Chapter 3

Building Customer Satisfaction, Value, and RetentionPowerPoint by Yu Hongyan Business School of jJilin University

Prof.Yu Hongyan,JLU

Agenda Deliver customer value and satisfaction.Factors to make a high performance business.How to attract and retain customers.How to improve both customer and company profitability.

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction Customers seek to maximize value by:estimating which offer (product/firm) delivers the most valueforming an expectation of value and acting upon it (purchase)evaluating their usage experience against the expectationsSatisfaction results when expectations are equaled or surpassed.

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd)Customer ValueFigure 2-1: Determinants of Customer Delivered Value

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd) Discussion Scenario Sales declined of Wal-Mart since some Depot opened in your University What specific changes might you make in your business to increase the total customer value offered, or to decrease the total costs incurred?

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd)Satisfaction Satisfaction is defined as . . . a persons feelings of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to his or her expectations.

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd)To maximize satisfaction . . .Dont exaggerate the product / services capabilities in advertising or other communications Dissatisfaction will resultFTC may become involved???Dont set expectations too low Market size will be limited

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd)ExpectationsPerformanceHighLowHighStrongSatisfactionLow Market SizePerformanceExpectationsDissatisfactionSatisfied or NeutralSatisfaction Trade-offs

Prof.Yu Hongyan,JLU

1. Customer Value and Satisfaction (contd)The definition of loyalty Most of companies aim for high customer satisfaction, which creates an emotional bond with the brand, not just a rational preference. The result is high customer loyalty

Prof.Yu Hongyan,JLU

ACSI

Prof.Yu Hongyan,JLU

2. High Performance BusinessFigure 2-2: The High-Performance Business

Prof.Yu Hongyan,JLU

3. Customer RetentionOn the Lands End Web site, customers can click a button to chat with a service representative

Prof.Yu Hongyan,JLU

3. Customer Retention (contd)Reducing customer churn (defection) is highly desirableDefine and measure retention rateIdentify causes of attritionEstimate profit lost from customer defection (customer lifetime value)Estimate cost to reduce defection; take appropriate action

Prof.Yu Hongyan,JLU

3. Customer Retention (contd) Discussion Scenario A company lost 6.5% of its 48,000 clients last year solely due to missed delivery deadlines. Each account averaged $35,000 in annual revenues. Acquiring a new customer costs $125, five times more than it costs to satisfy / retain existing clients. (1)alculate how much profit is being lost annually, assuming an 8% profit margin. (2) Calculate and compare the acquisition cost to what it would cost to retain/satisfy clients.

Prof.Yu Hongyan,JLU

3. Customer Retention (contd)Relationship EquityBrand EquityValue EquityCustomer FocusDrivers of Customer Equity

Prof.Yu Hongyan,JLU

3. Customer Retention (contd)SuspectsCustomer DevelopmentWhy Process?

Prof.Yu Hongyan,JLU

4. Strong Customer BondsKeys to Success

Adding Financial BenefitsAdding Social BenefitsAdding Structural TiesFrequency programsClub memberships

Prof.Yu Hongyan,JLU

4. Strong Customer Bonds (contd)The U.S. Harley Davidson site promotes the benefits of joining H.O.G. (Harley Owners Group)

Prof.Yu Hongyan,JLU

4. Strong Customer Bonds (contd)Keys to Success

Adding Financial BenefitsAdding Social BenefitsAdding Structural TiesPersonalize customer relationshipsGive an example of a local business that has added social benefits

Prof.Yu Hongyan,JLU

4. Strong Customer Bonds (contd)Keys to Success

Adding Financial BenefitsAdding Social BenefitsAdding Structural TiesCreate long-term contractsCharge less for ongoing purchasesLink product to long-term service

Prof.Yu Hongyan,JLU

Prof.Yu Hongyan,JLU

4. Strong Customer Bonds (contd)20% of your customersHalf of your profit is lost serving the bottom 30% of your customer baseGenerate 80% of your profit308020

Prof.Yu Hongyan,JLU

ReviewCustomer Value, satisfaction and loyaltyhigh-performance businessesHow to attract & retain customersCustomer Bonds

Prof.Yu Hongyan,JLU