1. Chapter 11 Building Customer Loyalty through Quality

2. Key Terms Customer centered Customer-delivered value Expected service
Freedom from deficiencies
Functional quality
Product features
Revenue management
Societal (ethical) quality
Technical quality

3. “To understand service quality and make quality management effective, we need profound knowledge about the details and activities connected with the emergence of a service. This presupposes interest in service design and service production.” -Evert Gummesson

4. Chapter Objectives Define customer value and customer satisfaction
Understand the difference between customer satisfaction and customer loyalty
Discuss attracting new users and retaining current customers by developing relationship marketing

5. Chapter Objectives
Know tactics for resolving customer complaints and understand the importance of resolving complaints
Define quality and discuss the importance of the benefits of quality
Implement capacity and demand management tactics

6. Customer Delivered Value
Customer-delivered value is the difference between total customer value and total customer cost of a marketing offer
Customer satisfaction depends on the product’s performance relative to a buyer’s expectations
Companies must be customer centered and deliver superior value to target customers

7. Customer Delivered Value

8. Customer Satisfaction
Buying decisions based on judgments formed about the value of marketing offers
Customer expectations based on past buying experiences
Today’s most successful companies raising expectations and delivering performance to match

9. What is Loyalty and Why is It Important?
Loyalty defined:
When the customer feels so strongly that you can best meet his or her relevant needs, your competition is virtually excluded from the considered set, and the customer buys almost exclusively from you — referring to you as “their restaurant” or “their hotel.”
Winning maximum share of heart, mind and wallet

10. What is Loyalty and Why is It Important?
Relationship marketing
The process of identifying and creating mutual value for customers that you share over the relationship’s lifetime
Theodore Levitt’s definition compares the relationship to a marriage
Benefits of loyalty
Financial importance of maintaining and creating new customers
Loyal customers use word-of-mouth to promote a product or brand
Different from traditional marketing

11. Customer Satisfaction vs. Customer Loyalty
Customer satisfaction measures how well a customer’s expectations are met
Customer loyalty measures how likely customers are to return and their willingness to perform partner shipping activities for the organization
Customer satisfaction is a requisite for loyalty

12. Relationship Marketing
Creating, maintaining, and enhancing strong relationships with customers
Basic
Reactive
Accountable
Proactive
Partnership

13. Benefits of Customer Loyalty
Continued patronage
Reduced marketing costs
Decreased price sensitivity
Partnership activities

14. Cost of Lost Customers
Companies must define and measure retention rate
Company must identify causes of customer defection and determine which can be reduced or eliminated
Reducing customer defections by only 5 percent can result in improved profits of over 25 percent

15. Resolving Customer Complaints
A critical part of customer retention
82 % of customers are likely to return if a complaint is handled quickly, as opposed to 9 % if it is not
Most customers do not complain

16. Evolution of customer loyalty
Building Loyalty
Evolution of customer loyalty
Sales
Targeted promotions
Frequency promotions
Brand relationships
Knowledge relationships

17. Exhibit: The Evolution of Building Loyalty

18. Frequent guest programs
Building Loyalty
Frequent guest programs
Not the same as loyalty programs
Any program with guest rewards that can be redeemed for free or discounted products or services
Can be one part of a loyalty program

19. Building Loyalty What loyalty programs don’t do: Not a “quick fix”
Not a promotion
What makes loyalty programs work:
Database, communication, meaningful rewards, simplicity, attainability, sustainability, measurability, management, manageability, profitability

20. Customer Complaints and Service Recovery
Inevitable, healthy, opportunities, marketing tools, advertising
TARP research study on complaint handling
50 % of consumers complain to front line staff
1-5 % of those go to management
Complaint rates vary by type of problem
Twice as many people are told about a bad experience over a good one
Tip of the iceberg phenomenon

21. Exhibit; Tip of the Iceberg Phenomenon

22. Quality Quality has emerged as an important area in hospitality
Product features enhance customer satisfaction and adds to the cost of a product
Freedom from deficiencies increases customer satisfaction

23. Quality
Technical quality refers to what the customer is left with after the customer – employee interactions have been completed
Functional quality is the process of delivering the service or product
Societal (ethical quality) means firms must consider ethical responsibilities when developing products

24. ©2006 Pearson Education, Inc
©2006 Pearson Education, Inc Marketing for Hospitality and Tourism, 4th edition
Upper Saddle River, NJ Kotler, Bowen, and Makens

25. Benefits of Quality Service
Customer Retention
Avoidance of Price Competition
Retention of Good Employees
Reduction of Costs

26. Managing Capacity
Involve the customer in the service delivery system
Cross-train employees
Use part-time employees
Rent or share extra facilities and equipment

27. Managing Capacity
Schedule downtime during periods of low capacity
Extend service hours
Use technology
Change the Configuration of the Service

28. Revenue Management
Revenue management is a methodological approach to allocating a perishable and fixed inventory to the most profitable customers
Began in late 1980’s as yield management
Prices change under fluctuating demand and advance bookings
Creates an enormous competitive advantage

29. Revenue Management is…
A systematic approach to matching demand for services with an appropriate supply in order to maximize revenues
Appropriate in hotels
Hotel room is a perishable product
Capacity is fixed and cannot flex to meet demand
Different market segments have different lead times to purchase
Hotels have great flexibility in varying their prices at any given time

30. Revenue Management Practices
Set most effective pricing structure
Limit the number of reservations accepted on any given night or room type based on profit potential
Negotiate volume discounts with groups
Match market segments with room type and price needs
Be consistent across channels and intermediaries

31. Yield
The ratio between actual sales and potential sales forecasted over a given period of time
Have to have realistic potential sales forecasting
Hotels must be able to forecast demand for each room category from each of its market segments, for any date in the future
Customer purchase behavior must be well understood

32. Managing Demand Use price to create or reduce demand Use reservations
Overbook
Use queuing
Shift demand
Change the salesperson’s assignment
Create promotional events

33. The Five-Gap Model of Service Quality

34. Close Gap 1
1. Talking to customers 2. Talking to customer contact employees 3. Marketing information systems – customer surveys – analysis by segment – focus groups 4. Reducing levels of management

35. Close Gap 2
1. Management Commitment – resources, internal marketing, reward systems 2. Use of hard and soft technology 3. Shift demand 4. Is meeting customer expectations financially feasible?

36. Close Gap 3
1. Training 2. Internal marketing, pride 3. Teamwork 4. Reward systems 5. Service quality audits

37. 2. Good communications within the firm
Close Gap 4
1. Know the capabilities of the firm
2. Good communications within the firm
3. Internal marketing – teamwork

38. Customer Complaints and Service Recovery
What to do about it?
This is marketing’s task
Make it easy for customers to complain
Make it known where and how to complain
Do something about the complaint if it is reasonable

39. Customer Complaints and Service Recovery
Effective complaint handling, from A Complaint is a Gift:
Say “thank you”
Explain why you appreciate the complaint
Apologize for the mistake
Promise to do something about it immediately
Ask for necessary information
Correct the mistake
Check customer satisfaction
Prevent future mistakes

41. Employee Relationship Marketing or Internal Marketing
Definition
Apply marketing principles to those who serve the customer (directly or indirectly) and build a mutual bond of trust with them
To create a customer, must create employee value
Lower employee turnover relates to higher profits

42. Employee Relationship Marketing or Internal Marketing
Noncontact employees
All employees are part of the marketing effort
Employees need to understand how their job and actions effect the customer
Employees need to be kept up to date on important information
Success ultimately lies with management

43. Class Discussion
Name two products or services to which you consider yourself extremely loyal.
What has produced that loyalty?
How frequently do you buy this product or service?
What do you tell your friends about this product or service?
What do you tell your family?

44. End of chapter slides