Marketing Management (Text book Chapter) Members #04 Ms.Tanawan K. #08 Mr.Noppadol S. #10 Mr.Chonlakon B. #11 Ms. Tippawan S. #13 Ms. Panpilas P. #18 Ms. Atchara N.

Building Customer Satisfaction, Value, and Retention (Chapter 2)

Author Biography Philip Kotler His book “Marketing Management” is referred to as the Bible of Marketing He is the S. C. Johnson & Son Professor of International Marketing at the Kellogg School of Management, Northwestern University It is rated as the “Best Business School for the Teaching of Marketing” He received Master’s Degree at The University of Chicago and PhD at MIT, both in economics He did post-doctoral work in mathematics at Harvard University

Why do companies need to get customer satisfaction? Now companies are facing their toughest competition. A lot of competitors emergences in the same industries Today’s customers have variety of products and brand choices Believing that customers estimate which offer will deliver the most value 4

Customer Value Customer delivered value Total customer value the bundle of benefit that customers expect from given product or service. Total Customer cost the bundle of cost customers expect to incur in evaluating, obtaining, using, and disposing. 5

Determinants of customer delivered value Total Customer value Total Customer cost Product value Monetary cost Personnel value Time cost Image value Psychic cost 6

Customer satisfaction Person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance in relation to his or her expectations Performance Expectation Performance Expectation Expectation Performance Dissatisfied Satisfied Highly satisfied 7

Four methods to track customer satisfaction Complaint and suggestion system Easy for its customers to deliver suggestions and complaints such as suggestion form, hot lines, e-mail Customer satisfaction surveys Although customers are dissatisfied, less than 5 percent of dissatisfied customers will complain Ghost shopping Hire persons to pose as potential buyers to report on strong and weak points Lost customer Contact customers who have stopped buying or switched to another suppliers to learn why this happened 8

The Nature of High Performance Business Set Strategies to satisfy key stakeholders… … and aligning resources and organization. … by improving critical business processes… Resources Organization Stakeholders Process Keys to Success High Performance Business

Keys to Success High Performance Business Stakeholders The companies must be defined their stakeholder and their need In Traditional companies, pay attention to satisfy their stockholders High-Performance companies, take good care of ; Customers Employees Suppliers Distributors Process Resources Organization Stakeholders

Keys to Success High Performance Business Process Traditional : work flow from Department to Department High-Performance : use linking work processes Reengineering work flow Building cross-functional team Improvement of core business Stakeholders Process Resources Organization

Keys to Success High Performance Business Resources Traditional : usually owned and controlled company’s properties High-Performance : use “outsources service” better quality lower cost “core competence” competitive advantage being significant Stakeholders Process Resources Organization

Keys to Success High Performance Business Organization & Organization Culture Company’s organization consists of its structures, policies and “corporate culture” Corporate culture is “the shared experiences, stories, beliefs, and norms that characterize an organization” Encourage company organization to be “visionary company” or “comparison company” Successful companies may need to adopt a new view to craft their strategy Stakeholders Process Organization Resources “High-performance companies are set up to deliver value and satisfaction”

Delivering customer value and satisfaction VALUE CHAIN It identifies nine activities that create value and cost in a specific business. The Five Primary Activities are: Inbound logistics – bringing materials into the business Operations – converting them into final products Outbound logistics – shipping out final products Marketing and sales – marketing them Service – servicing them

Delivering customer value and satisfaction VALUE CHAIN The Four Support Activities are: Procurement Technology development Human resource management Firm infrastructure The firm task is to examine its cost and performance in each value-creating activity and to look for the ways to improve it. The firm’s success depends on how well each department performs its work and how well the various activities are coordinated.

Delivering customer value and satisfaction SUPPLY CHAIN or Value-Delivery Network Competition is between networks, not companies. The winner is the company with the better network. Delivery Delivery Suppliers Distributors Customers Order Order

Attracting and Retaining Customers ATTRACTING CUSTOMERS Companies have to spend considerable time and resources searching for new customers in order to grow their profits and sales. Customers Acquisition Lead Generation – advertising, sending direct mail, making phone calls Lead Qualification – interviewing, checking on their financial standing Account Conversion – making presentations, answering objections, negotiating final terms

Attracting and Retaining Customers COMPUTING THE COST OF LOST CUSTOMERS The companies must pay attention to the rate that they lose customers (customer defection rate).  There are four steps in trying to reduce the defection rate: Define and measure its retention rate. Distinguish the causes of customer attrition and identify those that can be managed better. Estimate how much profit it loses when it loses customers. Figure out how much it would cost to reduce the defection rate.

Attracting and Retaining Customers THE NEED FOR CUSTOMER RETENTION Building relationships Caring for the customers afterward The key to customer retention is customer satisfaction. The company should measure customer satisfaction regularly. The company must listen and respond quickly to the complaints.

Attracting and Retaining Customers THE NEED FOR CUSTOMER RETENTION The importance of satisfying and retaining current customers Acquiring new customers can cost five times more than the costs involved in satisfying and retaining customers. The average company loses 10% of its customers each year. A 5% reduction in the customer defection rate can increase profits by 25% to 85%. The customer profit rate tends to increase over the life of the retained customer

Relationship Marketing The customer development process Suspects Disqualified prospects Prospects First time customers Repeat customers Clients Interactive or ex-customers Members Advocates Partners

Five different levels of investment in customer-relationship building: Basic marketing Reactive marketing Accountable marketing Proactive marketing Partnership marketing

The likely level of relationship marketing High margin Medium margin Low margin Many customers/ distributors Accountable Reactive Basic or Reactive Medium number of customers/ distributors Proactive Few customers/ distributors Partnership

Three value-building approaches Adding financial benefits - Frequency marketing programs (FMPs) - Club membership program

Three value-building approaches (con’t) Adding social benefits Social actions affecting buyer-seller relationship Good things Bad things Initiative positive phone calls Make only callbacks Make recommendation Make justification Candor in language Accommodative language Use phone Use correspondence Show appreciation Wait fir misunderstandings Get to problems Only respond to problems Routinize responses Fire drill and emergency responsiveness Accept responsibility Shift blame Plan the future Rehash the past

Three value-building approaches (con’t) Adding structure ties To supply customers with special equipment or computer linkages that help customers manage their order, payroll, inventory, and so on To provide proprietary software programs, marketing research, sale training, and sales leads to loyal customers

Customer Profitability : The Ultimate Test

Customer Profitability Marketing is the art of attracting and keeping profitable customers. A profitable customer is a person or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing that customer.

Customer Profitability In order to determine if a client is truly profitable, many different factors must be taken into consideration, including the cost of sales efforts, commissions paid on the revenue generated by the customer, and the wages, time, and equipment expended in maintaining customer service and support. It is possible for a profitable customer to become unprofitable over time, if the volume of business is reduced and the client demands more attention.

The Ultimate Test The 80-20 rule (Pareto's Principle) Vilfredo Pareto created the mathematical formula to describe the unequal distribution of wealth in his country The 80% of income in Italy was received by 20% of the Italian population. How to apply with marketing? The top 20% of the customer may generate as much as 80% of the company’s profits.

The Ultimate Test The 20-80-30 rule The 20 % of customers bring 80 % of the revenue of which 30% is spent for maintaining the bottom line customers (unprofitable customers). It is important to find out which customers are the 20% best customers for the company, so that we can treat them differently in order to acquire, upgrade and retain them.

The 20-80-30 rule Percentage Profit Income (THB) 100% 5 million 20% 30% non-profit

The Ultimate Test How to overcome 30% of non-profit? There are 2 options (1). Increase the price of its less profitable products or eliminate them (2). Try to sell its profit-making products to the unprofitable customers.

Implementing Total Quality Management Total quality management (TQM) It is an organizational approach to improve the quality of all organization ‘s process, product, and service.

Marketing Managers Formulate strategies and policies to help company win through total quality excellence. Deliver marketing quality alongside production quality.

Marketers Bear responsibility for identifying the customers’ needs and requirement. Communicate customer expectations properly to product designers. Make sure the customers’ orders are filled properly and on time. Check whether the customers have received proper technical assistance in the use of product. Stay in touch with the customers after the sale to make sure whether they are satisfied. Gather customer ideas for product and service improvement.