Customer Satisfaction and Customer Value

It is many times cheaper to retain a customer than to win one. The longer customers stay the more they spend. And, as companies get to know them, they become more efficient in serving them. They benefit from economies of scale. Revenue increases, costs decline and consequently profitability soars. Depending upon the industry, a 5% improvement in customer retention can increase profitability by 25% to 85%, in terms of net present value.

On the other hand if customers are unhappy, they tend to go elsewhere. With attrition, revenue declines and cost per customer increases. As profits plummet, businesses are compelled to cut costs, often resorting to retrenching employees. That further de-motivates staff, plunging the company into a vicious downward spiral.

These business realities lead to Peter Drucker’s conclusion — “The only profit centre is the customer”. Retaining customers is not only a marketing prerogative, it is a survival strategy. Poor customer satisfaction eventually leads to bankruptcy and closure of business.

This chapter imparts an understanding of how to manage customer satisfaction. It covers a wide array of topics on the subject including:

• the evolution of customer satisfaction

  ,

• the interplay between employee and customer satisfaction

  ,

• customer loyalty

  ,

• customer satisfaction measurement

  ,

• transaction and relationship surveys

  ,

• drivers of customer loyalty and satisfaction

  , and the

• Kano model

  .

The chapter also provides an overview of customer value management, i.e., the process of creating superior value for target customers and securing an equitable return on the value delivered. Concepts such as customers’ value-in-use and customers’ purchasing philosophy are reviewed here.

---



Evolution of Customer Satisfaction


Evolution of Customer Satisfaction



The better mousetrap once ruled the marketplace. The focus then was “sell what you can make” as opposed to “make what you can sell”. During this era customer satisfaction was measured largely in terms of conformance to quality — superior products with zero defects were bound to rule.
The management of customer satisfaction has evolved considerably, since the days of the better mousetrap (refer Exhibit). Now product parity is the norm — it has become increasingly difficult, in many markets, to perceive a substantial difference in performance between competing products that target the same segment. Marketers need to find different ways to differentiate their offering.
At its infancy, customer satisfaction measurement focusses on understanding customer needs, measuring performance and monitoring complaints. Manufacturers respond to complaints, as opposed to quelling them before they surface. The inherent drawback of this reactive approach, is that customers often do not take the time to register complaints and allow problems to be addressed. They simply switch, defecting to competitors that better serve their needs and preferences.
In the 1980s and 1990s, a number of companies started measuring customer loyalty, and identifying the factors driving it. Empowered with this understanding, suppliers are able to proactively allocate resources to strengthen those service and product quality areas that raise customer satisfaction and customer loyalty.
Retention, particularly in business markets, is heavily dependent on the value, or the monetary benefit, that the customer is able to derive. Recognizing its importance, in recent years, suppliers are focussing more on creating and delivering customer value. This demands much improved understanding of customers’ needs, goals and priorities. Suppliers need to realign their organizations, such that they are better geared to creating customer value.
While the evolution of customer satisfaction research has led to superior understanding of customer satisfaction and customer value, organisations still need to meet quality conformance standards, and they should continue to monitor customer complaints. In the New Economy, conformance to quality remains important, though it no longer differentiates one supplier from another as much as it used to in the Old Economy. Companies cannot win business solely by delivering good quality, though they will certainly lose business if they do not do so.
... less



Customer Satisfaction Research


Customer Satisfaction Research



Customer satisfaction research focusses on customers’ perceptions of their experiences with the products and services of a company, to determine their level of satisfaction. Its primary purpose is to empower management to take measures to improve customer retention.
The research empowers top management to align their organization to better serve the needs of their customers. It helps them prioritize resources and initiatives in products, services and people development.
Traditionally there are two types of customer satisfaction surveys — transaction and relationship. Transaction surveys are designed to measure satisfaction of products and services. They solicit customer feedback on company’s employees and are linked to staff and management incentives. They reveal problem areas and alert management to resolve them. They are process driven, decomposing customer interaction on a product or service into specific, discrete touchpoints that characterize the interaction. The structure of a typical transaction survey, depicted below.

Whereas transaction surveys focus on the immediate, and are tactical in nature, relationship surveys are more strategic, measuring in detail the relationship between customers and the company. They encompass perceptions of service and product quality, range and variety, competitiveness of the offering, and service culture and ambience. They tend to be relatively long and are usually conducted on a periodic basis, annually or quarterly.
While in theory customer satisfaction research adopts two different instruments (transaction and relationship survey), each serving a distinct purpose, in practice it is possible to combine the studies into a single hybrid survey. The hybrid, unlike the transaction survey, is more likely to be administered quarterly than on an ongoing basis. It is nonetheless feasible to link the feedback to specific transactions. And though this approach might not be as elegant as the separate transaction and relationship surveys, it does reduce costs.
... less



MORE ... CLICK to read chapter in MarketMind

Previous
Next Chapter