    • How would you rate the cost of doing business with us?
    • How would you rate the overall value of our product or service as being worth what you paid?
nps stars
USAA 82%

HomeBanc 81%

Harley-Davidson 81 %

Costco 79 %

Amazon 73 %

Chick-Fil-A 72 %

eBay 71 %

Vanguard 70 %

SAS 66 %

Apple 66 %

Intuit 58 %

Cisco 57 %

Federal Express 56 %

Southwest Airlines 51 %

American Express 50 %

Commerce Bank 50 %

Dell Computers 50 %

Adobe 48 %

Electronic Arts 48 %

NPS Stars

Source: Reichheld, F. (2006) “The Ultimate Question”, Harvard Business School Publishing,

traditional versus relationship marketing
Traditional Versus Relationship Marketing

Interactive Marketing-Value-added Product/ Service Emphasized

Relationship Marketing

Customer Acquisition/Satisfaction

Value Created/ Customer Retention

Traditional Marketing

Marketing Mix - Core Product Emphasized

Long-term Focus

Short-term Focus

Adapted from Sheth, J. (1996)

transactions vs relationships
Transactions vs. Relationships
  • Short  long-term time frame
  • Limited  substantial internal marketing
  • Marketing mix  interactive marketing
  • Price sensitive  less sensitive
  • Technical quality  functional quality
  • Market share  share of customer
  • Ad hoc customer satisfaction surveys  real-time feedback systems
  • Limited  substantial interdependency among functional areas

Source: Gronroos, C. (1990)

4 levels of relationship marketing
4 Levels of Relationship Marketing*

Competitive

Primary

Degree of

Bond

Integration

Advantage

FINANCIAL

LOW

LOW

SOCIAL

MEDIUM

MEDIUM

PROCESS

MEDIUM-HIGH

HIGH

STRATEGIC

HIGH

HIGH

(*Source: Adapted from Berry, L.(1995)On Great Service, the Free Press)

key relationship variables
Key Relationship Variables

Trust

Commitment

Relationship

Enablers

Dependence

Cooperation

Information

Exchange

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Rankings of Relationship Enablers

1)TRUST

2)COMMITMENT

3) DEPENDENCE

4)INFORMATION EXCHANGE

5)COOPERATION

slide204

Information Sustains a Relationship

Partnership Relationship

Relationship Selling

High Account Penetration

Transaction Selling

Information, Time, or Trust Level

that the Buyer is willing to invest in the relationship

Transaction- Based Relationship

Low Account Penetration

Services that the seller is willing to provide the relationship

slide205

Continuum of Relationships

Industry Relationship Bandwidth

Pure

Transactional

Exchange

Pure

Collaborative

Exchange

Core Product

Augmented Product

Flaring - Out

Unbundling

Strategy

Added

Augmentation

Strategy

slide206

Key Factors of Successful

Customer-Supplier Relationships

1) Business Expertise (29 %)

2) Dedication to Customer (25 %)

3) Account Sensitivity and Guidance (23 %)

4) Product Performance & Quality (10 %)

5) Service Dept. Excellence (9 %)

6) Confirmation of Capabilities (4%)

two way approach to loyalty
Two-way Approach to Loyalty

You and your customers don't have a “deal” as much as you have mutual dedication. Because you, the seller are not delivering on just price, quality, and service. You are demonstrating intense loyalty by giving them a comprehensive, inimitable way to win. Better productivity. Faster throughput. Lower inventory.More innovative products. You are delivering something—anything—that makes you indispensable to your customer's success. Then, and only then, will you get complete loyalty in return

Modern loyalty, then, ultimately comes down to that old saying: "What goes around comes around." The more fervently committed you are to making your customers win big in the long haul, rather than just meeting their immediate demands, the more fervently committed they will be to you.

------ Jack Welch, former CEO

of General Electric

characteristics of a good crm system
Characteristics of a Good CRM System

● A good CRM system is capable of describing customer relationships in sufficient detail so that management, salespeople, customer service and even suppliers have direct and real-time access to customer information

● The information gathered should help match customer needs with product/service offerings, remind customers of service requirements, predict future purchases, and alert the company when a customer’s purchase behavior has changed

● A key feature of CRM is sharing the customer experience across the organization and supply chain

crm critical customer data
CRM & Critical Customer Data

Companies should continuously gather critical customer data known as BADI

☛Behaviors (how often and where customers visit)

☛Attitudes (customers satisfaction, service

quality assessments)

☛Demographics

☛Insights (share of market,

share of wallet)

practicing relationship marketing
Practicing Relationship Marketing
  • Look for opportunities to “add value”
  • Respond quickly to customer needs
  • Apply “mass customization”
  • Effective utilization of customer information
  • Track each relationship
ways to add value
Ways to “Add Value”
    • More casual restaurants trying curbside delivery Facilities catering to consumers seeking more convenience
  • By Bruce HorovitzUSA TODAY, May 31, 2002
  • Casual dining is quietly undertaking one of its biggest changes: food delivered curbside.
  • Taking a cue from the fast foodies, the $100 billion casual dining sector is reluctantly going the convenience route. Many of the biggest names in casual restaurants, including Applebee's, Chili's, T.G.I. Friday's and Ruby Tuesday, are testing different formats to quickly deliver food to customers waiting in their cars.
  • ''Within two decades, half the casual dining sector's business will come from outside the restaurant's four walls,'' projects Dennis Lombardi of Technomic, a restaurant consultant.
  • Consumer demand for convenience is prodding the restaurant sector to invent ways to speed up. Fast-food restaurants are speeding up drive-throughs. Supermarkets are offering quick takeout meals. And the casual dining sector, which has long appealed to families who want to eat quality food outside the home, must invent ways to make its food portable.
slide213

VALUE ENABLERS

PEOPLE

TECHNOLOGY

INFORMATION

slide214

Mgt. System

The House of Quality

TQM

Social System

Technical System

Customer Satisfaction

Continuous Improvement

Speaking

with Facts

Respect for People

Strategy Management

Individual Task Mgt.

Project Management

Process Management

Strategic Planning

Operations Planning

Project Planning

Quality Planning

slide215

STEPS IN PROCESS IMPROVEMENT

  • Define the Problem
  • Understand the Process
  • Measure the Process
  • Simplify or Improve the Process
  • Evaluate and Monitor Process Improvement ?
why customers leave216
Why Customers Leave

Source: Michaelson & Assoc.

value discipline
DESCRIBE RUBBERMAID’S VALUE DISCIPLINEValue Discipline

VALUE DISCIPLINES

  • Product Leadership (Nike)
  • Operational Excellence (Wal-Mart, Dell)
  • Customer Intimacy (Amazon, Nordstrom’s)
customer orientation
What are some of the factors indicating that Rubbermaid is practicing a “customer orientation”?

Would it be accurate to say that Rubbermaid has a “process orientation?

How does Rubbermaid add value to its customers? To consumers?

How has the Newell acquisition helped/hurt Rubbermaid’s market orientation?

Customer Orientation
process tools
WHAT WERE THE “PROCESS TOOLS” THAT TIME USED IN ITS IMPROVEMENT EFFORTS”?

WHAT OTHER PROCESS IMPROVEMENT TOOLS COULD TIME HAVE USED TO IMPROVE SERVICE LEVELS?

HOW DID PROCESS IMPROVEMENT TRANSLATE INTO GREATER CUSTOMER VALUE?

PROCESS TOOLS
process and the organization
PROCESS AND THE ORGANIZATION

WHAT IS THE RELATIONSHIP BETWEEN PROCESS REENGINEERING AND ORGANIZATIONAL STRUCTURE?

WHAT IMPACT DID PROCESS REENGINEERING HAVE ON KEY SERVICE METRICS?

KEY SUCCESS FACTORS?

linking c s and loyalty
In what ways did Pizza Hut benefit or not benefit from the C/S Initiative?

Evaluate the quarterly bonus system

What would you have done differently if regarding the C/S---Loyalty Program?

Linking C/S and Loyalty
case questions
Case Questions:
  • What impact does EJ’s investment in their employees have on service quality and loyalty?
  • Are there examples cited in this case that indicate EJ practices Relationship Marketing?
  • Can EJ continue to create customer value if it ignores online trading?