Understanding customer requirements

1. Understanding customer requirements BM404 – Week 4

2. Provider Gap 1 CUSTOMER Expected Service Listening Gap COMPANY Company Perceptions of Consumer Expectations Part 3 Opener

3. Session overview • Using Marketing Research to Understand Customer Expectations • Elements in an Effective Services Marketing Research Program • Analyzing and Interpreting Marketing Research Findings • Model Services Marketing Research Programs • Using Marketing Research Information • Upward Communication

4. Common Research Objectives for Services • To discover customer requirements or expectations for service • To monitor and track service performance • To assess overall company performance compared with that of competition • To assess gaps between customer expectations and perceptions.

5. Common Research Objectives for Services • To identify dissatisfied customers, so that service recovery can be attempted. • To gauge effectiveness of changes in service delivery. • To appraise the service performance of individuals and teams for evaluation, recognition, and rewards. • To determine customer expectations for a new service. • To monitor changing customer expectations in an industry. • To forecast future expectations of customers.

6. Criteria for an EffectiveService Research Program • Includes both qualitative and quantitative research • Includes both expectations and perceptions of customers • Balances the cost of the research and the value of the information • Includes statistical validity when necessary • Measures priorities or importance of attributes • Occurs with appropriate frequency • Includes measures of loyalty, behavioral intentions, or actual behavior

7. Elements in an effective services marketing research program • Complaints solicitation • Critical incident studies • Requirements research • Relationship and SERVQUAL surveys • Trailer calls • Service expectations meeting and reviews • Process checkpoint evaluations • Market-orientated ethnography • Mystery shopping • Customer panels • Lost customer research

8. Stages in the Research Process • Stage 1 : Define Problem • Stage 2 : Develop Measurement Strategy • Stage 3 : Implement Research Program • Stage 4 : Collect and Tabulate Data • Stage 5 : Interpret and Analyze Findings • Stage 6 : Report Findings

9. Portfolio of Services Research Research Objective Type of Research Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action Customer Complaint Solicitation “Relationship” Surveys Post-Transaction Surveys Customer Focus Groups “Mystery Shopping” of Service Providers Employee Surveys Assess company’s service performance compared to competitors; identify service-improvement priorities; track service improvement over time Obtain customer feedback while service experience is fresh; act on feedback quickly if negative patterns develop Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service Measure internal service quality; identify employee-perceived obstacles to improve service; track employee morale and attitudes Lost Customer Research Future Expectations Research Determine the reasons why customers defect Forecast future expectations of customers; develop and test new service ideas

10. Tracking of Customer Expectations and Perceptions of Service Reliability Source: E. Sivadas, “Europeans Have a Different Take on CS [Customer Satisfaction] Programs,” Marketing News, October 26, 1998, p. 39.

11. Service Quality Perceptions Relative to Zones of Tolerance 9 8 7 6 5 4 3 2 1 0 O O O O O Reliability Responsiveness Assurance Empathy Tangibles O = Zone of Tolerance = Service Quality Perception Retail Chain

12. Service Quality Perceptions Relative to Zones of Tolerance 10 8 6 4 2 0 O O O O O Reliability Responsiveness Assurance Empathy Tangibles Computer Manufacturer O = Zone of Tolerance = S.Q. Perception

13. Importance/Performance Matrix HIGH High Leverage   Attributes to Improve Attributes to Maintain      Importance Low Leverage  Low Leverage   Attributes to Maintain Attributes to De-emphasize Performance LOW HIGH

14. Building customer relationships

15. Building customer relationships • Relationship Marketing • Relationship Value of Customers • Customer Profitability Segments • Relationship Development Strategies • Relationship Challenges

16. Building Customer Relationships • Relationship marketing - its goals, and the benefits of long-term relationships for firms and customers. • Customer lifetime value. • Customer profitability segments as a strategy for focusing relationship marketing efforts.

17. Building customer relationships • Present relationship development strategies—including quality core service, switching barriers, and relationship bonds. • Identify challenges in relationship development, including the somewhat controversial idea that “the customer is not always right.”

18. Relationship Marketing • focuses on keeping current customers and improving relationships with them • does not necessarily emphasize acquiring new customers • is usually cheaper (for the firm) • keeping a current customer costs less than attracting a new one • thus, the focus is less on attraction, and more on retention and enhancement of customer relationships

19. Customer Goals of Relationship Marketing

20. Benefits for Customers: Receipt of greater value Confidence benefits: trust confidence in provider reduced anxiety Social benefits: familiarity social support personal relationships Special treatment benefits: special deals price breaks Benefits for Firms: Economic benefits: increased revenues reduced marketing and administrative costs regular revenue stream Customer behavior benefits: strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers Human resource management benefits: easier jobs for employees social benefits for employees employee retention Benefits of Relationship Marketing

21. Profit Generated by a CustomerOver Time Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., “Zero Defection: Quality Comes to Services,’’ Harvard Business Review, September–October 1990.

22. Profit Impact of 5 Percent Increase in Retention Rate Source: F. F. Reichheld, “Loyalty and the Renaissance of Marketing,” Marketing Management, vol. 2, no. 4 (1994), p. 15.

23. Lifetime Value of an Average Business Customer at Telecheck International

24. The Customer Pyramid Most profitable customers What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth? Platinum Gold Iron What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with? Lead Least profitable customers

25. Relationship Development Model Customer Benefits Confidence benefits Social benefits Special treatment benefits Relationship Bonds Financial bonds Social bonds Customization bonds Structural bonds Strong Customer Relationship (Loyalty) Core Service Provision Satisfaction Perceived service quality Perceived value Firm Benefits Economic benefits Customer behavior benefits Human resource management benefits Switching Barriers Customer inertia Switching costs

26. Strategies for Building Relationships • Core Service Provision: • service foundations built upon delivery of excellent service: • satisfaction, perceived service quality, perceived value • Switching Barriers: • customer inertia • switching costs: • set up costs, search costs, learning costs, contractual costs

27. Strategies for Building Relationships • Relationship Bonds: • financial bonds • social bonds • customization bonds • structural bonds

28. Figure 7.6 Levels of Relationship Strategies Stable pricing Bundling and cross selling Volume and frequency rewards 1. Financial bonds Integrated information systems Continuous relationships Excellent service and value 2. Social bonds 4. Structural bonds Personal relationships Joint investments Shared processes and equipment Social bonds among customers 3. Customization Bonds Anticipation/ innovation Customer intimacy Mass customization

29. “The Customer Is NOT Always Right” • Not all customers are good relationship customers: • wrong segment • not profitable in the long term • difficult customers

30. Service recovery • The Impact of Service Failure and Recovery • How Customers Respond to Service Failures • Customers’ Recovery Expectations • Service Recovery Strategies • Service Guarantees

31. Service Recovery • Importance of recovery from service failures • Consumer complaints and why people do and do not complain • What customers want when they complain • Strategies for effective service recovery, Service

32. Unhappy Customers’ Repurchase Intentions Unhappy Customers Who Don’t Complain 9% Unhappy Customers Who Do Complain 19% Complaints Not Resolved 54% Complaints Resolved 82% Complaints Resolved Quickly Percent of customers who will buy again after a major complaint (over $100 in losses) Source: Adapted from data reported by the Technical Assistance Research Program.

33. Customer Complaint Actions Following Service Failure

34. Causes Behind Service Switching Pricing • High price • Price increases • Unfair pricing • Deceptive pricing Response to Service Failure • Negative response • No response • Reluctant response Inconvenience Competition • Location/hours • Wait for appointment • Wait for service Service Switching Behavior • Found better service Ethical Problems Core Service Failure • Cheat • Hard sell • Unsafe • Conflict of interest • Service mistakes • Billing errors • Service catastrophe Service Encounter Failures Involuntary Switching • Uncaring • Impolite • Unresponsive • Unknowledgeable • Customer moved • Provider closed Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.

35. Act Quickly Encourage and Track Complaints Provide Adequate Explanations Service Recovery Strategies Fail-safe the Service Learn from Lost Customers Cultivate Relationships with Customers Learn from Recovery Experiences Service Recovery Strategies Treat Customers Fairly

36. Service Guarantees • guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) • a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm • for tangible products, a guarantee is often done in the form of a warranty • services are often not guaranteed • cannot return the service • service experience is intangible (so what do you guarantee?)

37. Characteristics of an EffectiveService Guarantee • Unconditional • the guarantee should make its promise unconditionally – no strings attached • Meaningful • the firm should guarantee elements of the service that are important to the customer • the payout should cover fully the customer’s dissatisfaction Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

38. Service guarantees • Easy to Understand and Communicate • customers need to understand what to expect • employees need to understand what to do • Easy to Invoke and Collect • the firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee

39. Benefits of Service Guarantees • A good guarantee forces the company to focus on its customers. • An effective guarantee sets clear standards for the organization. • A good guarantee generates immediate and relevant feedback from customers. • When the guarantee is invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty.

40. Benefits of service guarantees • Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. • Employee morale and loyalty can be enhanced as a result of having a service guarantee in place. • A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

41. Why a Good Guarantee Works • forces company to focus on customers • sets clear standards • generates feedback • forces company to understand why it failed • builds “marketing muscle”

42. Service Guarantees • Does everyone need a guarantee? • Reasons companies might NOT want to offer a service guarantee: • existing service quality is poor • guarantee does not fit the company’s image • too many uncontrollable external variables • fears of cheating or abuse by customers • costs of the guarantee outweigh the benefits • customers perceive little risk in the service • customers perceive little variability in service quality among competitors

43. Service Guarantees • service guarantees work for companies who are already customer-focused • effective guarantees can be BIG deals – they put the company at risk in the eyes of the customer • customers should be involved in the design of service guarantees • the guarantee should be so stunning that it comes as a surprise – a WOW!! factor • “it’s the icing on the cake, not the cake”