Customer value, Satisfaction and loyalty

Customer value, Satisfaction and loyaltyConceptual FrameworkCompetitively SuperiorValue Proposition (resulting experience)(segment specific)Value Delivery System(Experiential)High Customer ValueHigh Customer SatisfactionHigh Customer loyaltyWhat is customer value? Customer perceived benefitCustomer cost Determinants of Customer Perceived ValueImage benefitPsychological costPersonal benefitEnergy costServices benefitTime costProduct benefitMonetary costTotal customer benefitTotal customer cost-4Models of Customer valueValue component model (Kano, 1984)Utilitarian model (Growth, 1994)Value- Hierarchy Model(Woodruff, 1997)

Value Component Model

-Focuses on product features/ product augmentation/ customer benefits.

-Little attention to interaction and relationship between customer and supplier

-Customer sacrifice side of value is largely ignored.

Customer SatisfactionDisconfirmation between expectation and perception

How to measure satisfaction: ESQI indexUnderstand Satisfaction Drivers

Customer Satisfaction

Access to products & Services

Emotional Factor

Service Quality

Price

Product Quality10Mapping of customer valuehttp://www.cval.com/valuemap.htm Customer Lifetime ValueIn marketing, customer lifetime value(CLV) is a prediction of the net profit attributed to the entire future relationship with a customer.What are your customers worth?S = average revenue per customer saleC = costs of servicing customerV = expected # sales per yearY = expected # years customer will use your servicesA = cost of acquiring new customerN = # of referrals from customerF = correction factor

Lifetime Value of Customer (CLV) = [(S-C)*(V*Y)-A+(A*N)]*FORMargin * # sales cost of acquisition + savings from referrals * correction factorCustomer Lifetime Value = CLV13What are your customers worth?S = average revenue per customer per saleC = costs of servicing customerV = expected # sales per yearY = expected # years customer will use your servicesA = cost of acquiring new customerN = # of referrals from customerF = correction factorS = $20,000C = $5,000V = 2Y = 5A = $1500N = 4F = 1.2

CLV = [($20000-$5000)*(2*5)-$1500+(1500*4)]*1.2CLV = $185,400Customer Lifetime Value = CLVhttp://customersthatstick.com/blog/customer-service-techniques/understanding-customer-lifetime-value-a-non-geek-guide/ FOR FURTHER READING AND EASY UNDERSTANDING14What is Loyalty?Loyalty is a deeply held commitment to re-buy or re-patronize a preferred product or service in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior.(Oliver, 1997)15Loyalty Phases

Source: Whence consumer loyalty? Richard L Oliver Journal of Marketing; 1999; 63, ABI/INFORM GlobalAttitudinal Loyalty + intend to actObstacles to LoyaltyConsumer idiosyncrasies: Variety seeking, multibrand loyalty, withdrawal from product category and change s in need.

Switching incentives The degrees of customer loyalty can be defined a follows:

Suspects: Includes all the buyers of the product/service category in the marketplace. Suspects are either unaware of your product offering or have no inclination to purchase it.

Prospects: Potential customers who have some attraction towards your organisation but have not yet taken the step of doing business with you. Customers: One-off purchasers of your product (although the segment may include some repeat buyers) who have no real feelings of affinity towards your organisation.

Clients: Repeat customers who have positive feelings of attachment towards your organisation but whose support is passive rather than active, apart from making purchases.

Advocates: Clients who actively support your organisation by recommending it to others.

Partners: The strongest form of customersupplier relationship which is sustained because both parties see partnership as mutually beneficial.

It can be seen therefore that loyalty involves more than just making a purchase or even repeat purchases. Loyalty represents a positive level of commitment by the customer to the supplier and it is the degree of positive commitment which distinguishes truly loyal customers.

Promotional currency approach of loyaltyCustomers (or Members) earn a promotional currency (say, points or miles) based on some behavior. Members redeem the currency at certain levels or intervals for free and discounted goods and services.

As a rule of thumb, a promotional currency should be worth $0.01 on the redemption side of the equation.

The use of tiers in a promotional currency program may help stimulate behavior among members. There may be two approaches. One is, tiers based on actual spending and the other, tiers based on balance approach as illustrated bellow:Require redemption in fixed units:

Members should virtually always be required to redeem their currency infixed increments. This guarantees that members will almost always have abalance remaining after redeeming and, therefore, will be reluctant to defect because there is always something to lose. Having this structure will ensure that all of the promotional currency in a program can never be redeemed.Why Promotional Currency Approach is appealing? (especially in airline industry)High fixed/ low variable cost structure and idle capacityExtent of relationshipThe Ultimate QuestionHow likely is it that you would recommend our company to a friend or a colleague?Measure in 0-10 scale. Scoring the AnswerOne segment of the customers will give you a rating of 9-10. We call them Promoters. They are the highest in terms of repurchase and account for more than 80% of the referrals.One segment of the customers will give you a rating of 7-8. We call them Passively Satisfied. This groups repurchase and referral rates are a lot lower than those of Promoters, often by 50% or more. Motivated more by inertia than loyalty or enthusiasm, these customers may not defectuntil somebody offers them a better deal.One segment of the customers will give you a rating of 0-6. We call them Detractors. This group accounts for more than 80% of negative WOM. Some of the customers may appear profitable from accounting standpoint, but their criticism and attitude diminish a companys reputation, discourage customers and demotivate employees.

Net Promoter ScoreNPS Driving advocacy in the enterprise24PromotersDetractorsReduce the Detractors:Fix the broken partsCall downsCustomer First : Branded ExperiencePromotersDetractorsCreate more Promoters Deliver a differentiated and consistent brand experienceNPS = % of Promoters - % of Detractors24What is the norm out there?The average Net Promoter Score across over 400 companies in 28 industries is just 16%Top performers out there have an NPS of 75-80%Harley Davidson 81%Amazon 73%Apple 66%NPS Driving advocacy in the enterprise2525On to Loyalty and AdvocacyKnow what matters to your customersKnow how you stack up on these measuresDo something to fix them

Possible measuresNPS Driving advocacy in the enterprise26Drivers of satisfactionPerceived valueService level satisfactionCompetitiveness of feesProduct level satisfactionHow well you listenImportance vs satisfactionThe closeness of your relationshipLikelihood to recommendLikelihood to transactLikelihood to extend the relationshipRelationship strength26Sources of BiasFear of Retribution

Bribery

Grade InflationFighting BiasUse e-mail whenever feasibleTime feedback requests unpredictably if employees have an incentive to manipulate responsesMake team or individual employee scores transparent in order to enable community pricingUse a third party to collect a feedback so that customers can be completely candid and so that the promise of confidentiality is more credible.Educate employees and customers about the goals and ethical principles of your feedback process.Craft a simple and convenient process that makes it easy for customers to participate.