Companies must pay close attention to their customer defection rate and under take steps to reduce it. First, the company must define and measure its customer retention rate.
Then, the company must identify the causes of customer defection and determine which of this can be reduced or eliminated.
The company needs to prepare a frequency distribution showing the percentage of customers who defect for different reasons. Not much can be done about customers who leave the region, or about business customers who go out of business. But much can be done about customers who leave because of shoddy products, poor service, or prices that are too high.
Companies can estimate how much profit they lose when customers defect unnecessarily. For an individual customer, this is the same as the customer’s lifetime value.
For a group of lost customers, a major transportation firm estimated the profit loss as follows:
The Company had 64,000 accounts. It lost 5 percent of its accounts (3,200 accounts) this year as a result of poor service. The average lost account represented $40,000 in lost revenue.
Therefore, the company lost 3,200 X $40,000 = $128,000,000 in revenue. Given its 10 percent profit margin, the company lost $12,800,000 unnecessarily in a single year.
The Key Customer Relationship Marketing
Relationship marketing involves creating, maintaining, and enhancing strong relationship with customers and other stake holders. Increasingly, marketing is moving away from a focus on individual transactions and toward a focus on building value-laden relationships and value delivery networks. Relationship marketing is oriented more toward
is long term customer satisfaction. Relationship marketing requires that all of the company’s departments work together with marketing as a team to serve the customer. It involves building relationships at many levels-resulting in high customer loyalty.
We can distinguish five different levels of relationships that can be formed with customers who have purchased a company’s product, such as an auto mobile or a price of industrial machinery.
Basic The company salesperson sells the product but does not follow up in anyway.
Reactive The salesperson sells the product and encourages the customer to cal whenever he or she has any questions or problems.
Accountable The salesperson phones the customer a short time after the sale to check whether the product is meeting the customer’s expectations.
The sales person also solicits from the customer any product improvement suggestions and any specific disappointments. This information helps the company to continuously improve its offering.
Proactive The sales person are others in the company phone the customer from time to time with suggestions about improved product use are helpful new products.
That a company’s relationship marketing strategy will depend on how many customers it has and their profitability. For example, companies with many low margin customers will practice basic marketing. Thus H. J. Heinz will not phone all of its ketchup buyers to express its appreciation for their business. At best, Heinz will be reactive by setting up a customer information service. At the other extreme, in markets with few customers and high margins, most sellers will move toward partnership marketing. Boeing, for example, will work closely with united airlines in designing its airplanes and insuring that Boeing airplanes fully satisfy United’s requirements. In between these two extreme situations, other levels of relationship marketing are appropriate.
What specific marketing tools can a company use to develop stronger customer bonding and satisfaction? It can adopt any of three customer value building approaches: financial, social, or structural.
Financial Benefits
The first value building approach relies primarily on adding financial benefits to the customer relationship. For example, airlines offer frequent-flyer programs, hotels give room upgrades to their frequent guests, and supermarkets give patronage refunds.
Procter and Gamble recently offered a unique money-back guarantee on its Crest toothpaste in an effort to build a long term bond with customers. P&G advertises a toll-free number customer can call to join the Crest money-back guarantee program. It then supplies dental patients with evaluation forms that they take to their local dentists. Dentists check for cavities and tartars build up.
After using crest for six months, buyers returns to the dentist for another check up.
Those who haven’t improved can receive a refund on the money they spent on crest. Beyond assuring customers that crest delivers value, this promotion helps P&G build a customer data base containing the dental his-Tories of families that sign up. Using this data base, P&G can expand its relationships with customers by offering additional related products and services to them.
Social Benefits
Although such programs and other financial incentives build customer preference, they can be easily imitated by competitors and thus may fail to differentiate the company’s offer permanently. The second approach is to add social benefits as well as financial benefits. Here company personnel work to increase their social bonds with customers by learning individual customers’ needs and wants and then individualizing and personalizing their products and services.
For example, Ritz-Carlton employees treat customers as individuals, not as nameless, faceless members of mass market. Whenever possible, they refer to guests by name and give each guest a warm welcome every day. They record specific guest preferences into the company’s customer database, accessible by all hotels in the world wide Ritz chain. A guest who requests a foam pillow at the Ritz in the Montreal will be delighted to find one waiting in the room when he or she checks into the Atlanta Ritz months later.
To build better relationships with its customers, during the summer of 1944 Saturn invited all of its almost 700,000 owners to a ‘Saturn Homecoming’ at its manufacturing facility in Spring Hill, Tennessee. The two-day affair included family events, plant tours, and physical challenge activities designed to build trust and a team spirit. Says Saturn’s manager of corporate communications, “the Homecoming party is another way of building relationships, and it shows that we treat our customers differently than any other car company”.
The third approach to building strong customer relationships is to add structural ties as well as financial and social benefits. For example, a business marketer might supply customers with special equipment or computer linkages that help them manage their orders, pay roll, or inventory.
McKesson Corporation, a leading pharmaceutical wholesaler, as invested millions of dollars in its electronic data inter change (EDI) system to help small pharmacies manage their inventory, their order entry, and their shelf space. As another example, Federal Express uses its power ship program, which it offers to more than 20,000 customer companies, to keep its best customers from defecting to competitors like UPS. It provides power ship customers with free computers linked to Federal Express headquarters. Customer firms can use the machines to check the status of their own Federal Express packages or those that they ship for their customers. To further enhance its relationships with important customers, Federal Express polls, 1,000 of its power ship customers each month seeking ways to improve service to them.
Relationship marketing means that organizations must focus on managing their customers as well as their products. At that same time, although many companies are moving strongly toward relationship marketing, companies don’t want relationships with every customer. In fact, there are and undesirable customers for every company.
Ideally is continually seeking feedback to improve customer satisfaction. Customer satisfaction provides a leading indicator of consumer purchase intentions and loyalty.
Customer satisfaction data are among the most frequently collected indicators of market perceptions. Their principal use is twofold.
1. Within organizations, the collection, analysis and dissemination of these data send a message about the importance of tending to customers and ensuring that they have a positive experience with the company’s goods and services.
2. Although sales or market share can indicate how well a firm is performing currently, satisfaction is an indicator of how likely it is that the firm’s customers will make further purchases in the future. Much research has focused on the relationship between customer satisfaction and retention. Studies indicate that the ramifications of satisfaction are most strongly realized at the extremes. On a five-point scale, individuals who rate their satisfaction level as “5” are likely to become return customers and might even evangelize for the firm. (A second important metric related to satisfaction is willingness to recommend. This metric is defined as "The percentage of surveyed customers who indicate that they would recommend a brand to friends."
When a customer is satisfied with a product, he or she might recommend it to friends, relatives and colleagues. This can be a powerful marketing advantage.) Individuals who rate their satisfaction level as “1,” by contrast, are unlikely to return. Further, they can hurt the firm by making negative comments about it to prospective customers. Willingness to recommend is a key metric relating to customer satisfaction.
Construction (Measuring Customer Satisfaction)
Organizations need to retain existing customers while targeting non-customers.
Measuring customer satisfaction provides an indication of how successful the organization is at providing products and/or services to the marketplace.
Customer satisfaction is measured at the individual level, but it is almost always reported at an aggregate level. It can be, and often is, measured along various dimensions. A hotel, for example, might ask customers to rate their experience with its front desk and
check-Additionally, in a holistic sense, the hotel might ask about overall satisfaction “with your stay.”
As research on consumption experiences grows, evidence suggests that consumers purchase goods and services for a combination of two types of benefits: hedonic and utilitarian. Hedonic benefits are associated with the sensory and experiential attributes of the product.
Customer satisfaction is an ambiguous and abstract concept and the actual manifestation of the state of satisfaction will vary from person to person and product/service to product/service. The state of satisfaction depends on a number of both psychological and physical variables which correlate with satisfaction behaviors such as return and recommend rate.
The level of satisfaction can also vary depending on other options the customer may have and other products against which the customer can compare the organization's products.
The usual measures of customer satisfaction involve a survey with a set of statements using a Liker Technique or scale. The customer is asked to evaluate each statement and in term of their perception and expectation of performance of the organization being measured. Their satisfaction is generally measured on a five-point scale.
Customer satisfaction data can also be collected on a 10-point scale. Regardless of the scale used, the objective is to measure customers’ perceived satisfaction with their experience of a firm’s offerings. It is essential for firms to effectively manage customer satisfaction. To be able do this, we need accurate measurement of satisfaction. Good quality measures need to have high satisfaction loadings, good reliability, and low error variances. In an empirical study comparing commonly used satisfaction measures it was found that two multi-item
semantic differential scales performed best across both hedonic and utilitarian service consumption contexts.
According to studies by Wirtz& Lee (2003), they identified a six-item 7-point semantic differential scale (e.g., Oliver and Swan 1983), which is a six-item 7-point bipolar scale, that consistently performed best across both hedonic and utilitarian services. It loaded most highly on satisfaction, had the highest item reliability, and had by far the lowest error variance across both studies. In the study, the six items asked respondents’ evaluation of their most recent experience with ATM services and ice cream restaurant, along seven points within these six items:
“please me to displeased me”, “contented with to disgusted with”, “very satisfied with two very dissatisfied with”, “did a good job for me to did a poor job for me”, “wise choice to poor choice” and “happy with to unhappy with”.
A semantic differential (4 items) scale (e.g., Eroglu and Michelet 1990), which is a four-item 7-point bipolar scale, was the second best performing measure, which was again consistent across both contexts. In the study, respondents were asked to evaluate their experience with both products, along seven points within these four items: “satisfied to dissatisfied”, “favorable to unfavorable”, “pleasant to unpleasant” and “I like it very much to I didn’t like it at all”.
The third best scale was single-item percentage measure, a one-item 7-point bipolar scale (e.g., Westbrook 1980). Again, the respondents were asked to evaluate their experience on both ATM services and ice cream restaurants, along seven points within “delighted to terrible”.
These results suggest that more careful pretesting would be prudent should these measures be used. Finally, all measures captured both affective and cognitive aspects of satisfaction, independent of their scale anchors. Affective measures capture a consumer’s attitude (liking/disliking) towards a product, which can result from any product information or experience.
On the other hand, cognitive element is defined as an appraisal or conclusion on how the product’s performance compared against expectations (or exceeded or fell short of expectations), was useful, fit the situation, and exceeded the requirements of the situation.
Benefits of Customer Satisfaction
Benefits of Customer Satisfaction
Customer Profitability, Customer Satisfaction, Service Provider, Vendor Add.
Customer satisfaction is valued highly in almost every commercial organization. Especially large firms spend an enormous amount of money on customer satisfaction programs.
Therefore, an important question is: What are the benefits of customer satisfaction for the supplying company?
A common assumption is that satisfied customers are more loyal in the sense that they stay in a longer relationship with the supplier. However, marketing research has proven that this linkage is not always so strong and that it largely varies by customer segment and industry.
Therefore, vendors and service providers should not rely on such effect, also because the stand-alone value of customer loyalty is not very clear as I will outline in one of my future posts.
A much clearer benefit of customer satisfaction seems to be a positive effect on willingness to pay and price sensitivity (per item but also in terms of overall spending).So, if customer satisfaction has a price-related value, the question then is
What influences customer satisfaction?
Product quality
Well, one important driver in both consumer and business settings is product or service quality. In addition, for business customers the following attributes related to vendor performance have an impact on customer satisfaction:
Sales representative performance
This includes the ability of sales representatives and account managers to address customer issues, to understand key strategic issues of the customer, to know the customer business processes, to be easily reached, and to provide information on current market
conditions. Interesting here is that a longer relationship between the account manager and the customer has an additional positive effect and can compensate for weaker performance in the other areas.
Product line
This relates to the breadth of the product line portfolio and the ability to deliver a comprehensive solution.
Responsiveness
This means the time between an addressed inquiry or issue and the response by the sales representative, the time to resolve issues, and the ability to provide quote responses in time Delivery
This relates to the vendor’s ability to deliver the solution in the agreed time and quality. It also includes the degree of matching committed and delivered functionality and features as well as the ability to provide flexible delivery options.
Revenue and Margin
For cloud product vendors additionally important, but not crucial, criteria for customer satisfaction are the revenue and margin that your products generate for the customer (who in this case acts more as a channel partner).
Another two key findings are:
1. Negative performance has a greater impact on overall satisfaction than does positive performance
2. The link between customer satisfaction and willingness to pay is non-linear, so that from a certain point on increasing satisfaction does not translate into higher willingness to pay
The combination of these two suggest to focus more on avoiding customer dissatisfaction than on investing too much in customer satisfaction. To maximize overall satisfaction, attribute performance should be optimized, not maximized. For any given factor, negative performance should be eliminated first before focusing on positive performance.
Also, it is important to always monitor customer satisfaction, so you can react early enough and balance your measures.
Since you want exploit higher willingness to pay also for higher prices, you need to create customer satisfaction already in the pre-sales phase as well. For that it is very
important to both enable the customer to trial your product or service before the actual purchase and to have an excellent product presentation highlighting all the benefits without setting false expectations.
1. Encourage Face-To-Face Dealings
This is the most daunting and downright scary part of interacting with a
customer. If you’re not used to this sort of thing it can be a pretty nerve-wracking experience.
Rest assured, though, it does get easier over time. It’s important to meet your customers face to face at least once or even twice during the course of a project.
My experience has shown that a client finds it easier to relate to and work with someone they’ve actually met in person, rather than a voice on the phone or someone typing into an email or messenger program. When you do meet them, be calm, confident and above all, take time to ask them what they need. I believe that if a potential client spends over half the meeting doing the talking, you’re well on your way to a sale.
2. Respond To Messages Promptly & Keep Your Clients Informed
This goes without saying really. We all know how annoying it is to wait days for a response to an email or phone call. It might not always be practical to deal with all
customers’ queries within the space of a few hours, but at least email or call them back and let them know you’ve received their message and you’ll contact them about it as soon as
possible. Even if you’re not able to solve a problem right away, let the customer know you’re working on it.
A good example of this is my Web host. They’ve had some trouble with server hardware which has caused a fair bit of downtime lately. At every step along the way I was
emailed and told exactly what was going on, why things were going wrong, and how long it would be before they were working again.
They also apologized repeatedly, which was nice. Now if they server had just gone down with no explanation I think I’d have been pretty annoyed and may have moved my business elsewhere. But because they took time to keep me informed, it didn’t seem so bad, and I at least knew they were doing something about the problems. That to me is a prime example of customer service
3. Be Friendly and Approachable
A fellow Site Pointer once told me that you can hear a smile through the
A fellow Site Pointer once told me that you can hear a smile through the