Chapter 12 Flashcards
____________ is an old-fashioned word that has traditionally been used to describe fidelity and enthusiastic devotion to a country, a cause, or an individual.
Loyalty
in a business context describes a customer’s willingness to continue patronizing a firm over the long run, preferably on an exclusive basis, and recommending the firm’s products to friends and associates.
Loyalty
IMPORTANCE OF CUSTOMERS LOYALTY TO FIRM PROFITABILITY (5)
1.Profit derived from increased purchases (or, in a credit card and banking environment, higher account balances)
2.Profit from reduced customer service costs
- Profit from referrals to other customers.
- Profit from lower price sensitivity that allow a price premium.
5.Acquisition costs can be amortized over a longer period.
Over time, business customers often grow larger and thus, need to purchase in greater quantities. Individuals may also purchase more as their families grow or as they become more affluent.
Profit derived from increased purchases
Both types of customers may be willing to consolidate their purchases with a single supplier who provides high-quality service, resulting in what we call a high share-of wallet.
Profit derived from increased purchases
As customers become more experienced, they make fewer demands on the supplier (for instance, they have less need for information and assistance, and make use of self-service options more).
Profit from reduced customer service costs.
They may also make fewer mistakes when involved in operational processes, thus contributing to greater productivity.
Profit from reduced customer service costs.
Positive word-of-mouth recommendations are like free sales and advertising, saving the firm from investing as much money in these areas.
Profit from referrals to other customers.
New customers often benefit from introductory promotional discounts, whereas long-term customers are more likely to pay regular prices, and when they are highly satisfied they tend to be less price sensitive.
Profit from lower price sensitivity that allow a price premium.
Moreover, customers who trust a supplier may be more willing to pay higher prices at peak periods or for express work
Profit from lower price sensitivity that allow a price premium.
The upfront costs of attracting new buyers can be amortized over many years.
Acquisition costs can be amortized over a longer period
These customer acquisition costs can be substantial and can include sales commissions, advertising and promotions costs, administrative costs of setting up an account, and sending out welcome packages and sign-up gifts.
Acquisition costs can be amortized over a longer period
DRIVERS OF CUSTOMERS LOYALTY
(3)
- Confidence benefits
- Social benefits
- Special treatment benefits
included feelings by customers that in an established relationship, there was less risk of something going wrong, greater confidence in correct performance, and the ability to trust the provider.
Confidence benefits
Customers experienced lowered anxiety when purchasing because they knew what to expect, and they typically received the firm’s highest level of service
Confidence benefits
embraced mutual recognition between customers and employees, being known by name, having a friendship with the service provider, and enjoyment of certain social aspects of the relationship.
Social benefits
included better prices, discounts on special deals that were unavailable to most customers, extra services, higher priority when there was a wait, and faster service than most customers.
Special treatment benefits
BUILDING A FOUNDATION FOR LOYALTY
How do customer needs relate to operations elements?
How well can service personnel meet expectations of different types of customers?
Can company match or exceed competing services that are directed at same types of customers?
Acquiring the ___________________ often brings long-term revenues and continued growth from referrals.
right customers
It can also enhance employees’ satisfaction, whose daily jobs are improved when they can deal with ____________ customers.
appreciative
Attracting the wrong customers typically results in costly ____, a diminished company reputation, and disillusioned employees.
churn
Too many service firms continue to focus on the number of customers they serve without giving sufficient attention to the value of each customer.
For example, Starwood Hotels & Resorts found that their top 2% of guests generated a whopping 30% of its profits! Generally speaking, heavy users who buy more frequently and in larger volumes are more profitable than occasional users.
Search for Value, Not Just Volume
