Managing Customer Satisfaction Week 2 Customers & Relationships

Introduction—customers Why do companies need to review how they think about customers? Classifying customers External vs. internal Intermediaries vs. end users (Lexus dealers) Stakeholders: payers, beneficiaries or participants Valuable and not-so-valuable customers

Classifying customers External vs. internal External customers: individuals or groups of people external to the organization receiving and often paying for the service Aka, users, end users, consumers

Classifying customers Internal customers Part of the same organization but from a different unit Level of external service is dependent on level of internal service ‘putting the customer first’ or ‘putting the employees first’?

Classifying customers Intermediaries vs. end users The role of the ‘middlemen’ Removing the middlemen (disintermediation) Reduce transaction costs Gain ownership of customers Gain first-hand knowledge of customers The Internet and disintermediation

Classifying customers Stakeholders: payers, beneficiaries, participants Direct and indirect linkages Restaurant (direct) Public services (indirect) Are all stakeholders willing participants? Do they agree on benefits? Police Internet access

Classifying customers Valuable customer—either of high value and/or valued High value customer—the financial value of the customer over the long- term Aka, life-time value Spend more than other customers May be willing to pay a premium

Classifying customers Valued customers—positive about the organization and are easy to deal with Create financial value for the organization Help the organization (clearing tables at McD’s) Cheaper to service Positive word-or-mouth Complete questionnaires/make suggestions

Classifying customers Implications for operations managers: Recognize the different types of customers Understand the value of the different types Retain valuable customers Develop appropriate relationships with customers

Customer segmentation The 1 st step in developing customer relationships Relationship types Transactional (one-off) Strategic (long-term) Segmentation strategies Demographic Life-style

Figure 3.1 Customer types Customer types

Figure 3.2 Creating allies Creating allies

Customer retention Customer retention measures Tracking number of ‘active’ customers (transactional relationships) Calculating life-time value (strategic relationships) Relationship marketing establishing, maintaining, enhancing relationships with customers for mutual benefit, aka, one-to-one marketing Is relationship marketing appropriate in all cases?

Customer relationship types Product relationships ‘capturing’ customers (bank services) Loyalty programs (airlines & hotels) Personal relationships (B2B) Two-way communication Trust or mutual dependence Intimacy—sharing plans, strategy, etc. Rules—agreed to way of operating with each other Temporary relationships

Developing personal relationships

Customer relationship types Temporary relationships Buying a used car Customer’s view of perceived risk and lack of knowledge will increase the need for reassurance How much effort should a company invest in a temporary relationship?

Customer relationship management (CRM) CRM is the management process that uses individual customer data to enable a tailored and mutually trusting and valuable proposition. CRM allows us to understand the needs of individual customers. CRM is an IT enabled integration of customer data from a variety of sources Data warehouse Data mart CRM is a customer retention & relationship building approach

Readiness for CRM

Managing business relationships Like B2C, B2B relationships can be transactional or strategic, simple or complex, temporary or long-term Transactional relationships Service Level Agreements (SLAs) Strategic relationships Partnerships, strategic alliances, joint ventures, etc. Requires jointly developed metrics Key account management (KAM)

Bow tie and diamond relationships