McGraw-Hill/Irwin

Copyright 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Chapter 16
Customer Retention and Maximization

THE NATURE OF A CUSTOMER

Customer Relationships can be found at any level Always-A-Share Customer Highest Level Relationship
THE KEY FACTOR: SWITCHING COSTS

The Direct and Indirect costs a buyer will have to pay to go to another supplier

Lost-For-Good Customers

Lowest Level Relationship

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DEFINING THE EXTREMES OF CUSTOMER NATURE

LOST-FOR-GOOD ALWAYS-A-SHARE

Customers are tied to a system. Switching costs may include: Specific investments Cancellation penalties Setup costs for a new supplier Retraining Finding/Evaluating a new supplier

Customers can allocate their purchases to several vendors . A period of no purchases can be followed by a number of purchases. Doesnt want to rely on a single vendor. Suppliers are largely interchangeable

Exhibit 16-1
16-4

PAYOFFS TO SELLERS FROM LONG TERM CUSTOMER RELATIONSHIPS

GROWS ADDITIONAL BUSINESS OPPORTUNITIES for new products or increased purchases PREMIUM PRICES result from giving first-rate service and product quality REDUCED SELLING COSTS from tighter coordination of production and logistics ADDITIONAL REVENUES POSSIBLE from customers referrals and joint sales calls with customers
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RELATIONSHIP BENEFITS TO SELLERS

500

400

Referrals

300 Profits

Reduced costs

200

Price Premium

100

Increased Purchases

Base profit 1 2 3 4 5 6 Years in Relationship

Exhibit 16-5
16-6

TWO REASONS COMPANIES STAY IN A BUSINESS RELATIONSHIP

REASON 1.

THEY HAVE TO No alternatives, binding actions such as contracts, product ties THEY WANT TO Relationship is satisfying because of cooperation and meeting financial objectives

REASON 2.

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TIES THAT BUILD RELATIONSHIPS

SUPERIOR PERFORMANCE at a good price (value) SOCIAL RELATIONSHIPS created by frequent interaction TECHNICAL DEPENDENCIES brought about by reliance on a suppliers products or support FORMAL AGREEMENTS involving investments or contracts
16-8

SOURCES OF COMPETITIVE ADVANTAGE

TO BUILD CUSTOMER LOYALTY, DEVELOP A COMPETITIVE ADVANTAGE BY PROVIDING 1. Superior performance 2. Quality products and support as defined by the customer 3. Distinctive and reliable service
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THE IMPACT OF TRUST AND COMMITMENT ON BUSINESS RELATIONSHIPS

Relationship Termination Costs Relationship Benefits + +

Acquiescence + Relationship Commitment + +

Propensity To leave

Shared Values
+ + Communication

+
+

Cooperation

Trust

Functional Conflict

Opportunistic Behavior Exhibit 16-8

Uncertainty
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COMMUNICATING WITH CUSTOMERS

Telephone Fax E-mail Confirm appointment Answer a questionnaire about delivery Summarize yesterdays meeting FYI: an article in a trade magazine Request the name of a former consultant Give congratulations on a story in the press Request easy-to-find data in a planning document

Business Letter Formally introduce a new account representative Summarize reasons for next quarters price increase Thank you for the order Face-to-face Negotiate production commitments Resolve dispute about marketing effort
Exhibit 16-9
16-11

A TOOL FOR CUSTOMER RETENTION: CUSTOMER SATISFACTION SURVEYS

REQUIREMENTS FOR A USEFUL SURVEY: 1. CHOOSE MAIL OR TELEPHONE TO DO THE SURVEY DETERMINE THE KIND OF INFORMATION YOU NEED Ascertain satisfaction with overall relationship Measure specific aspects of the relationship The unspoken concerns of customers Determine what will get measured regarding customer expectations (The TERRA model works well) Having meaningful and measurable ratings and scores
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2.

4-QUESTION SATISFACTION SURVEY

1 General overall Satisfaction question

Process 1 (Parts handling)

Process 2 (Parts reps)

Process 3 (Service manuals) Attribute 1 Attribute 2 Attribute 3 Suggest change for improvement

Process 4
(Technical Support)

Process 5 (etc.)

Attribute 1
Attribute 2 Attribute 3 2 Suggest change for improvement

Attribute 1
Attribute 2 Attribute 3 Suggest change for improvement

Attribute 1 Attribute 2 Attribute 3 Suggest change for improvement

Attribute 1
Attribute 2 Attribute 3 Suggest change for improvement

Loyalty questions Willingness to recommend Repurchase intentions

Exhibit 16-10
16-13

MEASURING SATISFACTION AFTER THE SURVEYS

MANAGEMENT QUESTIONS 1. WHAT DO THE SURVEYS TELL US? 2. HOW DO WE USE THE INFORMATION WE HAVE? 3. HOW RELIABLE IS THE INFORMATION?

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SATISFACTION SURVEYS: GUIDELINES FOR USE

1. 2. 3. 4. 5. 6. LOOK AT OVERALL SCORES COMPARE SCORES TO PREVIOUS MEASURES, PREFERABLY OVER SEVERAL YEARS ARE TRENDS UP, DOWN, STABLE? HOW MANY FACETS OF SATISFACTION DO WE MEASURE? HOW MANY ATTRIBUTES FOR EACH FACET SHOULD WE MEASURE WHAT IS OUR RELATIONSHIP FACET PERFORMANCE SCORE (RFPscore )?
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DETERMINING THE RFP SCORE

OVERALL SATISFACTION = f sales reps. report cards, warranty claims, product lit., tech support, etc.

3.2 + .82 (RFPwarranty)

OVERALL SATISFACTION =

+ .53 (RFPrep) + .06 (RFPlit ) + .12 (RFPtech support) + e

THE REGRESSION COEFFICIENTS SHOW RELATIVE IMPORTANCE OF EACH FACET. 0.82 FOR WARRANTY CLAIMS IS MOST IMPORTANT FOR OVERALL SATISFACTION, FOLLOWED BY SALES

REP PERFORMANCE

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STRONG STATISTICAL MODEL OF CUSTOMER SATISFACTION

Satisfaction Score

Exhibit 16-12

Warranty Service RFP Score

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WEAK STATISTICAL MODEL OF CUSTOMER SATISFACTION

Satisfaction Score

Exhibit 16-13

Technical Support RFP Score

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