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
Some customers more profitable than others in the short term .Others may have room for long-term growth
Search for Value, Not Just Volume
Volume alone is no measure of excellence, sustainability, or profitability.
In professional services such as consulting firms or legal partnerships, the mix of business attracted may play an important role in both defining the firm and providing a suitable mix of assignments for staff members at different levels in the organization.
Search for Value, Not Just Volume
__________ should adopt a strategic approach to retaining, upgrading, and even ending relationships with customers.
- Marketers
Manage the Customer Base Through Effective Tiering of Service
_______________ involves developing long-term, cost-effective links with customers for the mutual benefit of both parties, but these efforts need not - necessarily target all the customers of a firm with the same level of intensity.
- Customer retention
Manage the Customer Base Through Effective Tiering of Service
Research has confirmed that customer profitability and return on sales can be increased by focusing a firm’s resources on top-tier customers
Manage the Customer Base Through Effective Tiering of Service
Draw an effective tiering of services
basta drawing
These customers form a very small percentage of a firm’s customer base, but are heavy users and tend to contribute a large share of the profits.
Platinum
This segment is usually less price sensitive, but expects higher service levels in return, and it is likely to be willing to invest in and try new services.
Platinum
The _______ tier includes a larger percentage of customers than the platinum, but individual customers contribute less profit than platinum customers.
gold
They tend to be slightly more price sensitive and less committed to the firm.
gold
These customers provide the bulk of the customer base. Their numbers give the firm economies of scale.
Iron
Hence, they are important so that a firm can build and maintain a certain capacity level and infrastructure, which is often needed for serving gold and platinum customers well.
Iron
However, _____ customers on their own may only be marginally profitable. Their level of business is not enough to justify special treatment.
Iron
Customers in this tier tend to generate low revenues for a firm, but often still require the same level of service as _____ customers, which turns them into a lossmaking segment from a firm’s perspective.
Lead
CUSTOMER SATISFACTION AND SERVICE QUALITY ARE PREREQUISITES FOR LOYALTY
The foundation for building true loyalty lies in __________________. Highly satisfied or even delighted customers are more likely to consolidate their buying with one supplier, spread positive word-of-mouth, and become loyal apostles of a firm.
customer satisfaction
CUSTOMER SATISFACTION AND SERVICE QUALITY ARE PREREQUISITES FOR LOYALTY
In contrast, ___________ drives customers away and is a key factor in switching behavior.
dissatisfaction
CUSTOMER SATISFACTION AND SERVICE QUALITY ARE PREREQUISITES FOR LOYALTY
The satisfaction–loyalty relationship can be divided into three main zones: (3)
defection, indifference, and affection
Customers will switch if switching costs are high or there are no viable or convenient alternatives.
The zone of defection occurs at low satisfaction levels.
Extremely dissatisfied customers can turn into “terrorists” providing an abundance of negative word-of-mouth for the service provider.
The zone of defection occurs at low satisfaction levels.
is found at moderate satisfaction levels. Here, customers are willing to switch if they find a better alternative.
The zone of indifference
is located at very high satisfaction levels, where customers have such high attitudinal loyalty that they do not look for alternative service providers.
The zone of affection
Customers who praise the firm in public and refer others to the firm are described as “________”.
apostle
is used to describe customers who drop off a company’s radar screen and transfer their purchases to another supplier.
Defection
Not only does a rising ________ rate indicate that something is wrong with quality (or that competitors offer better value), it may also be signaling a fall in profits.
defection
Big customers don’t necessarily disappear overnight; they often may signal their mounting dissatisfaction by steadily reducing their purchases and shifting part of their business elsewhere.
Defection
__________ is often defined as combining both behavioral and attitudinal loyalty, also referred to as share-of-wallet and share-of-heart.
True loyalty
___________ includes behaviors such as buying again, a high share-of-wallet, providing positive word-of mouth, and attitudinal loyalty refers to a true liking and emotional attachment of the firm, service, and brand.
Behavioral loyalty
It is important to note though that ___________ can be seen as a necessary but not sufficient driver of true customer loyalty.
satisfaction
__________ alone does not explain a large amount of variance in loyalty behaviors, and has to be seen in combination with other factors such as;
Satisfaction
___________ makes little sense and customers keep buying.
Switching
STRATEGIES FOR DEVELOPING LOYALTY BONDS WITH CUSTOMERS
(3)
Deepen the Relationship through cross-selling and bundling
Encourage Loyalty Through Financial and Nonfinancial Rewards
Build Higher-Level Bonds
STRATEGIES FOR REDUCING CUSTOMER DEFECTIONS
Analyze Customer Defections and Monitor Declining Accounts. Progressive service firms regularly conduct what is called churn diagnostics to gain a better understanding of why customers defect.
Address Key Churn Drivers
Implement Effective Complaint
Handling and Service Recovery Procedures
Increase Switching Costs
IN STRATEGIES FOR REDUCING CUSTOMER DEFECTIONS
Analyze Customer Defections and Monitor Declining Accounts. Progressive service firms regularly conduct what is called _______________ to gain a better understanding of why customers defect.
churn diagnostics
