Understanding Business Customers
How Do You Measure Customer
Loyalty?
• Recency of purchase
• Frequency of purchase
• Amount of purchase
• Referrals
5-2
A Satisfied Customer is Loyal
Apostle
Loyalty
100%
Zone of
Affection
Zone of Indifference
40%
Zone of Defection
Terrorist
Extremely
Dissatisfied
Slightly
Dissatisfied
Extremely
Satisfied
Satisfaction
5-3
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 trouble
They do not know where or how
to complain
They 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
5-7
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 Handling
Market
Action
Outcome Behavior
Satisfaction
Repurchase
Recommend
88%
67%
61%
43%
Complain Satisfied
90%
64%
Mollified
62%
45%
Dissatisfied
34%
20%
57%
41%
No
Problem
Problem
Do Not
Complain
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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
5-12
Customers At Risk Example
Problem
Experienced
(Total = 45%)
Problem
Frequency
Will Not
Repurchase
Might Not
Repurchase
Minimum
Maximum
Customers Lost 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%
5-13
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)
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Segmentation & Positioning
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 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 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 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 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 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 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 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 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 Marketing
The ultimate level of segmentation. Each
customer is a “segment of one.”
Self-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:
• Measurable
Size, purchasing power, & characteristics
• Substantial
Large & profitable enough to serve
• Accessible
Can reach w/ distribution & promotion channels
• Differentiable
Managerially-significant from other segments
• Actionable
Can 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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Positioning
• Designing an
offering & image in
order to occupy a
meaningful &
distinct competitive
position in the
target customers’
minds.
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Positioning & Differentiation
• The main focus of positioning is
differentiation.
• Differentiation involves
designing a set of meaningful
differences to distinguish the
company’s offering from
competitors’ offerings.
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The 5 Differentiation Dimensions
•
•
•
•
•
Product
Services
Personnel
Channel
Image
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Product Differentiation Variables
• Features
• Characteristics that supplement the product’s
basic function.
• Performance Quality
• The level at which the product’s primary
characteristics operate.
• Conformance Quality
• Degree to which all the produced units are
identical and meet the promised target
specifications
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Product Differentiation Variables
• Durability
• Measure of the product’s expected operating life
under natural and/or stressful conditions.
• Reliability
• Measure of the probability that a product will not
malfunction or fail within a specified time period.
• Repairability
• Ease of fixing a product that malfunctions or fails
• Style
• Product’s looks and feel to the buyer
5-33
Services Differentiation Variables
• Ordering Ease
• how easy it is for the customer to place an
order
• Delivery
• how well the product is delivered to the
customer
• Installation
• work done to make the product operational
in its planned location
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Services Differentiation Variables
• Customer Training
• training the customer to properly &
efficiently use the product
• Customer Consulting
• data, information, systems, & advising
services offered to buyers (at a price or
free)
• Maintenance & Repair
• helping customers keep purchased products
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in good working order
Personnel Differentiation Variables
• Competence
• Skill & knowledge
• Courtesy
• Friendly, respectful
• Credibility
• Trustworthy
• Reliability
• Accuracy & consistency
• Responsiveness
• Timeliness
• Communication
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Channel Differentiation Variables
• Coverage
• Expertise
• Performance
5-37
Image Differentiation Variables
• Symbols
• Written &
Audiovisual
Media
• Atmosphere
• Events
5-38
A Difference is Worthwhile as a
Differentiation Variable if it is:
Important
Distinctive
Superior
Communicable
Preemptive
Affordable
Profitable
5-39
5-40
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.
5-41
Once You Have All the Maps
to Visualize the Market…
1. Consider what position the firm presently
owns.
2. Decide what position that firm wants to own.
3. Decide who the firm must outflank to gain
that position.
4. Consider if the firm has the necessary
resources and is committed to achieving the
objective.
5. Determine if the firm can create a marketing
mix to achieve the desired position.
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