Understanding customer requirements

BM404 Week 4

Provider Gap 1
CUSTOMER Expected Service

COMPANY

Listening Gap Company Perceptions of Consumer Expectations

Part 3 Opener

Session overview

Using Marketing Research to Understand Customer Expectations Elements in an Effective Services Marketing Research Program Analyzing and Interpreting Marketing Research Findings Model Services Marketing Research Programs Using Marketing Research Information Upward Communication

Common Research Objectives for Services

To

discover customer requirements or expectations for service To monitor and track service performance To assess overall company performance compared with that of competition To assess gaps between customer expectations and perceptions.

Common Research Objectives for Services

To identify dissatisfied customers, so that service recovery can be attempted. To gauge effectiveness of changes in service delivery. To appraise the service performance of individuals and teams for evaluation, recognition, and rewards. To determine customer expectations for a new service. To monitor changing customer expectations in an industry. To forecast future expectations of customers.

Criteria for an Effective Service Research Program

Includes

both qualitative and quantitative research Includes both expectations and perceptions of customers Balances the cost of the research and the value of the information Includes statistical validity when necessary Measures priorities or importance of attributes Occurs with appropriate frequency Includes measures of loyalty, behavioral intentions, or actual behavior

Elements in an effective services marketing research program

Complaints solicitation Critical incident studies Requirements research Relationship and SERVQUAL surveys Trailer calls Service expectations meeting and reviews Process checkpoint evaluations Market-orientated ethnography Mystery shopping Customer panels Lost customer research

Stages in the Research Process

Stage

1: Stage 2 : Stage 3 : Stage 4 : Stage 5 : Stage 6 :

Define Problem Develop Measurement Strategy Implement Research Program Collect and Tabulate Data Interpret and Analyze Findings Report Findings

Portfolio of Services Research

Research Objective
Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action Assess companys service performance compared to competitors; identify service-improvement priorities; track service improvement over time Obtain customer feedback while service experience is fresh; act on feedback quickly if negative patterns develop Use as input for quantitative surveys; provide a forum for customers to suggest service-improvement ideas Measure individual employee service behaviors for use in coaching, training, performance evaluation, recognition and rewards; identify systemic strengths and weaknesses in service Measure internal service quality; identify employeeperceived obstacles to improve service; track employee morale and attitudes Determine the reasons why customers defect Forecast future expectations of customers; develop and test new service ideas

Type of Research
Customer Complaint Solicitation Relationship Surveys Post-Transaction Surveys Customer Focus Groups

Mystery Shopping of Service Providers

Employee Surveys

Lost Customer Research Future Expectations Research

Tracking of Customer Expectations and Perceptions of Service Reliability

Source: E. Sivadas, Europeans Have a Different Take on CS [Customer Satisfaction] Programs, Marketing News, October 26, 1998, p. 39.

Service Quality Perceptions Relative to Zones of Tolerance

9 8 7 O O

6
5 4 3

2
1 0
Reliability Responsiveness Assurance Empathy Tangibles

Retail Chain

= Zone of Tolerance Perception

O = Service Quality

Service Quality Perceptions Relative to Zones of Tolerance

10 8

6
4 2 0
Reliability Responsiveness Assurance Empathy Tangibles

Computer Manufacturer

= Zone of Tolerance O = S.Q. Perception

Importance/Performance Matrix
HIGH

High Leverage
Attributes to Improve

Attributes to Maintain

Importance

Low Leverage

Low Leverage

Attributes to Maintain LOW

Attributes to De-emphasize HIGH

Performance

Building customer relationships

Building customer relationships

Relationship Marketing Relationship Value of Customers Customer Profitability Segments Relationship Development Strategies Relationship Challenges

Building Customer Relationships

Relationship

marketing - its goals, and the benefits of long-term relationships for firms and customers. lifetime value.

Customer

Customer

profitability segments as a strategy for focusing relationship marketing efforts.

Building customer relationships

Present relationship development strategies including quality core service, switching barriers, and relationship bonds.

Identify challenges in relationship development, including the somewhat controversial idea that the customer is not always right.

Relationship Marketing
focuses

on keeping current customers and improving relationships with them does not necessarily emphasize acquiring new customers is usually cheaper (for the firm)

keeping a current customer costs less than attracting a new one

thus,

the focus is less on attraction, and more on retention and enhancement of customer relationships

Customer Goals of Relationship Marketing

Benefits of Relationship Marketing

Benefits for Customers:

Receipt of greater value Confidence benefits:

Benefits for Firms:

Economic benefits:

trust confidence in provider reduced anxiety

increased revenues reduced marketing and administrative costs regular revenue stream strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers

Social benefits:

Customer behavior benefits:

familiarity social support personal relationships special deals price breaks

Special treatment benefits:

Human resource management benefits:

easier jobs for employees social benefits for employees employee retention

Profit Generated by a Customer Over Time

Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., Zero Defection: Quality Comes to Services, Harvard Business Review, SeptemberOctober 1990.

Profit Impact of 5 Percent Increase in Retention Rate

Source: F. F. Reichheld, Loyalty and the Renaissance of Marketing, Marketing Management, vol. 2, no. 4 (1994), p. 15.

Lifetime Value of an Average Business Customer at Telecheck International

The Customer Pyramid

Most profitable customers
What segment spends more with us over time, costs less to maintain, spreads positive word-of-mouth?

Platinum

Gold

Iron
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

Lead

Least profitable customers

Relationship Development Model

Relationship Bonds
Financial bonds Social bonds Customization bonds Structural bonds

Customer Benefits
Confidence benefits Social benefits Special treatment benefits

Strong Customer Relationship (Loyalty)

Core Service Provision

Satisfaction Perceived service quality Perceived value

Firm Benefits Switching Barriers

Customer inertia Switching costs Economic benefits Customer behavior benefits Human resource management benefits

Strategies for Building Relationships

Core

Service Provision:

service foundations built upon delivery of excellent service:

satisfaction, perceived service quality, perceived value

Switching

Barriers:

customer inertia switching costs:

set up costs, search costs, learning costs, contractual costs

Strategies for Building Relationships

Relationship Bonds:

financial bonds social bonds customization bonds structural bonds

Figure 7.6

Levels of Relationship Strategies

Volume and frequency rewards Integrated information systems Stable pricing

Bundling and cross selling

1. Financial bonds Excellent service and value 2. Social bonds

Continuous relationships

4. Joint Structural investments bonds

Shared processes and equipment

Personal relationships

3. Customization Bonds

Social bonds among customers

Anticipation/ innovation
Mass customization

Customer intimacy

The Customer Is NOT Always Right

Not

all customers are good relationship customers:

wrong segment not profitable in the long term

difficult customers

Service recovery

The Impact of Service Failure and Recovery How Customers Respond to Service Failures Customers Recovery Expectations Service Recovery Strategies Service Guarantees

Service Recovery
Importance

of recovery from service failures Consumer complaints and why people do and do not complain What customers want when they complain Strategies for effective service recovery, Service

Unhappy Customers Repurchase Intentions

Unhappy Customers Who Dont Complain

9%

Unhappy Customers Who Do Complain Complaints Not Resolved

19%

Complaints Resolved

54%

Complaints Resolved Quickly

82% Percent of customers who will buy again after a major complaint (over $100 in losses)

Source: Adapted from data reported by the Technical Assistance Research Program.

Customer Complaint Actions Following Service Failure

Causes Behind Service Switching

Pricing
High price Price increases Unfair pricing Deceptive pricing

Response to Service Failure

Negative response No response Reluctant response

Inconvenience
Location/hours Wait for appointment Wait for service

Competition

Core Service Failure

Service mistakes Billing errors Service catastrophe

Service Switching Behavior

Found better service

Ethical Problems
Cheat Hard sell Unsafe Conflict of interest

Service Encounter Uncaring Failures

Impolite Unresponsive Unknowledgeable

Involuntary Switching
Customer moved Provider closed

Source: Sue Keaveney, Customer Switching Behavior in Service Industries: An Exploratory Study, Journal of Marketing, April, 1995, pp. 71-82.

Service Recovery Strategies

Act Quickly Fail-safe the Service

Service Recovery Strategies

Treat Customers Fairly

Learn from Recovery Experiences

Service Guarantees
guarantee

= an assurance of the fulfillment of a condition (Websters Dictionary) a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm for tangible products, a guarantee is often done in the form of a warranty
services

are often not guaranteed

cannot return the service service experience is intangible

(so what do you guarantee?)

Characteristics of an Effective Service Guarantee

Unconditional

the guarantee should make its promise unconditionally no strings attached

Meaningful

the firm should guarantee elements of the service that are important to the customer the payout should cover fully the customers dissatisfaction

Source: Christopher W.L. Hart, The Power of Unconditional Guarantees, Harvard Business Review, July-August, 1988, pp. 54-62.

Service guarantees

Easy to Understand and Communicate

customers need to understand what to expect employees need to understand what to do

the firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee

Easy to Invoke and Collect

Benefits of Service Guarantees

A

good guarantee forces the company to focus on its customers. An effective guarantee sets clear standards for the organization. A good guarantee generates immediate and relevant feedback from customers. When the guarantee is invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty.

Benefits of service guarantees

Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. Employee morale and loyalty can be enhanced as a result of having a service guarantee in place. A service guarantee reduces customers sense of risk and builds confidence in the organization.

Why a Good Guarantee Works

forces sets

company to focus on customers

clear standards

generates forces builds

feedback

company to understand why it failed marketing muscle

Service Guarantees
Does

everyone need a guarantee? Reasons companies might NOT want to offer a service guarantee:
existing service quality is poor guarantee does not fit the companys image too many uncontrollable external variables fears of cheating or abuse by customers costs of the guarantee outweigh the benefits customers perceive little risk in the service customers perceive little variability in service quality among competitors

Service Guarantees
service

guarantees work for companies who are already customer-focused effective guarantees can be BIG deals they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise a WOW!! factor its the icing on the cake, not the cake