Building Customer Satisfaction Value and Retention

In this world of extreme competition, companies with a total focus on customer are going to be the winner. Companies must understand importance of customer satisfaction and then build process around it. A satisfied customer will be a loyal customer.

There are large offering of products and services available in the market then why the customer should choose a given company’s product. According to various research and studies it has been confirmed that consumer will purchase products, which given them maximum perceived value. This value comes from calculating the cost associated with the emotional level decision like the brand image, corporate brand, sales personnel image and functional image. This value converts to total customer cost by including purchase cost, time-energy in evaluation of product and intuitive cost.

Consumer will take decisions after considering the total cost associated with purchase, perceived and otherwise. If after the purchase product performs as expected than customer is considered satisfied. A completely satisfied customer is likely to repurchase the product and even promote the product through a word of mouth. Companies are aiming for total customer satisfaction, which can be achieved after understanding customer expectation and then delivering as per the expectation.

It is no longer enough to satisfy customers, you must delight them. - Philip Kotler

Customer Value & Satisfaction

Customers are value maximizes, within the bounds of search costs and limited knowledge, mobility and income. They form an expectation of value and act on it. Whether or not the offer lives up to the value expectation affects both satisfaction and repurchase probability.

Customer Perceived Value (CPV)

The difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and perceived alternatives

Total Customer Value

Is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering?

Total Customer Cost

Is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering? Total customer cost includes the buyer’s time, energy, and psychic costs. The buyer evaluates these elements together with the monetary cost to form Total Customer Cost.

Sellers must assess the Total Customer Value and the Total Customer Cost associated with each competitor’s offer in order to know how his or her offer rates in the buyers mind and Seller to increase Total Customer Value or to decrease Total Customer Cost.

Total Customer Satisfaction

A Buyers’ satisfaction after a purchase depends on the offer’s performance in relation to the buyer’s expectations. In general, Satisfaction is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations. If the performance matches the expectation, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted. A completely and highly satisfied customer is more likely to repurchase.

Customer Expectation

How do buyers form their expectation? Most customer form their expectation from past buying experience, friends, and associates’ advice and marketers and competitors’ information and promises. Some of today’s most successful companies are raising expectations and delivering performances to match. These companies are aiming for Total Customer Satisfaction.

Example: Xerox guarantees total satisfaction and will replace at its own expense any dissatisfied customer’s equipment within 3 years after purchase.

Delivering High Customer Value

How do companies deliver high customer value? The key to generating high customer loyalty is to deliver high customer value. A company must design a competitively superior value proposition aimed at a specific market segment, backed by a superior value delivery system. For customer centered companies, customer satisfaction is both a goal and a marketing tool. Companies that achieve high customer satisfaction ratings make sure that their target market knows it. (e.g. Dell Computers).

Measuring Satisfaction

How do companies measure satisfaction?

 .  Complaints and Suggestion systems - (Customer centered organization makes it easy for customers to register suggestions and complaints).

·    Customer satisfaction surveys – (Companies carry out survey on product performance).

·    Ghost Shopping – (Companies hires people to pose as potential buyers with the aim of reporting the competitors strong and weak points experienced in the company’s and competitors’ products).

·    Lost Customer analysis – Companies contact customers who have defected to another supplier to check why this happened. 

Nature of High-Performance Business

A major challenge for high-performance companies is that of building and maintaining viable businesses in a rapidly changing market place.

·         Recognize the core elements of the business.

·         Maintaining a viable fit between.

o   stakeholders

o   Processes

o   Resources

o   organizational capabilities and culture

The High Performance Businesses

Stakeholders – Businesses must define its stakeholders and their needs (customers, employees, suppliers and distributors).

Processes – Focus on the need to manage core business processes such as new product development, customer attraction and retention and order fulfillment.

Resources – To carry out its business processes, a company needs resources (labor power, materials, machines, information, and energy). Many companies today outsource less critical resources if they can be obtained at a better quality or lower cost.

Organization & Organizational Culture – A company’s organization consist of its structures, policies, and corporate culture, all of which can become dysfunctional in a rapidly changing business environment.

To create customer satisfaction, companies must manage their value chain as well as the whole value delivery system in a customer centered way. A company’s goal is not only to get customers, but even more importantly to retain customers.

High performance companies are set up to create and deliver superior customer value and satisfaction. This involves:

·         Understanding customer value

·         Creating customer value

·         Delivering customer value

·         Capturing customer value

·         Sustaining customer value

To succeed a company needs to use the concepts of value chain and a value delivery network.

Value Chain

Michael Porter proposed the generic value chain is a useful tool for companies to determine ways to create more customer value.           Porter argues that there are nine relevant activities that create value and cost in organization classified under two broad activities, Primary & Support Activities.

Value Creating Activities - A firm has to look at costs and performances of its value creating activities as compared to other competitors’ cost and performances (benchmarks). A firm success depends not only on how well the various departments perform its work but also on how well the various departmental activities are coordinated.

Example :

The Credit department would check customer’s credit while customer waits. Salesperson gets frustrated. Products delivered by ship to save cost and customer waits and get more frustrated.

From the example when there is slowing down in one process it can affect others. Above is a clear example of departments slowing down the delivery of customer services. The solution to this problem is to place more emphasis on the smooth management of core business process.

The Market Sensing Process – All the activities involved in gathering market intelligence, disseminating it within the organization, and acting on the information.

The New Offering Realization Process – All the activities involved in researching, developing, and launching new high- quality offerings quickly and within budget.

The Customer Acquisition Process – All the activities involved in defining target markets and prospecting for new customers.

The Customer Relationship Management Process – All the activities involved in building deeper understanding, relationships, and offerings to individual customers.

The Fulfillment Management Process – All the activities involved in receiving and approving orders, shipping the goods on time, and collecting payment. 

Value Delivery Network

To be successful a firm also needs to look for competitive advantages beyond its own operations, into the value chains of its suppliers, distributors, and customers (Supply Chain). Many companies today have partnered with specific suppliers and distributors to create a superior value-delivery network. Levi Strauss the maker of blue jeans has a good example of an excellent Value Delivery Network. Interdependent on its suppliers as well as its intermediary.

Attracting and Retaining Customers

Relationship Marketing - Relationship marketing is concerned with attracting customers, retaining customers, and eventually ending up with a long term relationship between customer and company.

Frequent flyer program offered by Qantas Airlines and the Privilege Gold Card offered by some hotels are good example of firms attempting to maintain an ongoing relationship with their customers.

How do you attract customers?

Today’s customers are becoming harder to please. They are smarter, more price conscious, more demanding, less forgiving, and they are approached by many more competitors with equal or better offers. The challenge according to Jeffrey Gitomer, is not to produce satisfied customers; several competitors can do this. The challenge is to produce delighted and loyal customers.

Companies seeking to expand their profits and sales have to spend considerable time and resources searching for new customers. To generate leads, the company develops ads and places them in media that will reach new prospects; its salespeople in participate in trade shows where they might find new leads and so on. Salespeople come into play once you have attracted your prospects.

Computing the cost of lost customers

It is not enough to be skillful in attracting new customers; the company must keep them and increase their business. To many companies suffer from high customer defection through switching company to company. Many lose roughly 25 percent of their subscribers each year at an estimated cost of $2 billion to $4 billion. There are steps a company can take to reduce the defection rate. There are steps a company can take to reduce the defection rate;

·         Must define and measure its retention rate.

·         Must distinguish the causes of customer attrition and identify those that can be managed better.

·         The company need to estimate how much profit it loses when it loses customers.

·         The company needs to figure out how much it would cost to reduce the defection rate.

Companies are able to achieve this state of total customer satisfaction by incorporating good business practices. These practices are constructed around stakeholders, business process, resource and organization. Company’s stakeholders consist of employees, suppliers, distributors and customers. Earlier focus has always solely been on shareholders, but now stakeholders need to be satisfied for shareholder’s profit. Companies need to define boundaries of relation with stakeholders as to get maximum value for every participant. To ensure maximum value, companies need to develop business processes, which understand and fulfill customer expectations. This can be achieved by aligning cross functional teams across critical processes, to create one smooth flow. Companies need to understand its core competencies and develop them, thereby successfully managing its resources. Organizational structure, design and policies have to be suitable to facilitate the introduction of total customer satisfaction culture.

Companies through creating and delivering value can develop total customer satisfaction. Company itself can be considered as a value chain consisting of primary and secondary activities. Primary activities consist of inbound materials, operation, delivering finished products, sales/marketing and servicing clients. Secondary activities consist of functional departments like technology department, procurement department, human resource and finance department. This value created is delivered to customer through the distribution channel under the principle of supply chain management.

Customers in the digital age are much more conscious and aware of their need and wants, making them a difficult lot to please. Companies run marketing campaign highlighting points of similarity and difference with competitor’s products. The art is not at attracting the customer, but it is at retaining the customer and creating long term relation with them. Companies usually suffer from churning effect where customers do not make the repurchase. Companies need to work hard in identifying reasons behind this churning. Once reasons are identified separate them on the basis of manageable and non-manageable issues and then work hard at eliminating manageable issues.

Companies need to develop policies and measure at retaining customers along with attracting new customers. This art of retention can be achieved through customer relationship management (CRM). In CRM the task is to develop strong consumer based brand equity, which is done by converting first time buyer to repeat buyer to a client to a member to advocates and finally to partners. During these course companies can look forward to offering financial benefits in terms of discount for frequent buyers or also by association with a social cause.

Companies are in business to make the profit. Therefore, it has to identify profitable customers. Profitable customers provide a revenue stream more than the expense stream on retaining them. And this revenue stream should be higher for a company to have a competitive advantage. More and more companies are deploying total quality management approach across the organization to build and deliver customer satisfaction.