Understanding customer requirements

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Understanding customer requirements

• BM404 Week 4

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Provider Gap 1
CUSTOMER
Expected Service
Listening Gap
COMPANY
Company Perceptions of Consumer Expectations
Part 3 Opener
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Session overview

• Using Marketing Research to Understand Customer
  Expectations
• Elements in an Effective Services Marketing
  Research Program
• Analyzing and Interpreting Marketing Research
  Findings
• Model Services Marketing Research Programs
• Using Marketing Research Information
• Upward Communication

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Common Research Objectives for Services

• To discover customer requirements or expectations
  for service
• To monitor and track service performance
• To assess overall company performance compared
  with that of competition
• To assess gaps between customer expectations and
  perceptions.

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Common Research Objectives for Services

• To identify dissatisfied customers, so that
  service recovery can be attempted.
• To gauge effectiveness of changes in service
  delivery.
• To appraise the service performance of
  individuals and teams for evaluation,
  recognition, and rewards.
• To determine customer expectations for a new
  service.
• To monitor changing customer expectations in an
  industry.
• To forecast future expectations of customers.

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Criteria for an EffectiveService Research Program

• Includes both qualitative and quantitative
  research
• Includes both expectations and perceptions of
  customers
• Balances the cost of the research and the value
  of the information
• Includes statistical validity when necessary
• Measures priorities or importance of attributes
• Occurs with appropriate frequency
• Includes measures of loyalty, behavioral
  intentions, or actual behavior

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Elements in an effective services marketing
research program

• Complaints solicitation
• Critical incident studies
• Requirements research
• Relationship and SERVQUAL surveys
• Trailer calls
• Service expectations meeting and reviews
• Process checkpoint evaluations
• Market-orientated ethnography
• Mystery shopping
• Customer panels
• Lost customer research

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Stages in the Research Process

• Stage 1 Define Problem
• Stage 2 Develop Measurement Strategy
• Stage 3 Implement Research Program
• Stage 4 Collect and Tabulate Data
• Stage 5 Interpret and Analyze Findings
• Stage 6 Report Findings

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Portfolio of Services Research
Research Objective
Type of Research
Identify dissatisfied customers to attempt
recovery identify most common categories of
service failure for remedial action
Customer Complaint Solicitation Relationship
Surveys Post-Transaction Surveys Customer Focus
Groups Mystery Shopping of Service
Providers Employee Surveys
Assess companys service performance compared to
competitors identify service-improvement
priorities track service improvement over time
Obtain customer feedback while service experience
is fresh act on feedback quickly if negative
patterns develop
Use as input for quantitative surveys provide a
forum for customers to suggest service-improvement
ideas
Measure individual employee service behaviors for
use in coaching, training, performance
evaluation, recognition and rewards identify
systemic strengths and weaknesses in service
Measure internal service quality identify
employee-perceived obstacles to improve service
track employee morale and attitudes
Lost Customer Research Future Expectations
Research
Determine the reasons why customers defect
Forecast future expectations of customers
develop and test new service ideas
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Tracking of Customer Expectations and Perceptions
of Service Reliability
Source E. Sivadas, Europeans Have a Different
Take on CS Customer Satisfaction Programs,
Marketing News, October 26, 1998, p. 39.
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Service Quality Perceptions Relative to Zones of
Tolerance
9 8 7 6 5 4 3 2 1 0
O
O
O
O
O
Reliability Responsiveness Assurance
Empathy Tangibles
O
Zone of Tolerance Service
Quality Perception
Retail Chain
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Service Quality Perceptions Relative to Zones of
Tolerance
10 8 6 4 2 0
O
O
O
O
O
Reliability Responsiveness
Assurance Empathy Tangibles
Computer Manufacturer
O
Zone of Tolerance S.Q. Perception
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Importance/Performance Matrix
HIGH
High Leverage
?
?
Attributes to Improve
Attributes to Maintain
?
?
?
?
?
Importance
Low Leverage
?
Low Leverage
?
?
Attributes to De-emphasize
Attributes to Maintain
Performance
HIGH
LOW
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Building customer relationships
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Building customer relationships

• Relationship Marketing
• Relationship Value of Customers
• Customer Profitability Segments
• Relationship Development Strategies
• Relationship Challenges

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Building Customer Relationships

• Relationship marketing - its goals, and the
  benefits of long-term relationships for firms and
  customers.
• Customer lifetime value.
• Customer profitability segments as a strategy for
  focusing relationship marketing efforts.

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Building customer relationships

• Present relationship development
  strategiesincluding quality core service,
  switching barriers, and relationship bonds.
• Identify challenges in relationship development,
  including the somewhat controversial idea that
  the customer is not always right.

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Relationship Marketing

• focuses on keeping current customers and
  improving relationships with them
• does not necessarily emphasize acquiring new
  customers
• is usually cheaper (for the firm)
• keeping a current customer costs less than
  attracting a new one
• thus, the focus is less on attraction, and more
  on retention and enhancement of customer
  relationships

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Customer Goals of Relationship Marketing
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Benefits of Relationship Marketing

• Benefits for Customers
• Receipt of greater value
• Confidence benefits
• trust
• confidence in provider
• reduced anxiety
• Social benefits
• familiarity
• social support
• personal relationships
• Special treatment benefits
• special deals
• price breaks

• Benefits for Firms
• Economic benefits
• increased revenues
• reduced marketing and administrative costs
• regular revenue stream
• Customer behavior benefits
• strong word-of-mouth endorsements
• customer voluntary performance
• social benefits to other customers
• mentors to other customers
• Human resource management benefits
• easier jobs for employees
• social benefits for employees
• employee retention

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Profit 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.
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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.
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Lifetime Value of an Average Business Customer at
Telecheck International
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The 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
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Relationship Development Model
Customer Benefits Confidence benefits Social
benefits Special treatment benefits
Relationship Bonds Financial bonds Social
bonds Customization bonds Structural bonds
Strong Customer Relationship (Loyalty)
Core Service Provision Satisfaction Perceived
service quality Perceived value
Firm Benefits Economic benefits Customer behavior
benefits Human resource management benefits
Switching Barriers Customer inertia Switching
costs
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Strategies for Building Relationships

• Core Service Provision
• service foundations built upon delivery of
  excellent service
• satisfaction, perceived service quality,
  perceived value
• Switching Barriers
• customer inertia
• switching costs
• set up costs, search costs, learning costs,
  contractual costs

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Strategies for Building Relationships

• Relationship Bonds
• financial bonds
• social bonds
• customization bonds
• structural bonds

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Figure 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
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The Customer Is NOT Always Right

• Not all customers are good relationship
  customers
• wrong segment
• not profitable in the long term
• difficult customers

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Service recovery

• The Impact of Service Failure and Recovery
• How Customers Respond to Service Failures
• Customers Recovery Expectations
• Service Recovery Strategies
• Service Guarantees

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Service Recovery

• Importance of recovery from service failures
• Consumer complaints and why people do and do not
  complain
• What customers want when they complain
• Strategies for effective service recovery, Service

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Unhappy Customers Repurchase Intentions
Unhappy Customers Who Dont Complain
9
Unhappy Customers Who Do Complain
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Complaints Not Resolved
54
Complaints Resolved
82
Complaints Resolved Quickly
Percent of customers who will buy again after a
major complaint (over 100 in losses)
Source Adapted from data reported by the
Technical Assistance Research Program.
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Customer Complaint Actions Following Service
Failure
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Causes Behind Service Switching
Pricing

• High price
• Price increases
• Unfair pricing
• Deceptive pricing

Response to Service Failure

• Negative response
• No response
• Reluctant response

Inconvenience
Competition

• Location/hours
• Wait for appointment
• Wait for service

Service Switching Behavior

• Found better service

Ethical Problems
Core Service Failure

• Cheat
• Hard sell
• Unsafe
• Conflict of interest

• Service mistakes
• Billing errors
• Service catastrophe

Service Encounter Failures
Involuntary Switching

• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable

• Customer moved
• Provider closed

Source Sue Keaveney, Customer Switching
Behavior in Service Industries An Exploratory
Study, Journal of Marketing, April, 1995, pp.
71-82.
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Service Recovery Strategies
Treat Customers Fairly
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Service Guarantees

• guarantee an assurance of the fulfillment of a
  condition (Websters Dictionary)
• a pledge or assurance that a product offered by a
  firm will perform as promised and, if not, then
  some form of reparation will be undertaken by the
  firm
• for tangible products, a guarantee is often done
  in the form of a warranty
• services are often not guaranteed
• cannot return the service
• service experience is intangible
• (so what do you guarantee?)

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Characteristics of an EffectiveService Guarantee

• Unconditional
• the guarantee should make its promise
  unconditionally no strings attached
• Meaningful
• the firm should guarantee elements of the service
  that are important to the customer
• the payout should cover fully the customers
  dissatisfaction

Source Christopher W.L. Hart, The Power of
Unconditional Guarantees, Harvard Business
Review, July-August, 1988, pp. 54-62.
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Service guarantees

• Easy to Understand and Communicate
• customers need to understand what to expect
• employees need to understand what to do
• Easy to Invoke and Collect
• the firm should eliminate hoops or red tape in
  the way of accessing or collecting on the
  guarantee

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Benefits of Service Guarantees

• A good guarantee forces the company to focus on
  its customers.
• An effective guarantee sets clear standards for
  the organization.
• A good guarantee generates immediate and relevant
  feedback from customers.
• When the guarantee is invoked there is an instant
  opportunity to recover, thus satisfying the
  customer and helping retain loyalty.

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Benefits of service guarantees

• Information generated through the guarantee can
  be tracked and integrated into continuous
  improvement efforts.
• Employee morale and loyalty can be enhanced as a
  result of having a service guarantee in place.
• A service guarantee reduces customers sense of
  risk and builds confidence in the organization.

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Why a Good Guarantee Works

• forces company to focus on customers
• sets clear standards
• generates feedback
• forces company to understand why it failed
• builds marketing muscle

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Service Guarantees

• Does everyone need a guarantee?
• Reasons companies might NOT want to offer a
  service guarantee
• existing service quality is poor
• guarantee does not fit the companys image
• too many uncontrollable external variables
• fears of cheating or abuse by customers
• costs of the guarantee outweigh the benefits
• customers perceive little risk in the service
• customers perceive little variability in service
  quality among competitors

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Service Guarantees

• service guarantees work for companies who are
  already customer-focused
• effective guarantees can be BIG deals they put
  the company at risk in the eyes of the customer
• customers should be involved in the design of
  service guarantees
• the guarantee should be so stunning that it comes
  as a surprise a WOW!! factor
• its the icing on the cake, not the cake