Dilbert

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Dilbert
By Scott Adams
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The Service Profit Chain
Employee
Satisfaction
Loyalty
Revenue growth
Customer loyalty
Customer satis-faction
Capability
Value
Internal service quality
External service quality
Productivity
Profit-ability
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Customer Loyalty Marketing Opportunity Matrix
Loyalty
Loyal
Switcher
Competitor
Large
Size
Medium
Small
New to category
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Revenue Growth and Profitability

• Lifetime value of a customer sum of purchases
  over period of loyalty
• Auto gt100,000 over a customers lifetime
• Tire store 960 in revenue (288 profit) over
  five years
• Banking 500 profit over five years
• Supermarket 9,000 in revenue over three years
• Food product 30 profit over five years

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Customer LoyaltyLoyalty Measures

• Retention Percent retained over period
• Recency Most recent event date
• Frequency Average gap/ events over period
• Longevity Start date/total events
• Amount Average per order over period
• Referrals

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Customer LoyaltyWhy Annual Profits Increase
Throughout Customer Life
Profit from reduced operating costs
Profit from price premium
Profit
Profit from increased purchases
Profit from referrals
Base profit
Acquisition
0 1 2 3 4
5 6
Year of customer life
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Full Profit PotentialGrocery Relationship Example
Customer behaviors
Behavior profile
Profitability
Relationship contribution Buy basic basket
(40) Buy store brand items Buy in-store bakery
items Buy deli items Buy health and beauty
items Additional grocery buying Refer another
shopper Relationship investments Receives
standard retail offer Pays with credit card (1.5
cost) Uses coupons (2 cost) Behavior change
investment
Secondary shopper Yes No No No No No No Yes Yes
Yes
Primary shopper Yes Yes (2) Yes (2) Yes (2) Yes
(4) Yes (20) Yes (10 probability)Yes No Re
duced (1) 220 p.a.
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Family RelationshipFull Potential
Customer behaviors
Behavior profile
Profitability
Relationship contribution Buy basic basket Buy
store brand items Buy in-store bakery items Buy
deli items Buy health and beauty items Additional
grocery buying Refer another (40) shopper Total
contribution Relationship investments Receives
standard retail offer Pays with credit card Uses
coupons Total investments Gross annual
profit Behavior change investments Net annual
profit
Current 40 0 0 0 0 0 0 yes 1.5 2
Full potential 40 2 2 2 4 20 10
chance additional labor no 1
Current 870 0 0 0 0 0 0 870 730 40
50 820 50
Full potential 870 108 130 112 190 435 80
1925 1156 0 49 1205 720 220 500
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Grocery RetailerValue Exchange Optimization
1925
2,000
Refer shopper
Relationship return ()
Additional grocery
1,500
HBA
Store deli
1,000
Store bakery
870
Store brand
500
500
Basket case
Basket case
Value exchange
50
0
Basic store offering
Basic store offering
500
Coupons
Credit card
Additional Labor
1,000
820
Relationship investment ()
Coupons
Behavior changeinvestment
1,500
1425
Optimal
Suboptimal
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Full Potential RelationshipBehavior Change
Investments
Targeted behavior change (weekly)
Incremental investments
Buy 2 store brand items Buy 2 in-store bakery
items Buy 2 deli items Buy 4 health and beauty
items Additional grocery buying (40-80 of
budget) Refer another (40) shopper Total
investment
15 25 25 35 100 30 220
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Grocery Retailing ProfitabilityImpact of
Customer Behavior Change
60
50
40
Increase in-store profitability ()
30
20
10
0
Convert 200 secondary customers to primary
customers
Substitute 1 private label item for a national
branded item
Acquire 180 new primary customers
Sell 1 more private label item to each customer
Sell 1 more produce item to each customer
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Large Family Lifetime Value
Customer behaviors
Behavior profile
Profitability
Relationship contribution Buy basic basket Buy
store brand items Buy in-store bakery items Buy
deli items Buy health and beauty items Additional
grocery buying Refer another (40) shopper Total
contribution Relationship investments Receives
standard retail offer Pays with credit card Uses
coupons Total investments Gross annual
profit Behavior change investments Net annual
profit Number of years retained Total lifetime
profitability
Current 40 0 0 0 0 0 0 yes 1.5 2
Full potential 40 2 2 2 4 20 10
chance additional labor no 1
Current 870 0 0 0 0 0 0 870 730 40
50 820 50 5 years 250
Full potential 870 108 130 112 190 435 80
1925 1156 0 49 1205 720 220 500
7.5 years 3750
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Value ExchangesOptimization Capability
Exchange optimization requirements
From
To
Implicit
Explicit strategies
Design
Mass product offering
Individualized relationship exchanges
Deliver
Productprofit
Relationship value improvement
Measure
Close product gap
Close relationship gap
Improve
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Value Exchange DeliveryExecutional Requirements
Analyze segments
Revise exchanges
Coordinate field execution
Measure results

• Behaviors/value
• Reason for behavior
• Barriers to change

• Cost/profitability of new behavior
• Behavior change priorities
• Exchange/segment proforma

• Campaign management
• In-store merchandising

• P.O.S. tracking
• ROI vs. proforma

Optimize exchanges and investment allocation
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Value Exchange ManagementRequired Capability
Exchange optimization requirements
To

• Current/optimal behavior profiling
• Current/potential profitability
• Profit gap/segmentation
• Value exchange proformas
• Campaign execution plan
• Delivery administration
• Segment performance
• Exchange performance
• Root cause analysis
• Shared learning database
• Improvement project tracking

Explicit strategies
Design
Individualized relationship exchanges
Deliver
Relationship value improvement
Measure
Close relationship gap
Improve
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Satisfaction vs. Loyalty
High
Monopolies

• Market competitiveness
• Potential substitutes
• Ease of switching

Low
Loyalty measure
High cost of switching
High
Commodities
Value-based competitors
Low
1
2
3
4
5
Completelysatisfied
Completely dissatisfied
Satisfaction measure
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Full Potential PerformanceRequired Business
Model Shift
From Product
To Customer
Competitive
Service

• Positioning
• Purpose of company
• Determinant of potential
• Source of advantage
• Investment optimization
• Key driver of profitability
• Investment focus
• Investment objective
• Value delivery
• Delivery/improvement
• Delivery approach
• Primary management device
• Organizational alignment
• Organization role
• Role of management/systems
• Organizational structure

Compete Industry econ./comp. position Industry
leadership Share gain/cost advantage Unique/supe
rior offering Cost effective differentiation Fun
ctional Mgmt. programs and procedures Strategic/op
erating plans Share gain/cost
advantage Unique/superior offering Cost effective
differentiation
Serve Customer econ./segment position Target
customer loyalty Ideal customer
relationship Satisfy needs of target
segments Improve customer behavior
profiles Cross-functional Organ./cont. process
improvements Integrated delivery
processes Contribute/improve Develop/support Exc
hange improvement
Perfection
Contribution
Oppositional
Collaborative (Integrity)
Power
Learning