Title: Review: CHAPTER
1ReviewCHAPTER 5
- Customer Perceptions of Service
2Objectives
- Understand what influences customer perceptions
of service and the relationship among customer
satisfaction, service quality, and individual
service encounters - Demonstrate the importance of customer
satisfaction, the factors that influence it, and
the resulting outcomes. - Identify the five key dimensions of service
quality - Demonstrate the importance of service encounters
as essential building blocks from which customers
form their perceptions Moments of Truth
3Satisfaction vs. Service Quality
- Satisfaction is generally viewed as a broader
concept whereas service quality focuses
specifically on dimensions of service. - Perceived service quality is a component of
customer satisfaction. - Satisfaction is influenced by perceptions of
service quality, product quality, price, and
situational and personal factors. - Service quality is a focused evaluation that
reflects the customers perception of
reliability, assurance, responsiveness, empathy,
and tangibles (RATER). - See Figure 5.1
4Relationship between Customer Satisfaction and
Loyalty
Source James L. Heskett, W. Earl Sasser, Jr.,
and Leonard A. Schlesinger, The Service Profit
Chain, (New York, NY The Free Press, 1997), p.
83.
5The Five Dimensions of Service Quality
Reliability
- Ability to perform the promised service
dependably and accurately. - Knowledge and courtesy of employees and their
ability to inspire trust and confidence. - Physical facilities, equipment, and appearance of
personnel. -
- Caring, individualized attention the firm
provides its customers. - Willingness to help customers and provide prompt
service.
Assurance
Tangibles
Empathy
Responsiveness
6CHAPTER 7
- Building Customer Relationships
7Introduction
- It is important for companies to focus on
keeping their current customers and building
long-term relationships with them. Some
companies fail to understand the importance of
their current customers and fixate on acquiring
new customers. By adopting a relationship
philosophy, companies can begin to understand
customers over time and in great depth, and are
better able to meet their changing needs and
expectations. This requires DATA.
8Objectives
- Define and explain the importance of relationship
marketing - Understand relationship value of customers
- Understand customer profitability segments as a
strategy for focusing on relationship marketing
efforts - Identify relationship development strategies
- Identify challenges in relationship development
-
9Relationship Marketing
- Relationship marketing a philosophy of doing
business that focuses on keeping and improving
relationships with current customers rather than
only on acquiring new customers. - The philosophy assumes that customers prefer to
have an ongoing relationship with one
organization than to switch continually among
providers. True?? - It is much cheaper for an organization to keep a
current customer than to attract a new one. - The bucket theory focuses on the importance of
building long term relationship. -
10The Evolution of Customer Relationships
- Customers as Strangers
- Customers as Acquaintances
- Customers as Friends
- Customers as Partners
11Figure 7.1Customer Goals of Relationship
Marketing
12The Evolution of Customer Relationships
- Customers as Strangers
- Strangers are those customers who are not aware
or have not yet had any transactions with the
firm. - In this case, the firms primary goal is to
initiate communication with these customers in
order to attract and acquire their business. - Customers as Acquaintances
- Once customer awareness and trial are achieved,
familiarity is established and the customer and
firm become acquaintances. - The firms primary goal is to satisfy the
customer.
13The Evolution of Customer Relationships
- Customers as Friends
- As a customer undergoes repetitive purchasing,
the firm begins to acquire specific knowledge of
the customers needs, allowing to create an
offering that directly addresses the customers
situation. - This service exchange relationship requires the
development of trust between the customer and
firm. - A primary goal for the firm is to gain customer
retention. - Customers as Partners
- For a customer-firm partnership to exist, the
creation of commitment must exist. In order to
reach this stage, a firm must use customer
knowledge and information systems to deliver
highly personalized and customized offerings. - The firms primary goal is concerned with
enhancing the relationship. Customers are more
likely to stay in the relationship if they feel
that the company understands their changing needs
and is willing to invest in the relationship by
constantly improving and evolving its product and
service mix.
14The Goal of Relationship Marketing
- The goal of relationship marketing is to build
and maintain a base of committed customers who
are profitable for the organization. - The ideal goal is move customers up the ladder
from the point at which they are strangers to
highly valued, long term customers.
15Benefits of Long-term Relationships for Customers
- Types of relational benefits that customers
experience in long-term service relationships
include - Confidence Benefits comprise feelings of trust
or confidence in the provider along with a sense
of reduced anxiety in knowing what to expect - Social Benefits a service provider becomes a
part of the consumers social support system - Special Treatment Benefits includes getting the
benefit of the doubt such as receiving a special
deal or price
16Benefits of Long-term Relationships for Firms
- Types of benefits that firms experience in
long-term relationships include - Economic Benefits increased revenues over time
from the customer, reduced marketing and
administrative costs, and the ability to maintain
margins without reducing prices. - Customer Behaviour Benefits includes free
word-of-mouth, customer voluntary performance,
providing social benefits to other customers,
serve as mentors. - Human Resource Management Benefits contribute
to co-production of the service, social benefits,
customer retention
17Profit 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,
SeptemberOctober 1990.
18 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.
19Relationship Value of Customers
- Relationship value of a customer is a concept or
calculation that looks at customers from the
point of view of their lifetime revenue and/or
profitability contributions to a company.
20Factors that Influence Relationship Value
- The relationship value of customer is influenced
by - length of an average customer lifetime
- sales of additional products and service over
time - referrals generated by the customer over time
- costs associated with serving the customer
21Estimating Customer Lifetime Value
- If companies knew how much it really costs to
lose a customer, they would be able to accurately
evaluate investments designed to retain
customers. - A firm can estimate the increased value or
profits that accrue for each additional customer
who remains loyal to the company rather than
defecting to the competition.
22Customer Profitability Segments
- Companies may want to treat all customers with
excellent service, but they generally find that
customers differ in their relationship value and
that it may be neither practical nor profitable
to meet all customer expectations. - Companies may try to identify segments or tiers
of customers that differ in current and/or future
profitability to a firm.
23Profitability Tiers The Customer Pyramid
- Companies are aware that their customers differ
in profitability and that a minority of their
customers account for the highest proportion of
sales or profit. This refers to the 80/20 rule
where 20 of customers produce 80 of sales or
profit. - The 20 of customers constitute the top tier
which are identified as the most profitable.
24Customer Profitability SegmentsThe 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
25The Customer Pyramid
- The Customer Pyramid includes
- The platinum tier the companys most profitable
customers which are typically the most heavy
users, not overly price-sensitive, willing to
invest and try new offerings, and committed to
the firm. - The gold tier profitability levels are not as
high perhaps because the customers want price
discounts and are not as loyal. - The iron tier essential customers who provide
the volume needed to utilize the firms capacity,
but their spending levels, loyalty, and
profitability are not substantial enough for
special treatment. - The lead tier customers who are costing the
company money.
26The Customers View of Profitability Tiers
- The profitability tiers is a helpful tool for
companies, however, customers do not like to be
categorized into a less desirable segment. - It becomes increasingly important that firms
communicate with customers so they understand the
level of service they can expect and what they
would need to do to get better service. - The challenges which can result are
- Customers believe they have been singled out for
poor service - Issues of privacy
27Relationship Development Strategies
- Relationship drivers that firms use to keep their
current customers include - Core service provisions
- Relationship bonds
- Switching barriers
28Relationship Development Strategies
- Core service provisions
- A firm needs to provide good core service that
meets customer expectations and creates service
satisfaction. - Relationship Bonds
- Relationship bonds attempt to give customers
reasons to want to be loyal which include
financial, social, customization, and structural
bonds. - Switching Barriers
- Customer inertia a certain amount of effort is
required to change firms which may lead to a
change in their behaviour. - Switching costs the costs of changing to and
purchasing from a different firm is high.
Switching costs include time, money, and effort.
29Figure 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
Customer intimacy
Anticipation/ innovation
Mass customization
30Relationship Challenges
- The customer is not always right
- It is important that a company distinguishes
between a profitable and unprofitable customers
and what they want and expect. - If these expectations cannot be met profitably,
and the reason is not simply the lack of will,
the firm must find ways to reallocate its scarce
resources. - Why are some customers unprofitable?
- The Wrong Segment
- Not Profitable in the Long Term
- Difficult customers
31Relationship ChallengesThe Customer Is NOT
Always Right
- Closing Gap 1 What do profitable customers want?
What do unprofitable customers want? - Not all customers are good relationship
customers - wrong segment
- not profitable in the long term
- difficult customers
- Need to know how to end relationships. (Not
enough to know how to start relationships, have
to know to phase out of bad onesa new course
idea for marketing majors!)
32Ending Business Relationships
- Should firms fire their customers?
- More companies are making these types of
decision in the belief that troublesome customers
are usually less profitable and less loyal and
that it may be counterproductive to attempt to
retain their business. - Another reason for firing a customer is the
negative affect these customers have on employee
quality of life and morale. - Firing a customer needs to be conducted in a way
to minimize the risk of negative publicity or
word-of-mouth. - Ways to fire a customer include
- Increasing prices
- Charging for services that previously had been
given away - Finding the client a new service provider that
can better meet their needs
33Summary
- Benefits for both the company and customers exist
in building long-term relationships. - The strategies which can be used to develop
long-term relationships with customers include
core service provision, relationship bonds, and
switching barriers. - There are various challenges in relationship
development. Firms need to carefully select
their customers in order to minimize the risk of
the issues involved with firing nonprofitable
customers.
34Self-Test
35Customer Loyalty Exercise
- Think of a service provider to whom you are
loyal. - What do you do (your behaviors, actions,
feelings) that indicates you are loyal? - Why are you loyal to this provider?
- What factors have influenced the formation of
your loyalty?
36In Class Exercise
- Exercise 4 Calculate your lifetime value to a
company. Make your assumptions clear. Using ideas
and concepts from this chapter, describe a
relationship strategy that would increase the
number of lifetime customers for this firm.