Understanding Business Customers

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How Do You Measure Customer Loyalty?

• Recency of purchase

• Frequency of purchase

• Amount of purchase

• Referrals

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A Satisfied Customer is Loyal100%

40%

Loy

alty

Satisfaction

ExtremelyDissatisfied

SlightlyDissatisfied

ExtremelySatisfied

Zone of Defection

Zone of Indifference

Terrorist

Apostle

Zone ofAffection

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Marketing Information Systems

• 80% have a formal system for contacting customers on a regular basis

• 11% know the lifetime value of their customers

• 10% have an early warning system

• 90% claimed to have a system in place to determine why a customer left

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Customer Has a Problem:4 Possible Outcomes

Customer complains and is satisfied with the response

Customer complains and is mollified, but not completely satisfied with the response

Customer complains and is not satisfied with the response

Customer does not complain and remains dissatisfied

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Reasons People Do Not Complain

It is not worth the troubleThey do not know where or how

to complainThey do not believe the

company will do anything

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Who They Complain To

• 80% complain to sales representatives• 75% are satisfied

• 25% are not satisfied

• Of those dissatisfied• one in five complain to middle management

• of these, 80% are satisfied

• Of the 20% still dissatisfied, 50% will complain to top management

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Complaining Aspects

• Voice• who does the customer complain to?• High = mgmt; medium = sales rep; low = no

one

• Exit• customer stops patronizing the marketer• High = never again; medium = never again, if

at all possible; low = continues shopping as usual

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Complaining Aspects

• Retaliation• customer takes deliberate action designed to

damage the marketer or hurt future business

• High = physically damaging or going out of one’s way to communicate negative info to other customers

• Medium = creates minor inconveniences and only tells a few people about his/her problem

• Low = no retaliation (other than bad feelings)

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The Product’s Role in Complaints

• Small-ticket Items• 96% of those with a problem do not

complain• 63% do NOT buy again

• Large-ticket Items• 27% of those with a problem do not

complain• 41% do NOT buy again

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Impact of Complaint HandlingMarketAction

Outcome Behavior Satisfaction Repurchase Recommend

NoProblem

88% 67%

Problem 61% 43%

Complain Satisfied 90% 64%

Mollified 62% 45%

Dissatisfied 34% 20%

Do NotComplain

57% 41%

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Customers at Risk Formula

Overall % Experiencing a Problem

X

% Specific Problem Frequency

X

% Customers Not Likely to Repurchase

=

% of Customers at Risk

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Customers At Risk Example

Problem Experienced (Total = 45%)

Problem Frequency

Will Not Repurchase

Might Not Repurchase

Minimum Customers Lost

Maximum Customers Lost

Missed delivery dates

27% 10.5% 52.6% 1.3% 6.4%

Product not available when promised

23% 0.0% 7.7% 0.0% 0.8%

Missed commitments/ follow-through

21% 30.0% 70.0% 2.8% 6.6%

Product not fixed the first time

20% 22.2% 66.7% 2.0% 6.0%

Inadequate post-sale interaction

19% 10.0% 50.0% 0.9% 4.3%

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Process of a Customer-at-Risk Strategy

• Remember that getting customers to complain without solving the problems will just lose you more customers.

• Step One: Contact the customer after the sale• don’t just rely on those who complain• thank the customer & then ask about any problems

experienced• Then ask if they will/will not purchase again or offer a

referral

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Process of a Customer-at-Risk Strategy

• Step Two: Quantify those at risk

• Step Three: Concentrate resources on correcting those problems with the highest probabilities of defectors.

• Step Four: Let the customers know what you have done to correct the problem(s)

Segmentation & PositioningSegmentation & Positioning

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What is a Market Segment?

• Group of present or potential customers

• With some common characteristic

• Which is relevant in explaining/predicting response

• To a supplier’s marketing stimuli

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Why We SegmentWhy We Segment

1. IDs opportunities for new product development.

2. Assists in development of effective marketing programs.

3. Improves allocation of limited marketing resources.

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Market SegmentationMarket Segmentation

• Identify distinct groups of buyers who might require separate products and/or marketing mixes.

• Profile these buyers:Who are they?What do they want to buy?How do they want to buy?When do they want to buy?Where do they want to buy?

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Target MarketingTarget Marketing

Sellers• distinguish major market

segments, • target 1 or more, and • develop products & • marketing programs tailored to

each segment.

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Levels of Market Segmentation

Mass MarketingMass Marketing

Seller engages in mass production, mass distribution, and mass promotion of one product for all buyers.

• Creates largest potential market

• Leads to lowest costs

• Leads to lower prices or higher margins

• Proliferation of advertising media and distribution channels make it difficult

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Levels of Market Segmentation

Multi-Segment MarketingMulti-Segment Marketing

Seller recognizes that buyers differ in their wants, purchasing power, geographic locations, buying attitudes & buying habits. Major segments are identified & products and marketing mixes developed for each.

• Product offer & prices can be fine-tuned

• Choice of Dist./Promo. channels easier

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Levels of Market Segmentation

Sequential SegmentationSequential Segmentation

Businesses may lack sufficient resources to pursue several attractive market segments.

• Tackle most attractive segment first.

• Using profits earned from this segment, then target the next most attractive segment.

• Runs the risk of allowing potential competitors into a market.

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Levels of Market Segmentation

Niche MarketingNiche Marketing

• Niche customers have a distinct and complete set of needs.

• They will pay a price premium to have their special needs met.

• The niche is not likely to attract very many competitors.

• Should have sufficient size, profit, and growth potential.

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Levels of Market Segmentation

Local MarketingLocal Marketing

Marketing programs tailored to needs & wants of local customer groups.

• Pronounced regional differences often exist in communities’ demographics and lifestyles.

• Local marketing can drive up manufacturing & marketing costs by reducing economies of scale.

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Levels of Market Segmentation

Individual MarketingIndividual Marketing

The ultimate level of segmentation. Each customer is a “segment of one.”

Self-MarketingSelf-Marketing

Form of individual marketing.

Customer takes more responsibility in determining which products/brands to buy

Much less reliance upon salespeople.

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Useful Market Segments Are:

• MeasurableMeasurableSize, purchasing power, & characteristics

• SubstantialSubstantialLarge & profitable enough to serve

• AccessibleAccessibleCan reach w/ distribution & promotion channels

• DifferentiableDifferentiableManagerially-significant from other segments

• ActionableActionableCan effectively attract & serve segment

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Needs-Based Market Segmentation

• First, group customers with like needs, and

• Then discover which demographics, lifestyle forces, and usage behaviors make them distinct from customers with different needs.

• Primary Benefit• Segments are created around specific customer needs.

• Primary Disadvantage• Do not know (initially) who these customers are.

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PositioningPositioning

• Designing an offering Designing an offering & image in order to & image in order to occupy a meaningful occupy a meaningful & distinct competitive & distinct competitive position in the target position in the target customers’ minds.customers’ minds.

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Positioning & Positioning & DifferentiationDifferentiation

• The main focus of positioning is The main focus of positioning is differentiation.differentiation.

• Differentiation involves designing Differentiation involves designing a set of meaningful differences to a set of meaningful differences to distinguish the company’s offering distinguish the company’s offering from competitors’ offerings.from competitors’ offerings.

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The 5 Differentiation The 5 Differentiation DimensionsDimensions

• ProductProduct

• ServicesServices

• PersonnelPersonnel

• ChannelChannel

• ImageImage

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Product Differentiation Product Differentiation VariablesVariables

• FeaturesFeatures• Characteristics that supplement the product’s basic Characteristics that supplement the product’s basic

function.function.

• Performance QualityPerformance Quality• The level at which the product’s primary The level at which the product’s primary

characteristics operate.characteristics operate.

• Conformance QualityConformance Quality• Degree to which all the produced units are identical Degree to which all the produced units are identical

and meet the promised target specificationsand meet the promised target specifications

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Product Differentiation Product Differentiation VariablesVariables

• DurabilityDurability• Measure of the product’s expected operating life under natural Measure of the product’s expected operating life under natural

and/or stressful conditions.and/or stressful conditions.

• ReliabilityReliability• Measure of the probability that a product will not malfunction or Measure of the probability that a product will not malfunction or

fail within a specified time period.fail within a specified time period.

• RepairabilityRepairability• Ease of fixing a product that malfunctions or failsEase of fixing a product that malfunctions or fails

• StyleStyle• Product’s looks and feel to the buyerProduct’s looks and feel to the buyer

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Services Differentiation Services Differentiation VariablesVariables

• Ordering EaseOrdering Ease• how easy it is for the customer to place an orderhow easy it is for the customer to place an order

• DeliveryDelivery• how well the product is delivered to the customerhow well the product is delivered to the customer

• InstallationInstallation• work done to make the product operational in its work done to make the product operational in its

planned locationplanned location

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Services Differentiation Services Differentiation VariablesVariables

• Customer TrainingCustomer Training• training the customer to properly & efficiently use the training the customer to properly & efficiently use the

productproduct

• Customer ConsultingCustomer Consulting• data, information, systems, & advising services offered data, information, systems, & advising services offered

to buyers (at a price or free)to buyers (at a price or free)

• Maintenance & RepairMaintenance & Repair• helping customers keep purchased products in good helping customers keep purchased products in good

working orderworking order

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Personnel Differentiation Personnel Differentiation VariablesVariables

• CompetenceCompetence• Skill & knowledgeSkill & knowledge

• CourtesyCourtesy• Friendly, respectfulFriendly, respectful

• CredibilityCredibility• TrustworthyTrustworthy

• ReliabilityReliability• Accuracy & consistencyAccuracy & consistency

• ResponsivenessResponsiveness• TimelinessTimeliness

• CommunicationCommunication

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Channel Differentiation Channel Differentiation VariablesVariables

• CoverageCoverage

• ExpertiseExpertise

• PerformancePerformance

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Image Differentiation Image Differentiation VariablesVariables

• SymbolsSymbols

• Written & Written & Audiovisual Audiovisual MediaMedia

• AtmosphereAtmosphere

• EventsEvents

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A Difference is Worthwhile as a A Difference is Worthwhile as a Differentiation Variable if it is:Differentiation Variable if it is:

ImportantImportant

DistinctiveDistinctive

SuperiorSuperior

CommunicableCommunicable

PreemptivePreemptive

AffordableAffordable

ProfitableProfitable

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5-41

Misusing Perceptual Maps for Positioning

• One common error is to create a map of where you would like your products to be positioned or where they are positioned in your perception of the market

• Then treat the resulting map strategically as if it is a map of the actual perceptions of the customers in the market.

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Once You Have All the Maps to Visualize the Market…

1. Consider what position the firm presentlypresently owns.

2. Decide what position that firm wantswants to own.

3. Decide whowho the firm must outflank to gain that position.

4. Consider if the firm has the necessary resourcesnecessary resources and is committed to achieving the objective.

5. Determine if the firm can create a marketing marketing mixmix to achieve the desired position.