Chapter 1 CUSTOMERS WANT TOP VALUE

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Transcript Chapter 1 CUSTOMERS WANT TOP VALUE

Chapter 1 CUSTOMERS WANT TOP VALUE

1-1 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

EIGHT FACETS OF THE VALUE THEORY

CULTURE Organizational Culture Employee Values SUPPLIER VALUES Competitor Values

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

3RD PARTY VALUES Owner’s Values CUSTOMER VALUES

1-2

WHY

VALUE

• • • • People respond to value Value Attracts Customers Value Energizes an Organization Value creates the potential for a competitive advantage 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-3

Creating Customer Value: Key Questions

What is meant by customer value? How is customer value created?

What is

superior

customer value?

How is value delivered throughout the: 1) organization, 2) marketing channel?

Does maximizing customer value increase: sales, profits, market share?

Conquest or relationship marketing?

1-4 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Customer Value Triad

Value-based Prices Customer Value Product Quality Service Quality

Customer value can be achieved only when product quality , service quality and value-based prices are in harmony and exceed customer expectations. 1-5 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Customer Value Basics

The customer defines the appropriate

quality, service,

and

price

Value expectations are relative to the competition Value expectations are dynamic Quality and service delivery are the responsibility of the whole channel Maximizing customer value requires total organizational commitment

Source: Naumann, E. (1995) 1-6 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

How Southwest Airlines Creates Superior Value Clear Service Focus Process Mastery Recruitment and Training Treat Employees as Customers Teamwork Maverick Culture

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Southwest Airlines – Relational Coordination

1. Lead with credibility and caring. 2. Invest in frontline leadership. 3. Hire and train for relational competence. 4. Use conflict to build relationships. 5. Bridge the work/family divide. 6. Create boundary spanners. 7. Measure performance broadly. 8. Keep jobs flexible at the boundaries. 9. Make unions your partner. 10. Build relationships with suppliers. 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-8

How Starbucks Creates Superior Value Service Consistency Roasting Technology Create the right Store Atmosphere Recruitment and Training Brand Consistency Treat Employees as Partners

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5 Tenets of the Starbucks Experience

•

Make it Your Own (“5 ways of being”)

– Be welcoming – Be genuine (connect, discover, respond) – Be considerate – Be knowledgeable – Be involved • Everything Matters • Surprise and Delight • Embrace Resistance • Leave Your Mark 1-10 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Starbucks and QUALITY

• Quality of its coffee being defined as fresh as possible, i.e. actively giving off 3 to 20 times its volume in aromatic gas, “quality is in the details” • Starbucks worked to develop packaging that enable them to keep the coffee fresh , not for 7 days, but for up to six weeks. • Starbucks suppliers’ dedication to quality was key!

• Service Standard: ensure that Starbucks coffee can be delivered fresh anywhere in the world (utilizing design-in quality via improved packaging and a 7 cent valve that lets gases out of the bag but does not allow air to enter) 1-11 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Christine Day Interview

• The following questions were posed to Christine Day, Chief Administrative Officer for Starbucks by Harvard Business School Professor John Quelch:

Who

is Starbucks’ customer?

• Does the

Brand

means the same thing it’s always meant?

• How do you

attract

new customers?

• What happened a couple of years ago, when you invested more in existing stores • What kind of effects would

service slow downs

have • What measures did Starbucks take to address the

in-store experience

• What were the

results

from improving the in-store experience?

• Talk about the

technology-based innovations

service experience to enhance the • Looking back over the last 3 years….lost the plot (ground plan)….relate organizational importance to the marketing function 1-12 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Blended Products: Goods & Services

"Pure" Product " Pure" Service

e.g. hardware restaurant insurance 1-13 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Continuum of Services

Pre-sale Services

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Transaction Services Post-sale Services

1-14

Key Characteristics of Services

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Building Customer Relationships

PROSPECT BUYER CUSTOMER ADVOCATE

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The Value Matrix

High

Well- Intentioned Value-Creating

Low

Adversarial Bureaucratic

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Process

High Adapted from Capowski, G. (1995) 1-18

Pursuing Value in New Market Space Look Across the Buying Center Look Across Time Look Across Substitute Industries Look Across Type of Appeal Look Across Complements Look Across Strategic Groups BLUE OCEAN

— creating products or services for which there is no direct competition— look beyond conventional industry boundaries and find unoccupied market positions.

Adapted from

Kim, W. and Mauborgne, R. “Creating New Market Space” Harvard Business Review, Jan-Feb., 1997

“Starbucks has succeeded because we’ve focused on the need states of our consumers. We knew they wanted a whole lot more than just a cup of coffee. Once we really understood the needs of our consumers, things fell into place. We figured out what our role had to be.”

---------- Howard Schultz, CEO, Starbucks

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Value Creation Index

• • • • • • • • •

Innovation ** Quality Customer Relations Management Capabilities ** Alliances Technology Brand Value Employee Relations ** Environmental & Community Issues

NOTE: Relatively small changes in the VCI produce significant changes in market value: a 10 per cent change in the VCI is associated with an approximate 5 per cent change in the market value

Source

: Kalafut, P. and Low, J. (2001) “The Value Creation Index”,

Strategy and Leadership

, Vol. 20, No. 5, 9-15.

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Strategic Customer Focus Model

• Develop

PLANS

to deliver customer value • Manage

PEOPLE

to enhance customer satisfaction • Manage

PROCESSES

to maximize customer value • Provide

PRODUCTS and SERVICES

customers that add value for • Set

PRICES

that reflect customer value Manage the ‘

Moments of Truth’

Build On-going

Relationships Measure and Improve

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Develop

Plans

to Deliver Customer Value • • • • • Conduct market research and customer research to: – understand the marketplace, – identify target customers, and – define their needs and expectations.

Create a business model that produces unique customer value.

Commit to a vision, mission and values that focus on customers.

Define goals, strategies, measurement systems and controls to achieve the vision.

Define a

value proposition

that offers product and service benefits at fair prices that win and retain targeted customers and deliver significant profits for the business. Address the three key elements of a value proposition: – What market segments are we addressing? – Who are our targeted customers? – What benefits (functional & emotional) are we delivering to them?

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Manage

People

to Enhance Customer Satisfaction • Build a culture committed to delivering customer value. • Hire people with customer value in mind.

• Provide training to support customer value.

• Empower employees to enhance value for customers.

• Recognize and reward performance that enhances customer value.

• Constantly communicate the vision and values.

• Align actions with the vision and values.

Walk the talk!!!

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Manage

Processes

to Maximize Customer Value • Define business processes and institute process improvement strategies to improve quality and reduce costs. • Use

value chain analysis

to insure that primary and support processes add value.

• Utilize information technology to improve systems and processes and to create unique customer value. • Use quality tools to improve processes.

• Empower teams to improve processes.

• Focus on continuous quality improvement.

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Provide

Products and Services

that Add Value for Customers • Research customers’ needs, wants and even their unknown desires.

• Move up the steps from Basic and Expected to Desired and Unanticipated levels of service.

• Add attributes that demonstrate value. E.g.: – Superior quality – Personalized service – Customization of the product or service – Immediate availability (speed) – One-stop shopping – Ambiance – Reduced hassle – Solve a specific customer problem

Faster – Better – Cheaper

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Set

Prices

that Reflect Customer Value NOTE: Value is basically a tradeoff between the benefits customers receive from a product/service and the price that they must pay for it. • Set prices relative to perceived product/service benefits and competitors’ product/service benefits.

• Use a price-value grid and value map to compare price and quality.

• Use prices as a signal of quality. • Manage customers’ perceptions and expectations by identifying reference prices and communicating value versus competitors.

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Manage the

Moments of Truth

•

Moment of Truth

– any interaction where the customer comes into contact with the organization and gets an impression of its service. • Manage all of the PEOPLE interactions where employees come into contact with customers.

• Manage all PROCESSES and systems, policies and procedures that impact customers.

• Manage the entire ‘moments of truth’ a customer goes through to get a service.

“service cycle”

- the series of • Remember, every employee personally controls many

‘moments of truth.’

It’s his/her job to make those moments positive and rewarding.

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Build On-Going

Relationships

• • • • •

Build long-term relationships with profitable customers!

Gather and maintain a customer/marketing information database to provide actionable information. E.g., conduct RFM (Recency-Frequency-Monetary Value) and other usage analysis.

Develop close on-going relationships and intimate knowledge of customers to create value by: – Better understanding their needs, wants, expectations and their problems, – Providing more opportunities to meet their needs and solve their problems, – Partnering with customers to develop mutually-beneficial projects/activities, and – Making customers feel really valued.

Insure that the value proposition rewards loyal, long-term, profitable customers.

Customer relationship management (CRM) systems and strategies enable the business to acquire and retain customers with the highest profit potential.

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Measure and Improve

• Measure customer satisfaction • Benchmark against the ‘best-in-class’ organizations.

• Commit to continuous improvement:

Good enough is never good enough!

• Establish a performance measurement system to monitor key success factors, including customer satisfaction and customer retention.

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Strategic Customer Focus Model PLANS Revise PEOPLE PROCESSES Improve Measure Customer Value PRODUCTS & SERVICES PRICES Moments of Truth Relationships Improve Measure Measure

MOODY-09/25/06 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

CUSTOMERS

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Generic Strategies



Overall Cost Leadership



Differentiation



Focus

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Differentiation QUESTIONS

• Is

it really different:

Do any of my competitors offer this? Do any of them do it as well or better than I do? • Can it be

leveraged

: Is it the best relative point of strength versus my competitors? Is it proportionally the strongest driver in my value proposition? How will I use this point of difference to my advantage?

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VALUE DISCIPLINES

OPERATIONAL EXCELLENCE CUSTOMER INTIMACY

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PRODUCT LEADERSHIP

1-34

LEADER

      

EXPAND TOTAL MARKET create new users create new uses



create more usage FLANKING BLOCKING PRE-EMPTIVE STRIKES BUNDLE/UNBUNDLE

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CHALLENGER

  

FRONTAL ATTACK need 3 : 1 advantage in resources find weakness in leader’s strength

   

FLANK ATTACK BYPASS GUERILLA REDEFINE COMPETITIVE SCOPE

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MARKET NICHER

     

BY END USE BY CUSTOMER SIZE BY PRODUCT LINE BY CHANNEL OF DISTRIBUTION BY GEOGRAPHY BY SPECIFIC CUSTOMER

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Value Driven Management

• What makes VDM different from other management and decision-making models?

• What factors lead to value “adders” and value “destroyers” in an organization?

1-38 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Commodity Trap

• How is value “manageable”?

• Why is value a “comparative” concept?

• What makes value a “dynamic” concept?

• What does unpacking hidden value mean?

• How can companies avoid the commodity trap?

1-39 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Value Development Exercise

 Select one of the following businesses :  auto dealership  gas station/minimart  airline  mid-priced hotel chain (business travelers)  Quick Service Restaurant (i.e., KFC  )  Prepare a 2-column chart with GOTS on the left side and COSTS on the right side  Brainstorm ways to increase GOTS and reduce COSTS 1-40 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Chapter 2 BEING CUSTOMER ORIENTED

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The "New" Value-Seeking Customer

Choice-seeking Demanding Knowledgeable Less loyal Price conscious Self-seeking Self-configuring Time impoverished

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Market Orientation

COMPETITOR ORIENTATION

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CUSTOMER ORIENTATION LONG-TERM FOCUS PROFITABILITY INTERFUNCTIONAL COORDINATION

Source: Narver/Slater (1990) 1-43

Designing a Customer-Oriented Organization

Implement the marketing concept Build a customer-driven organization Establish a good marketing info system Marketing plans should be based on segmentation analysis Hire the best talent Stress operational efficiency Develop customer-centered programs Continually measure and fine-tune your customer focus

1-44 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Market Orientation Scale

The statements below describe norms that operate in business. Please indicate your extent of agreement about how well the statements describe the actual norms in your business.

Please answer in the context of your strategic business units (Circle one number for each line.)

Our business objectives are driven primarily by customer satisfaction.

We constantly monitor our level of commitment and orientation to serving customer needs.

1 2 3 4 5 1 2 3 4 5 3.

We freely communicate information about our successful and unsuccessful customer experiences across all business functions 1 2 3 4 5 4.

Our strategy for competitive advantage is based on our understanding of customers’ needs.

1 2 3 4 5 5.

We measure customer satisfaction systematically and regularly.

1 2 3 4 5 6.

W have routine or regular measures of customer service.

We are more customer-focused than our competitors.

I believe this business exists primarily to serve customers.

1 2 3 4 5 1 2 3 4 5 9.

We poll end users at least once a year to assess the quality of our products and services.

1 2 3 4 5 1 2 3 4 5 10.

Data on customer satisfaction are disseminated at all levels in this business unit on a regular basis.

1 2 3 4 5

Source:

Deshpande, R. and Farley, J. (1996).

Understanding Market Orientation a Prospectively Designed Meta Analysis of 3 Market Orientation Scales

Ph.D. . Marketing Science Institute

Customer Orientation: 3 Types

Company

INTERNAL

Value

EXTERNAL

Employees

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INTERACTIVE

Source: Kotler, P. (1997)

Customers

1-46

“If I asked the consumer what they wanted, they would have said a

faster horse

” __________ Henry Ford “Our Goal is to lead the public with new products rather than ask them what kind of product they want. The public does not know what is possible, but we do” _________ Akio Morita, former CEO, Sony ““Customers are notoriously lacking in foresight” __________ Hammer and Prahlhad 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-47

The Bias for Action Continuum

REACTIVE NON-RESPONSIVE ANTICIPATORY PROACTIVE RESPONSIVE

 invest in research, get close to the customer, innovate, accept reasonable risks 1-48 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Chapter 3 PROCESS AND CUSTOMER VALUE

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The Link Between Process and Value Process

GOAL

: Maintain Fit Between Value and Process

Value

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Process Delivers Value through

: • Quality • Cost Reduction • Flexibility 1-50

The Marketing Cycle and Process Model

MARKET CONSTITUENTS -customers -suppliers -publics -shareholders CORE BUSINESS PROCESSES PROCESS INDICATORS SALES CUSTOMER SENSITIVITY DISTRIBUTION LOGISTICS MARKETIN G CYCLE SERVICE MANAGEMENT PRICING SELLING DISTRIBUTION CUSTOMER SERVICE BILLING ORDERING CAPACITIES YIELDS WASTE LEVELS CYCLE RESPONSE TIME CUSTOMER SATISFACTION LEVELS COST/EFFICIENCIES TIME TO MARKET SERVICE PROMOTION PRODUCT/SERVICE DEVELOPMENT

1-51 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Core Marketing Processes

Market sensing New offering realization Customer acquisition 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Customer relationship management Fulfillment management 1-52

Determinants of Core Capabilities Capabilities of Transformation

People Information

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Resources Processes

1-53

The Deming Cycle

Act Plan Check Do

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Value deployment matrix Customer Value criteria Quality

  

Service

  

Cost/price

  

Time

  

Total Score

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Core processes

Scoring:

Low Impact =1 Medium impact = 2 1-55 High impact = 3

Process Support of Value Statement

B A C Low Weak Support Value Statement Support Strong Support Note:

circle size corresponds to process size and relative impact of improvement effort Adapted from Feather, J. (1998) 1-56 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Strategic Marketing Information and Business Processes Business Process Customer Need

Reliability(40%) Product (30%) Easy to use (20% Features/Functions (40%)

Internal Metric

% Repair Call % Calls for Help Function/Performance Test Sales (30%) Knowledge (30%) Response (25%) Follow-Up (10% Supervisor Observations % Proposal Made On Time % Follow-Up Made Overall Quality Installation (10%) Delivery Interval (30%) Does Not Break (30%) Installed When Promised (10%) Average Order Interval % Repair Reports % Installed on Due Date Repair (15%) No Repeat Trouble (30%) Fixed Fast (25%) Kept Informed (10%) % Repeat Reports Average Speed of Repair % Customers Informed Billing (15%) 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Accuracy, No Surprises (45%) Resolve on First Call (35%) Easy to Understand (10%) % Billing Inquires % Resolved First Call % Billing Inquiries 1-57 Adapted from Kordupleski, R. et.al. (1993)

Tools of Process Improvement

Process Tool BENCHMARKING DATA COLLECTION TOOLS (surveys, sampling, check sheets) CONTROL CHART SCATTER DIAGRAM PARETO CHART FISHBONE DIAGRAM Purpose measuring and comparing process results to a standard of excellence document internal and external customer assumptions and perceptions about appropriateness and effectiveness of a process and reveal unstable processes identifies stability, capability and central tendency of a process show graphically the relationship between process performance data and some overall performance measure such as customer satisfaction or service quality separates the “vital few” causes of process failures show possible causes of process shortcomings or weaknesses

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Customer Requests booking

Service Flow Diagram

Travel Consultant

Calls on telephone

Data Processing Ticketing Department Counter Person Fills out travel request

Walks in

May pay in advance Makes booking Prints ticket Fills out “tracker” Issues ticket Walks in for ticket Receives ticket Posts ticket data to computer Holds tracker; waits for ticket Pulls tracker; puts with ticket

Customer pickup

Puts ticket in hold box

Delivery to customer

Mails or delivers ticket Collects Payment Gets customer signature Updates computer with final data Updates tracker Source: Albrecht, K. (1990) 1-59 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Figure 3.8

Control Chart Example

Measurement B. Measurement Upper Control Limit (UCL) Mean (Average) Lower Control Limit (LCL) time Process is in control UCL Average LCL time Process is NOT in control (special cause) C.

Measurement UCL Average LCL time Process is NOT in control (4 common causes in sequence)

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Figure 3.10 Pareto Chart (Online Banking ) % of Bank Deposits

80% 70% 60%

“Vital Few” line Customer Online Activity

Obsessives – daily 50% 40% 30% 20% 10% Regulars -once a week

Occasionals -

twice a month Laggards - once a month or less 0%

40 110 435 95

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Number of Customers per user segment

©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-61 BJ:SEL:H3

Fishbone Diagram*

Equipment Policies Broken Centrifuge unavailable Information desk delays Analyzers not available In Process Hemolyzed Not in room (x ray) Lab Result Delays for Emergency Department Patients Insufficient Specimen Delay in producing slips Patient Ability to draw specimen Staff related Not enough quantity Transport Procedures People High volume *The Fishbone, or cause and effect, diagram (sometimes called an Ishikawa diagram, named after the Japanese quality control leader) is drawn during a brainstorming session. The central problem is visualized as the head of the fish, with the skeleton divided into branches showing contributing causes of different parts of the problem.

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Prescription for Customer Accelerated Change

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VISION

 LONG-TERM  SOMETHING TO BE PURSUED  A MOTIVATING STATEMENT  PROVIDES GUIDANCE/INSPIRATION 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-64

VISION STATEMENTS

MICRO SOFT: Empower people through great software anytime, any place, and on any device.

McDonald’s Offer the world’s best quick service experience COCA COLA : To put a Coke within an arm’s reach of every consumer in the world JAPANESE AUTO CO.

BELLSOUTH: “Beat Benz!” Be Customer’s Best Connection to Communications, Information, and Entertainment

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Rubbermaid Commercial Products, Inc.

“ Our vision is to be the Global Market Share Leader in each of the markets we serve. We will earn this leadership position by providing to our distributor and end-user customers innovative, high-quality, cost effective and environmentally responsible products. We will add value to these products by providing legendary customer service through our uncompromising Commitment to Customer Satisfaction.

” 1-66 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

MISSION



OVERALL DIRECTION FIRMS WANT TO GO



SOMETHING TO BE ACCOMPLISHED

 

A BUSINESS PHILOSOPHY FIRM’S CORE PURPOSE FOR BEING

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MISSION STATEMENTS

Google : To organize the world’s information and make it universally accessible and useful Baxter : We shall be the leading healthcare company by HEALTH providing the best services and products for CARE our customers, emphasizing innovation, operational excellence, personal and business ethics, & the highest quality in everything we do Walgreen’s: To offer customers the best drugstore service in America…guided by century-old tradition of fairness, trust, and honesty as we continue to expand out store base and offer career opportunities to a fast growing and diverse group of men and women…our goal is to develop people who treat customers—and each other—with respect and dignity…we will support these efforts with the most innovative retail thinking, services, and technology…the success we achieve will allow us to reinvest in the future and build long-term financial security for our employees and shareholders.

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"If you don't know where you're heading, you're likely to end up somewhere else."

____ Yogi Berra 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-69

CUSTOMER VALUE ANALYSIS

1. Identify price-performance factors 2.

Assess Quantitative Importance of factors 3. Assess Quantitative Importance of factors 4. Use a Value Map to Plot company/ Competitor ratings 5. Monitor Customer Value over time

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Higher 1.25

CUSTOMER VALUE MAP: LUXURY CARS

Inferior Customer Value

BMW 5-Series

Lexus LS 400

1.25

Cadillac CTS

Acura Legend

Superior Customer Value

Lower .75

60 80 Relative Performance: overall score 100

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BUSINESS PROCESS ORIENTATION

(+) 0.500* (- ) 0 .3

80 * Busi ness Process Ori entati on (BPO) (+) 0 .3

65 * Inter-functi onal Conflict (IF) Inter-departmental Connect edness (IC ) (-) 0.497* (+ ) 0 .5

42 * Esprit de Corp (EC) (- ) 0 .4

68 * (+) 0.255*** Busi ness Performance (OP1) (+) 0.279** Note: All numbers shown are Standardized Regressi on Coefficient s of relat ionships . Si gnificance: . ** p<.003, *** p<.007, * p<.001

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VALUE DISCIPLINES Core Business Processes that… OPERATIONAL EXCELLENCE PRODUCT LEADERSHIP CUSTOMER INTIMACY Organizational Structure that… Management Systems that… Culture that…

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Chapter 5 DEFINING AND MANAGING SERVICE QUALITY

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What is Quality?



"Conformance to requirements"



The ability to satisfy stated or implied needs; a good/service free of deficiencies (ASQC)



Define in terms of success (failure) that occurs within/outside of company 2 key concepts : employee empowerment the internal customer WHY QUALITY MATTERS?

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QUALITY RACE HEATS UP

Consumer-reported problems per 100 new vehicles in 2001 model year

Change from 2000 Toyota Honda Nissan GM Industry Avg.

Daimier Chrysler Volkswagen Ford 115 133 145 146 147 154 159 162 -1 +10 - 4 -18 -7 -13 -30 +4 1-77

Source: J.D. Power & Associates

Ph.D. BJ:SL#3

Losing Ground in the U.S.

Competitors are improving faster than Mercedes is, so its overall rank has declined.

Long-Term Quality

* 2001 2000 Industry average Luxury average Mercedes 381 285 296 412 313 311 C, S and SL classes all showed declines in dependability

Initial Quality**

2001 2000 Industry average Luxury average Mercedes 147 122 129 154 127 134

Mercedes rank 10 9

C,S, SLK and CLK classes all declined *Long-term quality of vehicles 5 years old, in problems per 100 vehicles **Initial quality in the first 90 days after purchase, in problems per 100 vehicles Source: J.D. Power & Associates 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-78

Source

: J.D. Power & Associates, study based on 3-year old vehicle dependability, 2003 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-79

AIRLINE

AIRLINE QUALITY RATINGS

Alaska US Airways Northwest Southwest Delta American American West Continental United American Eagle Trans World*

OVERALL RANKING

1 2 6 7 3 4 5

BAGGAGE HANDLING

8 9 10 6 9 11 11 10 1 2 7 5 4 4 3

ON TIME ARRIVAL

11 5 7 8 4 1 6 3 9 10 2

Source: Brent D. Bowen and Dean E. Headley. The Airline Quality Rating, 2002

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The Trinity of Quality

STRUCTURE PROCESS OUTCOMES

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-81

Quality Problems: Some Symptons



Outgoing products normally contain deviations from the standards



Company has an extensive field service/dealer network



Management does not provide a clear performance standard



Management denies that it is the cause of the problem

1-82 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Quality Control: 2 Views

TRADITIONAL TQM QC QC QC

1-83 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

THE FOUR STAGES OF QUALITY

Focus Internal Operations Customers

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Target Market & Performance Vs Competitors Quality/Value in Overall Strategic Framework

1-84

Contributions from the Quality Gurus

 Deming - 14 points of quality (pp. 66-67)  Imai - kaizen (continuous improvement)  Juran - "Pareto analysis" 80% defects caused by 20% of the problems  Crosby - 4 absolutes (see next slide) 1-85 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Crosby's 4 Absolutes About Quality



Q conforms to customer requirements



Q should be built into the process (prevent rather than appraise)



Performance standard = zero defects



Measure Q in terms of the price of conformance & non-conformance other points: 1. Quality is free - "unquality" is expensive 2. Do it right the first time! D.I.R.F.T.

3. Build a Q-driven corporate culture

1-86 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

After

Office Depot

installed a new scanning system in their warehouse “The biggest cost driver in the warehouse was the redo (

emphasis mine)

, when we shipped the wrong thing” _________CFO Charlie Brown Question: How was quality affected?

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-87

THE THREE SERVICE LEVELS

SATISFIERS HYGIENE FACTORS CORE BENEFIT

1-88 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

2 Factor Model of Service Quality

AVERAGE FIRM cause of attitude FIRM IN CRISIS

hygiene factors satisfiers

LEADER extreme extreme dissatisfaction satisfaction

Adapted from Naumann, E. (1995) 1-89 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Determinants of Service Quality



Reliability



Responsiveness



Competence



Access



Courtesy



Communication



Credibility



Security



Understanding/Knowing the customer



Tangibles

Source: Parasuraman, et al. (1985) 1-90 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Relative Importance of Service Dimensions When Respondents Allocate 100 Points

RELIABILITY 32% TANGIBLES 11% RESPONSIVENESS 22% EMPATHY 16%

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

ASSURANCE 19%

1-91

Source:

A. Parasuraman, Univ. of Miami, 2002

Serv-Qual Model: Gap Analysis

1. Research gap

customer expectations<->mgt. perceptions

2. Planning & design gap

mgt. perceptions<->service specifications

3. Implementation gap

service specifications<->service delivery

4. Communication gap

service delivery<->external communication

5. Reality gap

customer expectations<->the experience

1-92 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

GAP 3 –

Service Performance Gap

Team Work Employee Job Fit Technology Job Fit Perceived Control Supervisory Control Systems Role Conflict Role Ambiguity Service Performance Gap 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-93

BBBK “Service Guarantee”

• • • •

“You don’t own one penny until all pests on your premises have been eradicated” “If you are ever dissatisifid with BBBK’s service, you will receive a refund for up to 12 months of the company’s services – plus fees for another exterminator of choice for the next year” “If a guest spots a pest on your premises, BBBK will pay for the guest’s mean or room, send a letter of apology, and pay for a future meal or stay” “If your facility is closed down due to the presence of roaches or rodents, BBBK will pay any fines, as well as all lost profits, plus $5,000”

1-94 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Service Quality Ratings

School of Business and Entrepreneurship MBA Graduate Students

Values Student Ranking of Importance Knowledge Accuracy Professionalism Promptness Individuality Courtesy

©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

4 5 6 1 2 3

Service Quality Ratings

School of Business and Entrepreneurship Staff Responses

Value Accuracy Promptness Courtesy Knowledgeable Professionalism Individuality

©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Staff Ranking of Importance 1 2 3 4 5 6

Contrasting customer satisfaction and customer value . Who we ask Customer Satisfaction Customer Value Our own customers, end users Our customers and competitors’ customers, end users, and decision makers Rate our performance Rate us and our key competitors . What we ask . Respondent perspective . Who takes action Experiential, am I satisfied, backward looking Customer service Perception of differences, which supplier will I choose, current and forward-looking Competitive marketing strategy . Type of Action . Data changes Tactical Continuously improve, customer service, correct defects and errors Static, reflects mainly our initiatives Strategic Clarify and evolve our CV proposition, create a differential superior offering Dynamic, reflects all competitive initiatives

1-97 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-98

CUSTOMER SATISFACTION MEASUREMENT



Traditional Customer Satisfaction Measurement (CSM) tends to be misleading - according to Bain Research, 65-85 percent of customers who abandon a business report they were either “satisfied” or “very satisfied”



Measuring “customer value” serves as a better indicator of long-term customer commitment and loyalty



Measure not just the “foundational” (hygiene factors) but the “leverageable” aspects of the product/service (ie., satisfiers)



CSM needs to capture two important items of information: (1) how important each product/service attribute is; (2) how well a company performs on each product/service attribute (use “Quadrant Analysis”)

1-99 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

QUADRANT ANALYSIS

Weaknesses

Comm. Skills Strengths

Product Quality

Customer Service Monitor Importance Over-Emphasized Issues

Billing Accuracy Very Poor Excellent Perception of Performance

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-100

Rediscovering the Customer (McKinsey Article)

• How do successful firms achieve maximum value from their customer satisfaction programs?

• What role do “breakpoints” have on the purchase decision and loyalty behavior?

• What are the keys to building a “customer-centric” organization?

1-101 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

A Satisfied Customer is Loyal

apostle 100% Zone of Affection 80 Zone of Indifference 60 Zone of Defection 40 20 terrorist 1 extremely satisfied 2 somewhat dissatisfied 3 slightly dissatisfied 4 satisfied

Ph.D.

Satisfaction Measure 5 very satisfied

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-103

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-104

Determinants of Service Quality

Reliability Responsiveness Competence Assurance Courtesy Communication Credibility Empathy Know the customer Tangibles

©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Types of Customer Satisfaction

• Transaction Performance - selling, servicing • Functional Performance - ability to satisfy customer’s needs • Reliability Performance - how long lasting, maintenance-free was the service 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-106

Global Customer Satisfaction Measures



In general, how satisfied are you with our company, on a scale ranging from “completely satisfied” to “completely unsatisfied ”



How well did our company meet your expectations, on a scale from “did not meet my expectations” to “exceeded my expectations”



When thinking of your “ideal” company, how well does our company compare on a scale ranging from “very far away” to “to very close to ideal”

1-107 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Value Questions

• The price charged by XYZ is consistent with the quality they offer • I am willing to pay more for what I buy from XYZ • I get what I pay for at XYZ • Given the tradeoffs, I have made the right decision to buy from XYZ 1-108 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Expectations, Perceived Value, Satisfaction and Loyalty

Perceived Quality Customer Complaints Perceived Value Customer Satisfaction Customer Expectations Customer Loyalty

1-109 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Employee Satisfaction and Customer Satisfaction

A 1-unit increase in employee satisfaction leads to a .31 –unit increase in customer satisfaction . *

Source

: Forum for People Performance Management, 2005 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-110

B2B CUSTOMER SATISFACTION Product Quality

•

Quality Consistency

•

Quality Packaging

•

Price-Quality Relationship Delivery Service

•

Delivery Terms

•

Completeness of order

•

Delivery on Time?

10/99 Ph.D.

Source:

Chumpitaz, R. and Swaen, V. (2002) AMA Summer Educator’s Conference,

Sales Interface

•

Meeting Frequency

•

Knowledge of Product

•

Response Time

•

Salesperson Commitments

1-111

100% 80% 60% 40% 20% Satisfaction measure 1 2 3 4 5 Extremely Somewhat Slightly Satisfied Very dissatisfied dissatisfied dissatisfied satisfied Source

: Jones, T. and Sasser, E. (1995) “Why Satisfied Customers Defect”,

Harvard Business Review

, Nov-Dec 1-112 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-113

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-114

Customer Satisfaction and Profitability in the Hotel/Motel Industry 76 75    Industry Satisfaction Rating Industry Profitability   74 73 72 71  1994   1995 1996  1997  70 Customer Satisfaction and Profitability for Wal-Mart 82 81 80 79 78 77 76 75 74 73      1994 1995 1996 10/99 Ph.D.    1997  Satisfaction Rating Net Income   1998  1998  1999 1999      $4.5

$4.0

$3.5

$3.0

$2.5

$2.0

1-115 $20 $18 $16 $14 $12 $10 $8 $6 $4

Customer Satisfaction and Profitability for Southwest Airlines 79 78 77 76 75 74 73 72 71 70 69           87 86 85 84 83 1994    1995 1996 1997 1998   Satisfaction Rating Net Income Customer Satisfaction and Profitability for Colgate Palmolive 1999        82 81  80 1994 1995 1996 79  78 10/99  ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1997 Satisfaction Rating Net Income 1998 1999    $500 $450 $400 $350 $300 $250 $200 $150 $100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200

% of consumers who say this industry generally does a good job serving customers by Type of Industry : 2001 2002 71% 67% 67% 80% 78% 51% Banks Hospitals Car manufacturers Airlines Computer software Computer hardware 64% 63% 74% 73% 60% 59% 57% 61% 60% 38% 27% 29% 28%

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Pharmaceutical, drug Telephone Life insurance Health insurance Oil Managed care Tobacco 25% 38% 33% 51% 59% 58% 55%

1-117

Source:

Harris Interactive Inc. Rochester, N.Y. Sept.2002

THE VALUE HIERARCHY

DESIRED END STATES CONSEQUENCES ATTRIBUTES

Attributes

describe the product/service;

Consequences

describe user/product interaction;

Desired End States

describe the goals of the person organization 1-118 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The “Chaining” of Customer Requirements Attributes Consequences Values Attributes

“Fat Free” Chip

Consequences

Eat More Good Tasting 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Better Figure

Values

Self-Esteem 1-119

Service Quality Exercise

Choose One of the Service Quality Situations:  Auto repair  Hospital visit  Theme park  Hair cut  Supermarket  QSR  Air travel Answer these questions:  How unique/standardized is product and/or service?

 Type of service, i.e., experience, search, etc.?

 Pure service or product service blend?

 What factor most affects service quality?

 After service is delivered, is corrective action possible?

1-120 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Chapter 6 MANAGING E-Service QUALITY

1-121 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Definition

of E-Service

Quality

• E-service quality is the extent to which e-commerce providers effectively and efficiently manage customer interactions involving searching, shopping, purchasing and order fulfillment.

1-122 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

11 Major Dimensions

Perceived E-Service Quality

Reliability Access Responsiveness Customization/ personalization Price knowledge

Ease of

Navigation

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Assurance

Empathy 1-123

Price Knowledge and

Customer Expectations ☛

Price knowledge refers to the ability of online shoppers to determine shipping , comparison, and total prices

☛

Online consumers are pretty clear about what they expect online

☛

A recent study conducted by Mercer Management Consulting confirms the importance of information and convenience and why consumers value using the Internet

1-124 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

E-Service Quality

and

Customer Loyalty

• e-Service quality is essential in creating customer e-satisfaction • Customers must continue doing business with most online firms for at least 2-3 years just for them to recover their initial acquisition costs 1-125 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

How to Improve E-Service Quality

Research has proposed that 5 components be considered in delivering e-service quality: • The core service • Facilitating services • Supporting services • Complementary services • The user interface 10/99 Ph.D. (how the customer accesses services) 1-126

Improving E-Service Quality

Access Personalization Responsiveness Assurance 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Navigation Price Quality 1-127

E-Service: a New Paradigm

• What according to the authors is the scope of the “e-service” concept • What role does “technology” play in e service?

• What are the features of an “e-service orientation”?

1-128 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Internet as a BRAND Integrator

• What according to the author are the 3 major integrating mechanisms used to create greater brand “involvement”?

• What are the keys to using the Internet as a “brand integrator”?

1-129 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Chapter 7 DEFINING AND REFINING THE VALUE PROPOSTION

1-130 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Value Proposition

The whole cluster of benefits the company promises to deliver 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-131

Characteristics of the Value Proposition

V alue propositions

should be:

Consistent over time Concise Credible Clear

1-132 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Examples of Positioning Statements



Astra/Merck

- customized health care solutions 

AT& T

- the right choice 

Dell Computer

- custom computers sold direct 

FedEx

- when it absolutely, positively has to get there overnight 

General Electric

- we bring good things to life 

Publix Super Markets

pleasure - where shopping is a 

Snapple

-natural beverages, natural ingredients 

Visa

- it is everywhere you want to be 

Wal-Mart

- everyday low prices; made in America 1-133 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Positioning Statement and Value

Proposition (Volvo)

Positioning Statement Volvo, offering the utmost in safety and durability

Value Proposition

• • •

Target Market: Upscale American Families Benefits Offered: Safety, Durability Price Range: 10% Premium Over Similar Cars (Acura) due to superior safety design

1-134 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

We focus on product quality and innovation, customer satisfaction and financial performance.

Reliable processes help us improve product quality, meet customer demand, reduce costs and ensure responsible environmental performance.

_________ Weyerhaeuser Pulp, Paper, and Packaging Business

1-135 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

IKEA’S VALUE PROPOSITION

IKEA OFFERS IMMEDIATE DELIVERYOF A WIDE ASSORTMENT OF HOME FURNISHINGS WITH DISTINCTIVE SCANDINAVIAN DESIGNS AND IMAGES IN A PLEASANT SHOPPING ENVIRONMENT TO SHOPPERS WHO ARE WILLING TO ENGAGE IN SELF-SERVICE, SELF-ASSEMBLY AND SELF TRANPORTATION

1-136 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

CDW’s VALUE PROPOSITION

“

SERVICE: even the smallest customer gets a dedicated salesperson—called an “account manager” to handle orders and serve that client over time; CHOICE: sells 80,000 products from hundreds of companies; SPEED—99 percent of customer orders are sent out the day they’re received, so long as the product is in stock” 1-137 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

VALUE PROPOSITION

“ANYWHERE, ANYTIME MUSIC STORE AND YOU MAKE THE SELECTIONS FROM THE LARGEST CLASSICAL MUSIC INVENTORY IN THE WORLD”

1-138 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

A Healthcare Consumer Value Equation

  VP = Benefits - Costs VP = (Quality + Service + Intangibles) - (Price + Nonmonetary costs), where: a) b c) d) e) Quality or outcome is the correct diagnosis and treatment,prevention of illness, etc.

Service includes accessibility, compassion, dependability,employee knowledge, etc.

Intangibles are the reputation of the provider, special services, long-term outcomes, use latest technology Price is the consumer’s expenditure for the service Non-monetary costs include time, energy, and psychological stress Adapted from Ettinger, W.H. Jr. (1998) 1-139 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The SQIP Diamond

Service Image

VALUE

Price

Johnson/Weinstein 2004 10/99 NOVA SOUTHEASTERN UNIVERSITY ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Quality

1-140

V

alue

D

isciplines

Value Disciplines

Customer Intimacy

Value Focus

Service

Image Driver

Create

Image

Best friend

Product Leadership

Quality relations hip Unique attribute(s) Best product/ service (Adapted from Scholey, C. (2002) Targeted marketing with value propositions,

CMA Management

, October, p. 14.)

Operational Excellence

10/99 Cost ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Low cost Best deal 1-141

Designing a Value Proposition

Price

Image Innovation Intangibles Quality

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Servic e

1-142

Adding Value Through

INNOVATION

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-143

Assessing a Company’s Value Position

High

Best Value Fair Value Expensive value

Low

Discount value

Low

Cost Poor value

High Adapted and expanded from Reidenbach, R.E. (1996) 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-144

Critiquing Your Value Proposition

1. Does it take the customer’s perspective?

2. Is it easy to understand?

3. Does it encapsulate the value you offer to: your people, the sales channel, the press, and your customers?

4. Is it strategically compatible with your business?

5. Is it acceptable given your organizational culture?

6. Is it honest?

7. Is it promotable?

Source: Dovel (1990) 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-145

Developing Unique Value Propositions

• • • • •

Change the rules of the game Break business/industry compromises Exploit unnecessary concessions to find a competitive advantage As markets change, VPs must change Drive the market through competitive, customer & corporate capability analyses to tap niches and secure new marketspace

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-146

Chapter 8 COMMUNICATING VALUE THROUGH PRICE

1-147 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Value-based Pricing: The 3 Cs

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-148

Price, Benefits, and Value

Perceived product or service attributes Perceived substitute product or service attributes Perceived product or service price Perceived substitute product or service price

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Value = Perceived benefits Perceived price

1-149

Price-Profit Elasticity

(a 1% price increase and the bottom line)

COMPANY Coca-Cola Fuji Photo Nestlé Ford Philips Typical U.S. company % Increase in Profits 6.4 % 16.7 % 17.5 % 26.0 % 28.7 % 12.0 %

1-150 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Pricing Methods

• Price-driven Costing • Demand-based Pricing • Price Customization • Price Differentiation • Value-based Pricing 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-151

Value-Added Strategies

• • • • •

Less for Less More for More More for the Same Same for Less More for Less

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-152

Demand-Based Pricing Example

This hotel has fixed its exchange rate.

US $1 = Rp 5.000.-

Since inception, we’ve focussed on delivering the best value for money. And in these difficult times, we’ve decided to make your life a little easier. So, its out with the US Dollar, in with the Indonesian Rupiah. What’s more, we have a whole list of pleasant surprises for your guest: *Buffet Breakfast *Free Pressing (2 pcs) *Coffee/Tea Making Facilities *Fruit Basket *Welcome Drink *Late Check-Out *Credit facilities on application For attractive corporate discounts, please call our Sales Dept. at (021) 2700800, 2700888

AMBHARA RUPIAH H O T E L

4 STAR

J A K A R T A

Source:

Jakarta Post

, February 12, 1998 1-153 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

PERCEIVED VALUE

(Caterpillar Example

)

$ 90,000 - Price of Competitor’s Tractor + $ 7,000 - Premium for Superior Quality + $ 6,000 - Premium for Superior Reliability + $ 5,000 - Premium for Superior Service + $ 2,000 - Premium for Longer Parts Warranty $110,000 - Price to cover Value Package $ 10,000 - Discount $100,000 - FINAL PRICE

1-154 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Sources of Pricing Pressures Changes in technology Customer experience Price driven competition or changes in competitive management Customer Price Sensitivity Increased internal expectations (forecast) and sales force reactions

Equilibrium Price

Price deflectors Service enhancements Inflation FUD Product extensions Adapted from Mitchell, E. (1989)

1-155 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Price/Quality Strategies

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. Source: Kotler, P. (1997) 1-156

Pricing Strategies

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-157

Chapter 7 STRATEGIES FOR ADDING AND PROMOTING VALUE

1-158 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Differentiation Strategies

SERVICE UNIQUE SELLING PROPOSITION IMAGE, INNOVATION, INTANGIBLES

10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-159

3 Levels of Product Positioning

short, intermediate, long-term 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-160

Adding Value To Products



Additional features and benefits



Affordability



Branding



Customer involvement



Customization and choice



Enhanced quality



Exceptional service



Frequency marketing incentives



Simplifying or bundling the offering



Solving customer problems



Technological leadership



Uniqueness



Warranties

Adding Value through

AFFORDABILITY

Creating Superior Customer Value

Unanticipated Value Desired Value Expected Value Basic Value

Promoting Value Via an Integrated Marketing Communications Program

IMC

for target markets

PUBLIC RELATIONS DATABASES ADVERTISING SALES FORCE SALES PROMOTION

Chapter 10 MAXIMIZING VALUE THROUGH RETENTION MARKETING

Customer Retention: a Strategic Issue

In an annual survey of CEOs conducted by The Conference Board, nearly seven hundred CEOs globally were polled about the challenges facing their companies in 2002. 12 CEOs identified “customer loyalty and retention” as the leading management issue ahead of reducing costs, developing leaders, increasing innovation, and improving stock price, among other issues.

Why Focus on Customer Retention?

 U.S. companies lose 1/2 their customers in 5 years  Typical defect rates are 10-30% annually  A 5% increase in retention leads to a 25 100% increase in profits  It costs 5 times more to get a customer than keep a customer 1-169 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Customer Service Statistics

• • • • • • • • • It costs between five and six times more to attract a new customer than to keep an existing customer. Companies can boost profits from 25 percent to 125 percent by retaining 5 percent more existing customers. Only one out of 25 dissatisfied customers will express dissatisfaction to you. Happy customers tell at least four others of a positive experience. Dissatisfied customers tell as many as 12 about a negative experience. Two-thirds of customers do not feel valued by those serving them. Acquiring new customers can cost five times more than satisfying and retaining current customers. A 2 percent increase in customer retention has the same effect on profits as cutting costs by 10 percent.

The average company loses 10 percent of its customers each year. The customer profitability rate tends to increase over the life of a retained customer Source: Perriello, B (2007). 8

Tips to Improve your Customer Service. Industrial Distribution

• • • •

How Important is CUSTOMER RETENTION ?

A 10 percent improvement in in retention increases the value of a firm’s customer base by about 30 percent; in contrast a 10 percent improvement in acquisition cost improves value by only 1 percent In E-Commerce, customers must stay on board for at least Two-Three Years just for a company to recoup its initial acquisition investment In apparel “E-tailing”, repeat customers spend more than twice as much in months 24-30 of their relationships than they do in the first six months Primary drivers of “E-Loyalty”

   order fulfillment product performance post sale service and support

Kotler on Customer Retention

The key to customer retention is customer satisfaction

Satisfied Customers • Stay loyal longer • Talk favorably about the organization • Pay less attention to the competition • Are less price sensitive • Offer service ideas to the organization • Cost less to serve than new customers 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-172

Switching Motives

•

Core service (25%)

catastrophes - mistakes, billing errors, service •

Service encounter failures (19%)

unresponsive, unknowledgeable - uncaring, impolite, • •

Inconvenience (12%)

- location, hours, waiting time

Response to failed service (10%)

no response, reluctant response - negative response, • •

Competition (6%)

- found better service

Other (5%)

- tangibles, crowding, problems with other customers and seldom-mentioned incidents •

Ethical problems (4%)

of interest - cheat, hard sell, unsafe, conflict •

Involuntary switching (3%)

moved - customer or service provider Adapted from Keaveney, S.M. (1995) 1-173 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

“Exceed your customers expectations. If you do, they’ll come back over and over. Give them what they want---and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses---apologize. Stand behind everything you do. ‘Satisfaction Guaranteed’ will make all the difference.” ___________ Sam Walton

Why Customers Leave

9% 13% 9% 69% Poor Service Product Dissatisfaction Better Prices Other

1-175

Source

: Michaelson & Assoc.

Customer Satisfaction & Customer Retention

• • • •

According to Walker Information Inc (Indianapolis Research and Consulting firm) customer satisfaction does not equal loyalty

–

80 percent of B2B purchasers said they were satisfied with their vendors but less than ½ described themselves as loyal “Earning loyalty means establishing a high level of relationship with customers” “Satisfaction with products seem to be a ‘threshold’ evaluation” Jeff Marr of Walker Information advises companies to “elevate service and technical support to the same level as sales & marketing” Source:

Weisman, R. (2004) “Products Alone Won’t Retain Customers”

Boston Globe

Ph.D. , Aug. 6, 2004 p. B2 1-176

The Cost of Lost Business Hospital Example

15,000 patients annually 20% defection rate = 3,000 defections (note: This is a 80% retention rate) Average revenues per patient = $2,000 annually Lost revenues = $6,000,000 Profit margin 10% = 600,000 Conclusion: INVEST IN A CUSTOMER RETENTION PROGRAM! 1-177 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Key to Retention is Customer Satisfaction*

Satisfied customers:  stay “loyal” longer  talk favorably about the organization  pay less attention to the competition  are less price sensitive  offer service ideas to the organization  cost less to serve than new customers *Adapted from Kotler, P. (1997) 1-178 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

The Customer Retention/Value Model

Customer Attractio n Customer Value Customer Satisfaction Loyalty Business Performance Shareholde r Value

Customer Retention

1-179

Customer Retention Measures

• Current retention rate • Weighted retention rate • Segmented retention indicators - (sub-group analysis) • Share-of-customer measure • Targeted retention rate • Lifetime value (LTV) • Recency, frequency, and monetary value (RFM) 1-180 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

How to Determine Customer Lifetime Value (CTV)



Compute average profit per sale (total sales revenue minus advertising, marketing, and product or service fulfillment costs divided by the number of sales)



Determine how many times the average customer will purchase from you, say over a 2 year period



Calculate the amount of profit made from that customer in two years.

CLT Example

MOBILE PHONE INDUSTRY

-- Average Monthly Bill ($52) -- Average Cost to Serve a Customer per month ($30) -- Average Cost to Acquire (AC) a New Customer ($370) -- Average Churn Rate per month (2 percent) -- Interest rate (5 percent)

LTV M

1 – r +

Where:

– margin customer generates per year

– annual retention rate

CLT EXAMPLE (solution)

Lifetime Value (LTV) = LTV formula: (M/1 – r + i) - AC (22 x 12) / (1 - .76 + .05) - 370 = $540 Where: M – margin customer generates per year ($22 per month); Annual retention rate 1 – annual churn rate 02 x 12 months = .24) 1-184 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

What is a Customer Worth?

 GM Cadillac  Gateway Computers  Pizza Hut  Proctor & Gamble  Safeway

Proof:

 $ 426,000  $ 25,000  $ 12,400  $ 10,000  $ 4,800 

The top 6% of cellular phone users represent 69% of total usage.



The top 6% of the United Kingdom cola users represent 60% of all consumption.



25% of cars are rented by the top 0.02% of clients.

Building Loyalty: The RFM Model

How to Do an RFM Analysis

Access a summary of each customer’s RFM transaction history.

This includes most recent purchase, frequency of purchases, and monetary value spent per order.

Sort customers by purchase dates in reverse chronological order. Divide the customer list into 5 equal segments. Tag the most

recent

customer quintile as 1 while the least recent purchases are quintile 5.

Sort your customers by

frequency

methodology as in #2. (number of orders) and apply the same 4.

Sort your customers by

monetary value

(average $ amount of each order) and apply the same methodology as in #2.

You now have created RFM scores for each of your customers, from your best customer segment (111) to your worst (555).

DIFFERENTIATED SERVICE LEVELS

A 1 B 2 C 3 D 4 I II III 5 9 6 10 7 11 8 12

Designing a Customer Retention (CR) Program



Determine your current CR rate



Analyze defection problems

–

identify disloyal customers

–

understand why they left

–

develop strategy to overcome switching behavior



Establish a CR objective based on organizational capabilities and benchmarks (industry, sector, companies, units)



Invest in a targeted CR plan to enhance loyalty



Evaluate the success of the CR program

Loyalty Building Strategies

 Send salespeople to work at the offices of your best customers  Participate in customers events  I nterview your customers’ customers  Hold a retreat with a major customer to share best practices  Invite customers to participate in training seminars  Set up a Customer Advisory Council 1-190 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

4-Tier Usage Segmentation

•

Platinum Tier

customers – the company’s most profitable •

Gold Tier

– seek price discounts, less loyal, and use multiple vendors •

Iron Tier

– essential customers who provide the volume to utilize the firm’s capacity, but their spending levels, loyalty, and profitability do not merit special treatment •

Lead Tier

– customers who cost the company money. They demand more attention than they are due given their spending and profitability - sometimes problem customers that complain and tie up resources. (Rust, Zeithaml, and Lemon, 2000/2003) 1-191 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Linking Service Quality to Retention

• Willingness to recommend • Propensity to switch • Willingness to pay more • External response to problems, eg., complaints 1-192 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Ultimate Question

"On a scale of zero to 10, how likely is it that you would recommend us to your friends or colleagues?" 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-193

Net Promoter

Net Promoter = PROMOTERS

Minus

DETRACTORS Highly Unlikely 0 DETRACTORS Likely to Recommend Highly Likely 10 PROMOTERS Source:

Reichheld, F. (2006) “The Ultimate Question”, Harvard Business School Publishing , 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

GE Capital Solutions (example)

• GE is now using NPS (

net promoter score

) in all of its businesses • GE Capital Solutions Satisfaction Scale – How willing are you to recommend us to a friend or associate?

– How would you rate our ability meet your needs?

– How would you rate our people?

– How would you rate our processes?

– What is your impression of our market reputation?

– How would you rate the cost of doing business with us?

10/99 – How would you rate the overall value of our product or Ph.D. service as being worth what you paid?

1-195

USAA HomeBanc Harley-Davidson Costco Amazon Chick-Fil-A eBay Vanguard SAS 82% 81% 81 % 79 % 73 % 72 % 71 % 70 % 66 %

NPS Stars

Apple Intuit Cisco Federal Express 66 % 58 % 57 % 56 % Southwest Airlines 51 % American Express 50 % Commerce Bank Dell Computers Adobe Electronic Arts 50 % 50 % 48 % 48 %

Source:

Reichheld, F. (2006) “The Ultimate Question”, Harvard Business School Publishing , 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D. 1-196

Chapter 11 CREATING VALUE THROUGH CUSTOMER AND SUPPLIER RELATIONSHIPS

Traditional Versus Relationship Marketing Interactive Marketing Value-added Product/ Service Emphasized Relationship Marketing Customer Acquisition/ Satisfaction Value Created/ Customer Retention Traditional Marketing Short-term Focus Marketing Mix - Core Product Emphasized

Adapted from Sheth, J. (1996)

Long-term Focus

Transactions vs. Relationships



Short



long-term time frame



Limited



substantial internal marketing



Marketing mix



interactive marketing



Price sensitive



less sensitive



Technical quality



functional quality



Market share



share of customer



Ad hoc customer satisfaction surveys



real-time feedback systems



Limited



substantial interdependency among functional areas

4 Levels of Relationship Marketing*

Primary Bond FINANCIAL Degree of Integration LOW Competitive Advantage LOW SOCIAL MEDIUM MEDIUM PROCESS MEDIUM-HIGH HIGH STRATEGIC

HIGH HIGH

1-200 (*

Source

: Adapted from Berry, L.(1995)

On Great Service

, the Free Press)

Key Relationship Variables

Trust Commitment Dependence Relationship Enablers Cooperation

Information Exchange

1-201

Rankings of Relationship Enablers

1) 2) 3) 4) 5) TRUST COMMITMENT DEPENDENCE INFORMATION EXCHANGE COOPERATION

Information Sustains a Relationship

Relationship Selling Partnership Relationship Transaction Selling High Account Penetration Transaction Based Relationship Low Account Penetration Services that the seller is willing to provide the relationship

Continuum of Relationships

Industry Relationship Bandwidth Core Product Augmented Product Flaring - Out Unbundling Strategy Added Augmentation Strategy

Key Factors of Successful Customer-Supplier Relationships

1) 2) 3) 4) 5) 6) Business Expertise (29 %) Dedication to Customer (25 %) Account Sensitivity and Guidance (23 %) Product Performance & Quality (10 %) Service Dept. Excellence (9 %) Confirmation of Capabilities (4%)

Two-way Approach to Loyalty

You and your customers don't have a “deal” as much as you have mutual dedication. Because you, the seller are not delivering on just price, quality, and service. You are demonstrating intense loyalty by giving them a comprehensive, inimitable way to win.

Better productivity

Faster throughput

Lower inventory. More innovative products

. You are delivering something return —anything—that makes you indispensable to your customer's success. Then, and only then, will you get complete loyalty in Modern loyalty, then, ultimately comes down to that old saying: "What goes around comes around." The more fervently committed you are to making your customers win big in the long haul, rather than just meeting their immediate demands, the more fervently committed they will be to you. ----- Jack Welch, former CEO of General Electric 1-207 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Characteristics of a

Good CRM System ● A good CRM system is capable of describing customer relationships in sufficient detail so that management, salespeople, customer service and even suppliers have direct and real-time access to customer information ● The information gathered should help match customer needs with product/service offerings, remind customers of service requirements, predict future purchases, and alert the company when a customer’s purchase behavior has changed ● A key feature of CRM is sharing the customer experience across the organization and supply chain 1-208 10/99 ©Art Weinstein, Ph.D./William C. Johnson, Ph.D.

Customer focused strategies drive marketing execution CUSTOMER STRATEGY

•

Customer centric strategy

•

Clear value proposition

•

Channel bonding

•

Dominate the segment (DTS)

•

Dominate the cycle (DTC)

•

Integrated marketing processes (internal)

•

Supply chain network coordination MARKETING KNOWLEDGE

•

BADI

•

Competitors value proposition

•

RFM

•

Customer Lifetime Value

•

Acquisition costs

•

Retention Rates Customer experience is shared across the organization and supply chain

Relationship Marketing

activities are coordinated Analysis Planning

•

Direct Sales

•

Web Site

•

Call Center

•

Customer Service

•

Cross-Sell

•

Up-Sell Implementation Control Adapted From Levine, S (1998)

CRM

& Critical Customer Data Companies should continuously gather critical customer data known as BADI

☛

Behaviors

visit) (how often and where customers ☛

Attitudes

(customers satisfaction, service quality assessments) ☛

Demographics

☛

Insights

Practicing Relationship Marketing



Look for opportunities to “add value”



Respond quickly to customer needs



Apply “mass customization”



Effective utilization of customer information



Track each relationship

Ways to “ Add Value ”

More casual restaurants trying curbside delivery Facilities catering to consumers seeking more convenience

By Bruce Horovitz

USA TODAY,

May 31, 2002 Casual dining is quietly undertaking one of its biggest changes: food delivered curbside . Taking a cue from the fast foodies, the $100 billion casual dining sector is reluctantly going the convenience route. Many of the biggest names in casual restaurants, including Applebee's, Chili's, T.G.I. Friday's and Ruby Tuesday, are testing different formats to quickly deliver food to customers waiting in their cars. ''Within two decades, half the casual dining sector's business will come from outside the restaurant's four walls,'' projects Dennis Lombardi of Technomic, a restaurant consultant. Consumer demand for convenience is prodding the restaurant sector to invent ways to speed up. Fast-food restaurants are speeding up drive-throughs. Supermarkets are offering quick takeout meals. And the casual dining sector, which has long appealed to families who want to eat quality food outside the home, must invent ways to make its food portable .

VALUE ENABLERS

PEOPLE TECHNOLOGY

INFORMATION

1-213

Mgt. System Social System TQM Technical System Strategy Management Process Management Strategic Planning Operations Planning

Project Management Individual Task Mgt.

Project Planning Quality Planning

1-214

Why Customers Leave

9% 9% 13% 69% Poor Service Product Dissatisfaction Better Prices Other

1-216

Source

: Michaelson & Assoc.

Rubbermaid/Newell

Value Discipline

DESCRIBE RUBBERMAID’S VALUE DISCIPLINE

• • •

VALUE DISCIPLINES

Product Leadership Operational Excellence Customer Intimacy Nordstrom’s) (Nike) (Wal-Mart, Dell) (Amazon,

Customer Orientation

What are some of the factors indicating that Rubbermaid is practicing a “customer orientation”?

Would it be accurate to say that Rubbermaid has a “process orientation?

How does Rubbermaid add value to its customers? To consumers?

How has the Newell acquisition helped/hurt Rubbermaid’s market orientation?

CHALLENGES?

?

Time Insurance

ASSESSING PROCESS EFFECTIVENESS

How Did Time Insurance Apply the PDCA Cycle to Process Improvement?

PROCESS TOOLS

WHAT WERE THE “PROCESS TOOLS” THAT TIME USED IN ITS IMPROVEMENT EFFORTS”?

WHAT OTHER PROCESS IMPROVEMENT TOOLS COULD TIME HAVE USED TO IMPROVE SERVICE LEVELS?

HOW DID PROCESS IMPROVEMENT TRANSLATE INTO GREATER CUSTOMER VALUE?

PROCESS AND THE ORGANIZATION

WHAT IS THE RELATIONSHIP BETWEEN PROCESS REENGINEERING AND ORGANIZATIONAL STRUCTURE?

WHAT IMPACT DID PROCESS REENGINEERING HAVE ON KEY SERVICE METRICS?

KEY SUCCESS FACTORS?

PIZZA HUT

Linking C/S and Loyalty

In what ways did Pizza Hut benefit or not benefit from the C/S Initiative?

Evaluate the quarterly bonus system What would you have done differently if regarding the C/S---Loyalty Program?

Edward Jones

Case Questions

: • What impact does EJ’s investment in their employees have on service quality and loyalty?

• Are there examples cited in this case that indicate EJ practices Relationship Marketing?

• Can EJ continue to create customer value if it ignores online trading?