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INTRODUCTION TO UNDERSTANING OF

CUSTOMER

INTRODUCTION TO CUSTOMER

The word derives from "custom," meaning

"habit"; a customer was someone who frequented a

particular shop, which made it a habit to purchase

goods of and with the shopkeeper had to maintain a

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relationship to keep his or her "custom," meaning

expected purchases in the future.

The slogans "the customer is king" or "the

customer is god" or "the customer is always right"

indicate the importance of customers to businesses

although the last expression is sometimes used

ironically.

This section looks in more detail at what we

mean by customers and how they are different

from consumers and clients. It considers all

external and internal stakeholders as customers,

consumers or clients of a marketing activity. So, an

internal stakeholder might be the consumer of a

service performed by another department in the

same organization. The key differences between

those stakeholders are who buy a product or service

(the customers) and those who use it (theconsumers). Customers and consumers may be the

same or different people.

Note what distinguishes a customer from a

clientand the different kind of relationship each has

with a service provider. In your own work context,

when areyou a consumer, a customer and a client?

Who areyourconsumers, customers and clients?

An understanding of marketing requires a

clear understanding of the terms customer,

consumer and client. The customer is the personbuying from an organization. The customer can also

be another organization, for example, when a

bookstore buys from a book publisher. The

customer will alsobe the consumerifthe person or

organization uses what has been bought. This is not

the case with the bookstore: there the bookstore is

the customer of the publishing company and a

person buying a book from the bookstore is likely to

be the consumer.

Here are two simple examples that highlight

the distinction (difference):

You choose, buy and eat an ice cream.

Here you are the customer and consumer.

Your child chooses and eats an ice cream

but you pay for it. Here your child is the consumer

and you are the customer.

Customers and clients

Now we turn to the difference betwee

customers and clients. The term client is generally

associated with the provision of professiona

services (such as accountancy and legal services). In

these contexts, the specific service being provided is

normally discussed and agreed between client and

provider. While the client has more influence ove

the specification of the product or service being

provided, the service provider. The marketer in this

context is often in a position to advise the client as

to what his or her needs and wants actually are, and

then charge fees for delivering services that meet

these needs. You should immediately recognize that

the power balance between the marketer and the

person being provided with a product or service can

be quite different according to whether the person is

a customer or a client.

TYPES OF CUSTOMER

Customers play the most significant part in

business. In fact the customer is the actual boss in a

deal and is responsible for the actually profit for the

organization. Customer is the one who uses the

products and services and judges the quality o

those products and services. Hence its important

for an organization to retain customers or make new

customers and flourish (grow) business. To managecustomers, organizations should follow some sort of

approaches like segmentation or division of

customers into groups because each customer has to

be considered valuable and profitable.

Loyal Customers: These types of customers are

less in numbers but promote more sales and profit

as compared to other customers as these are the

ones which are completely satisfied. These

customers revisit the organization over times hence

it is crucial to interact and keep in touch with them

on a regular basis and invest much time and effort

with them. Loyal customers want individua

attention and that demands polite and respectfu

responses from supplier.

Discount Customers: Discount customers are also

frequent visitors but they are only a part of business

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when offered with discounts on regular products

and brands or they buy only low cost products. If

the discount is more, more they tend towards

buying. These customers are mostly related to small

industries or the industries that focus on low or

marginal investments on products. Focus on these

types of customers is also important as they also

promote distinguished part of profit into business.

Impulsive Customer: These customers are

difficult to convince as they want to do the business

in urge (advise) or caprice (impulse). They dont

have any specific item into their product list but

urge to buy what they find good and productive at

that point of time. Handling these customers is a

challenge as they are not particularly looking for a

product and want the supplier to display all the

useful products they have in their tally in front ofthem so that they can buy what they like from that

display. If impulsive customers are treated

accordingly then there is high probability that these

customers could be a responsible for high

percentage of selling.

Need Based Customers: These customers are

product specific and only tend to buy items only to

which they are habitual or have a specific need for

them. These are frequent customers but do not

become a part of buying most of the times so it isdifficult to satisfy them. These customers should be

handled positively by showing them ways and

reasons to switch to other similar products and

brands and initiating them to buy these. These

customers could possibly be lost if not tackled

efficiently with positive interaction.

Wandering Customers: These are the least

profitable customers as sometimes they themselves

are not sure what to buy. These customers are

normally new in industry and most of the times visit

suppliers only for confirming their needs and create

the awareness of their product /service. They

investigate features of most prominent products in

the market but do not buy any of those or show least

interest in buying. To grab such customers they

should be properly informed about the various

positive features of the products so that they

develop a sense of interest.

Using this understanding to help turn

Discount, Impulse, Need-Based, and even

Wandering Customers into Loyal ones will help

grow our business. At the same time, ensuring that

our Loyal Customers have a positive experience

each time they enter our store will only serve to

increase our bottom-line profits.

ROLE OF CUSTOMER

The initial question is: Who is your

customer? This is not always obvious since there

are many factors involved in the purchase and use

of a certain product or service. Yet five main roles

can be identified that exist in many purchasing

situations. Often several, sometimes all of these

roles might be conducted by the same individual but

recognizing the needs and requirements of eachseparately leads to potential areas for service

design.

The following figure shows the most

common roles that customers represent.

Here is a short description of the single roles:

Initiator: The individual who initiates the search

for a solution to the customers problem.

Influencer: Individuals who have some influence

on the purchase decision.

Decider: Taking into consideration the views of the

initiator and influencer some individual will make

the decision as to which product or service should

be purchased.

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Purchaser: The individual who is actually paying

for the product or service

User: The individual who finally consumes the

product or service

It is important to understand that in any

buying situation. The various actors can and will

influence the buying decision and they will also be

either active or passive experiencing a product and

service. Therefore should be considered when

designing the overall brand experience. If

different individuals undertake these roles, it is

necessary to develop individual and differentiated

services to satisfy the different needs and

requirements.

The standard example for this is a visit to a

theme park with children. The initiator might be the

child that saw an advertising on TV, while thedecider and purchaser are the parents. While it is

important to design a great experience for children

at a theme park, it might be even more important to

focus on the experience of parents because

ultimately they will decide and pay for the next trip

to Disneyland.

The different roles become even more

apparent in a business-to-business context.

CUSTOMER INFORMATION AND

DATABASEUnderstanding your customers helps you to

sell them more of your products and services as

well as support them better.

And it starts by understanding who are they? And

what are their needs?, profiling them also makes it

easier to find new ones. You can look for similar

prospects, and sell to them in a similar way and

retain your existing ones.

As you evaluate your options, you face questions

like:

y What information to track?

y How toorganize the information?

y Which Database Software to Use?

The first question about the database you

should consider is:

WHAT INFORMATION TO TRACK?

This varies dramatically, but there are severa

frequently used types of business information:

y Contact details

y Customer preferences

y Communications history

y Sales history

y Actions

y Payments

Then there is business-specific customer

information. For example, family-oriented

organizations track family members, real estate

companies track the properties, and engineering

firms analyze equipment they maintain on behalf of

the customers and so on.

HOW TO ORGANIZE THE INFORMATION?

How all this information can be organizedfor an easy access and use? Should it fit into a

single system or multiple systems? How can I fit

my data into the database structure?

Single vs Multiple Systems

Using a single database minimizes the hassle

of synchronizing multiple sources of data and

improves data accuracy. However, if your business

software must incorporate industry-specific logic

you are unlikely to find an integrated system that

includes both that logic and a full-featured customerdatabase. In that case, the best option is to use your

industry-specific software as a primary source of

information and copy the customer records from

that software into the customer database, where you

add more information to them. As much as possible

avoid synchronizing the two systems both ways

there should be just one master customer database.

Customizing databases tofit your information

The organization analyzes what information

goes into your database and where it comes from

consider how this data can fit into the database. The

simplest method of customizing a database is

creating extra fields in the customer record. Many

database programs make it easy and so you can

accommodate business-specific information by

adding more and more fields.

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When you have hundreds of fields, the

system becomes difficult to manage. This is

probably because you have put together information

about different objects. Re-structuring your data

makes it easier to access and manipulate. There are

two methods of re-structuring such data:

Splitting customer records into related

record types

Storing some information in external files

Splitting customer records into related record

types:

Suppose we need to record basic family

information:

y Family name

y Husband's name and birthday

y

Wife's name and birthdayy Child 1 name and birthday

y Child 2 name and birthday

y Child 3 name and birthday

If you were to add all these details to your

customer record, they will occupy eleven fields.

Finding a John Smith will be difficult - you need to

search four times - for John as the husband, Child 1,

Child 2 and Child 3. And the system won't

accommodate families with four or more children.

To handle this information, the databasescan store it in different record types and relate these

records to one another. Because of these ability

these databases are called relational (as opposed to

flat) databases. In a relational database, you would

have family and person information in different

records and link persons' records to their family

record.

In our example, each personal record will

then have three fields: name, birthday and the link

to the family record. John Smith can be easily found

with one search, no matter who he is in the family.

The difference in ease of use is even more apparent

when you need to store more information, like

insurance policies with number, name of the

insurer, monthly premium, expiration date etc.

To see if a piece of customer information

should be tracked in a separate record type check

whether a customer can have more than one of it.

Can a customer have multiple policies? Family

members? Air conditioners? Can a customer be

included into multiple lists? If the answer is yes

then those objects should be tracked separately and

linked to the customer records. If no, they can be

incorporated into the customer record.

Store some information in external files.

There is a natural desire to track all

customer information on the database, but is it

really required? There are some data types that

databases don't handle well, for example

spreadsheets. The databases are designed to work

with large number of similar records, while in a

spreadsheet each row could be different from the

previous one. Spreadsheets' formulas can be easily

modified, while in databases they are programmed.So if you are used to tracking some

customers information in spreadsheets or some

other external files (photos, text documents etc)

perhaps it is worthwhile to continue doing so

linking those files to the customer records. You wil

keep your database simple and agile and retain the

familiar ways of working with these files, but can

still easily access all customer information from a

central location.

The down side is that you cannot easilysearch on or otherwise process the information that

is stored externally. If you store customer

borrowing power calculations in E

spreadsheets, you can easily access this data on any

customer, but cannot find customers who can

borrow in a specified range without going through

each and every record.

Which Database Software to Use?

Many people consider one or more of the following

choices:

y Microsoft Access

y Popular contact managers, such as ACT or

Goldmine

y Accounting program

y Employing a software developer

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y A package that is both simple and easily

customizable, such as Simply Contacts

Database.

Microsoft Access

Perhaps one of the first programs people

turn to when it comes to building customer database

is Microsoft Access, probably the single most

popular database program. Most already have it as

part of Microsoft Office Professional orPremium,

making it an easy choice. The system comes with

Wizards assisting in setting up new databases,

creating tables and basic forms.

Access is a great system in the hands of a

professional, but developing a functional customer

database in it usually requires more expertise and

time than a business person can afford.Popular Contact Managers

Many people have heard about ACT and

Goldmine. Unlike Access, which is a generic

database tool, these programs are business

applications designed with customer management in

mind. They offer rich contact management

functionality out of the box and can be extended by

adding extra fields, reports or buying add-on

modules.

The program's functionality suits a busysalesperson whose day is filled with appointments,

pursuing leads, writing proposals, closing sales and

so on. But for many other users it is simply

excessive.

Accounting Program

The main purpose of a customer database is

to improve service and relationships with your

customers. The main purpose of accounting

software is to balance your books. Customer

database deals with the client side of your business

and does not go beyond order fulfillment.

Accounting software deals equally with the sale and

supply sides. You should track prospects on your

customer database, but a prospect is of no interest to

accounting.

Employing a Software Developer

Use a software developer if your needs are

radically different from other companies.

Developers can build a system highly tailored to

your business but you need to know very well what

you want to accomplish and relate this to a

developer in a clear and concise brief.

Very often business people describe what

they need as a "simple program". But as the project

unfolds, it turns out the software should do more or

handle special cases that were not initially planned

This causes disputes, cost increases and frustration

on both sides.

Simply Contacts Database

Then there are programs like Simply

Contacts Database. Out of the box, it includes

basic contact information, customer history, an

notes and can attach external files, such as text

documents, spreadsheets or pictures to the customer

records or history. It can print mailing labels and domail merge and e-mail merge.

But the best thing about this software is its

flexibility and expandability. There is a simple

function to add extra or remove unwanted fields that

automatically adjusts all standard screens and

reports. On top of this, users can define their own

screens and reports. For example, if you want to

track both customers and suppliers on your database

you can create "customer view" and "supplier view"

with different fields to view the respective recordsyet display full information in the "contact view".

With a program like Simply Contacts Database, you

can start with the data that you already have and

easily add more fields as the need arises, perfecting

the understanding of the business requirements for

your customer database.

CUSTOMER ANALYSIS

The American marketing association

www.marketingpower.com defines market research

as: "The systematic gathering, recording, and

analysis of data about problems relating to the

marketing of goods and services". Consumer

analysis is an important part of this marketing

research. Without marketing research, it is quite

impossible today to start any business. Consumer

analysis is the first step of any marketing research.

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In this module, our objective is to develop

your skills in consumer analysis. Consumer analysis

allows you to identify your prospect and segment

market. The objectives of this consumer analysis

lesson are to give you the fundamental notions

about:

*Customer benefit

*Customer profile

*Market customer

By the end, consumer analysis techniques

will enable you to establish your market

segmentation.

1. Customer benefits 2. Customer profile

3. Market customer 4. Do it yourself 5. Coaching

Understanding is beginning with

segmentation. Segmentation is all about splitting a

market up into relevant sections to make marketingmore effective. In order for a business

to segment its market, it needs to understand and

analyze its target customers. A problem that faces

any start-up or small business is that customers are

not all the same.

In short, the challenge for a business is to:

Identify groups of customers who have similar

needs and wants

Find a way of offering (positioning) a product

which is attractive to those customer groups

Markets consist of customers with similar

needs. For example, consider the wide variety of

markets that exist to meet the need to:

Eat (e.g. restaurants, fast food)

Drink (e.g. coffee bars, pubs & clubs)

Travel (for business and leisure, near or far)

Socialize (as couples, with family, with friends)

Be educated (as a child, adult, for work or other

reasons)

As you can imagine, such markets (if they

were not further divided into smaller parts) would

be very broad and difficult for a new business to

target.

The great news for any new business is

that customers in any broad market are not the

same. For example, within the market to provide

meals, customers differ in the:

y Benefits they want (food quality, ambience

dietary health)

y Amount they are able to or willing to pay

(budget, expensive)

y Quantities they buy (bulk buy or one-off

purchase)

y Time and place that they buy (fast-food

up-market restaurant)

It therefore makes sense for businesses to

divide (orsegment) the overall market and to

target specific segments of a market so that they can

design and deliver more relevant products

Understanding Customers will give you a

theoretical introduction to understanding and

analyzing business information.

Generally the customers are classified into

**Internal customers**External customers.

Internal customers are members of staff or outside

suppliers that contribute towards the service

provided to external customers. They include:

y Colleagues

y Managers/supervisors

y Staff in other functional departments

Good customer service to internal customers wil

help to establish good working relationships

between colleagues, managers and staff teamsThese relationships are important if the business is

to function effectively. For example, working in a

pleasant environment where staffs are supportive o

each other can keep staff turnover and reduce the

absenteeism.

External customers, on the other hand, are the

people who we more usually associate with the term

customer, i.e. the people that actually buy or use

an organizations products and services.

A key point to remember is that there are

many occasions in which a business comes into

contact with external customers. It is not just about

the moment a transaction takes place. Points of

customer contact take place:

y When a customer is enquiring about the

product

y Taking a customer order or payment

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y Delivering a product

y When handling a complaint or problem

y When making repairs or doing maintenance

y Providing after-sales care

Knowing vs. Understanding Your Customer

There's a difference between knowing who

your customer is and understandingyour customer.

You need to do both. Most people spend most of

their time on the former and too little time on the

latter. This will ultimately result in failure. Why? If

you don't understand your customer, you won't have

full clarity on your value proposition.

Knowing your customers is information

typically collected by a business. It means you

know who they are demographically, what content

they're reading, and so on. Most companies do agood job on this front.

When it comes to understanding customers,

however, many companies come up short.

Understanding customers helps businesses deliver

an online product with meaningful and compelling

value propositions that meet not only their current

needs but also their evolving and future needs.

Nissan Motor India opens first field quality

centre and training facility in India. Training

facility opens at Nissan manufacturing plant atOragadam. The purpose for fieldquality & training

centre is to achieve a better understanding of

customer need s so it can build vehicles that

garner(acquire) a higher level of customer

satisfaction. This will be 7th facility set up by

Nissan across the globe.

Nissan Motor India Managing Directorand

Chief Executive Kiminobu Tokuyama said, At

Nissan, quality is a key attribute in establishing

brand value. The training centre will provide

product, process and soft skill training for

dealership staff, which will help us better focus on

ensuring a quality ownership experience for our

customers.

IMPORTANCE TO KNOW ABOUT

CUSTOMERS

First, customers are not created equal. They

come and buy from you for different reasons based

on different motivations. Some buy because they

find your price to be the lowest, some because they

find your services to be outstanding, while some

purchase from you because of your reputation in the

industry.

Second, by knowing and understanding your

customers, you will be able to better leverage your

time, energy and resources to pursuing the right

customers. You can adapt your selling strategies to

each type of customer: shorter and quicker selling

strategies to price-conscious customers, while

dedicating more time and resources to your most

important and high-potential customers. Especially

if you are a one-person business owner, you need to

reevaluate your customer relationships and makechoices about how to maximize and effectively use

your limited time and resources.

Below is a list of questions that can help you

look at your customer's motivations and in the

process learn new insights about your customers

their needs and threats and opportunities that exist

These five questions will help you get a snapshot of

your business where your healthy relationships

exist, where there are opportunities, and where there

are potential problems.Why does your customer buy?

Customers have different motivations when

they buy. Some consider price as the main deciding

factor, often looking for the lowest available price

Others try to find ways to reduce cost and at the

same time enhance revenue and improve quality.

But most of all, customers buy your

products because of the value that it can give them

They are not buying your product per se, but what

your product can give them. They are buying the

satisfaction of a want. It is important that you know

what customers consider most valuable about your

products or services. Ask and talk to your customers

to find out. Once you have a list, ask them again if

you are indeed delivering what they want.

The two questions will determine the

relationship that you will have with the customer.

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What does the customer value with regards

to your products and services?

How well do you provide that value?

How much of the customer's total business do

you have compared with your competitors?

Your relationship with your customer is also

shaped by the amount of business that you have

with them. You may either be the sole supplier, or

you may be constantly fighting for a share of the

customer's business.

If you share your customer's business with

your competitors, you may want to select and

pursue appropriate and inventive (creative)

opportunities to increase that share, and carefully

document the profitability efforts. Think of possible

ways to make the customer want to do business

with you alone, or at least bring the major bulk oftheir business to your company. You can even ask

the customer directly, "How can I earn more of your

business?" With this knowledge in hand, you can

develop a focused strategy for your key customer

that delivers on what each customer agrees is

important to him or her.

How does your customer see you?

According to Larry Wilson, author of the

bookStop Selling, Start Partnering: The new

thinking about finding and keeping Customers, acustomer may view you in three ways: you are just

anothervendor, a problem solver, or a partner.

The most ideal would be to be viewed by

your customer as a partner. You are trusted and

relied upon to make the collaboration work for the

both of you. These are the types of relationships that

result in long-term profitability.

How difficult is it for the customer to shift to

your competitor?

Loyal customers are important to your

bottom line. Studies show that repeat customers

often spend more money, generate larger

transactions, refer more customers, and buy a

broader range of products than one-time shoppers.

Hence, it is vital to understand the ease or difficulty

with which your customer can shift business to a

different supplier.

Some businesses tend to have inherently

high switching costs for customers, while others

enable to switch to a competitor at a low cost

Customers who have made significant investments

in people, time, manufacturing processes or

technology to use your products have high

switching costs.

Some of the strategies to keep the customer

locked into your business include lengthening lock-

in cycle through purchase agreements, contracts or

licensing; incorporating proprietary improvements

designing products and promotions to get customers

to invest in your product such as special offers to

loyal customers or trial usage for new customers

and leverage your customer base by selling

complementary products.

What does the customer expect after a sale?

The hardest part of the sale is after the sale

is made. It is the make or break period: the

customer's expectations will either be realized or

failed. It is the time where you will know whether

the level of activity, delivery, customer service and

commitment to promises made all supported the

sales effort.

It is important to carefully establish the level

of expectation that customers should have after the

sale. Some customer may expect little or no supportwhile some require processes or systems be put in

place to guarantee that their purchasing experience

remains smooth (e.g. return of the merchandise

provision of required technical support, etc.).

Knowing your customers can help you

increase sales, loyalty and profits. If your business

is not doing as well as you expected, you may want

to think about customers and your business

differently than you might have in the past and be

willing to change the behaviors that produce your

current results.

CUSTOMER CHARACTERISTICS

You can start by defining your ideal

customer and list all characteristics you will expect

in this profile:

***Business to consumer: The main

characteristics are quite unlimited: Geographic area

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age, sex, income, level of study, employment and so

on. So keep close to your benefit analysis and just

list the characteristics that correspond to the

benefits you offer: If you sell bathing suit, you will

not care for people living in North Pole. If you sell

fur clothes, do not lose your time with the

characteristics of people living in Central Africa!

***Business to business: The main characteristics

are the company size, the products or services, the

level of technology, the turnover, the staff number,

the location and so on. You must describe the

required customer profile according to your product

or service

Example: What's the customer profile for fun

board?Demographic characteristics: 15 to 25

years old, male, and healthy

Economic characteristics: Student or

young professional, not less than $30,000 income

coming from parents or work.

Social characteristics: Middle and upper-

middle class.

Geographical area: North America,

Australia, Northern Europe.

Special interests: Sport like and sea like.

You just have to think in order to define

your customer profile: Of course, he is a young

man. He has good money because you cannot afford

to buy a fun board when you are short for your daily

living. So, you can expect that he comes from

developed countries. Obviously, he likes sports and

sea very much.

Why do you need all these characteristics?

The response is that you need the larger information

to channel effectively your advertisement: For

example, the fact to know where he is located will

conduct you to advertise mainly in English and in

sportsmen newspapers.

***High and low involvement benefits

Now, we have to examine another topic: Are

these functional or psychological benefits quite

important for the customer. It means that we have to

distinguish low and high involvement products.

Definition:Ifa consumer pays attention to buy a

product, then it is considered as a high

involvement product. If he does not pay too

much attention, there is a low involvement

product.

Of course, all the expensive products are

always high involvement products: Flats, cars

antiques and so on. Nevertheless, some inexpensive

products can be said high involvement products

For example, the consumers pay attention in

buying cheap drugs because health is an

important stake. What is more, this feature

depends also on the customer: For example, a

fashionable dress is a psychological benefit but it becomes also a high involvement item for hi

appearance.

So, it is always fruitful to bring some high

involvement topics to your product. High

involvement feature to a quite basic product. It

enables you to differentiate your product from the

competition and to charge a high price.

Finally, the product which gives the greater

benefit to the consumer must gather both thre

characteristics: Functional benefits, psychologicabenefits, high involvement features.

Customer buying process

According to your customer profile, you

have to focus on the customer buying process. It is

not the same thing to buy a candy, a car or a rea

estate. You have to emphasize on the following

aspects. I call it the DTHP process:

Who is the decision making person?

DECISION

TIME

HOW

PAY

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In business to business, the purchaser may

be a top ranking executive: The more hierarchical

levels involved, the more difficult the sale.

In business to consumer, the buying process

could imply on person or the entire family. The

same observation applies: The more individuals or

groups involved, the more difficult the sale.

At what time or period, does he buy?

Consider frequency and regularity of the

purchases. Some business follows seasoning periods

such as the toys, the bathing suit. This period can be

short: For example, the selling of flowers on

Sunday, or the clothes during the discount periods.

How does he buy?

The buying decision includes the following

process:

STEP-1: The customer becomes aware of a need:The need could originate from an impulse (candy)

or from a recognized deficiency (such as a

refrigerator)

STEP-2: The customer begins to explore how

meeting the need: He reads newspapers, yellow

pages, and so on. It is very important to know how

he explores to target advertisement channels.

STEP-3: According to the need and his income, the

customer refines the buying criteria and defines a

budget.STEP-4: He narrows the field of his choice in

comparing quality/price ratio. He could need

physical touch or face to face interaction such as a

test drive.

STEP-5: Finally he closes the sales. In many

process, he needs to be helped by a salesman.

How does he pay?

Does he use cash, check, or credit card?

Does he ask for times payment? Does he need a

loan? If you could link some financial services to

your product, such as times payments, it should give

you a high advantage especially for expensive

items.

USES OF CUSTOMER ANALYSIS

Identifying WHO your best customer is

Customer analysis can help you identify

who your customer is and thereby improve the

segmentation targeting and positioning process

Remember 80% of your business will come from

20% of your customers. It is important you know

who those customers can be.

Planning out retention plans for your new

customers

New customers are important but so ar

returning customers. Thus customer analysis can

help convert your first time customers to returning

customers

Inducing further buying from your existing

customers

Cross selling, impulse purchases are some of

the methods which increase purchasing by your

existing customers. Example, if you know

customers who have bought jogging equipment, you

can cross promote other jogging related fashion tothem.

Improving customer service

Once you know who your customer is, you

can know what kind of services they will demand

Thus customer analysis will also help in service

deliverability.

Effective campaign planning

The demography and purchasing habits of

your customers will help you with planning a highly

effective campaign thereby improving your target.Increasing market share

What if while doing customer analysis you

recognize a set of customers that havent been

targeted by you? At the same time, you also

establish procedures better then the competitors. It

will increase in market share.

Increasing overall profitability

Once the above factors are analyzed the

company reaches or attains profit. Businesses are

established for profits. And overall profitability as

well as well being of the organization increases

once its customers are satisfied. And customer

satisfaction will happen only through customer

analysis.

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CUSTOMER PERCEPTION

A customer perception analysis is an

investigation into customer expectations as well

their requirements by a company or a business or

any organization catering to specific customers.

Any company needs to be aware of what its

customers are thinking, how trends change with

their customers preferences, what their expectations

are and how to meet those expectations. Thus, a

customer perception analysis is a vital exercise

which can lead to considerable improvement in the

companys handling of its customers, and their

behavior towards them. The results of such a

customer perception analysis must be tabulated

properly and it can be a valuable source of figuring

out how customer perceptions change the way a

company operates.

It is important to underscore the word

perception. Perception is the act of discriminating,

realizing, and becoming aware of through the

senses. The customers perception is what counts,

not what we think it is. To understand this point it

helps to consider perception categorized into (4)

quadrants:

How a Graphic ArtsCompany views itself

How the customerviewsthe Graphic Arts

company

The realview of the

Graphic Arts company

How a Graphic Arts

Company thinks the

customerviews the

company

The first quadrant has value, but includes

obvious blind-spots. Some of us score higher in self

objectivity than do others. The second quadrant is

the one that counts most and the goal of assessing

customer perception is to develop as accurate a

picture of the customers view as possible. The

third quadrant is a companys perception of how its

customers perceive it. Bias creeps into this

quadrant as well. The fourth quadrant is an mixture

of 1 3 and deals with a philosophical discussion

similar to, If a tree falls in the forest .

In practice, our profile of customer

perception resides in the third quadrant because our

ability to vision, listen, and interpret is in itself a

perception which carries filters. A quick review o

concepts related to perception helps attain higher

degrees of accuracy when assessing customer

perception because it is wise to remember tha

beauty is in the eyes of the beholder and in this

case the beholder writes the check.

CUSTOMER COMPLIENTS/FEEDBACK

Assessing customer perception is useless

unless the information leads to actionable

feedback. By this I mean that the information is

not only relevant, but based on its presentation, it isclear what action should be taken to improve overall

customer satisfaction.

To this extent, assessing customer

perception should be part of an overall systematic

approach aimed at improving customer satisfaction

There are five basic categories of methods to gather

customer perception information.

1. Surveys

2. Feedback Cards/comment card3. Focus groups (e.g. 20 groups

derived from the auto industry)

4. Face to face interviews

5. Telephone interviews

6. Customer Complaint Process

7. Employee feedback

SURVEYS

Our experience suggests that providing the

customer with a survey is the most frequently used

method to obtain customer feedback. These vary in

length and focus with the most common categories

for questions covering,

1) Quality of product, 2), timeliness of

delivery,

3) Price, 4) responsiveness & flexibility,

5) Service quality,

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6) Cooperativeness of Customer Service

Representatives and/or Sales Representatives,

7) Innovation and creativity,

8) Vastness (immensity) of service

offerings etc.

MERITS: Relatively easy to coordinate the

distribution.

Relatively inexpensive.

DEMERITS:

Response rate is not usually stellar. We

have not performed a formal study to define an

average response rate, but we are told that if you do

really well, a company might approach 50%.

You cant control who responds and who

does not. So, you may not necessarily obtain arepresentative perspective of the overall customer

base.

Poorly crafted questions may create a built-

in bias by leading the respondent to answer in a

certain way. This is an issue with all methods of

assessment, but with a survey there is no

opportunity for two-way communication that might

resolve misunderstanding.

FEEDBACK CARDS /COMMENT CARDSThese are attached to the product, or to an

invoice, and focus on the quality of a product

shipment. Areas of focus typically include;

1) product quality, 2) condition of the

product when it arrived, 3) timeliness, and 4)

packaging.5)name ,age gender, of customer

MERITS:

Inexpensive to execute.

The cards are attached to something that is

already going to be shipped or mailed.

Because it is smaller in size and therefore

less burdensome to complete, the recipient may be

more inclined to return it.

DEMERITS:

The size of the card restricts the number of

questions that can be listed.

Although directions for distribution (who

should complete it) are included on the card, the

card often does not hit its intended target.

Sometimes the receiving department

throws away the card.

You cant control who responds and who

does not. So, it is unlikely that you obtain a

representative perspective of the overall customer

base.

FOCUS GROUPS

A focus group session is a meeting conducted with

a variety of customers to assess a product or service

Meetings can also focus on service or process

issues. The automobile industry conducts what it

calls 20 Groups where it brings a group of twenty

customers together for the purpose of discussion. Ina traditional Market Research sense, the results

generated in a focus group are not considered

scientific and are used to further hone other research

instruments like a survey. We know of Graphic

Arts firms that use the concept with a twist by

bringing buyers and prepress/customer servic

representatives together for the purpose of

improving file transfers and/or job related

communication.

MERITS:Sometimes a customer will think of an idea with

others present that he/she otherwise would not.

Generates a good deal of input in a short span of

time.

DEMERITS:

If not facilitated properly (focus on the outcomes

and actionable items), the meeting can turn messy

When this happens, it is worse than if nothing was

attempted.

Sometime individuals in a group are subjected to

group think and support the viewpoints of others

rather than voice their own.

Face to Face Interviews

You may see these being executed at

shopping mall. Shoppers are escorted into a room

where a prepared survey is completed which usually

includes both open-ended questions and those that

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require a rating. In the Graphics Arts world a

company often relies on the sales force to obtain the

customers perception by sitting down and having

customer-supplier meetings.

It is important to use interviewers that are

independent of the process. It is not unusual for

ownership to say, My sales force has a handle on

the customer. After all, thats what I pay them for

and they dont get paid unless they keep the

customer happy. Ill restate the point that

interviewer independence is mission critical.

MERITS:

The setting provides an opportunity to clarify

questions and discussion topics because

communication is two-way. The interviewer can

check-in for both nonverbal and vocal cues.

The interviewee might be more attentive and

thorough in answering questions when an

interviewer is involved.

DEMERITS:

The interviewer is constrained by geography.

Either the interviewer visits the interviewee or vice-

versa. So to obtain wider coverage can be

expensive.

The interviewer may enter bias into the activity, by

either saying too much (leading the interviewee),

not listening well, or by not accurately orcomprehensively recording responses.

TELEPHONE INTERVIEWS

These are not telephone solicitations.

Rather these are contacts made with existing

customers for the purpose of assessing their

perception of how well a company is meeting their

needs. With intelligent crafting of both questions

and sequence (the nesting of questions), a

tremendous amount of useful and actionable

information can be gleaned. As previously stated, it

is critical to use interviewers who are completely

independent so as not to filter the information. (Eg:

TOLL FREE NUMBER)

MERITS:

The setting provides an opportunity to clarify

questions and discussion topics because

communication is two-way. The interviewer can

check-in for vocal cues.

The interviewer is not constrained by geography.

The interviewee might be more attentive and

thorough in answering questions when an

interviewer is involved.

DEMERITS:

The interviewer may enter bias into the activity, by

either saying too much (leading the interviewee)

not listening well, or by not accurately or

comprehensively recording responses.

Customer Complaint Process

By customer complaint process I mean a formal

process. Generally a company implements a form

or electronic recording method for capturing a

complaint. Responsibilities are assigned toindividuals to resolve the immediate issue. The log

of complaints is analyzed to determine patterns and

root causes of customer perceptions for the purpose

of permanently eliminating the condition causing

the complaint.

MERITS:

If a company genuinely listens to the complaining

customer, it is hearing an unsolicited cry for help

and there is no better substitute for that particular

perception. Proper handling of the complaint can lead to a

save which may improve the relationship.

DEMERITS:

Making this method the only source of customer

perception. Often times customers do n

complain; they just never do business with you

again.

EMPLOYEE FEEDBACK

The internal customer or employees gives

suggestion n towards the product or service before

commercialization

Applications forCustomer Perception analysis

Business performance improvement activities

Sales force effectiveness programmes

Strategic re-positioning

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Exploring current and new market needs and

opportunities

Strategic change programmes

Developing customer-centric capability models

EXPECTATION ANALYSIS

Understanding customer needs and

expectations is very important to a product or

service-oriented organization as it protects against

dissatisfied customers. Many business men run their

business by customers complaint. After customer

needs and expectations are identified, customer

satisfaction must be monitored and the findings

used to generate improvements. Proactively

conducting customer satisfaction surveys also

generates a positive impression on customers about

the organizations interest in them.

customers expectations VS perceptions

When a customer begins a relationship with

you he or she already has a specific set of

expectations. These expectations are based on their

perceptions of you, your company and yourindustry. They are formed through personal past

experience, and the experience of others with whom

the customer interacts.

Performance

Customer Satisfaction= ----------------------------------

Customer Expectations

Factors that influence customers expectations

CUSTOMER BEHAVIORBuying Behavior is the decision processes

and acts of people involved in buying and using

products. Consumer behaviour is the study of

when, why, how, and where people do or do not

buy a product. It blends elements from psychology

sociology, social anthropology and economics. It

attempts to understand the buyer decision making

process, both individually and in groups. It studies

characteristics of individual consumers such as

demographics and behavioural variables in an

attempt to understand people's wants. It also tries to

assess influences on the consumer from groups such

as family, friends, reference groups, and society in

general.

Customer behaviour study is based on

consumer buying behaviour, with the customer

playing the three distinct roles of user, payer and

buyer. Relationship marketing is an influential asset

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for customer behaviour analysis as it has a keen

interest in the re-discovery of the true meaning of

marketing through the re-affirmation of the

importance of the customer or buyer. A greater

importance is also placed on consumer retention,

customer relationship management, personalization,

customization and one-to-one marketing. Social

functions can be categorized into social choice and

welfare functions.

Consumer Buying Behavior refers to the

buying behavior of the ultimate consumer. A firm

needs to analyze buying behavior for:

Buyers reactions to a firms marketing strategy

has a great impact on the firms success.

The marketing concept stresses that a firm

should create a Marketing Mix (MM) that satisfies

(gives utility to) customers, therefore need toanalyze the what, where, when and how consumers

buy.

Marketers can better predict how consumers

will respond to marketing strategies.

The study of consumers helps firms and

organizations improve their marketing strategies by

understanding issues such as how

The psychology of how consumers think, feel,

reason, and select between different alternatives

(e.g., brands, products, and retailers);The psychology of how the consumer is influenced

by his or her environment (e.g., culture, family,

signs, media);

The behavior of consumers while shopping or

making other marketing decisions;

Limitations in consumer knowledge or information

processing abilities influence decisions and

marketing outcome;

How consumer motivation and decision strategies

differ between products that differ in their level of

importance or interest that they entail for the

consumer; and

How marketers can adapt and improve their

marketing campaigns and marketing strategies to

more effectively reach the consumer.

One "official" definition of consumer

behavior is "The study of individuals, groups, or

organizations and the processes they use to select,

secure, use, and dispose of products, services,

experiences, or ideas to satisfy needs and the

impacts that these processes have on the consumer

and society." Although it is not necessary to

memorize this definition, it brings up some usefu

points:

**Behavior occurs either for the individual

or in the context of a group (e.g., friends influence

what kinds of clothes a person wears) or an

organization (people on the job make decisions as to

which products the firm should use).

**Consumer behavior involves the use and

disposal of products as well as the study of how

they are purchased. Product use is often of great

interest to the marketer, because this may influence

how a product is best positioned or how we can

encourage increased consumption. Since manyenvironmental problems result from product

disposal (e.g., motor oil being sent into sewage

systems to save the recycling fee, or garbage piling

up at landfills) this is also an area of interest.

**Consumer behavior involves services and

ideas as well as tangible products.

**The impact of consumer behavior on

society is also of relevance. For example

aggressive marketing of high fat foods, or

aggressive marketing of easy credit, may haveserious repercussions for the national health and

economy.

There are four main applications of consumer

behavior:

Marketing Strategy

The most obvious (clear) factor is for

marketing strategy. (i.e.)., for making better

marketing campaigns. For example, by

understanding that consumers are more receptive to

food advertising when they are hungry, we learn to

schedule snack advertisements late in the afternoon

By understanding that new products are usually

initially adopted by a few consumers and only

spread later, and then only gradually, to the rest of

the population, we learn that (1) companies that

introduce new products must be well financed so

that they can stay afloat until their products become

a commercial success and (2) it is important to

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please initial customers, since they will in turn

influence many subsequent customers brand

choices.

Public policy

A second application is public policy. In the

1980s, Accutane, a near miracle cure for spots, was

introduced. Unfortunately, Accutane resulted in

severe birth defects if taken by pregnant women.

Although physicians were instructed to warn their

female patients of this, a number still became

pregnant while taking the drug. To get consumers

attention, the Federal Drug Administration (FDA)

took the step of requiring that very graphic pictures

of deformed babies be shown on the medicine

containers.

Social marketingSocial marketing involves getting ideas

across to consumers rather than selling something.

Marty Fishbein, a marketing professor, went on

sabbatical to work for the Centers for Disease

Control trying to reduce the incidence of

transmission of diseases through illegal drug use.

The best solution, obviously, would be if we could

get illegal drug users to stop. This, however, was

deemed to be infeasible. It was also determined that

the practice of sharing needles was too ingrained inthe drug culture to be stopped. As a result, using

knowledge of consumer attitudes, Dr. Fishbein

created a campaign that encouraged the cleaning of

needles in bleach before sharing them, a goal that

was believed to be more realistic.

As a final benefit, studying consumer

behavior should make us better consumers.

Common sense suggests, for example, that if you

buy a 64 liquid ounce bottle of laundry detergent,

you should pay less per ounce than if you bought

two 32 ounce bottles. In practice, however, you

often pay a size premium by buying the larger

quantity. In other words, in this case, knowing this

fact will sensitize you to the need to check the unit

cost labels to determine if you are really getting a

bargain.

CONSUMER BUYING PROCESS

There are Six Stages to the Consumer

Buying Decision Process (For complex decisions)

Actual purchasing is only one stage of the process

Not all decision processes lead to a purchase. Al

consumer decisions do not always include all 6

stages, determined by the degree of complexity. The

6 stages are:

Problem Recognition(awareness ofneed)

It is the Difference between the desired

state and the actual condition. For example, Hunger

means Food. Hunger stimulates your need to eat

Can be stimulated by the marketer through product

information and they did not know you were

deficient?

Information search

*Internal search, memory

*External search, if you need moreinformation. Friends and relatives (word of mouth)

internet gives lot information about the product

Marketer dominated sources; comparison shopping

public sources etc.

A successful information search leaves a

buyer with possible alternatives, the evoked set

Hungry, want to go out and eat, evoked set is

Chinese food, Indian food, burger king, Klondike

kates etc

Evaluation ofAlternatives Need to establish criteria for evaluation

features the buyer wants or does not want

Rank/weight alternatives or resume search.

May think and decide that you want to eat

something spicy, Indian gets highest rank etc. If not

satisfied with choice they return to the search phase

Can you think of another restaurant? Look in the

yellow pages etc. Information from different

sources may be treated differently. Marketers try to

influence by "framing" alternatives.

Purchase decision

Choose buying alternative, includes product

package, store, method of purchase etc.

Purchase

It May differ from decision, time lapse

between purchase decision and purchase is produc

availability.

Post-Purchase Evaluation-outcome:

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It is Satisfaction or Dissatisfaction.

Cognitive Dissonance, have you made the right

decision. This can be reduced by warranties, after

sales communication etc.After eating an Indian

meal, may think that really you wanted a Chinese

meal instead.

CUSTOMER LIFE TIME VALUE

Customer Value Analysis (CVA) and

customer loyalty marketing research are far more

in-depth than our basic employee or customer

satisfaction survey reports. CVA represents the

typical benefit a marketing research study can have

on an organization. Customer Value Analysis

empowers organizations with superior business

intelligence capable of unlocking complex market

opportunities. This tool helps our clients define theactions that will result in a competitive advantage.

In marketing, customer lifetime value

(CLV), lifetime customer value (LCV), orlifetime

value (LTV) is the net present value of the cash

flows attributed to the relationship with a customer.

The use of customer lifetime value as a marketing

metric tends to place greater emphasis on customer

service and long-term customer satisfaction, rather

than on maximizing short-term sales.

Customer lifetime value (CLV)is definedasthe sum of cumulated cash flowsdiscounted using

the Weighted Avera ge Cost of Capital (WACC)

ofa customer over his or her entire lifetime with the

company.

In this chapter, we first discuss the

importance and the relevance of CLV and compare

it with other traditionally used metrics. Two

approaches for measuring CLV, namely the

aggregate approach and the individual level

approach

IMPORTANCE AND RELEVANCE OF CLV

CLV is a measure of the worth of a

customer to the firm. Calculation of CLV for all the

customers helps the firms to prioritize the customers

on the basis of their contribution to the firms

profits. This can be the basis for formulating and

implementing customer specific strategies for

maximizing their lifetime profits and increasing

their lifetime duration.

In other words, CLV helps the firm to treat

each customer differently based on their

contribution rather than treating all the customers

same. Calculating CLV helps the firm to know how

much it can invest in retaining the customer so as to

achieve positive return on investment. A firm has

limited resources and ideally wants to invest in

those customers who bring maximum return to the

firm. This is possible only by knowing the

cumulated cash flow of a customer over his or her

entire lifetime with the company or the lifetime

value of the customers.

TRADITIONALLY USED METRICSSome of the commonly used metrics for

computing customer value include RFM, Share-of-

Wallet and Past Customer Value.

RFM Method

RFM stands for Recency, Frequency, and

Monetary Value. This technique utilizes these three

metrics to evaluate customer behavior and customer

value.

Recency: It is a measure of how long it has been

since a customer last placed an order with thecompany.

Frequency: It is a measure of how often a

customer orders from the company in a certain

defined period.

Monetary value: It is the amount that a customer

spends on an average transaction.

Two methods are generally used for

computing RFM.

The first method involves sorting custome

data from the customer database, based on RFM

criteria and grouping them in equal quintiles and

analyzing the resulting data.

The second method involves the

computation of relative weights for R, F , and M

using regression techniques and then the use of

those weights for calculating the combined effects

of RFM. RFM can be considered as the sum of the

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weighted recency, frequency, and monetary value

scores for a customer.

SHARE-OF-WALLET (SOW)

Share-of-Wallet at an aggregate level is

defined as the proportion of category value

accounted for by a focal brand or a focal firm within

its base of buyers. At an individual customer level,

SOW is defined as the proportion of category value

accounted for by a focal brand or a focal firm for a

buyer from all brands that the buyer purchases in

that category. It indicates the degree to which a

customer meets his needs in the category with a

focal brand or firm (Kumar & Reinartz, 2005).

It is computed by dividing the value of sales

(S) of the focal firm (j) to a buyer in a category by

the size-of-wallet of the same customer in a time

period.The information about a customers

spending with competitors is not normally available

with the firms. This is obtained from primary

market research or surveys administered to a

representative sample of firms customers. The

results are then extrapolated to the entire buyer

base. However, in certain B-to-B contexts firms can

infer the size of wallet for certain products

especially when the number of players in the market

is few.PAST CUSTOMER VALUE

This model is built on the assumption that

the past performance of the customer indicates their

future level of profitability and an extrapolation of

the results of past transactions is a measure of

customers value in the future. The value of a

customer is determined based on the total

contribution (towards profits) provided by the

customer in the past. The contributions from past

transactions are adjusted for the time value of

money and the cumulative contribution till the

present period is the past customer value (PCV) of a

customer.

Customer lifetime value has intuitive appeal

as a marketing concept, because in theory it

represents exactly how much each customer is

worth in monetary terms, and therefore exactly how

much a marketing department should be willing to

spend to acquire each customer. In reality, it is

difficult to make accurate calculations of customer

lifetime value. The specific calculation depends on

the nature of the customer relationship. Customer

relationships are often divided into two categories

In contractual or retention situations, customers

who do not renew are considered "lost for good"

Magazine subscriptions and car insurance are

examples of customer retention situations. The

other category is referred to as customer migration

situations. In customer migration situations, a

customer who does not buy (in a given period or

from a given catalog) is still considered a customer

of the firm because she may very well buy at some

point in the future. In customer retention situations

the firm knows when the relationship is over. Oneof the challenges for firms in customer migration

situations is that the firm may not know when the

relationship is over (as far as the customer is

concerned).

An ideal customer is one who is highly

profitable and loyal. The best marketing strategy is

to find such customers and keep them loyal

Customer Loyalty and Profitability are distinct

behaviors. Some of your customers could be highly profitable, but not very loyal. On the other hand

there are customers who are just mildly profitable,

who tend to stay with you for a long time. However

the vast majority of customers tend to exhibit a

behavior between these two extremes. Marketer

could alter the behavior of these customers through

innovative data-driven marketing strategies

Marketers use Customer Lifetime Value

(LTV) as a single unified measure of profitability

and loyalty of customers. More and more marketers

use LTV as a basis for their marketing programs

and strategic planning. LTV is nothing but the

cumulative Net Present Value of the profits from a

given customer (or a segment of customers) for a

given number of years.

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While estimating the LTV of your

customers, there are several factors you need to

consider, including:

Revenue per customer:

One of the key drivers for LTV is the

spending rate, or revenue per customer.

Retention:

Increase in retention rate reduces customer

service costs, increases revenue per customer.

Additional Purchase:

Existing Customer may make additional

purchases that could increase their LTV.

Referrals:

When your customers turn into advocates,

they recommend their friends, co-workers or

relatives to your company. Referrals typically tend

to have higher retention rates and spending rates.

Costs:

LTV computation should apportion costs to

the customer. These costs include cost of services or

products, plus the variable administrative costs, as

well as the acquisition cost.

Developing long-term relationships with

individual customers is a critical success factor. The

challenge for a businesses is to add value by

creating an environment where collective customer

service processes can outperform the service levels

provided by competitors, yet retain the benefits o

strong individual customer relationships.

The key elements of having a clear customer focus

and meeting their needs are:

1. Placing a high value on the customers you do

have or attract

2. Identifying the kind of customer your business

needs

3. Understanding customer choices that are

available

4. Narrowing down the best market for your

business (segmentation)

5. Selecting the appropriate level of service requiredfor your chosen target market

6. Marketing your product or service effectively

7. Converting the opportunities created from

targeted marketing into actual sales

8. Providing consistently good customer service and

have a service improvement culture.

CLV can be used to generate customer levelstrategies and optimize firm performance

Specifically these strategies include:(1) Customer selection,(2) Customer segmentation,(3) Optimal resource allocation,(4) Purchase sequence analysis, and(5) Targeting profitable prospects.

These strategies help to maximize the profitability and customer equity of the firmthereby increasing the shareholder value. They alsohave strategic impact on profitable lifetime duration

of the customers.

USES AND ADVANTAGES OF CLV

Lifetime value is typically used to judge the

appropriateness of the costs of acquisition of a

customer. For example, if a new customer costs $50

to acquire (COCA, or cost of customer acquisition)

and their lifetime value is $60, then the customer is

judged to be profitable, and acquisition of additiona

similar customers is acceptable.

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Advantages of CLV:

Management of customer relationship as an

asset

Monitoring the impact of management

strategies and marketing investments on the value

of customer assets

Determination of the optimal level of

investments in marketing and sales activities

Implementation of sensitivity analysis in order

to determinate getting impact by spending extra

money on each customer

Optimal allocation of limited resources for

ongoing marketing activities in order to achieve a

maximum return

A good basis for selecting customers and for

decision making regarding customer specific

communication strategies

Measurement of customer loyalty (proportion

of purchase, probability of purchase and repurchase,

purchase frequency and sequence etc.)

Identify the attributes that matter to your

customers and the competitors' customers.

Show exactly how customers define these

attributes.

Quantify the company's performance and yourcompetitor's performance.

Show which competitors have superior value

propositions and what can be done.

Reveal which market players are poised to gain

or lose market share.

Provide a fact-based, data driven system for

making decisions, beating the competition and

tracking progress.

TOOLS FOR CREATING CUSTOMER

VALUE

There are three values are important to create

value analysis

USER VALUES

PAYER VALUES

BUYER VALUES

USER VALUES

The user create the values in different context

Performance

Quality improvementInnovationsMass customizationWarranties and guarantees

Social

Price exclusivity

Limited availabilitySocial image adsExclusive offerings

Emotional

Emotional communications

PAYER VALUES

The payer concentrates three main factor before

they made purchase

Price

Low price from lower marginsLow price from increased productivity

(achieved through economies of scale, modernized

plant, automation, business process re-engineering)

Credit

Acceptance of credit cards

Offering of own credit card

Deferred payment

Financing

Leasing

Customized financing

BUYER VALUES

Service

Product display and demonstration

Knowledgeable salesperson

Responsiveness

User support and maintenance service

Convenience

Convenient point-of-access

Automated transaction recording

Personalization

Personal attention and courtesy

Interpersonal relationships

SELECTION OF PROFITABLE CUSTOMER

CRM helps companies understand the value

of customers, target their most profitable customers

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cultivate and maintain high-quality relationships

that increase loyalty and profits.

Precise evaluation of customer profitability

and targeting the most profitable customers are

crucial elements for the success of CRM

In todays competitive business

environment, the ability to identify profitable

customers, build their long-term loyalty and steadily

expand existing relationships is key competitive

factors to a company. To meet these factors,

companies across a wide range of industries have

made Customer Relationship Management (CRM)

one of the leading business strategies, integrating

sales, marketing and service across multiple

business units and customer contact points. CRMhelps companies understand the value of customers,

target their most profitable customers, cultivate and

maintain high-quality relationships that increase

loyalty and profits. Precise evaluation of customer

profitability and targeting the most profitable

customers are crucial elements for the success of

CRM.

Many CRM researches have been performed

to calculate customer profitability based oncustomer lifetime value and develop a

comprehensive model of it. Most of them, however,

had some limitations by not considering such as the

change of profit contribution resulted from the

customer defection (Berger & Nasr, 1998; Gupta &

Lehmann, 2003). They need further extensions

considering additional factors such as customer

reactivation possibility, attracting/service cost and

causes of customer defection.

On the other hand, the customer

segmentation based on their profitability to a

company is still an underutilized approach. This

study aims at providing an easy, efficient and more

practical alternative approach based on the customer

satisfaction survey for the profitable customers

segmentation instead of using a customer

profitability model, which is an important tool for

marketing and managing customer relationships by

providing the information of overall satisfactio

level, repurchase intentions, word-of-mouth

intentions, etc.

In our approach, we use intelligent tools

such as Data Envelopment Analysis (DEA), Self-

Organizing Map (SOM) Neural network and C4.5

to segment profitable customers.

DEA evaluates efficiency through the

relation analysis between the companys input costs

for a customer (e.g. marketing cost, production cost,

inventory cost, delivery cost, service cost and

relationship management cost) and the output (e.g

his/her satisfaction level, repurchase intentions and

word-of-mouth intentions in the customersatisfaction survey and his/her profit contribution to

it).

Through the successive mining of customer

satisfaction survey and socio-demographic data by

SOM and C4.5, we segment profitable customers

among all the surveyed customers.

Here survey-based profitable customers

segmentation system (SPCSS) that designs

executes (on-line, e-mail, etc.) the customer

satisfaction survey for all customers in customerdatabase of a company and conducts those mining

works for the profitable customers segmentation

SPCSS has an architecture based on intelligent

agent technology and also the integration of those

mining process into decision support system

framework by means of applying that technology.

PROFITABLE CUSTOMER

SEGMENTATION AND CUSTOMER

SATISFACTION SURVEY

Traditional customer segmentation models

were based on demographic, attitudinal, and

psychographic attributes of a customer (Griffin

2003). Recently, the customer segmentation based

on customer transactional and behavioral data (e.g

purchases type, volume and history, call cente

complaints, claims, web activity data, etc.) collected

by various information systems is commonly used

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However, the customer segmentation based on

his/her profitability to a company is still

underutilized.

Customer profitability is a customer-level

measure that refers to the revenues less the costs

which one particular customer generates over a

given period of time and has been studied the name

of Customer value, Customer Lifetime Value, LTV

and Customer Equity. Much customer profitability

researches focused on the future cash flow derived

from the past profit contribution and did not

considered the change of profit contribution resulted

from the customer defection (Berger & Nasr, 1998;

Gupta & Lehmann, 2003).

It is difficult and complicated to develop aneffective and exact customer profitability model and

segment profitable customers based on that model.

In this study, we provide an easy, efficient and more

practical alternative approach through the customer

satisfaction survey for the profitable customers

segmentation instead of using that model.

The typical customer satisfaction survey

collects data on the causal context of satisfaction,

i.e. antecedents (e.g. perceived performance ofvarious product attributes/service) and

consequences (e.g. overall satisfaction level,

repurchase intentions and word-of-mouth

intentions). According to the Satisfaction-Profit

Chain principle (Anderson & Mittal, 2000),

improving product and service attributes causes

increased customer satisfaction, increased customer

satisfaction leads to greater customer retention and

improving customer retention greater profitability.

The term customers overall satisfaction

level, repurchase intentions, word-of-mouth

intentions obtained from the customer satisfaction

survey and his/her profit/loss to a company derived

from the accounting database of it for the first step

of profitable customers segmentation.

PROFITABLE CUSTOMERS

SEGMENTATION BASED ON CUSTOMER

SATISFACTION SURVEY

We propose a survey-based profitable

customers segmentation system (SPCSS) based on

data mining and agent technology that designs

executes (on-line, e-mail, etc.) customer satisfaction

survey and conducts predefined mining processesfor the profitable customers segmentation. SPCSS

has a multi-agent based architecture and the

integration of predefined mining processes into

decision support system framework.

There are three types of intelligent agents

within the SPCSS architecture: Survey management

(SM) agent with survey knowledge base that

provides system co-ordination, facilitates (minedknowledge communication, and takes the charge of

design and execution of customer satisfaction

survey, profitable customers segmentation (PCS)

agent that segments profitable customers among all

the surveyed customers through the mining of

integrated data from the customer satisfaction

survey and accounting database and decides the

priority order for each non-profitable custome

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according to the size of possibility that he/she is

converted to profitable one through the mining of

integrated data from the customer satisfaction

survey and customer database, and user assistant

agent that acts as the intelligent interface agent

between the user (e.g. the engineer of customer

satisfaction center) and the SPCSS.

PROFITABLE CUSTOMERS

SEGMENTATION BY THE PCS AGENT

The first step is to find out the customers

among all the surveyed ones that have higher

efficiency about their output (e.g. the level of

customer satisfaction, repurchase intentions, word-

of-mouth intentions and profit/loss to the company)

from companys input costs for them (e.g.

marketing cost (campaign and advertisement),

production cost, inventory cost, delivery cost,

service cost and relationship management cost). We

call the group of customers with higher efficiency

HECG (High Efficiency Customer Group) in this

study.

To find out HECG, PCS agent employs

DEA ( Data Envelopment Analysis), an efficiency

measurement tool, to evaluate the cost efficiency of

all the surveyed customers (Charnes, Cooper,Lewin, & Seiford, 1994). DEA evaluates their

efficiencies through the relation analysis between

the companys input costs for them and the output.

Because the customers who belong to

HECG create more superior output than a

companys input costs for them, they have an

important effect on companys current and future

profit generation. However, undesirable customers

can belong to HECG because of the inaccuracy andinconsistency of survey data and so on. Therefore,

the next step is to form profitable customers group

(PCG) by removing undesirable customers that have

similar socio-demographic features to non-HECGs

ones among the customers belonging to HECG.

PCS agent first extracts the socio-

demographic (SD) features of HECGs customers

and classifies them into the extracted features using

SOM (Self-Organizing Map), a special type of

neural network using an unsupervised learning

scheme (Kohonen, 1989).

In other words, through SOM Training of

HECGs SD data from customer database, PCS

agent produces SOM weight vectors with the SD

features information of HECG. PCS agent classifies

all the surveyed customers into the extracted SOM

weight vectors (i.e. SD features) of HECG.

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The SOM Classification process (Lee, You,

Park, 2001) produces similarity scores by using theinner product (or dot product) between the extracted

SOM weight vectors (i.e., jZ1,.,k) that show the SD

feature patterns of HECG and the SD data vector of

a survey customer (i.e. Xi). The similarity score

indicates the level of similarity between two

vectors, the extracted SOM weight vector and

observed SD data vector of customer belonging to

the HECG.

In the case of similarity score higher than

the similarity criteria that set a lower limit on the

level of similarity, the customer is classified into the

corresponding SD feature of HECG. In other words,

the customer has that SD feature of HECG. For

example, in the customers socio demographic data

vector, Xi, is classified into the SD feature 1

(i.e.W1) among k SD features because the similarity

score of two vectors, 0.98, is higher than the

predefined similarity criteria, 0.95.

Through the SOM classification with high

similarity criteria setting as shown in above

example, PCS agent composes the profitable

customers group (PCG) by selecting the customers

with the very similar SD features to HECGs ones

among all the surveyed customers.

Finally,P

CS agent extracts the common SDrules of customers belonging to the PCG by C4.5

(Quinlan, 1993), a decision tree learning tool, and

then these mined rules are accumulated in the

survey knowledge base of SPCSS to use them for

customer management later.

NON-PROFITABLE CUSTOMERS

PRIORITY ORDER DETERMINATION BY

PCS AGENT

After PCS agent segments profitablecustomers, it evaluates the possibility that non-

profitable custom