Building Customer Relationships

1
Building Customer Relationships
2
Leveraging your Customer Asset

• Focus on loyalty
• Create a value added customer service
  organization
• Develop a recovery plan

3
The Customer Pyramid
Loyalty Repeat Purchase Satisfaction Trial Eva
luation Interest Awareness
4
The Promotion Levels of the Pyramid
Trial Evaluation Interest Awareness
Hierarchy of Effects
5
Working at the Upper Levels of the Pyramid
Loyalty Repeat Purchase Satisfaction Trial
Customer Expectations

6
Why the first time buyer never returns?

• Early problems sour the relationship
• No formal servicing system to manage customer
  interactions
• Communication breakdown with decision makers
• Easy return to competitor

7
Its Beyond ExpectationsIts Loyalty, Stupid

• Forum Corporation reports up to 40 of customers
  in its study who claimed to be satisfied,
  switched suppliers (Training Development
  J.4/91, p.34)
• HBR reports 65-85 of customers who choose new
  supplier say they were satisfied/very satisfied
  with previous one (HBR,3-4/93,p.71)

8
Loyalty and Satisfaction
100 80 60 40 20

Loyalty/ Retention Rate
1 2
3 4 5
Very dissatisfied neither
satisfied very Dissatisfied
satisfied/
satisfied
dissatisfied

9
Juran Institute found excess of 90 of top
managers from more than 200 of US Largest
companies agree with statement Maximizing
customer satisfaction will maximize profitability
and market share

• Yet, less than 2 percent of 200 respondents able
  to measure a bottom line improvement from
  documented increases in satisfaction

Source Chris Fay, Cant Get No Satisfaction
Perhaps you should stop trying White paper,
Juran Institute (Wilton, Conn., n.d.)
10
Customer Loyalty
Customer Retention Total Share of
Customer
11
What is a Loyal Customer?

• Makes regular, repeat purchases
• Purchases across service lines
• Refers others
• Demonstrates an immunity to the pull of
  competition
• Can tolerate an occasional lapse in company
  support without defecting

Source Strum Thiry, Building customer
loyalty Training Development Journal, 4.91,
pp. 34-5 Griffin Lowenstein, Customer Win
Back, Josey Bass,2001
12
Why Loyal Customers are more profitable

• Acquisition costs
• Base profit over customer duration
• Per customer revenue growth
• Operating costs as customers (and EE) learn
• Referrals
• Price Premium

Source The Loyalty Effect, pp. 40-49.
13
Life Cycle of an Asset

• TANGIBLE ASSETS THAT ARE PHYSICAL DECLINE IN
  VALUE
• CUSTOMER ASSETS HAVE A LIFETIME RETURN THAT
  BECOMES MORE PROFITABLE

14
Profit Increases Resulting from 5 point
increases in Customer Loyalty, Selected Service
Industries
Profit Increases
Software
Auto service chain
Credit card
Industrial laundry
Branch bank deposits
Insurance brokerage
Industrial distribution
Office bldg.mgmt.
Source The Service Profit Chain, p. 21
15
Moving from satisfaction to LoyaltyShifting
Strategy
Share /Satisfaction Strategy
Loyalty Strategy Goal
Buyer switching Buyer
loyalty Customer Base Heterogeneous
Stable Focal Point
Competition
Customers Measure of Market share
Share of customer success

customer retention
16
Creating Customer Loyalty
Value proposition
Value Drivers
Value Delivery
Metrics
17
Value Proposition the companys ability to meet
the customers needs
18
Working at the Upper Levels of the Pyramid
Loyalty Repeat Purchase Satisfaction Trial
Value Drivers Value Delivery

19
Creating Customer Loyalty
Value proposition
Value Drivers
Value Delivery
Metrics
20
The Drivers of Loyalty Building the value
proposition
Justice
Self-esteem
LOYALTY
Trust
Safety
21
Loyalty Drivers
Safety Disneyunclean is unsafe AAA hotel
designationtwo locking systems on door Esteem
Recognize "customers" when they are frequent
visitors Acknowledge service problems Justice
Procedural justicefairness of procedural
matters Trust Organization responds to
customer needs
22
Building trust builds loyalty

• Customers who have major problems but dont
  complain have a repurchase rate of 9
• Those who complain, regardless of outcome, have a
  repurchase rate of 19
• Customers who have a complaint resolved have a
  repurchase intention rate of 54
• Customers whose complaints are resolved quickly
  have a repurchase intention rate of 82

Source McKinsey study cited in Griffin, customer
loyalty
23
Creating Customer Loyalty
Value proposition
Value Drivers
Value Delivery
Metrics
24
Value delivery system the way in which the
company delivers those needs
25
The Foundation of Customer Leveraging Creating
Value

• The customer defines the appropriate product
  quality, service quality and reasonable price
• Customer value expectations are formed relative
  to competitive offerings
• Customer value expectations are dynamic, always
  moving higher
• Product quality and service quality are the
  responsibility of the whole channel
• Maximizing customer value requires total
  organizational commitment and involvement

Source Naumann, 1995
26
"Hiring starts off looking for people with a good
attitudethat's what we're looking forpeople who
enjoy serving other people. -Herb Kelleher,
President and CEO
27
Keeping Customers Loyal

• The average company loses half its customers over
  a five year period
• 98 of dissatisfied customers never complain,
  they just switch
• 67 of customers who stop patronizing a store do
  so because an indifferent employee treated them
  indifferently91 of these people will not buy at
  that store again

SourceDuffy, Measuring Customer Capital
Strategy Leadership 20,5,2000
28
Recovering "customers"

• A key to profitability

29
Customer recovery

• An organized system that anticipates service
  delivery failures or problems. A defined script
  that indicates how each service person at each
  level of service delivery will provide a
  proactive response

30
Why recovery is important?

• 14 leave because complaints were not handled
• 9 left because of the competition
• 9 left because of relocation
• 68 left for no special reason benign neglect

Source Rockefeller Foundation study cited in
Griffin,Customer loyalty, p. 186
31
Some Recovery Findings

• Customer satisfaction increases 10 to 15 when
  the apology sounds genuine (TARP)
• Employee lack of knowledge for the failure is the
  most prevalent failing (TARP)
• 80 of the difference in high and low
  satisfaction based on five factorsreliability,
  assurance (trust), tangibles,empathy,
  responsiveness
• Handling complaint with first contact, 90
  cheaper than going to second employee

32
Effective Service Recovery
1200 consumers 81 focus groups

• CSR dealt with my upset
• CSR apologized
• CSR didnt become defensive
• CSR followed up after complaint
• CSR showed skill at problem solving
• CSR didnt shift blame
• CSR acted in empowered fashion
• CSR showed good interpersonal skills
• CSR acted quickly

• 79.0
• 69.1
• 62.9
• 56.8
• 53.0
• 44.4
• 40.7
• 40.7
• 38.3
• 35.8

Performance Research Associates, 1992
33
Converting Unhappy Customers"
Large Computer systems
Will buy again
Small Computer systems
No Had a
Dissatisfied Mollified Satisfied
Problem Problem
complainer Complainer Complainer
TARP Study, Zemke, 1995
34
The Employee Link in recovery

• Unclear focus
• Restrictive rules
• Low level of skill
• Trying and failingthe risk of trying
• No payoff

35
Low Level of Skill

• Ritz Carlton Federal Express employee receives
  40 hrs. of training on average

• Average front line service person receives about
  2.80 worth of training per year

• Container Store worker
• gets 235 hours of training in
• first year, 162 hours each year
• after that (USA Today 4/30/02)b1

36
Getting a High Recovery Score

• Focused recovery training
• Recovery Standards
• Organization is easy to complain to
• Frontline employees are part of the system
• Employees believe they are part of a
  quality-conscious organization

37
The More Contacts, the Less Satisfaction
Satisfied With Action taken
32 23 45
Zemke, 1995
38
Creating Customer Loyalty
Value proposition
Value Drivers
Value Delivery
Metrics
39
Disneys Metric !
3,750
2,700
73
18
40
Leveraging Nurturing "customers"if you succeed!
41
What will loyal customers do?
Jones Sasser HBR Why Satisfied Customers Defect
Nov.-Dec. 1995, pp.88-99
42
The Customer Service/Profitability Link
Booz Allen study finds

• Companies with low service emphasis have a 5
  return on equity
• Companies with a high service emphasis have a 30
  return on equity
• Companies with a low service emphasis have a 1
  return on sales
• Companies with a high service emphasis have a 12
  return on sales

Source R. McNealy Making Customer Satisfaction
Happen, Chapman Hall, (London), 1994
43
Benefits of High Service Levels
Source Buzzell Gale The Pims Principles
Linking Strategy to Performance, the Free Press,
1987
44
The Sources of Customer Asset Value

• Share of wallet
• Complaints
• Records/information
• referral

• Revenue
• Source of operational improvement
• New service opportunity revenue
• Promotional credibility and leverage

45
Key Criteria for Customer Leverage Tactics

• Satisfies customer needs even when opposed to
  immediate corporate needs
• Reinforces customer loyalty
• Seen as unique by the customer or is at least
  discernibly different
• Exceeds expectations
• Has application in other goods and services that
  are/can be available to the customer

46
The Loyalty Mirror
More familiarity with Customer needs and ways To
meet them
More repeat purchases
Stronger tendency to Complain about
service errors
Greater opportunity for Recovery from errors
Higher customer Loyalty
Higher employee Loyalty
Lower costs
Higher Productivity
Improved quality of service
Better results
47
Company Business Type of
Finding
employee MCI
communications Service center
significant relationship between

employee employee satisfaction,
customer

satisfaction and customer

intention to continue to
use. Western Europe banking bank
branch significant relationship
between Money Ctre.
employee
satisfaction and

customer satisfaction Chick-Fil -A
food restaurant
78 of restaurants with above
service employees
average customer satisfaction

have above average
employee

Satisfaction Rank Xerox office
service center significant
relationship between
machines employees
customer and employee

satisfaction

48
Bibliography
Listed in neither alphabetical or order of
importance Adrian Payne, Advances in Relationship
Marketing, (London Kogan page, 1995). Michael
Lowenstine, Customer Retention (Milwaukee ASQC
Quality press, 1995). Chip Bell, Customers as
Partners (San FranciscoBerrett-Koehler
Publishers, 1994). Peter Donovan and Timothy
Samler, Delighting Customers (London Chapman
Hall, 1994). Ronald Swift , Accelerating Customer
Relationships, (New Jersey, Prentice hall,
2001). Jonathan D. Barsky, World Class Customer
Service (New York Irwin, 1995). Karl Albrecht,
Delivering Customer Value (Portland Productivity
Press, 1995)
49
Bibliography
Valerie Zeithaml, A. Parasuraman, Leonard
Berry, Delivering Quality Service (New York, The
Free Press, 1990). Regis McKenna, Relationship
Marketing (Reading, Mass. Addison Wesley,
1991). Jeffrey Gitomer, Customer Satisfaction is
Worthless (Atlanta Bard Press, 1998). Frederick
Newell, Loyalty.com (New York McGraw Hill,
2000). Dennis C. McCarthy, The Loyalty Link (New
York John Wiley and Sons, 1997). Frederick F.
Reichheld, The Loyalty Effect (Boston, Harvard
Business School Press, 1996). Barbara Bund
Jackson, Winning and Keeping Industrial
Customers, (Lexington, Mass. Lexington Books,
1985).
50
Bibliography
Philip Kotler, Marketing Management (New
Jersey Prentice Hall, 2000). Eric Berkowitz
Roger Kerin, Steve Hartley, and
William Rudelius, Marketing (Boston Irwin,
2000). Barbara Jackson, Build Customer
Relationships that Last, Harvard Business
Review (November/December 1985). Fred Reichheld,
Loyalty Based Management, Harvard
Business Review (March-April 1993).