MKTG 358 Ch 14 Customer Loyalty

-negative image from customers wondering why a guarantee is necessary -pay of guarantee

2 drawbacks of unconditional guarantees

pros: -can decide payout -no explicit marketing needed (not tacky or announcing sometimes firm can't meet obligations) con: nonverbal means it won't show until after firm has built their reputation

2 pros and a con of implicit guarantees

-defections can result in huge losses -defections aren't related to dissatisfaction

2 reasons why it is important to pursue defection management

-reinforce customer loyalty, -build market share, and -motivate the firm to improve its overall service quality

3 goals of service guarantees

-collect data on best customers -interactive, personal, and action-oriented communication -reward them when they act

3 steps to a frequency marketing program

-more informed -more skeptical -have more discretionary income

3 ways "today's" customers have changed that affects their loyalty

-Building a customer database so that customers can be easily contacted. -Measuring customer satisfaction making improvements -Establishing formal customer communication programs on how the company is using customer feedback for improvement -Creating an aftermarketing culture throughout the firm

4 aftermarketing techniques

-Protecting confidential information -Telling customers the truth, even when it hurts -Providing customers with full information—the pros and the cons; and -Being dependable, courteous, and considerate with customers.

4 strategies for building trust

-The account is no longer profitable. -Conditions in the sales contract are no longer being met. -Customers are abusive to the point that it lowers employee morale. -Customer demands are beyond reasonable -The customer's reputation is so poor that associating with the customer is bad

5 reasons to "fire" a customer

-prices are high -costs of a negative outcome are high -service is customized -brand recognition is hard to achieve -buyer resistance is high

5 times when professional services should offer guarantees

Break-Even Customer Acquisition Cost

= (Average Lifetime Profit) + (Average Customer Acquisition Cost)

specific result guarantee

A guarantee that applies only to specific steps or outputs in the service delivery process.

conquest marketing

A marketing strategy for constantly seeking new customers by offering discounts and markdowns and developing promotions that encourage new business.

zero defections

A model used by service providers that strives for no customer defections to competitors.

zero defects model

A model used in manufacturing that strives for no defects in goods produced. -doesn't work in services

defection management

A systematic process that actively attempts to retain customers before they defect.

implicit guarantee

An unwritten, unspoken guarantee that establishes an understanding between the firm and its customers.

profits from reduced operations

BENEFITS OF CUSTOMER RETENTION It costs three to five times less to keep a customer than to get a new one. The trusting relationship that develops between customers and the firm makes existing customers more receptive to the firm's marketing efforts and, therefore, easier to sell new services to. This, in turn, lowers the cost of the firm's marketing efforts.

profits derived from sales

BENEFITS OF CUSTOMER RETENTION One of the key benefits of customer retention is repeat sales. In addition to the base profit derived from sales, profits are also acquired from increased purchase frequency and interest rates applied to higher balances on charge accounts (for firms that offer credit services) -existing customers are willing to pay more for a firm's offerings.

profits from referrals

BENEFITS OF CUSTOMER RETENTION Positive word-of-mouth advertising generated by satisfied customers. Existing customers are necessary for a firm to develop a reputation that attracts new business.

replace technology with humans

CUSTOMER LOYALTY STRATEGIES Come from the idea that technology is viewed as yet another tactic the firm implements to distance itself from its customers.

training employees

CUSTOMER LOYALTY STRATEGIES Convey to employees the expectation for great service delivery and provide them with the tools, training, and autonomy necessary to deliver it.

flexibility

CUSTOMER LOYALTY STRATEGIES Not relying on excuses—such as 'That's our policy'— that will lose more customers than setting the store on fire.

be good with names

CUSTOMER LOYALTY STRATEGIES Nothing personalizes a relationship faster than this

staying in touch

CUSTOMER LOYALTY STRATEGIES The goal of this tactic is to communicate to customers that the firm genuinely cares for their well-being.

leading through top-down loyalty

CUSTOMER LOYALTY STRATEGIES Upper management that is loyal to its employees creates a service culture where employees pass that loyalty on to their customers

be available when you're needed

CUSTOMER LOYALTY STRATEGIES When a customer has a problem, this is not the time to crawl under a rock and hide.

providing incentives

CUSTOMER LOYALTY STRATEGIES giving a nice value-added feature that both cultivate and maintain loyalty.

developing a proper perspective

CUSTOMER LOYALTY STRATEGIES involves a customer-oriented frame of mind and an attitude for service. Employees need to remember that every customer has his or her own personal set of needs, and that the customer's, not the employee's, expectations define performance.

providing discretionary effort

CUSTOMER LOYALTY STRATEGIES providing behavior beyond the call of duty.

remember past purchases

CUSTOMER LOYALTY STRATEGIES remembering this signals to customers that they are important as individuals and not as part of a mass known only as "the customer."

build trust through reliability

CUSTOMER LOYALTY STRATEGIES three major components of this are: (1) the service provider's expertise, (2) the service provider's reliability, and (3) the service provider's concern for the customer.

Platinum tier

CUSTOMER PYRAMID Company's most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm

lead tier

CUSTOMER PYRAMID Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources.

iron tier

CUSTOMER PYRAMID Essential customers that provide the volume needed to utilize the firm'' capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment

Gold tier

CUSTOMER PYRAMID Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors.

service defectors

Customers who defect due to poor customer service.

market defectors

Customers who exit the market due to relocation or business failure

organizational defectors

Customers who leave due to political considerations inside the firm, such as reciprocal buying arrangements -ex: company policy mandates you use a new travel agency or friends made is country club or other organizations persuade you to use their business

price defectors

Customers who switch to competitors for lower-priced goods and services

product defectors

Customers who switch to competitors who offer superior goods and services.

technological defectors

Customers who switch to products outside the industry.

high satisfaction/low retention

Examples of _________: -Commodity products or little or no differentiation (e.g., rental cars) •Consumer indifference (low involvement) (e.g., car wash, drycleaner) •Many substitutes (e.g., lawn care service) •Low costs of switching (e.g., trash collection services)

low satisfaction/high retention

Examples of __________: -Regulated monopoly or few substitutes (e.g., hospitals, airlines) •Dominant brand equity (e.g., Microsoft) •High cost of switching (e.g., physicians, financial institutions) •Proprietary technology (e.g., Microsoft)

customer retention

Focusing the firm's marketing efforts toward the existing customer base.

rising costs of marketing

IMPORTANCE OF CUSTOMER RETENTION The cost of mass marketing advertising, the primary tool of conquest marketers, has substantially increased. -A loss of "share of voice" and new/targeted medias contribute to this as well

markets are stagnant

IMPORTANCE OF CUSTOMER RETENTION The once vibrant global economy now advances disproportionately. Although the situation varies throughout the world, in many places population growth has slowed. Consequently, there are not as many new customers as there once were, and those customers who do exist are in many cases spending less.

changes in channels of distribution

IMPORTANCE OF CUSTOMER RETENTION The physical distance between producer and consumer is increasing. The continued growth of nonstore retailing such as the Internet and direct mail catalogs are prime examples of how the physical distance between the provider of products and the customer is changing -can also be affected by third parties than can misrepresent firm and affect loyalty

increasing competition

IMPORTANCE OF CUSTOMER RETENTION results from the relative parity and lack of differential advantage of goods and services on the market; deregulated industries that now must compete for customers in an open market; the growth of online alternatives; and accessible market information that is available to more firms, thereby minimizing informational advantages among competing firms.

relationship marketing

Marketing technique based on developing long-term relationships with customers. -*macro*: recognize that the marketing activity affects customer markets, employee markets, supplier markets, internal markets, and influencer markets -*micro*: recognizes that the focus of marketing is changing from completing one transaction to building a long-term relationship with existing customers

aftermarketing

Marketing technique that emphasizes marketing after the initial sale has been made.

frequency marketing

Marketing technique that strives to make existing customers purchase more often from the same provider. -EX: An airline's frequent flyer program`

customer loyalty

Reflects an emotional attachment as well as a business attachment to the service firm. -not the same as customer satisfaction or retention

Customer LTV

The average dollar amount per sale multiplied by the average number of times customers reorder (discounted to the present). = (Average Sale) × (Estimated Number of Times Customers Reorder) -need to calculate "lifetime profit" of a customer first

customer LTP

The average profit per sale multiplied by the average number of times customers reorder (discounted to the present). = (Average Profit Per Sale) × (Estimated Number of Times Customers Reorder) -can be used in breakeven cost equation to know how much money a firm can spend to acquire customers and still make profits in the long run.

customer acquisition cost

The monetary amount spent on marketing and other activities to acquire a new customer.

organization directed

These are what type of benefit from unconditional guarantees: The guarantee forces the firm to focus on the customer's definition of good service as opposed to the firm's own definition. •In and of itself, the guarantee states a clear performance goal that is communicated to employees and customers. •Guarantees that are invoked provide a measurable means of tracking poor service. •Offering the guarantee forces the firm to examine its entire service delivery system for failure points. •The guarantee can be a source of pride and provide a motive for team building within the firm.

-communicate to employees importance of retention -train employees for retention -reward based on retention -create barriers that discourage defection

defection management process

-greatest need -greatest loyalty

firms can increase profitability when they show loyalty to customers with these two characteristics:

-gather info -know what to do w/ info -know how to react to info -know how to respond to info

four things to train employees on in the defection management process

unconditional guarantee

guarantee that promises complete customer satisfaction and, at a minimum, a full refund or complete, no-cost problem resolution.

pro: better to master a goal (ex: FedEx guaranteeing overnight shipping) con: weaker than unconditional

pro and con of specific result guarantees

customer directed

these are what types of benefits from unconditional guarantees: -Customers perceive they are getting a better value. •The perceived risk associated with the purchase is lower. •The consumer perceives the firm to be more reliable. •The guarantee helps consumers decide when comparing competing choices; consequently, the guarantee serves as a differential advantage. •The guarantee helps in overcoming customer resistance toward making the purchase. •The guarantee reinforces customer loyalty, increases sales, and builds market share. •A good guarantee can overcome negative word-of-mouth advertising. •The guarantee can lead to brand recognition and differentiation; consequently, a higher price can be commanded.