Chapters 3 and 4
Understanding Market
Potential, Customer Satisfaction
and Loyalty - Links to Firm
Performance.
1
Let’s start by understanding what
drives performance
• Make a short list of the things that drive
firm performance.
2
Market-Based Performance Drivers
•
•
•
•
•
Share Growth.
Sales Growth.
Improvements in market position.
Improvements in price position.
Successful new product introductions.
But, what drives these factors?
3
Market-Driven Organizations:
• Characterized by a focus on customer
needs and interests.
• Resulting in generation, dissemination and
utilization of market intelligence, resulting in
coordinated inter-functional action directed
at creating superior customer value.
• It is through delivery of superior customer
value that market driven firms attain
superior performance.
 e.g. Apple.
4
Market Orientation, Competitive Advantage
and Business Performance
Market
Orientation
•Customer Focus
•Competitor Focus
•Inter-Functional
Coordination and
Response.
Core
Capabilities
Competitive
Advantage
•Customer Service
•Quality
•Innovation
•Responsiveness
•Value
•New Prod. Success
•Share Growth
•Differentiation
•Cost Efficiency
Business
Performance
•Sales Growth
•Satisfaction
•Loyalty
•Profitability
5
Market Driven Firm
Information
Acquisition
Interfunctional
Assessment
Customer
Information
Competitor
Information
Other Mkt.
Information
Shared
Diagnosis
and
Coordinated
Action
Organizational Values and Culture
Superior
Customer
Value
6
Market Driven vs. Internal Orientation
Internally Oriented
Market-Driven
Where can we sell our products?
Who are our customers?
What can we provide?
What are their needs?
Why worry about competition?
Who is the competition?
What can we do to be more efficient ?
What are our capabilities?
How do we make more money?
What is our competitive
advantage?
What can R&D come up with?
What is the product?
How can we drive channel efficiency?
What channels are used?
How we set price to make the most $.
How can we get customers to buy?
How does the market respond to
pricing and promotion
7
Market Driving - The Next Step
Market-Driven
Market-Driving
Who are our customers?
Where can we find new customers?
What are their needs?
What new needs can be created?
Who is the competition?
Who do we want as competition?
What are our capabilities?
What is our competitive
advantage?
What new capabilities can we develop?
What type of competitive advantage
should we develop?
What new products can be created?
What is the product?
What channels are used?
How does the market respond to
pricing and promotion
What new channels can be created?
What new pricing and promotion
approaches can be created?
8
Issues
• How do we become a market-driver?
• Is the customer the main focus of our
action?
• Are managers focused on acting in the
interest of customers?
• Do we have the data to support action?
• Not just Marketing Dept’s job.
9
Understanding Market Potential
10
Market Potential and Market Growth
• Forces affecting rate of market growth
 Market potential
 Market penetration
 Rate of entry
11
Market Growth
12
Market Share
• Market Share Index (MSI) =
Product X
Product
Awareness
Preference
X
Price
X
Acceptability
Product X
Service
Availability
Experience
• Share Development Index (SDI) =
Market Share Index
Share Index Potential
x 100
• Note: This is predicated on having the data to do the
calculations.
13
14
Market Demand vs Potential
15
Customer Value Creation
16
Building Customer Focus
• The Fundamentals
• Determining Buyer Needs
• Setting Priorities
• Aligning the Organization
17
Customer Focus is Built on
Information:
• From Customers
• From Internal Systems
 Trouble Reporting/Tracking.
 Complaints.
 Customer Satisfaction Programs.
• From Field Contact Personnel.
 Reporting and tracking systems.
18
Understanding Buyer Behavior
Marketing Mix
Product
Price
Promotion
Distribution
Decision
Process
Purchase
Internal
Influences
Post-Purchase
Behavior
Buyer’s
Black Box
Response
“Other” External
Influences
External Stimuli
19
Customer Decision Process
Problem Recognition
Information Search
Alternative Evaluation
Purchase
Post-Purchase
20
Customer Buying
• Remember that many purchases (even
B2B) are habit-based.
• Customer does not do extended
problem solving and search.
• Rather they see the need to rebuy and
simply do.
21
Customer Value is a Function of
Benefits Received and Costs to Obtain
Total
Customer
Benefits
Do Benefits
Received
Outweigh
Costs?
Total
Customer
Value
Total
Customer
Costs
22
Automobile Purchase Benefits & Costs
Informed
Friendly
Attitude
Image
Handling
Benefits
Warranty
Test Drive
Condition
Attitude
Timely
Informed
Hours
Parts
TV Ads
Newspaper Ads
.
.
Web Site
Base Model
Accessories
.
.
Trade-In
Part Costs
Frequency
.
.
Distance
Sales
Staff
Product
Total
Customer
Benefits
Service
Total
Customer
Value
Search
Price
Total
Customer
Costs
Service
23
Life Cycle Costs and Economic Value
Life-Cycle Cost =
Price + Acquiring + Ownership +
Paid
Cost
Cost
Disposal
Cost
Economic Value =
Competing Product’s – Our Product’s
Life-Cycle Cost
Life-Cycle Cost
24
Life Cycle Costs and Economic Value
25
Life Cycle Cost Component Examples
26
Benefit and Cost Mapping
Implementation Issues:
• Value Map Must Be Developed From
the Customer’s Perspective
• What’s measured becomes ‘Real’
• Avoid ‘washing out’ differences.
• Abstract Goals Must Be Actionable
27
Objective - Find Value Gaps!
Performance
High
Old New
Wrangler
Wrangler
Real
Hummer
4 Dr
Wrangler
Low
Price
Xterra
RAV4
High
Hummer 2 Price
Explorer
Outback
Where are the
need gaps?
Low
28
Turning Value Positions into Action
• Just knowing where the customer finds
value is obviously not enough.
• Your firm must strive to deliver the value
customers desire.
• This means implementing strategies
designed to capture and hold the
desired position.
29
Make Abstract Objectives Actionable
The Drill Down
Org. Obj.
Customer
Satisfaction
Service Reliability
Fast Service Response
1 Hour Response
99.999 % of the time
Action Item
30
Action Items - System Development
• Example: Customer contact tracking
system for field reps.
 Sales representatives
 Customer service personnel
• What feedback should we give the
customer?
• What information should be widely
available within the company.
31
The Satisfaction - Loyalty Link
Customer Loyalty
High
Less
Competition
Airlines
Hospitals
Personal
Computers
Automobiles
More
Competition
Low
1
Completely Dissat.
2
3
4
5
Completely Sat.32
Customer Satisfaction is a
Confirmation/Disconfirmation
of Expectations
EXPERIENCE
INITIAL
EXPECTATIONS
CUSTOMER
SATISFACTION
PERCEIVED
OUTCOME
33
Information is the Key
• We must understand the benefits
customers receive from use.
• Who do we ask?
 Customers
 Company Sources
 Competitive Monitoring
34
Which Components Require
Immediate Attention?
Importance
high
Needs
Improvement
medium
Overachieving
low
low
medium
high
Performance35
Satisfied Customers Typically:
• Find more value in the firm’s products.
• Are willing to spend more to maintain
this high level of need satisfaction.
• Are less influenced by competitor
promotions.
• Are very willing to tell others about your
product (WOM).
• Are often willing to try other products
you sell.
36
Does it Work?
Evidence from the Trucking Industry
37
A Recent Study
• We looked at trucking firms strategies
for evidence that they were
implementing a market-driven
approach, then looked at their
performance.
38
Comparisons for Marketing Capabilities
Variable
Marketing skill development
Advertising
Personal selling
Promotion
Pricing
Market planning
Internal coord. and comm.
New product/service devel.
Public relations
Customer relations
Gov’t and regulatory
relations
Mktg. Cost reductions
Customer service
Non Market
Driven Means
(N=76)
1.90
1.16
3.55
1.55
3.67
2.30
3.13
2.25
2.59
4.67
2.53
3.09
4.71
Market
Driven Means
(N=89)
4.16
2.54
5.04
3.41
4.61
4.53
4.72
3.77
4.55
5.47
4.37
Comparison
2>1
2>1
2>1
2>1
2>1
2>1
2>1
2>1
2>1
2>1
2>1
4.03
5.49
2>1
2>1
39
Comparisons for Business Strategy and Environmental Impact
Variable
Diff.-Based Advantage
Cost-Based Advantage
Prod.-Mkt Breadth
Environmental Turbulence
Environmental Predictability
Environmental Scanning
Size (Number of employees)
Non Market
Driven Means
(N=76)
4.25
4.40
4.30
3.50
4.16
4.14
580.32
Market
Driven Means
(N=89)
5.12
5.14
4.88
3.43
4.72
4.97
1566.44
Comparison
2>1
2>1
2>1
N. S.
2>1
2>1
N. S.
40
Comparisons for Performance
Variable
Market share growth
Market position
Return on Assets
Non Market
Driven Means
(N=76)
2.90
2.69
6.18 %
Market
Driven Means
(N=89)
4.17
4.15
10.86 %
Comparison
2>1
2>1
2>1
41
Conclusions
• Better customer value (e.g., higher
customer service levels and customer
relations) lead to increased share and
higher ROA despite a 1 pt loss in
efficiency.
• Thus, to build satisfaction, you must
understand the customer needs.
• Let’s look at how to do this.
42
Conclusions for Typical Organization:
• Customer orientation will require
changes in operating procedures.
• Specific customer satisfaction metrics
are needed.
• Culture must evolve to support use of
customer information and Sat. metrics.
• Information gathering systems must
evolve to support needed customer
information.
43
Information System Needs.
• Database of customer requirements.
 Primary needs
 Secondary needs.
 Priorities!
 Current usage.
 Satisfaction levels for customer groups
 Date last contacted.
 Name of contact.
 Competitor information.
44
Additional Issues
• Processes for dealing with customers
must be revised.
• New ideas and solutions must be
implemented quickly to resolve
customer problems and meet needs.
• Bureaucracy must be reduced to aid
quick response (delegation!).
• Competitor information must be
developed and refined.
45
• Segmentation is needed and will help
define customer value proposition and
methods to deliver.
• Price sensitive customers may defect.
• Quality Sensitive customers may defect
if quality not made priority.
46
A Customer Lifetime Value Example
47
Lifetime Value of a Customer
• The long term profits obtained by
retaining customers over their lifetime.
• Enables firm to reduce marketing
expenses.
• NPV is useful to assign valuation.
48
A Customer Loyalty Example
• Loyalty is an attitude towards a
product/service and the provider
• Loyalty is driven by perceived value and
satisfaction
• Loyalty is related to repeat purchase, WOM,
motivation to search and resistance to
counter-persuasion but is not always
translated into these post-purchase behaviors
• Many loyalty programs cost more than they
generate in additional profitability (at least in
the short-run)
49
Mobile Telephone Loyalty
• Average churn rate in mobile telephony today is
2.1% per month
average customer life is only 48 months –
which is the life of the service contract.
 So
Mobile providers must replace all its customers every 4 years. The
potential is to only replace them every 8 years!
50
Assessing The Value of Loyalty
• Existing Cellular Provider






Cost of Acquisition $350
Monthly revenue $45
Monthly network cost $5
Monthly operating cost 15%
NPV of customer over 48
months
 $915
NPV of customer over 96
months
 $1,700
Cellular can increase share owner value by 86% by just realizing the real
customer life potential of their customers.
51
Questions?
52