“Another satisfied customer!”

1. Customer Satisfaction • Think of an incident in which you were “surprised and delighted” as a satisfied customer. How did that happen? • Think of another situation where you were very disappointed as a customer, and you did not return or you told others about your negative experience. How did that happen? “Another satisfied customer!”

2. Customer satisfaction means money! • The lifetime value of a supermarket customer is estimated at $250,000 • IBM in Rochester, Minn., calculates that a 1 percent increase in customer satisfaction is worth $257 million in additional revenues over five years. • Marriott found that each percentage point increased in the customer-wide satisfaction measure of intent-to-return was worth some $50 million in revenues. • A study in the Harvard Business Review showed that just a 5 percent increase in customer retention boosts profits by 25 percent to 125 percent. • Winners of the Malcolm Baldrige National Quality Award ( heavily oriented toward customer satisfaction) outperform the Standard & Poor's 500-stock index by 3:1 in ROI • Sears, Roebuck operates on a financial model which shows that a 5 point improvement in employee attitudes will drive a 1.3 point improvement in customer satisfaction, which in turn will drive a 0.5 percent improvement in revenue growth. The model also established that 4 percent improvement in customer satisfaction translates into more than $200 million in additional revenues.

3. Customer (dis)satisfaction • the average business loses 10-30% of its customers each year (without knowing which, when or why lost) • it’s more costly to win a new customer than to lose an existing one (5-7 times greater); it takes 12 positive incidents to make up for a negative one • Customers are three times more likely than service providers to recall the quality of the personal element in a transaction • 96% of dissatisfied customers never complain to the business, but 91% will not make return purchases • 70-85% of dissatisfaction is due to customer service not product; 68% of customers who stop buying do so because they perceive an employee as discourteous or indifferent • dissatisfied customers on average tell 12 friends of the poor service; satisfied people tell 5 friends (2:1 ratio) • 70% will return if complaint is resolved, and 95% of customers would do business again if a problem is resolved quickly and effectively • highly effective companies spend 10% of their operations budget on fixing problems related to customer complaints; ineffective ones spend 40%

4. More (dis)satisfaction Facts People who complain are generally younger, have higher incomes, are better educated, have more experience with the product, are less brand loyal, and may have higher expectations • For every complaint there are an estimated 25 unnoted complaints • 75% of complaints reported to front line person do not get reported to management • Only 20% of complaints are directed to the manager by customers • 800# doubles calls to corporate, but only 1 per 100/500 get addressed by a senior executive • Quick resolution results in higher satisfaction & loyalty than multiple contacts • losing customers is strongly related to employee turnover; Fortune magazine found that the companies with the happiest employees also produced the highest returns to shareholders by a substantial margin, 27.5 percent vs. 17.3 percent for run-of-the-mill companies.

5. General Measures in a Customer Satisfaction Survey • Product Use • Frequency of product use • Primary use location • Primary precipitating events or situations for product use or need • Usage rates and trends Product Familiarity • Degree of actual product use familiarity • Knowledge (read product information, read product label, etc.) • Knowledge and Involvement with product and the purchase process • Awareness of other brands • Reasons for original product purchase (selection reasons) • Primary benefits sought from the product Product Evaluation • Attribute evaluation matrix: (quality, price, trust, importance, performance, value) • Perceived benefit associations matrix Importance, performance • Identification of primary benefits sought Comparison to other brands (better, worse) • What is the best thing about the brand, what could be done better • Message and Package Evaluation • Packaging size, design • Advertising Promise, message fulfillment evaluation • Value Analysis • Expectation of price • Expectation of relative price (full price, on sale) • Current price paid • Satisfaction Measurements • Overall Satisfaction • Reasons for Satisfaction Evaluation • Satisfaction with attributes, features, benefits • Satisfaction with use • Expected and Ideal Satisfaction-Performance Measures • Likelihood of recommending • Likelihood of repurchasing

6. Customer complaint activityis measured as the percentage of respondents who reported a problem with the measured companies’ product or service within a specified time frame; it has an inverse relationship to customer complaints. Perceived valueis measured through overall price given quality and overall quality given price; it has somewhat less impact on satisfaction and repeat purchase. ACSI Components (American Customer Satisfaction Index) Perceived qualityrefers to overall quality, reliability, and the extent to which a product or service meets the customer’s needs; this shows the greatest impact on customer satisfaction. Customer Loyaltyis measured by likelihood to purchase a company’s products or services at various price points. Customer satisfaction has a positive effect on retention, but the magnitude of that effect varies greatly across companies and industries. Customer expectationsinfluence the evaluation of quality and forecast (from customers’ pre-purchase perspective) how well the product or service will perform.

7. Customer hopes & asks but doesn’t expect; if met then delighted. Unlikely to cause dissatisfaction. Build customer loyalty Customer tells what is important; satisfaction vs. dissatisfaction if met Benefits above & beyond expectations; identify and suggest innovations with new products Meeting basic respect & courtesy needs; dissatisfaction if not met; indifference if met

8. Some key points on developing loyalty • Since what was once unexpected/unstated becomes expected/stated, you must keep innovating • Performance excellence occurs by design, not default • All parts of the organization are part of creating customer loyalty • Reliability: Keeping your promise, doing what you said you will do. Doing things right the first time. • Assurance: Making the customer feel safe in their dealings with you, being thoroughly professional and ethical. • Tangibles: How the product/service looks to the client, the appearance of personnel and equipment, etc. • Empathy: The degree to which the organization and service personnel understand the individual client and their needs, the ability to adapt the service to each client, the willingness to 'go the extra' for the client. • Responsiveness: The availability, accessibility and timeliness of the service. The ability to respond to enquiries and complaints in a timely fashion. Parasuraman, A., Zeithaml, V., & Berry L. (1984, August). A conceptual model of service quality and Its implications for future research. Cambridge, MA: Marketing Science Institute.

9. Pampering Customer Loyalty Proctor & Gamble's Pampers product had 13% market share in Hong Kong. They went on a massive campaign to gather the names and addresses of mothers and babies through highly successful cash back sales promotion activities. To get the cash back, mothers had to write in with full name and address details, as well as the babies birth date and sex. Using this information they wrote to the mothers on a quarterly basis, telling them of their babies growth and what to expect at the various stages. They also sent out discount vouchers when it was time to buy the next size up, so that the nappies always performed well. Within 14 months (the fifth cycle of the ever-growing list of mothers) Pampers had moved to the number one position with 49% market share. Each percentage point was worth US$1million over the life usage of the product. That's $29mil just by staying in touch with the same base, within 3 months over and over.

10. Rokeach’s Instrumental & Terminal Values (1973) Instrumental Terminal

11. Basic design of the Hierarchical Values Map for Means-Ends Chain Analysis • Values: abstract consequences, valued end-goals: • I am helpful & caring • Psychosocial consequences: psychological & social outcomes • I can tell others • Functional consequences: tangible outcomes of product use • gives me useful information • Attributes: product characteristics & features • Editorial content & articles “Why is it important? What does it give to you? What is negative about it? What do you want to avoid”

12. Laddering for promotional strategy

16. Laddering: Hierarchical Value Map for Wine Coolers • Self esteem: • Feel better about self • Self image • Self worth • Family life • Maintain respect • Better family ties • Belonging: • Security • Camaradarie • Friendship • Accomplishment: • Get most from life • Impress others: • Successful image • Socialize: • Easier to talk • Open to • More sociable • Reward: • Satisfying • compensation • Sophisticated image: • Personal status • How others view me • Avoid negatives of alcohol: • Not too drunk • Not too tired • Avoid waste: • Doesn’t get warm • More feminine: • Socially acceptable • Thirst quenching: • Relieves thirst • Not too sour • Consume less: • can’t drink more • Can sip • Quality: • Superior product • Superior quality • Refreshing: • Feel alert & alive Label (fancy) Bottle (shape) Less alcohol Filling Smaller size (10 oz.) carbonation crisp expensive

17. Consumer decision-making map for express mail delivery

18. Laddering practice: • form pairs (or triads) and take turns constructing • value ladders for each other’s purchases • identify some product you purchase to which you • have had some degree of brand loyalty over the years. • start by describing the attributes of the product • then link those to the benefits you obtain from it • then link to the (instrumental) values it satisfies • and finally, link to the terminal values it supports

19. Supplementary Slides (not for study)

20. Key Elements of the Balanced Scorecard Financial Perspective Customer Satisfaction Customer Perspective Operations Perspective Learning & Growth Perspective

21. Higher Profit Margins!!! • < price elasticity (tolerate price increases) • < transaction costs (not spend as much to attract new customers) • < product failure costs • < resources due to handling & returning • < reworking defective items, handling complaints • Increased Word of Mouth • > reputation of business • > effective advertising • help introduce new products via instant awareness • lower buyer’s risk of trial • + relationship with key suppliers, distributors & allies • enhance halo effect • insulate against short term adverse events • Repeat Sales • > frequent purchases • > purchase volume • > other goods/services • < switching Customer Satisfaction

22. Factors Affecting the Price Elasticity of Demand • Availability of substitutes: the more possible substitutes, the greater the elasticity. • Degree of necessity or luxury: luxury products tend to have greater elasticity. Some products that initially have a low degree of necessity are habit forming and can become "necessities" to some consumers. • Proportion of the purchaser's budget consumed by the item: products that consume a large portion of the purchaser's budget tend to have greater elasticity. • Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavior. • Permanent or temporary price change: a one-day sale will elicit a different response than a permanent price decrease. • Price points: decreasing the price from $2.00 to $1.99 may elicit a greater response than decreasing it from $1.99 to $1.98. Price Elasticity Price change causes change in demand

23. American Customer Satisfaction Index, is based on a quarterly survey by the National Quality Research Center at the University of Michigan business school, in partnership with the American Society for Quality, a professional group in Milwaukee, and Foresee Results, an Internet tracking firm. It focuses on different sectors of the economy ranging from autos to household appliances to government services to grocery items. • ACSI results provide: • an economic indicator of the quality of economic output • calculation of the net present value of their company’s customer base as an asset over time • information for strategic business applications • a predictor of consumer spending & corporate earnings