Chapters 3 and 4

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Chapters 3 and 4

• Understanding Market Potential, Customer
  Satisfaction and Loyalty - Links to Firm
  Performance.

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Lets start by understanding what drives
performance

• Make a short list of the things that drive firm
  performance.

3
Market-Based Performance Drivers

• Share Growth.
• Sales Growth.
• Improvements in market position.
• Improvements in price position.
• Successful new product introductions.
• But, what drives these factors?

4
Market-Driven Organizations

• Characterized by a focus on customer needs and
  interests.
• Resulting in generation, dissemination and
  utilization of market intelligence, resulting in
  coordinated inter-functional action directed at
  creating superior customer value.
• It is through delivery of superior customer value
  that market driven firms attain superior
  performance.
• e.g. Apple.

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Market Orientation, Competitive Advantage and
Business Performance

• Market
• Orientation
• Customer Focus
• Competitor Focus
• Inter-Functional
• Coordination and Response.

• Core
• Capabilities
• Customer Service
• Quality
• Innovation
• Responsiveness
• Value

• Competitive
• Advantage
• New Prod. Success
• Share Growth
• Differentiation
• Cost Efficiency

• Business
• Performance
• Sales Growth
• Satisfaction
• Loyalty
• Profitability

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Market Driven Firm
Information Acquisition
Interfunctional Assessment
Customer Information
Superior Customer Value
Competitor Information
Shared Diagnosis and Coordinated Action
Other Mkt. Information
Organizational Values and Culture
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Market Driven vs. Internal Orientation
Internally Oriented
Market-Driven
Who are our customers? What are their
needs? Who is the competition? What are our
capabilities? What is our competitiveadvantage?
What is the product? What channels are
used? How does the market respond to pricing and
promotion
Where can we sell our products? What can we
provide?Why worry about competition?What can
we do to be more efficient ?How do we make more
money?What can RD come up with?How can we
drive channel efficiency? How we set price to
make the most . How can we get customers to buy?
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Market Driving - The Next Step
Market-Driven
Market-Driving
Where can we find new customers? What new needs
can be created?Who do we want as
competition?What new capabilities can we
develop?What type of competitive
advantageshould we develop?What new products
can be created?What new channels can be
created?What new pricing and promotionapproache
s can be created?
Who are our customers? What are their
needs? Who is the competition? What are our
capabilities? What is our competitiveadvantage?
What is the product? What channels are
used? How does the market respond to pricing and
promotion
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Issues

• How do we become a market-driver?
• Is the customer the main focus of our action?
• Are managers focused on acting in the interest of
  customers?
• Do we have the data to support action?
• Not just Marketing Depts job.

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Understanding Market Potential
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Market Potential and Market Growth

• Forces affecting rate of market growth
• Market potential
• Market penetration
• Rate of entry

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Market Growth
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Market Share

• Market Share Index (MSI)
• Product X Product X Price
  X Product X Service
• Awareness Preference Acceptability
  Availability Experience
• Share Development Index (SDI)
• Market Share Index x 100
• Share Index Potential
• Note This is predicated on having the data to do
  the calculations.

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Market Demand vs Potential
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Customer Value Creation
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Building Customer Focus

• The Fundamentals
• Determining Buyer Needs
• Setting Priorities
• Aligning the Organization

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Customer Focus is Built on Information

• From Customers
• From Internal Systems
• Trouble Reporting/Tracking.
• Complaints.
• Customer Satisfaction Programs.
• From Field Contact Personnel.
• Reporting and tracking systems.

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Understanding Buyer Behavior
Marketing Mix
Decision Process
Purchase
Product Price Promotion Distribution
Other External Influences
Internal Influences
Post-Purchase Behavior
Buyers Black Box
External Stimuli
Response
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Customer Decision Process
Problem Recognition
Alternative Evaluation
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Customer Buying

• Remember that many purchases (even B2B) are
  habit-based.
• Customer does not do extended problem solving and
  search.
• Rather they see the need to rebuy and simply do.

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Customer Value is a Function of Benefits
Received and Costs to Obtain
Total Customer Benefits
Do Benefits Received Outweigh Costs?
Total Customer Value
Total Customer Costs
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Automobile Purchase Benefits Costs
Informed Friendly Attitude Image Handling
Sales Staff
Total Customer Benefits
Benefits Warranty Test Drive Condition
Product
Attitude Timely Informed Hours Parts
Service
Total Customer Value
TV Ads Newspaper Ads . . Web Site
Search
Total Customer Costs
Base Model Accessories . . Trade-In
Price
Part Costs Frequency . . Distance
Service
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Life Cycle Costs and Economic Value

• Life-Cycle Cost
• Price Acquiring Ownership
  Disposal
• Paid Cost Cost
  Cost
• Economic Value
• Competing Products Our Products
• Life-Cycle Cost Life-Cycle Cost

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Life Cycle Costs and Economic Value
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Life Cycle Cost Component Examples
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Benefit and Cost Mapping

• Implementation Issues
• Value Map Must Be Developed From the Customers
  Perspective
• Whats measured becomes Real
• Avoid washing out differences.
• Abstract Goals Must Be Actionable

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Objective - Find Value Gaps!
Performance High
Real Hummer
Old Wrangler
New Wrangler
4 Dr Wrangler
High Price
Low Price
Hummer 2
Xterra
RAV4
Explorer
Outback
Where are the need gaps?
Low
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Turning Value Positions into Action

• Just knowing where the customer finds value is
  obviously not enough.
• Your firm must strive to deliver the value
  customers desire.
• This means implementing strategies designed to
  capture and hold the desired position.

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Make Abstract Objectives Actionable
Org. Obj.
The Drill Down
Customer Satisfaction
Service Reliability
Fast Service Response
1 Hour Response 99.999 of the time
Action Item
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Action Items - System Development

• Example Customer contact tracking system for
  field reps.
• Sales representatives
• Customer service personnel
• What feedback should we give the customer?
• What information should be widely available
  within the company.

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The Satisfaction - Loyalty Link
Customer Loyalty
High
Less Competition
Airlines
Hospitals
Personal Computers
Automobiles
More Competition
Low
1 2 3
4 5
Completely Dissat.
Completely Sat.
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Customer Satisfaction is a Confirmation/Disconfirm
ationof Expectations
EXPERIENCE
INITIAL EXPECTATIONS
PERCEIVED OUTCOME
CUSTOMER SATISFACTION
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Information is the Key

• We must understand the benefits customers receive
  from use.
• Who do we ask?
• Customers
• Company Sources
• Competitive Monitoring

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Which Components Require Immediate Attention?
Importance
Needs Improvement
high
medium
Overachieving
low
high
medium
low
Performance
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Satisfied Customers Typically

• Find more value in the firms products.
• Are willing to spend more to maintain this high
  level of need satisfaction.
• Are less influenced by competitor promotions.
• Are very willing to tell others about your
  product (WOM).
• Are often willing to try other products you sell.

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Does it Work? Evidence from the Trucking Industry
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A Recent Study

• We looked at trucking firms strategies for
  evidence that they were implementing a
  market-driven approach, then looked at their
  performance.

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Conclusions

• Better customer value (e.g., higher customer
  service levels and customer relations) lead to
  increased share and higher ROA despite a 1 pt
  loss in efficiency.
• Thus, to build satisfaction, you must understand
  the customer needs.
• Lets look at how to do this.

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Conclusions for Typical Organization

• Customer orientation will require changes in
  operating procedures.
• Specific customer satisfaction metrics are
  needed.
• Culture must evolve to support use of customer
  information and Sat. metrics.
• Information gathering systems must evolve to
  support needed customer information.

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Information System Needs.

• Database of customer requirements.
• Primary needs
• Secondary needs.
• Priorities!
• Current usage.
• Satisfaction levels for customer groups
• Date last contacted.
• Name of contact.
• Competitor information.

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Additional Issues

• Processes for dealing with customers must be
  revised.
• New ideas and solutions must be implemented
  quickly to resolve customer problems and meet
  needs.
• Bureaucracy must be reduced to aid quick response
  (delegation!).
• Competitor information must be developed and
  refined.

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• Segmentation is needed and will help define
  customer value proposition and methods to
  deliver.
• Price sensitive customers may defect.
• Quality Sensitive customers may defect if quality
  not made priority.

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A Customer Lifetime Value Example
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Lifetime Value of a Customer

• The long term profits obtained by retaining
  customers over their lifetime.
• Enables firm to reduce marketing expenses.
• NPV is useful to assign valuation.

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A Customer Loyalty Example

• Loyalty is an attitude towards a product/service
  and the provider
• Loyalty is driven by perceived value and
  satisfaction
• Loyalty is related to repeat purchase, WOM,
  motivation to search and resistance to
  counter-persuasion but is not always translated
  into these post-purchase behaviors
• Many loyalty programs cost more than they
  generate in additional profitability (at least in
  the short-run)

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Mobile Telephone Loyalty

• Average churn rate in mobile telephony today is
  2.1 per month
• So average customer life is only 48 months
  which is the life of the service contract.

Mobile providers must replace all its customers
every 4 years. The potential is to only replace
them every 8 years!
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Assessing The Value of Loyalty

• Existing Cellular Provider
• Cost of Acquisition 350
• Monthly revenue 45
• Monthly network cost 5
• Monthly operating cost 15
• NPV of customer over 48 months
• 915
• NPV of customer over 96 months
• 1,700

Cellular can increase share owner value by 86 by
just realizing the real customer life potential
of their customers.
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Questions?