Week 002

Building Customer Satisfaction

Value and Retention

Presented By: Dr. Richard Oliver F. Cortez

Week 002: Building Customer Satisfaction Value and Retention

Customer Value
• Customer Satisfaction
• Nature of High Performance Businesses
• Organization and Organizational Culture
• Value Chain
Customer Retention
• Attracting and Retaining customers
• Importance of retaining customers
• Relationship Marketing
• Implementing Total Quality Management
Week 002: Building Customer Satisfaction Value and Retention

Customer Value

Customer Value or Customer Delivered Value is the

difference between Total Customer Value and Total
Customer Cost.

Customer Value = Product Value + Service Value +

Personnel Value + Image Value
Week 002: Building Customer Satisfaction Value and Retention

Total Customer Cost is the bundle of costs

customers expect to incur in evaluating, obtaining,
using and disposing of the product or service.

Total Customer Cost = Monetary Cost + Time Cost

+ Energy Cost + Psychic Cost
Week 002: Building Customer Satisfaction Value and Retention

Seller who is at a delivered value disadvantage has

two alternatives:

Increase Total Customer Value: strengthen product, service,

personnel and image benefits

Decrease Total Customer Cost: reduce price, simplify ordering and

processing process, absorb buyers risk by offering warranty etc.
Week 002: Building Customer Satisfaction Value and Retention

Customer Satisfaction

A person’s feelings of pleasure or

disappointment resulting from comparing a
product’s perceived performance (or
outcome) in relation to his or her
expectations.
Week 002: Building Customer Satisfaction Value and Retention

Four methods of tracking customer

satisfaction:

1. Feedback and Suggestion Forms

2. Customer Surveys
3. Ghost shopping
4. Analyze lost customers
Week 002: Building Customer Satisfaction Value and Retention

Nature of High Performance Businesses

 Stakeholders
 Processes
 Resources
Week 002: Building Customer Satisfaction Value and Retention

Core competence has 3 characteristics

1. Difficult for competitors to imitate

2. Source of competitive advantage if it makes significant
contribution to perceived customer benefits
3. Potential breadth of application to a wide variety of
markets
Week 002: Building Customer Satisfaction Value and Retention

Organization and Organizational Culture

There are 3 commonalities among the visionary companies:

1. They all held a core value system from which they did not deviate
2. They expressed their purpose in enlightened terms
3. They have developed a vision for their future and they strive towards

it. They communicated it to their employees.

Week 002: Building Customer Satisfaction Value and Retention

Value Chain

Michael Porter defined 9 processes as vital to a value building

network of a company.

• Primary Activities: Inbound logistics, Operations, Outbound

logistics, Marketing Sales and Service.
• Support Activities: Infrastructure, HRD, Technology
development, Procurement.
Week 002: Building Customer Satisfaction Value and Retention

Value delivery network

A firm needs to partner with its suppliers,

distributors and customers to gain significant
competitive advantages by creating a superior
value delivery network.
Week 002: Building Customer Satisfaction Value and Retention

Attracting and Retaining customers Customer Acquisition

This process is accomplished in 3 steps.

Lead generation – to generate leads, the company develops ads

and places them in media that will reach new prospects; its sales
person participate in trade shows where they might find new
leads and so on. All this produces a list of suspects.
Week 002: Building Customer Satisfaction Value and Retention

Lead qualification – This is done by interviewing good

prospects, checking for there financials, and so on. The
prospects may be graded as hot warm and cool. The sales
people first contact the hot prospects and work on account
conversion, which involves making presentations, answering
objections and negotiating final terms.
Week 002: Building Customer Satisfaction Value and Retention

Computing cost of lost customers

Too many companies suffer from high customer

churn namely they gain new customer only to lose
many of them. Today companies must pay closer
attention to their customer defection rate (the rate at
which they lose customer).
Week 002: Building Customer Satisfaction Value and Retention

The steps involved here are:

1. A company must define and measure retention rate

2. The company must distinguish the causes of customer attrition
3. Third, the company needs to estimate how much profit it loses
when it loses customer.
4. Fourth the company needs to figure out how much it would cost
to reduce the defection rate.
Week 002: Building Customer Satisfaction Value and Retention

The key to customer retention is customer satisfaction

 stays loyal longer

 buys more as the company introduces new products
 talk favorably about the company and its products
 Pays less attention to competing brand and advertising and is less
sensitive to price.
Week 002: Building Customer Satisfaction Value and Retention

Importance of retaining customers

The following statistics are helpful to this end

1. Acquiring new customers costs 5 times more than

retaining old ones
2. A 5% reduction in customer defection can increase
profits by 25% to 85%
3. Customer profit rates tend to increase over the lifetime
of the customer.
Week 002: Building Customer Satisfaction Value and Retention

The two ways of retaining a customer would be:

1. To erect high switching costs customers are less inclined

to switch to another supplier when this would involve
high capital costs, high search costs, or loss of loyal
customer discounts.

2. Deliver high customer satisfaction

Week 002: Building Customer Satisfaction Value and Retention

Relationship Marketing

The task of creating strong customer loyalty is

called Relationship Marketing. The steps in
customer development process is

FIRST-TIME REPEAT
SUSPECTS PROSPECTS CUSTOMERS
CUSTOMERS

PARTNERS ADVOCATES MEMBERS CLIENTS

Week 002: Building Customer Satisfaction Value and Retention

There are 5 different types of levels of investment in

customer relationship marketing

1.Basic marketing
2.Reactive marketing
3.Accountable marketing
4.Proactive marketing
5.Partnership marketing
Week 002: Building Customer Satisfaction Value and Retention

There are also certain marketing tools which can be used for
added customer satisfaction

1. Adding financial benefits - through frequency marketing programs

and club marketing programs. Club membership programs to bond the
customer closer to the company can be open to everyone who
purchases the product or service, such as frequent flier or frequent
diner club, or it can be limited to the affinity group.
Week 002: Building Customer Satisfaction Value and Retention

2. Adding social benefits – developing

more social bonds with the customer; help
make brand communities; etc.

3. Adding structural ties – Supplying customers with

special equipment or computer linkages to help them
manage their payrolls, inventory, etc. better.
Week 002: Building Customer Satisfaction Value and Retention

Customer profitability the ultimate test

Ultimately, marketing is the art of attracting and retaining

profitable customers. The well known 20-80 rule says that
the top 20% of the customers may generate as much as
80% of the company’s profits. The largest customers who
are yielding the most profit.
Week 002: Building Customer Satisfaction Value and Retention

Customer profitability the ultimate test …

The largest customers demand considerable service and

receive the deepest discounts. The smallest customers pay
full price and receive minimal service, but the costs of
transacting with small customers reduce their profitability.
The mid size customers receive good service and pay nearly
full price and are often the most profitable.
Week 002: Building Customer Satisfaction Value and Retention

A profitable customer is a person, household,

or company that over time yields a revenue
stream that exceeds by an acceptable amount
the company’s cost stream of attracting,
selling, and servicing that customer.
Week 002: Building Customer Satisfaction Value and Retention

Implementing Total Quality Management

TQM is an organization wide approach to

continuously improving the organizations
processes, products and services.
Week 002: Building Customer Satisfaction Value and Retention

There is an intimate connection between the

quality delivered by a company and the
corresponding customer satisfaction and company
profitability. This is because higher levels of
quality support higher prices while delivering
high satisfaction at lower costs.
Week 002: Building Customer Satisfaction Value and Retention

Quality

It is the totality of features and characteristics of a

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

A company that satisfies most of its customers’

needs most of the time is called a quality time.
Conformance quality is satisfied if all the units deliver
the expected quality.
Week 002: Building Customer Satisfaction Value and Retention

Performance quality, however, is different in that it is

based upon the grade. Eg. A Mercedes and Hyundai
may both deliver Conformance Quality, but
Mercedes can be said to deliver higher Performance
quality.
Week 002: Building Customer Satisfaction Value and Retention

The main responsibilities of a Marketing

Manager are:

1. They must participate in formulating strategies

and policies designed to give company total
quality.

2. They must deliver marketing quality aside

production quality.
Week 002: Building Customer Satisfaction Value and Retention

In implementing TQM, a marketer’s job could subsume the

following:

1. Identifying customer’s needs

2. Communicate these requirements to the product designers
3. Ensure that customer’s orders are filled on time and correctly
4. Ensure customer is trained enough to use the product well
5. Ensure after sales service and satisfaction
6. Get improvement suggestions from the customers, convey
them to respective department.
Week 002: Building Customer Satisfaction Value and Retention

1. QUESTIONS:

2. Would you feel more brand loyalty for acompany that tried to immediately resolvea
complaint via E-mail, or a company that E-had a customer service representative callwithin
two business days toresolve the problem overthe phone? 1-69 www.bookfiesta4u.com
3. Can you name a company that haschanged the public’s perception oftheir
corporate culture? Has thiseffectively rehabilitated thatcompany’s image?
4. Saturn has gained a customer loyalty rateof more than 60% by
fundamentallychanging the buyer-seller relationship. buyer-Can you think of
another company thathas made a change of similarmagnitude? Have theyhad
similar results? 
Week 002: Building Customer Satisfaction Value and Retention

Chapter Objectives
In this chapter, we will address the following questions:

1. What are customer value and satisfaction, and how can companies
deliver them?
2. What makes a high-performance business?
3. How can companies both attract and retain customers?
4. how can companies improve both customer and company
profitability?
5. How can companies deliver total quality?