MKT 300 Chapter 14

The Bases of Customer Satisfaction

A company's emphasis on customer satisfaction develops as a consequence of a customer orientation. Firms with a customer orientation set an expectation that all employees should seek to provide value to the customer in a way that meets, or exceeds, the customer's expectations. A customer orientation makes up a part of the MARKETING concept, the idea that a firm's long-term success must include a companywide effort to satisfy customer needs and wants. The marketing concept is based on the following principles, actively applied by managers companywide:9 Awareness and appreciation of the consumer's role in the firm's existence, growth, and stability. Awareness of and concern with the interdepartmental implication of decisions and actions of an individual department with regard to the customer. Concern with innovation of goods and services designed to solve select customer problems. Understanding of the effect of the introduction of new goods and services for the firm's profit position, both present and future. Appreciation of the role of marketing intelligence in determining the needs and wants of customers. Effort in determining corporate and departmental objectives based on customer satisfaction.

Establishing Customer Service Policies

A firm builds an effective customer service strategy around a set of common objectives for all company employees. These objectives dictate the firm's policies for interacting with and treating its customers. The following objectives apply, whether a company sells to other businesses (B2B) or directly to consumers (B2C): Deliver the good or service completely and in a timely manner. Ensure that the process for taking and fulfilling customer orders is reliable. Establish convenient customer communication channels. Encourage ease of doing business, so that the customer finds it convenient and pleasant to deal with the firm. These four factors are critical to delivering customer service and, ultimately, maintaining brand loyalty.

Reliability

A second customer service objective that guides the firm's policies and procedures is reliability. Reliability involves ensuring that customers can depend on receiving a good or service within a stated lead time and that there will be no problems with the order. Reliability becomes a particularly important objective in B2B transactions. Business customers may accept a longer lead time from a reliable supplier because it involves less uncertainty. When business customers can depend on the delivery of products, they can hold less inventory; this reduces their inventory carrying costs.

Defining Customer Service

Anything a company does that directly touches the customer falls under the realm of customer service. Customer service involves all of the activities a firm engages in to satisfy the needs and wants of its customers. These activities consist of both human methods and mechanical methods for direct customer interaction. A human method would be ordering a catalogue item directly by talking with a customer service representative (CSR). A mechanical method would be placing an order for a product on a company's web page. The ultimate goal of delivering superior customer service is to increase BRAND LOYALTY. Customers will usually remain loyal to a company or brand if they feel they receive more value from that company's goods and services than they do from its competitors. Offering superior customer service goes a long way toward ensuring that customers will stay loyal.

Lifetime value.

As discussed earlier, lifetime value is the total profit a customer brings to a company while a customer. The CRM efforts of a company, if done right, should be able to maximize the lifetime value of customers, large and small. Companies that can predict lifetime value can aim customer service efforts accordingly: They can reduce or eliminate services to customers with low LTV; by cutting back on customer service costs for those customers, the firm improves the customer equity of those customers. Similarly, the firm can maintain or even increase services to customers with high LTV, to increase sales revenue.

Objectives of Customer Relationship Management

CRM entails gathering data from all touch points (e.g., face-to-face, telephone, and Internet) and using those data to understand the customer's needs and wants. The firm can then develop tactics for building a long-term, mutually beneficial relationship with the customer. CRM technologies allow marketers to do the following: Track consumer behavior over time. Capture data that allow the firm to identify customers who are likely to be profitable. Interact with customers to learn what they need and want. Use the information gathered to tailor goods and services accordingly.

Social media platforms

Companies build their social media strategy on social media platforms. These are web-based technologies that enable a company to build and manage social media solutions and services.3 Social media platforms include such websites as Facebook, Google+, Blab, LinkedIn, Twitter, Blogger, and Zoho. These platforms enable companies to build relationships with customers in ways that were not available until fairly recently. Facebook and Twitter, for example, connect companies to their customers through direct interaction. This connection helps build brand loyalty through greater customer service. Many company websites allow customers to send questions, comments, or complaints. Other companies scan social media platforms to find out what their customers' needs and wants are. For example, e-Bags uses social media such as Facebook, Twitter, Google+, and Pinterest to get feedback on its products and ideas for product development.

Customer relationship management (CRM)

Companies interested in improving customer relationships and empowering their employees to support that effort often formalize the process by making customer relationship management a large part of their marketing strategy. Customer relationship management (CRM) is the process by which companies get new customers, keep the customers they already have, and grow the business by increasing their share of Page 484customers' purchases. It is an overall strategy that unifies all of a company's activities under the overarching goal of achieving customer satisfaction through the right actions, attitudes, and systems. Companies that adopt CRM use data to understand customer needs and wants. Based on that understanding, they respond to and anticipate customer expectations in a way that delivers value to the customer. These activities, if done well, can foster favorable impressions of the company and its goods or services.

Timeliness

Consumers don't want to wait long for their products to arrive. Timeliness concerns the ability of a company to deliver a good or service by the time a customer expects to have it available for sale or consumption. The process companies use to take a customer order and deliver goods to a customer is referred to as the order cycle. The order cycle is the total amount of time that elapses from the time a customer places an order until the time the product is delivered to the customer. It involves a number of activities

Ease of Doing Business

Convenience is a major part of ease of doing business. Ease of doing business is the amount of effort required on the part of a customer when dealing with a firm. For example, having a help line available to answer customer questions 24/7 provides convenience to customers who may need answers right away. At stores like Academy Sports + Outdoors, salespeople on the store floor armed with a smartphone can place an order for a customer and take a credit card payment; the merchandise is delivered at no additional charge, without the customer having to go through a checkout line. Websites also offer consumers convenience. They supply information about the product, the ability to compare products and prices quickly, and a simple checkout process.

Customer Communication

Customer communication involves a two-way information flow between the firm and its customer. That is, firms communicate with customers, and they provide convenient ways for customers to communicate with them. Firms that fail at one, or both, likely will not perform well in the marketplace.

Customer equity.

Customer equity is a ratio that compares the financial investments a company puts into gaining and keeping customers to the financial return on those investments. A company can determine the value of its CRM program from this ratio. If a company determines that it is spending more on CRM than it is getting back in profit, it needs to evaluate the program and correct the problems. For example, if a salesperson neglects to follow up with B2B customers to offer post-sales service that other companies do not offer, the company has given up the chance to increase the financial return on investment in Page 491those customers. A well-designed CRM process would prompt the salesperson to offer such post-sales service; offering that additional service would show the customer there are services the company offers that competitors do not.

Customer focus.

Customer focus measures the extent to which a company puts effort into servicing its customers' needs, based on an understanding of each customer's profitability. With that information, the company can direct its personal selling efforts, which are expensive, to those customers who are most profitable.

Touch point

Each of these opportunities represents a touch point. A touch point is any point at which a customer and the company come into contact. Best Buy, for example, has multiple touch points: when customers create an online account and order merchandise, when a customer goes to a store and talks to a salesperson, and when the customer purchases goods at a store.

Establishing Customer Value

First, the company must establish customer value. Customer value refers to the perceived benefits, both monetary and nonmonetary, that a customer receives from a product compared with the cost of obtaining it. Thus, the firm must establish the ways in which it will provide more value in its exchange with the customer than its competitors do. The customer can be either a business customer or an individual consumer. By making a special effort to understand the value the customer receives, the firm is able to build a relationship with the Page 481customer. Attention to customer value often leads to commitment between the two parties, which can result in a long-term mutually beneficial relationship.

Tracking Performance through Customer Service Metrics

How do companies know if they are doing a good job serving their customer? Primarily, they do so by establishing performance metrics, tied to the four objectives of customer service: timeliness, reliability, customer communication, and ease of doing business. Commonly used metrics for tracking B2B and B2C customer service performance include the following: Fill rate is the percentage of an order shipped on time and complete. Companies can measure fill rate in various ways. Item fill rate measures the percentage of the total number of items on the order that the firm shipped on time. Thus if there are a total of 501 items on the order, and the firm ships 489 on time, the item fill rate is 97.6 percent. Dollar fill rate measures the value of goods shipped on time versus the total value of the order. If the items ordered are worth $12,290, and the items shipped are worth $12,098, then the dollar fill rate is 98.4 percent. Line fill rate measures the percentage of item-stocking types, known as stock-keeping units (SKUs), on the order shipped on time and complete. The SKU helps the company differentiate among similar items that may be stocked in various ways. For example, a promotional twin-pack of Pantene Lively Clean shampoo takes a different SKU than a single bottle of the same product. If there are 10 different SKUs on the order, and the firm fills 6 completely and puts 4 on back order, then the line fill rate is 60 percent. Perfect order rate judges the reliability of the order system. As the name implies, the metric measures how many orders have been filled perfectly. It leaves no room for error. A perfect order must be delivered to the right place, on the correct due date, with the right items in the right quantity, and with no damage. It also must be billed correctly. Any deviation from these requirements constitutes a failure and receives a zero. If the company fills 2 out of 10 orders perfectly, but the other 8 have errors, the perfect order fill rate is 0 percent. (Note too that if the company fills 9 of 10 orders perfectly, the perfect order fill rate also is 0 percent.) This metric has become important as customer expectations for exceptional service have increased over time. On-time delivery recognizes that it is not enough just to ship the goods on time; they must arrive on time as well. The only date that matters is the due date for the order to arrive at the customer's location. Firms base the on-time delivery measure on the actual delivery date versus the requested delivery date. In today's business world, in which firms watch inventories closely, delivering earlier than the requested date adds inventory that is not yet needed, increasing inventory carrying costs. Late deliveries are a problem because the goods will be unavailable for use or sale when needed. Both of these conditions, early or late delivery, constitute a failure for this metric. The order cycle time metric measures the length of the order cycle, or the ability of the order system to react to customer orders. Both B2B and B2C customers increasingly seek shortened order cycles. Customer communication metrics involve review of communication at three stages: At the pre-transaction point, the firm measures the accuracy and timeliness of the information fed back to a customer concerning product availability and delivery dates. This aspect of the metric relates to being proactive with customers and keeping them informed. The second communication point occurs at the transaction. It measures the ability of the firm to accurately provide shipment status and order tracking. The third stage is post-transaction. It measures the ability of the firm to answer questions concerning the use of the product or to process returned goods in a timely manner - ease of doing business. The responsiveness metric measures the firm's flexibility. Flexibility can involve the firm's ability and willingness to provide fast service, answer customer inquiries, and resolve problems.

Clientelling

Personalizing service is another way to help exceed a customer's expectations. Some companies, for example, use a method called clientelling. This method tailors product information for individual customers, in order to provide an exceptional and personalized shopping experience. It involves: Identifying key information about a customer. Contacting the customer about a product or service that fits his or her individual profile. Having a service representative give personal service to the customer. Following up on the customer's experience with the purchase.

How can a company determine whether its CRM strategy is working? Companies can use any of four basic metrics to judge the effectiveness of a CRM program:

Share of customer. Share of customer differs from market share in that it measures the quantity of purchase dollars each customer spends on the company's products, rather than the number of customers. If a company's CRM efforts lead to an increase in the number of goods or services purchased by a consumer, then it has been successful in increasing its share of customer. As share of customer increases, so do the company's profits. If the CRM efforts do not increase the company's share of customer, the company must evaluate them, to determine why and apply corrective measures. For example, if a customer buys a Nissan Altima, the company contacts him or her when the warranty is about to run out with an offer for an extended warranty. If Nissan does not follow up, the company misses an opportunity to gain share of customer, which means its CRM program is not working to its highest potential.

Step 1: Identify Current Customers The company initiates the CRM process by identifying its current customers. For example, a company like Dell that has both business customers and individual customers would identify its customers by: Finding out their locations. Breaking down computer purchases by customer type. Quantifying the frequency of both individual and business purchases. Determining how many computers each type of customer typically purchases. Even within each type of customer, Dell would want to note distinctions. For example, though both Arkansas State University and the U.S. Department of Defense fall into the category of business customer, they might differ when it comes to the type and number of computers purchased.

Step 2: Understand How Customers Interact with the Firm Next, the company seeks to understand how customers interact with the firm. The firm wants to know how customers purchase (what percentages purchase via the Internet, in brick-and-mortar stores, and through a salesperson). It also wants to know how customers, in general, communicate with the firm. Dell has several channels through which it sells computers to individuals. It would probably want to know which types of customers are more likely to order a computer on the company's website, and which would prefer to go to a retail store to buy one. Interactions can take many forms: phone calls and e-mails to customer service, conversations with salespeople, purchases, questionnaire responses, coupon redemption, requests for information, and repair or product return requests. Understanding the interactions between the company and its customers is the backbone of a CRM system. Up to this point, the information gathered in the CRM system is general customer information.

Step 3: Gather Specific Customer Information In step 3, the company gathers specific information on each individual customer's touch points with the company. These include any time the customer has had contact with the company in any way, such as: website visits, purchase history, use of coupons or promotional codes, warranty card submissions, point-of-sale data, or customer inquiries. A salesperson serves as an excellent source of information about in-person customer interactions. He or she can record information in the CRM system, including the customer's contact information and preferences for particular goods or services. Kroger's use of free customer-loyalty cards is another example of gathering customer specific information that helps the company track information about customers. Purchase information is collected at the counter and tagged directly to the customer through the loyalty card. This information can then be used to target promotions to Page 486specific customers, such as offering a coupon for diapers to customers identified as mothers with young children. An increasingly popular way for companies to gather information is Internet interactions: a customer going to a company's website for information, purchasing goods or services, or providing feedback on a good or service. For example, Dell uses software called Dell Premier to track purchase information. Additionally, Facebook, Twitter, and other social media sites offer avenues for companies to interact with individual customers.

Step 4: Store and Analyze Information After the company has gathered the appropriate data, it must store the data so that CRM data analysis applications can access them. CRM databases store the information for individual or business customers. CRM data analysis applications can work only with the data stored. The information input into the CRM database must be accurate. If it is not, the company will not be able to use it effectively to create and maintain satisfied, profitable long-term customers. To analyze the stored data, the CRM system uses data mining techniques. Data mining is a process that involves the computerized search for meaningful trends in a large amount of data. Using data mining software like ProClarity, marketers can search for relevant data, organize the data based on select criteria, and create customer profiles that can be used to analyze customers. Datamining analysis can include one or more of the following techniques: Customer segmentation analysis involves creating customer profiles based on demographic characteristics, purchase patterns, and other criteria and placing them into various categories. Recency-frequency-monetary analysis involves categorizing customers by their buying patterns. Examples of patterns are: how recently customers have purchased a good or service, how often they purchase from the company, and how much money they spend on the company's products. Based on this analysis, the Page 487system ranks customers according to how profitable they are (or their profitability potential). The firm can then target customers for appropriate further marketing efforts. Lifetime value is the total profit a customer brings to a company during the time the individual or firm is a customer. Lifetime value (LTV) analysis compares the costs of retaining customers with the costs of acquiring new customers, to determine how much money each type of customer requires. With this analysis in hand, a company can predict how valuable a customer will be over a period of time. The system can also help a company identify potential customers on whom it may be worth spending money to develop a long-term relationship. Lifetime value analysis helps ensure that a company is focusing on the most profitable customers. Predictive modeling uses sophisticated algorithms based on patterns of previous buying behavior to predict the future buying behavior of customers. For example, Norwegian Cruise Lines might use the timing and frequency of previous cruise purchases to predict which customers will purchase a cruise in the near future. Using the results of predictive modeling, marketers for the cruise company could focus promotional activities on those potential buyers.

The CRM Process

The CRM process revolves around a cycle of activities. As Figure 14.2 illustrates, CRM is an iterative rather than a linear process; the firm repeats the sequence of steps, as necessary, to reach the desired result.

Step 5: Use Data to Build Customer Relationships

The fifth step in the CRM process is to utilize the information gathered and analyzed in the previous steps to build customer relationships. The CRM system sends information to functional areas within the company, like sales and marketing. Those functional areas use the information to customize their activities to target specific customers. Norwegian Cruise Lines, for example, may offer a discount or cabin upgrade to frequent customers.

One way that a company can identify its most important customers is through ABC analysis.

This technique is based on Pareto's law, also known as the 80/20 rule. Applied to CRM, this principle would mean that 80 percent of profits come from 20 percent of the customers. ABC analysis can help identify which customers are most profitable. Customers that deliver 80 percent of the profits are placed in the "A" category; customers that deliver the next 15 percent of profits are placed in the "B" category; customers that deliver the final 5 percent of profits are placed in the "C" category. Table 14.3 shows an ABC calculation for a B2B company. Profitability is a better metric than revenue, by the way. Although some customers may spend more money than others, they may be more expensive to service.

collaborative filtering and Geo-fencing

Through personalized communication and customized product offerings, companies can improve customer satisfaction and loyalty. For example, Amazon uses an algorithm that performs a process called collaborative filtering to predict consumer preferences. When a consumer searches the Amazon site for a sporty clip watch, the algorithm filters large amounts of information about many consumers' previous purchases that may be related in some way. Amazon then sends out messages to buyers of a particular item, pointing out that others who purchased the same item also purchased other, similar products. This information offers individualized value to Amazon customers that can lead to high levels of satisfaction. Another one-to-one marketing technique is geo-fencing. This location-based technology uses small sensors to send messages to smartphone users who enter a nearby, defined geographic area. Macy's, American Eagle, Safeway, and other companies are testing this technique.

Service recovery

What a company does to resolve poor service can set it apart from its competition and help build customer loyalty. Customers who have had a service problem that is resolved quickly and to their satisfaction are significantly more loyal to a company than are customers who have never had a service failure. Maintaining and enhancing good customer relationships begins with a company culture that places customer service as a high priority. Such a culture puts in place procedures for recovering from service errors that can leave customers angry. Some commonsense steps can be used to recover from a service failure: 1. Apologize and ask the customer to forgive. The apology must be real and perceived by the customer as sincere. If the customer believes that the company is truly sorry about an error, he or she will be much more likely to move on to the next recovery steps. 2. Review the complaint with the customer. The cause of the problem needs to be established at this point. This should be done diplomatically: The problem may have occurred because the customer made a mistake in ordering, and you do not want to insult him or her. 3. Fix the problem, then check back with the customer to make sure that he or she is satisfied with your solution. This can involve many techniques: free return shipping, discounts on future purchases, or free merchandise or services. The key is that the customer's sense of injustice is removed. For example, restaurants will often offer a free dessert or meal if a customer complains about the food or service. 4. Document the problem and find its root cause. Record service problems, in order to identify and correct patterns or trends in service failures. Finding the root cause of the problem is critical.

Relationship marketing

is a strategy that focuses on attracting, maintaining, and enhancing customer relationships, thus building brand loyalty. Two basic keys to building good relationships with customers are: (1) establishing customer value and (2) delivering value.

The ultimate goal of achieving customer satisfaction

is to promote brand loyalty. If done in a cost-effective manner, achieving customer satisfaction will drive long-term profitability. Companies achieve customer satisfaction when they meet the needs and expectations their customers have for their goods or services. In today's business climate, customer satisfaction is merely a first step to ensuring that customers will remain loyal to the company or brand

Empowerment

means giving employees permission to make decisions and take action on their own to help customers. Empowerment usually involves training employees in what they should do to satisfy customers.