Chapters 3 and 4

1. Chapters 3 and 4 Understanding Market Potential, Customer Satisfaction and Loyalty - Links to Firm Performance.

2. Let’s start by understanding what drives performance • Make a short list of the things that drive firm performance.

3. Market-Based Performance Drivers • Share Growth. • Sales Growth. • Improvements in market position. • Improvements in price position. • Successful new product introductions. But, what drives these factors?

4. Market-Driven Organizations: • Characterized by a focus on customer needs and interests. • Resulting in generation, dissemination and utilization of market intelligence, resulting in coordinated inter-functional action directed at creating superior customer value. • It is through delivery of superior customer value that market driven firms attain superior performance. • e.g. Apple.

5. Market Orientation, Competitive Advantage and Business Performance • Market • Orientation • Customer Focus • Competitor Focus • Inter-Functional • Coordination and Response. • Core • Capabilities • Customer Service • Quality • Innovation • Responsiveness • Value • Competitive • Advantage • New Prod. Success • Share Growth • Differentiation • Cost Efficiency • Business • Performance • Sales Growth • Satisfaction • Loyalty • Profitability

6. Market Driven Firm Interfunctional Assessment Information Acquisition Customer Information Superior Customer Value Competitor Information Shared Diagnosis and Coordinated Action Other Mkt. Information Organizational Values and Culture

7. Market Driven vs. Internal Orientation Internally Oriented Market-Driven Where can we sell our products? What can we provide?Why worry about competition?What can we do to be more efficient ?How do we make more money?What can R&D come up with?How can we drive channel efficiency? How we set price to make the most $. How can we get customers to buy? Who are our customers? What are their needs? Who is the competition? What are our capabilities? What is our competitiveadvantage? What is the product? What channels are used? How does the market respond to pricing and promotion

8. Market Driving - The Next Step Market-Driven Market-Driving Who are our customers? What are their needs? Who is the competition? What are our capabilities? What is our competitiveadvantage? What is the product? What channels are used? How does the market respond to pricing and promotion Where can we find new customers? What new needs can be created?Who do we want as competition?What new capabilities can we develop?What type of competitive advantageshould we develop?What new products can be created?What new channels can be created?What new pricing and promotionapproaches can be created?

9. Issues • How do we become a market-driver? • Is the customer the main focus of our action? • Are managers focused on acting in the interest of customers? • Do we have the data to support action? • Not just Marketing Dept’s job.

10. Understanding Market Potential

11. Market Potential and Market Growth • Forces affecting rate of market growth • Market potential • Market penetration • Rate of entry

12. Market Growth

13. Market Share • Market Share Index (MSI) = Product X Product X Price X Product X Service Awareness Preference Acceptability Availability Experience • Share Development Index (SDI) = Market Share Index x 100 Share Index Potential • Note: This is predicated on having the data to do the calculations.

15. Market Demand vs Potential

16. Customer Value Creation

17. Building Customer Focus • The Fundamentals • Determining Buyer Needs • Setting Priorities • Aligning the Organization

18. Customer Focus is Built on Information: • From Customers • From Internal Systems • Trouble Reporting/Tracking. • Complaints. • Customer Satisfaction Programs. • From Field Contact Personnel. • Reporting and tracking systems.

19. Understanding Buyer Behavior Marketing Mix Decision Process Purchase Product Price Promotion Distribution “Other” External Influences Internal Influences Post-Purchase Behavior Buyer’s Black Box External Stimuli Response

20. Information Search Purchase Post-Purchase Customer Decision Process Problem Recognition Alternative Evaluation

21. Customer Buying • Remember that many purchases (even B2B) are habit-based. • Customer does not do extended problem solving and search. • Rather they see the need to rebuy and simply do.

22. Customer Value is a Function of Benefits Received and Costs to Obtain Total Customer Benefits Do Benefits Received Outweigh Costs? Total Customer Value Total Customer Costs

23. Automobile Purchase Benefits & Costs Informed Friendly Attitude Image Handling Sales Staff Total Customer Benefits Benefits Warranty Test Drive Condition Product Attitude Timely Informed Hours Parts Service Total Customer Value TV Ads Newspaper Ads . . Web Site Search Total Customer Costs Base Model Accessories . . Trade-In Price Part Costs Frequency . . Distance Service

24. Life Cycle Costs and Economic Value Life-Cycle Cost = Price + Acquiring + Ownership + Disposal Paid Cost Cost Cost Economic Value = Competing Product’s – Our Product’s Life-Cycle Cost Life-Cycle Cost

25. Life Cycle Costs and Economic Value

26. Life Cycle Cost Component Examples

27. Benefit and Cost Mapping Implementation Issues: • Value Map Must Be Developed From the Customer’s Perspective • What’s measured becomes ‘Real’ • Avoid ‘washing out’ differences. • Abstract Goals Must Be Actionable

28. Objective - Find Value Gaps! Performance High Real Hummer Old Wrangler New Wrangler 4 Dr Wrangler High Price Low Price Hummer 2 Xterra RAV4 Explorer Outback Where are the need gaps? Low

29. Turning Value Positions into Action • Just knowing where the customer finds value is obviously not enough. • Your firm must strive to deliver the value customers desire. • This means implementing strategies designed to capture and hold the desired position.

30. Make Abstract Objectives Actionable Org. Obj. The Drill Down Customer Satisfaction Service Reliability Fast Service Response 1 Hour Response 99.999 % of the time Action Item

31. Action Items - System Development • Example: Customer contact tracking system for field reps. • Sales representatives • Customer service personnel • What feedback should we give the customer? • What information should be widely available within the company.

32. The Satisfaction - Loyalty Link Customer Loyalty High Less Competition Airlines Hospitals Personal Computers Automobiles More Competition Low 1 2 3 4 5 Completely Dissat. Completely Sat.

33. Customer Satisfaction is a Confirmation/Disconfirmationof Expectations EXPERIENCE INITIAL EXPECTATIONS CUSTOMER SATISFACTION PERCEIVED OUTCOME

34. Information is the Key • We must understand the benefits customers receive from use. • Who do we ask? • Customers • Company Sources • Competitive Monitoring

35. Which Components Require Immediate Attention? Importance Needs Improvement high medium Overachieving low low medium high Performance

36. Satisfied Customers Typically: • Find more value in the firm’s products. • Are willing to spend more to maintain this high level of need satisfaction. • Are less influenced by competitor promotions. • Are very willing to tell others about your product (WOM). • Are often willing to try other products you sell.

37. Does it Work? Evidence from the Trucking Industry

38. A Recent Study • We looked at trucking firms strategies for evidence that they were implementing a market-driven approach, then looked at their performance.

42. Conclusions • Better customer value (e.g., higher customer service levels and customer relations) lead to increased share and higher ROA despite a 1 pt loss in efficiency. • Thus, to build satisfaction, you must understand the customer needs. • Let’s look at how to do this.

43. Conclusions for Typical Organization: • Customer orientation will require changes in operating procedures. • Specific customer satisfaction metrics are needed. • Culture must evolve to support use of customer information and Sat. metrics. • Information gathering systems must evolve to support needed customer information.

44. Information System Needs. • Database of customer requirements. • Primary needs • Secondary needs. • Priorities! • Current usage. • Satisfaction levels for customer groups • Date last contacted. • Name of contact. • Competitor information.

45. Additional Issues • Processes for dealing with customers must be revised. • New ideas and solutions must be implemented quickly to resolve customer problems and meet needs. • Bureaucracy must be reduced to aid quick response (delegation!). • Competitor information must be developed and refined.

46. Segmentation is needed and will help define customer value proposition and methods to deliver. • Price sensitive customers may defect. • Quality Sensitive customers may defect if quality not made priority.

47. A Customer Lifetime Value Example

48. Lifetime Value of a Customer • The long term profits obtained by retaining customers over their lifetime. • Enables firm to reduce marketing expenses. • NPV is useful to assign valuation.

49. A Customer Loyalty Example • Loyalty is an attitude towards a product/service and the provider • Loyalty is driven by perceived value and satisfaction • Loyalty is related to repeat purchase, WOM, motivation to search and resistance to counter-persuasion but is not always translated into these post-purchase behaviors • Many loyalty programs cost more than they generate in additional profitability (at least in the short-run)

50. Mobile Telephone Loyalty • Average churn rate in mobile telephony today is 2.1% per month • So average customer life is only 48 months – which is the life of the service contract. Mobile providers must replace all its customers every 4 years. The potential is to only replace them every 8 years!