Understanding customer requirements

BM404 – Week 4

Company Perceptions of

Consumer Expectations

Expected Service

CUSTOMER

COMPANYListening

Gap

Provider Gap 1

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 ServicesTo discover customer requirements or expectations

for serviceTo monitor and track service performanceTo assess overall company performance compared

with that of competitionTo 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 EffectiveService Research Program Includes both qualitative and quantitative research Includes both expectations and perceptions of

customersBalances the cost of the research and the value of

the information Includes statistical validity when necessaryMeasures priorities or importance of attributesOccurs 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 ProcessStage 1 : Define ProblemStage 2 : Develop Measurement StrategyStage 3 : Implement Research ProgramStage 4 : Collect and Tabulate DataStage 5 : Interpret and Analyze FindingsStage 6 : Report Findings

Portfolio of Services Research

Customer Complaint Solicitation

“Relationship” Surveys

Post-Transaction Surveys

Customer Focus Groups

“Mystery Shopping” of Service Providers

Employee Surveys

Identify dissatisfied customers to attempt recovery; identify most common categories of service failure for remedial action

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

Assess company’s service performance compared to competitors; identify service-improvement priorities; track service improvement over time

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 employee-perceived obstacles to improve service; track employee morale and attitudes

Determine the reasons why customers defect

Research Objective Type of Research

Lost Customer Research

Future Expectations ResearchForecast future expectations of customers; develop and test new service ideas

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.

Retail Chain

9

8

7

6

5

4

3

2

1

0Reliability Responsiveness Assurance Empathy Tangibles

OO

= Zone of Tolerance = Service Quality Perception

O

O

OO

Service Quality Perceptions Relative to Zones of Tolerance

Computer Manufacturer

10

8

6

4

2

0

Reliability Responsiveness Assurance Empathy Tangibles

OO O OO

= Zone of Tolerance = S.Q. PerceptionO

Service Quality Perceptions Relative to Zones of Tolerance

Importance/Performance Matrix

HIGH

HIGHLOW Performance

Imp

ort

ance

Attributes to Improve Attributes to Maintain

HighLeverage

Attributes to De-emphasizeAttributes to Maintain

LowLeverage

LowLeverage

Building customer relationships

Building customer relationships Relationship Marketing Relationship Value of Customers Customer Profitability Segments Relationship Development Strategies Relationship Challenges

Building Customer RelationshipsRelationship marketing - its goals, and the

benefits of long-term relationships for firms and customers.

Customer lifetime value.

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 themdoes 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:

trust confidence in provider reduced anxiety

Social benefits: familiarity social support personal relationships

Special treatment benefits: special deals price breaks

Benefits for Firms: Economic benefits:

increased revenues reduced marketing and

administrative costs regular revenue stream

Customer behavior benefits: strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers

Human resource management benefits: easier jobs for employees social benefits for employees employee retention

Profit Generated by a CustomerOver Time

Source: An exhibit from F. F. Reichheld and W. E. Sasser, Jr., “Zero Defection: Quality Comes to Services,’’ Harvard Business Review, September–October 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

Most profitable customers

Least profitable customers

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

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?

Gold

Iron

Lead

Platinum

The Customer Pyramid

Relationship Development Model

Customer BenefitsConfidence benefitsSocial benefitsSpecial treatment benefits

Relationship BondsFinancial bondsSocial bondsCustomization bondsStructural bonds

Switching BarriersCustomer inertiaSwitching costs

Core Service ProvisionSatisfactionPerceived service qualityPerceived value

Strong CustomerRelationship

(Loyalty)

Firm BenefitsEconomic benefitsCustomer behavior benefitsHuman resource management benefits

Strategies for Building RelationshipsCore Service Provision:

service foundations built upon delivery of excellent service: satisfaction, perceived service quality, perceived value

Switching Barriers:customer inertiaswitching costs:

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

Strategies for Building Relationships Relationship Bonds:

financial bonds social bonds customization bonds structural bonds

Excellentservice

and value

1. Financial

bonds

2.Socialbonds

4. Structural

bonds

3. Customization

Bonds

Volume and frequency rewards

Bundling and cross selling

Stable pricing

Social bonds among

customers

Personal relationships

Continuous relationships

Customer intimacy

Mass customization

Anticipation/ innovation

Sharedprocesses

and equipment

Joint investments

Integrated information

systems

Figure 7.6

Levels of Relationship Strategies

“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 failuresConsumer complaints and why people do and do not complain

What customers want when they complainStrategies for effective service recovery, Service

Unhappy Customers’ Repurchase Intentions

82%

54%

19%

9%

Complaints Resolved Quickly

Complaints Resolved

Complaints Not Resolved

Unhappy Customers Who Don’t Complain

Unhappy Customers Who Do Complain

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

Service Switching Behavior

• High price• Price increases• Unfair pricing• Deceptive pricing

Pricing

• Location/hours• Wait for appointment• Wait for service

Inconvenience

• Service mistakes• Billing errors• Service catastrophe

Core Service Failure

• Uncaring• Impolite• Unresponsive• Unknowledgeable

Service Encounter Failures

• Negative response• No response• Reluctant response

Response to Service Failure

• Found better service

Competition

• Cheat• Hard sell• Unsafe• Conflict of interest

Ethical Problems

• Customer moved• Provider closed

Involuntary Switching

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

Learn from R

ecovery E

xperiences

Act

Qui

ckly

Treat Customers Fairly

Fail-safethe Service

Cultivate Relationships

with Customers

Encourage and Track

Complaints

Provid

e Ade

quat

e

Explan

ation

s

Lear

n fro

m L

ost

Custo

mer

s

ServiceRecoveryStrategies

Service Recovery Strategies

Service Guarantees

guarantee = an assurance of the fulfillment of a condition (Webster’s 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 EffectiveService GuaranteeUnconditional

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 customer’s 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

Easy to Invoke and Collect the firm should eliminate hoops or red tape in the

way of accessing or collecting on the guarantee

Benefits of Service GuaranteesA 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 Worksforces company to focus on customers

sets clear standards

generates feedback

forces company to understand why it failed

builds “marketing muscle”

Service GuaranteesDoes everyone need a guarantee?Reasons companies might NOT want to offer a service guarantee:existing service quality is poorguarantee does not fit the company’s image too many uncontrollable external variables fears of cheating or abuse by customerscosts of the guarantee outweigh the benefitscustomers perceive little risk in the servicecustomers 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

“it’s the icing on the cake, not the cake”