lecture 4 building customer satisfaction & loyalty

Lecture 4: Building Customer Satisfaction & Loyalty; Prepared by Zaved Mannan 1 |

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Lecture 4

Building Customer Satisfaction And Loyalty

Objectives

At the completion of this lecture, you should be able to:

• Define customer value, satisfaction and loyalty;

• Understand the concept of CLV and describe how this can be maximised;

• Discuss how companies can retian as well as attract new customers; and

• Discuss how companies can cultivate strong customer relations.

Commentary

Customer satisfaction is the outcome felt by buyers who have experienced a

company performance that has fulfilled expectations. Customers are satisfied when

their expectations are met and delighted when their expectations are exceeded.

Satisfied customers remain loyal longer, buy more, are less price sensitive, and talk

favourably about the company.

A major challenge for high-performance companies is that of building and

maintaining vaible business in a rapidly changing marketplace. They must recognize

the core elements of the business and how to maintain a viable fit between their

stakeholders, proecesses, resources, and organizaion capabilities and culture.

Typically, high performing business develop and emphasise cross-functional skills

rather than functional skills (overall project management and resutls versus

Essential Reading

Textbook: Kotler et al (2009)., Chapter 5.

Optional Reading

Reading 4.1: Payne, A., & Holt, S. (2001). Diagnosing customer value: Integrating the value

process and relationship marketing. British Journal of Management, 12, 159-182

Reading 4.2: Prahalad, C. K., & Ramaswamy, V. (2000, January-February). Co-opting customer

competence. Harvard Business Review, 79-87


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faunctional strengths(best marketers, and so on)). They also build their resources

into core capabilities that become core competencies, distinctive abilities and

competitive advantages. This along with a corporate culture of shared experiences,

stores, beliefs and norms unique to the organizaiton are the keys to their success.

To create customer satisfaction, companies must manage their value chain (the

concept of the ‘value chain’ is discussed further in the next topic) as well as the

whole value delivery system in a customer-centred way. The company’s goal is not

only to get customers, but even more importantly, to retain customers. Customer

relationship marketing provids the key to retaining customers and involves

providing financial and social benefits as well as sturctural ties to the customers.

Companies must decide how much relationship marketing to invest in different

market segments and individual customers. Much depends on estimating customer

lifetime vlaue against the cost required to attract and retian these customers.

Importance of Customer Value

In an era where customers are offered a smorgashord of products and services to

choose from, it is important for organization to understand that consumers make

choices based on a bundle of attitudes, perceptions, expectations, emotions and

prior knowledge relevant to a particular purchase situation. This issue of consumer

behaviour was covered in the previous lecture.

• Business succeed by getting, keeping and growing customers.

• Without customers, you don’t have business.

• See figure 5.1, p. 117

• Figure explains traditional chart and modern customer-oriented organization

chart.

• Managers at every level must be personally involved in knowing, meeting &

serving customers.

• Customer advocacy strategy can bring the competitive advantage.

• Customer expect companies to connect with them, satisfy them & delight

them, but also listen to them.

• CompUSA, Customer Review on website, 20,000 more customers, 50%

increased sale.

• Successful companies are the ones that fully satisfy their customers

profitably.

• “Make your customer the center of your culture.” CEO of Cisco

• Read HP & Dell example in p. 117.


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• Dell offered low cost computers, Filipino & Indian call center, poor service,

call waiting, call transfer, no toll free numbers. Result? Market share

declined.

• Dell Confessed “The team was managing cost instead of managing service &

quality.”

• Educated customers have the tools to verify companies' claim.

Customer Perceived Value(CPV)

In this lecture, we try to understand the determinants of customer value and

satisfaction. Customer delivered value is the difference between total customer

benefit and total customer cost. Customers will normally choose the offer that

miximises the delivered value. A simple way of remembering this is the formula:

• CPV = Benefit – Cost

• CPV is the difference between the prospective customer’s evaluation of all

the benefits & all the costs of an offering & perceived alternatives.

• Marketer can increase the CPV by offering some combination of raising

economic, functional or emotional benefits and/or reducing one or more of

the various types of costs.


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• See the figure 5.2, p. 117

Kotler et al. (2009) argue that buyers will buy from the firm that they percieve to

offer the highest customer delivered value. At the heart of the concep of customer

delivered value are the following.

1. Total customer benefit: the bundle of benefits customers expect from a given

product or service.

2. Total customer cost: the bundle of costs customer expect to incur in

evaluating, obtaining and using the product or service.

In determining which organization offers the highest customer delivered value,

customers would examine the relationship between customer cost and perceived

value to help determine which product offering is the most favourable. What is

important to note is that the customer and not the market ultimately determines

‘customer value’.

Applying Customer Value Concept

• Read the example of Caterpillar & Komatsu, p. 118


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• Competing salesperson explains their respective offers.

• Buyer wants reliability, durability, performance & resale value (Product

benefit). Caterpillar tractor has these benefits.

• Buyer wants services, delivery, training & maintenance (service benefits).

Caterpillar has these service benefits.

• Caterpillar has knowledgeable & responsive personnel (personnel benefits).

• Caterpillar has strong corporate image & reputation (Image benefits).

• Now buyer adds up all these benefits & perceives Caterpillar deliver greater

customer benefits.

• Will buyer go for Caterpillar tractor?

• Buyer will examine total cost of tractor.

• Buyer’s total cost includes time, energy & psychological costs expended in

product acquisition, usage, maintenance, ownership & disposal.

• Buyer adds up all these costs together with monetary costs to form a total

customer cost.

• If total customer cost is higher than total customer benefit, then buyer might

choose Komatsu.

• Let’s help Caterpillar to sell its tractor.

• First, increase benefits by improving economic, functional & psychological

benefits of its tractors, services, personnel & image.

• Second, Reduce non-monetary cost by reducing time, energy &

psychological costs.

• Third, reduce tractor’s monetary costs.

Choices & Implications of Customer Value Concept

1. The buyer might be under orders to buy at the lowest price. Salesperson

need to convince that buying on price will result in lower long-term profits.

2. If buyer is not convinced, then salesperson should convince other people in

the company that Caterpillar delivers greater CPV.

3. The buyer enjoys long term friendship with the Komatsu salesperson.

Salesperson need to show that Komatsu tractor will draw more complaints

from operators when they discover its high fuel cost & need for frequent

repairs.

Customer Satisfaction

Satisfaction is a person’s feelings of pleasure or disappointment resulting from

comparing a product perceived performance (or outcome) in relation to his/her

expectations.


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Note the following,

• If performance is below expectations then customer dissatisfaction occurs.

• If performance matches expectations then satisfaction occurs.

• If performance is greater than expectations then the customer is highly

satisfied.

Creating high customer satisfaction (CS) is not ultimate goal for a company.

• Company can increase CS by lowering price. Low profit.

• Spending more to increase CS might dis-satisfy Stakeholders.

• Company must operate on the philosophy that it is trying to deliver a high level

of customer satisfaction subject to delivering acceptable levels of satisfaction to

the other stakeholders.

• Read the example of ‘the Orchid-an ecotel Hotel”, p. 120 & “Kingfisher Airlines”,

p. 121.

o Orchid Hotel delivers eco-friendly materials to its customers.

o Kingfisher treats its customer as “guests” providing brand new fleet

with charming crew & latest technology.

Ultimately, the challenge for any organization is how to evaluate dynamic customer

expectations, and how to design and develop value propositions that best suits a

particular market segment. To achieve the former, marketers need to know more

about their customers. Hence the growth in CRM database which provide marketers

with minute details on their customers. The aim of this information is to provide

marketers with the knowledge to understand their customers better and ultimately

develop products and services that satisfy their customers.

The growing realization that customer satisfaction is of increasing importance is

highlighted by the fact that many leading organizations measure their customer

satisfaction using it as a ‘barometer’ to indicate the company’s standing in the

marketplace. However, you must never forget that increasing customer satisfaction

comes at a cost.

Measuring Customer Satisfaction

It is crucial that organization monitor satisfaction levels as they are an important

driver of customer retention. Companies need to monitor customer loss rates,

competitors’ performance in delivering satisfaction, products and service quality,

and internal staff morale as poor morale affects the capacity of organizations in

delivering value to external consumers.


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• A highly satisfied customer stays loyal longer, buys more, good mouth, less

attention to other brands.

• Greater CS linked to higher returns & low risk to stock market.

• Several ways to monitor CS: Periodic Survey, Customer loss rate, Mystery

Shoppers.

Customer Complaints

• Tallying complaints is not enough.

• 95% customers feel complaining is not worthy, or they do not know how or

whom to complain.

• 54%-70% customer will do business again if their complaint is resolved.

• The figure can be up to 95% if customer feels the complaint was resolved

quickly.

• Dissatisfaction spreads quickly, exponentially.


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• Ways to complain: Suggestion forms, toll-free numbers, Web sites & email.

• Procedure to recover goodwill:

– Set up 7-day, 24-hours toll free ‘hotline’

– Contact the complaining customer

– Accept the responsibility & don’t blame customer.

– Use empathetic customer service people

– Resolve complaints quickly


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Product & Service Quality

• Quality: “Fitness for use.”, “Conformance to requirements.”, “Freedom from

variation.”

• Definition: “Quality is the totality of features and characteristics of a product

or service that bear on its ability to satisfy stated or implied needs.”

• A quality company satisfies its customer’s needs most of the time.

• Difference between conformance & performance quality. A Lexus provides

higher performance quality than a Hyundai. Yet we can say that a Lexus and

a Hyundai deliver the same conformance quality if all the units deliver their

respective promised quality.

• How marketers can improve quality?

• Correctly identify the needs

• Communicate customer expectations properly to product designers.

• Customer’s orders are fulfilled correctly and on time.

• Customers have received proper instructions, training and technical

assistance in the use of the product.

• Stay in touch with customers after the sale to ensure that they are

satisfied and remain satisfied.

• Gather customer ideas for product and service improvements and

convey them to the appropriate departments.

Acquiring and Retaining Customers

In an environment where customers are increasingly hard to please, the challenge

is to produce delighted and loyal customers. Organizations have to balance the cost

of acquiring customers. Customer churn is a particular problem in a number of

industries such as mobile telecommunications, subscription TV (pay TV) and

internet service providers. Historically, many organizations focused on acquiring

customers and paid less attention to the challenge of retaining customers. CRM

software has been used increasingly within organizations to nurture and manage

customer relations.

Relationship Marketing

The above discussion brings us to another marketing buzzword, ‘relationship

marketing’. Essentially, relationship marketing is concerned with attracting

customers, retaining customers, and eventually ending up in a mutually beneficial

long-term relationship between the customer and the company.

Under a traditional approach the focus of marketing is on:


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• The one off sale,

• A shorter time scale,

• Infrequent contact,

• Emphasises product features,

• Little emphasis on customer services,

• Quality is seen as the responsibility of

production team.

By contrast the focus of a Relationship Marketing approach is on:

• Retaining the customer,

• Longer time scale,

• Continuous customer contact,

• Focus on Customer value,

• High focus on customer service,

• Quality is seen as the responsibility of all staff.

CRM is the process of carefully managing detailed information about individual

customers and all customer “touch points” to maximize customer loyalty.

• A customer touch point is any occasion on which a customer encounters the

brand and product.

• CRM provide real time customer service.

There are a variety of ways a company can enhance its relationships with its

customers. They can use CRM systems to reveal information on customer

preferences and past purchases then use this data to design a customised offering

tailored to the customers’ needs. Customer loyalty programs, such as ‘Fly

Buys’(Coles) or ‘Frequent Flyer’ schemes (Quantas, etc.) are examples of

companies attempting to maintain an on-going relationship with their customers

and discourage brand switching behaviour. Nowadays you can become a fan of

brands and products and add these to your Myspace or Facebook profiles. You can

sign up on the company website to a members club and receive a range of benefits

such as newsletters, product updates, special offers and invitations to promotional

events. All these are relational techniques which try to engender your loyalty to the

company and the product. But you need to think why you would want to have a

‘relationship’ with the company that makes your razor blades or butter! Consumers

only want a relationship with a company where it provides some form of extra value

or saves time and eliminates inconvenience. So if you have to regularly use rental

cars in your job, you may well appreciate a special relationship with the company

READ

Reading 4.2: Prahalad, C. K., &

Ramaswamy, V. (2000, Janurary-

February). Co-opting customer

competence. Harvard Business

Review, 79-87


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as it may provide you with special services such as priority check-in, discounted

hire rates and vehicle upgrades.

• A four-step framework for one-to-one marketing:

– Identify your prospects & customers: Don’t go after everyone.

– Differentiate customers in terms of their needs and their value to your

company.

– Interact with customers to improve your knowledge about their

individual needs and to build stronger relationship.

– Customize products, services, & messages to each customer: Facilitate

customer-company interactions.

Customer Centricity

Ultimately, customer centricity is what drives extraordinary profiles and long-term

success. As Prahalad & Ramaswamy (200) suggest in Reading 4.2, this notion

embraces the idea that the customer is always right by identifying that

organizations that tap into the minds of their customers and actually involves them

in the production of the product, will ultimately be more profitable.


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Conclusion

An understanding of the critical role of customer value is one of the key factors in

organization success and prosperity. While markets can design value proposition

statements for the products and services they market, ultimately the consumer has

the final say whether the product represents an acceptable trade-off between the

investments and sacrifices they have made relative to the derived benefits they

realize from the exchange CRM systems potentially have the capacity to enhance

the management of customer relations and identification of customer value.

However, it is critical that these systems are used more than as a customer

information storage facility. IT hardware and software can nor replace authentic

human interaction.

References

Kotler, P., Keller, K. L., Koshy, A. & Jha, M. (2009). Marketing Management: A

South Asian Perspective (13th Ed.). Pearson Education, Delhi.

Varey, R. J. (2002). Relationship Marketing: Dialogue and Networks in the E-

Commerce Era. Chichester: John Wiley and Sons.

Prepared by

Zaved Mannan Adjunct Faculty

University of Liberal Arts Bangladesh (ULAB)