1. The University of Choice
W welcome to
Management & Science University
2. The University of Choice
The Best Practices for Creating
Customer Loyalty Across
Multi-Channels in Service
Industry
3. The University of Choice
What are best practices for creating loyal customers in tourism and
hospitality industry?
Why some loyalty programmes of tourism and hospitality business
operators don’t work properly? Why others can?
How can the operators of tourism and hospitality industry use
multiple channels to create a cross-channel experience with their
customers?
How can segmentation and analytics help in driving loyalty?
How can in-store marketing services be used for creating customer
loyalty?
4. The University of Choice
Managing Customer
Relationships and
Building Loyalty
5. The University of Choice
Contents
• The Search for Customer Loyalty
• Understanding the Customer-Firm Relationship
• The Wheel of Loyalty
• Building a Foundation for Loyalty
• Creating Loyalty Bonds
• Strategies for Reducing Customers Defections
• CRM: Customer Relationship Management
7. The University of Choice
Why Is Customer Loyalty Important to a Firm’s Profitability?
• Customers become more profitable the longer they remain with a
firm:
– Increase purchases and/or account balances
• Customers/families purchase in greater quantities as they
grow
– Reduced operating costs
• Fewer demands from suppliers and operating mistakes as
customer becomes experienced
– Referrals to other customers
• Positive word-of-mouth saves firm from investing money in
sales and advertising
– Price premiums
• Long-term customers willing to pay regular price
• Willing to pay higher price during peak periods
8. The University of Choice
How Much Profit a Customer Generates Over Time
350 –
300
250
200
150
100
50
0
Year 1
Credit card
Year 2
Industrial laundry
Year 3
Year 4
Industrial distribution
Year 5
Auto servicing
9. The University of Choice
Assessing the Value of a Loyal Customer (1)
Must not assume that loyal customers are always more profitable than
those making one-time transactions
– Costs
• Not all types of services incur heavy promotional expenditures
to attract a new customer
• Walk-in traffic more important at times
– Revenue
• Large customers may expect price discounts in return for
loyalty
• Revenues don’t necessarily increase with time for all types of
customers
10. The University of Choice
Assessing the Value of a Loyal Customer (2)
•
•
to stage of service in product life cycle
– For example referrals and negative word-of-mouth have a higher
impact in early stages
Tasks
– Determine costs and revenues for customers from different market
segments at different points in their customer lifecycles
– Predict future profitability Profit impact of a customer varies
according
11. The University of Choice
Measuring Customer Equity: Lifetime Value of Each
Customer
• Acquisition revenues less costs
– Revenues (application fee + initial purchase)
– Costs (marketing + credit check + account set up)
• Projected annual revenues and costs
– Revenues (annual fee + sales + service fees + value of
referrals)
– Costs (account management + cost of sales + write-offs)
• Value of referrals
– Percentage of customers influenced by other customers
– Other marketing activities that drew the firm to an individual’s
attention
• Net Present Value
– Sum anticipated annual values (future profits)
– Suitably discounted each year into the future
12. The University of Choice
Gap Between Actual and Potential Customer Value
•
What is current purchasing behavior of customers in each target
segment?
•
What would be impact on sales and profits if they exhibited ideal
behavior profile of:
– (1) buying all services offered by the firm,
– (2) using these to the exclusion of any purchases from competitors,
– (3) paying full price?
•
How long, on average, do customers remain with firm?
•
What impact would it have if they remained customers for life?
13. The University of Choice
Understanding the Customer-Firm Relationship
14. The University of Choice
Relationship Marketing (1)
• Transactional Marketing
– One transaction or a series of transactions does not necessarily
constitute a relationship
– Requires mutual recognition and knowledge between the parties
• Database Marketing:
– Includes market transaction and information exchange
– Technology is used to
• (1) identify and build database of current and potential
customers
• (2) deliver differentiated messages based on customers’
characteristics
• (3) track each relationship to monitor cost of acquiring that
customer and lifetime value of resulting purchases
15. The University of Choice
Relationship Marketing (2)
•
Interaction Marketing:
– Face-to-face interaction between customers and supplier’s
representatives
– Value is added by people and social processes
– Increasing use of technologies make maintaining meaningful
relationships with customers a marketing challenge
• For example, self-service technology, interactive websites,
call centers
• Network Marketing:
– Common in b2b context where companies commit resources to
develop positions in network of relationships with stakeholders
and relevant agencies
19. The University of Choice
Customer Needs and Company Capabilities
•
Identify and target the right customers
– How do customer needs relate to operations elements?
– How well can service personnel meet expectations of different
types of customers?
•
– Can company match or exceed competing services that are
directed at same types of customers?
Should result in a superior service offering in the eyes of those
customers who value what firm has to offer
20. The University of Choice
Searching for Value—Not Just Volume
•
Focus on number of customers served as well as value of each
customer
– Heavy users who buy more frequently and in larger volumes are
more profitable than occasional users
– Avoid targeting customers who buy based on lowest price
•
•
Firms that are highly focused and selective in their acquisition of
customers grow faster
“Right customers” are not always high spenders
– Can come from a large group of people that no other supplier is
serving well
•
Different segments offer different value
21. The University of Choice
Effective Tiering of Service : The Customer Pyramid
Good Relationship Customers
Which segment sees high value in our offer,
spends more with us over time, costs less to
maintain, and spreads positive word-ofmouth?
Platinum
Gold
Iron
Lead
Poor Relationship
Customers
Which segment costs us time,
effort, and money, yet does not
provide return we want? Which
segment is difficult to do
business with?
22. The University of Choice
Loyalty (Retention)
The Customer Satisfaction and Loyalty Relationship
Apostle
100
Zone of Affection
80
60
40
Near Apostle
Zone of Indifference
Zone of Defection
20
Terrorist 0
1
2
Very
Dissatisfied
Dissatisfied
3
Neither
Satisfaction
4
Satisfied
5
Very
Satisfied
24. The University of Choice
Strategies for Developing Loyalty Bonds with Customers (1)
• Deepening the relationship
– Bundling/cross-selling services makes switching a major effort that
customer is unwilling to undertake unless extremely dissatisfied
with service provider
– Customers benefit from consolidating their purchasing of various
services from the same provider
– See Research Insights : How do customers see relational benefits?
• One-stop-shopping, potentially
higher service levels,
higher service tiers, etc.
25. The University of Choice
Strategies for Developing Loyalty Bonds with Customers (2)
•
Reward-based Bonds
– Incentives that offer rewards based on frequency of purchase, value
of purchase, or combination of both
– Financial bonds
• Discounts on purchases, loyalty program rewards (e.g., frequent
flier miles), cash-back programs
– Non-financial rewards
• Priority to loyalty program members for waitlists and queues in
call centers: higher baggage allowances, priority upgrading,
access to airport lounges for frequent flyers
– Intangible rewards
• Special recognition and appreciation, tiered loyalty programs
– Reward-based loyalty programs are relatively easy to copy and
rarely provide a sustained competitive advantage
26. The University of Choice
Strategies for Developing Loyalty Bonds with Customers (3)
Social Bonds
– Based on personal relationships between providers and customers
– Harder to build and imitate and thus, better chance of retention in
the long term
•
Customization Bonds
– Customized service for
loyal customers
• e.g., Starbucks
– Customers may find it
hard to adjust to another
service provider who
cannot customize service
Source: PAL Library; Asset ID: AAFHKTO0
27. The University of Choice
Strategies for Developing Loyalty Bonds with Customers (4)
•
Structural Bonds
– Mostly seen in b2b settings
– Stimulate loyalty through structural relationships between provider
and customer
• Joint investments in projects and sharing of information,
processes and equipment
– Can be seen in b2c environment too
• Airlines—SMS check-in, SMS e-mail alerts for flight arrival and
departure times
– Difficult for competition to draw customers away when they have
integrated their way of doing things with existing supplier
28. The University of Choice
Creating Customer Bonds by Membership Relationships
and Loyalty Programs (1)
•
Transform discrete transactions into relationships
– Discrete transactions: Each usage involves payment to service
supplier by an essentially "anonymous" consumer
– Membership cards: Capture transactions, communicate
customer preferences to frontline
– Loyalty reward programs increasingly used by all businesses in
response to competition
• Frequent fliers program—rewards dominated in miles
– Customers may get frustrated with reward programs
• For example: Feel excluded from rewards program because
of low balances, rewards seen as having little value,
cumbersome redemption process
– Don’t lose sight of broader goals of offering high service quality,
nor allow service to other customers to deteriorate
29. The University of Choice
Create Customer Bonds by Membership Relationships and
Loyalty Programs (2)
•
How customers perceive reward programs
– Brand loyalty versus deal loyalty
– Buyers value rewards according to:
• Cash value of redemption award
• Range of choice among rewards
• Aspirational value of rewards
• Amount of usage required to obtain award
• Psychological benefits of belonging to reward program
– Timing
• Send customers periodic updates on account status and
progress towards particular milestones
30. The University of Choice
Strategies for Reducing Customer Defections
31. The University of Choice
Analyze Customer Defections and Monitor Declining Accounts
•
Understand reasons for customer switching
•
Churn diagnostics common in mobile phone industry
– Analysis of data warehouse information on churned and declining
customers
– Exit interviews:
• Ask a short set of questions when customer cancels account;
in-depth interviews of former customers by third party agency
– Churn Alert Systems:
• Monitor activity in individual customer accounts to predict
impending customer switching
• Proactive detention efforts—send voucher, customer service
representative calls customer
32. The University of Choice
Addressing Key Churn Drivers
•
Delivery quality
•
Minimize inconvenience and nonmonetary costs
•
Fair and transparent pricing
•
Industry specific drivers
– Cellular phone industry: Handset replacement a common reason
for subscribers discontinuing services—offer proactive handset
replacement programs
•
Reactive measures
– Save teams: Specially trained call center staff to deal
with customers who want to cancel their accounts
– Be careful about how save teams are rewarded
33. The University of Choice
Other Ways to Reduce Churn
• Implement effective complaint handling and service recovery
procedures
• Increase switching costs
– Natural switching costs
• For example, changing primary bank account—many
related services tied to account
– Can be created by instituting contractual penalties for
switching
• Must be careful not to be perceived as holding
customers hostage
• High switching barriers and poor service quality likely
to generate negative attitudes and word of mouth
35. The University of Choice
Integrated Framework for CRM Strategy
Strategy
Development
Process
Value Creation
Process
Multi-Channel
Integration
Process
Information Management Process
Performance
Assessment
Process
36. The University of Choice
Integrated Framework for CRM Strategy Development
•
Strategy Development
– Assessment of business strategy
– Business strategy guides
development of customer strategy
37. The University of Choice
Integrated Framework for CRM Strategy: Value Creation
•
Value Creation
– Translates business and customer strategies into
specific value propositions for both customers and
firm
• Customers benefit from priority, tiered services, loyalty
rewards, and customization
• Company benefits from reduced customer acquisition
and retention costs, and increased share-of-wallet
– Dual creation of value: Customers need to participate
in CRM to reap value from firm’s CRM initiatives
38. The University of Choice
Integrated Framework for CRM Strategy: Multi-Channel Integration
•
Multi-Channel Integration
– Serve customers well across
many potential interfaces
– Offer a unified interface that
delivers customization and
personalization
39. The University of Choice
Integrated Framework for CRM Strategy: Performance Assessment
• Performance Assessment
– Is CRM system creating value for key
stakeholders?
– Are marketing and service standard
objectives being achieved?
– Is CRM system meeting performance
standards?
40. The University of Choice
Integrated Framework for CRM Strategy: Information Management
•
Information Management
– Collect customer information from all
channels
– Integrate it with other relevant
information
– Make useful information available to the
frontline
– Create and manage data repository, IT
systems, analytical tools, specific
application packages
41. The University of Choice
Common Objectives Of CRM Systems (1)
(Service Perspectives )
•
Data collection
– Customer data such as contact details, demographics,
purchasing history, service preferences, and the like
•
Data analysis
– Data captured is analyzed and categorized
– Used to tier customer base and tailor service delivery
accordingly.
•
Sales force automation
– Sales leads, cross-sell, and up-sell opportunities can be
effectively identified and processed
– Entire sales cycle from lead generation to close of sales and
after- sales service can be tracked and facilitated through CRM
system
42. The University of Choice
Common Objectives Of CRM Systems (2)
(Service Perspectives )
•
Marketing automation
– Mining of customer data enables the firm to target its market
– Goal to achieve one-to-one marketing and cost savings, often in
the context of loyalty and retention programs
– Results in increasing the ROI on its marketing expenditure
– CRM systems also enable the assessment of the effectiveness of
marketing campaigns through the analysis of responses
•
Call center automation
– Call center staff have customer information at their fingertips and
can improve their service levels to all customers
– Caller ID and account numbers allow call centers to identify the
customer tier the caller belongs to, and to tailor the service
accordingly
• For example, platinum callers get priority in waiting loops
43. The University of Choice
Common Failures in CRM Implementation
• Service firms often equate installing CRM systems with
having a customer relationship strategy
• Challenge of getting it right with wide-ranging scope of CRM
• Common reasons for failures
– Viewing CRM as a technology initiative
– Lack of customer focus
– Insufficient appreciation of customer lifetime value (CLV)
– Inadequate support from top management
– Failure to reengineer business processes
– Underestimating the challenges in date integration
44. The University of Choice
Key Issues in Defining a Customer Relationship Strategy
•
How should our value proposition change to increase customer
loyalty?
•
How much customization or one-to-one marketing and service
delivery is appropriate and profitable?
•
What is incremental profit potential of increasing share-of-wallet
with current customers? How much does this vary by customer tier
and/or segment?
•
How much time and resources can we allocate to CRM right now?
•
If we believe in customer relationship management, why haven’t
we taken more steps in that direction in past?
•
What can we do today to develop customer relationships without
spending on technology?
47. The University of Choice
Different Perspectives of Service Quality
Quality = Excellence. Recognized only through
Transcendent: experience
Product-based: Quality is precise and measurable
User-based:
Quality lies in the eyes of the beholder
Manufacturing- Quality is in conformance to the firm’s developed
specifications
based:
Value-based:
Quality is a trade-off between price and value
48. The University of Choice
Performance: Primary operatin.g characteristics
Features: Bells and whistles
Reliability: Probability of malfunction or failure
Conformance: Ability to meet specifications
Durability: How long product continues to provide value to
customer
Serviceability: Speed, courtesy, competence
Esthetics: How product appeals to users
Perceived Quality: Associations such as brand name
49. The University of Choice
Components of Quality: Service-based
Tangibles: Appearance of physical elements
Reliability: Dependable and accurate performance
Responsiveness: Promptness; helpfulness
Assurance: Competence, courtesy, credibility,
security
Empathy: Easy access, good communication,
understanding of customer
50. The University of Choice
Capturing the Customer’s Perspective of Service Quality: SERVQUAL (1)
• Survey research instrument based on
premise that customers evaluate firm’s
service quality by comparing
– Their perceptions of service actually received
– Their prior expectations of companies in a
particular industry
• Poor quality
– Perceived performance ratings < expectations
• Good quality
– Perceived performance ratings > expectations
51. The University of Choice
How Customers Might Evaluate Online Businesses: Seven
Dimensions of E-S-QUAL
•
•
Navigation: How easy is it to move around the site?
•
Design and presentation: Image projected from site?
•
Content and purpose: Substance and richness of site
•
Currency and accuracy
•
Responsiveness:Firm’s propensity to respond to e-mails
•
.
Accessibility : Is site easily found?
Interactivity, customization, and personalization
•
Reputation and security
52. The University of Choice
Other Considerations in Service Quality Measurement
•
In uncompetitive markets or in situations where customers do not
have a free choice, researchers should use needs or wants as
comparison standards
– Time constraints
• Services high in credence characteristics may cause consumers to
use process factors and tangible cues as proxies to evaluate quality
—halo effect
– Process factors: Customers’ feelings
53. The University of Choice
The Gaps Model—A Conceptual Tool to Identify and Correct
Service Quality Problems
54. The University of Choice
Customer needs and
expectations
.
CUSTOMER
1. Knowledge Gap
MANAGEMENT
Management definition
of these needs
2. Standards Gap
Translation into
design/delivery specs
4. Internal
Communications Gap
3. Delivery Gap
Execution of
design/delivery specs
4.
5. Perceptions Gap
Customer perceptions
of service execution
7. Service Gap
Customer experience
relative to expectations
Advertising and
sales promises
6. Interpretation Gap
Customer
interpretation of
communications
55. The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(1)
1. Standards gap: Specify SQ standards that reflect expectations
– Set, communicate, and reinforce customer-oriented service
standards for all work units
– Measure performance and provide regular feedback
1. Knowledge gap: Learn what customers expect
– Understand customer expectations
– Improve communication between frontline staff and
management
– Turn information and insights into action
– Reward managers and employees
56. The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(2)
3. Delivery gap: Ensure service performance meets standards
– Clarify employee roles
– Train employees in priority setting and time management
– Eliminate role conflict among employees
– Develop good reward system
3. Internal communications gap: Ensure that communications
promises are realistic
– Seek comments from frontline employees and operations
personnel about proposed advertising campaigns
– Get sales staff to involve operations staff in meetings with
customers
– Ensure that communications sets realistic customer
expectations
57. The University of Choice
Prescriptions for Closing the Seven Service Quality Gaps
(3)
5. Perceptions gap: Educate customers to see reality of service
quality delivered
– Keep customers informed during service delivery and debrief
after delivery
– Provide physical evidence
5. Interpretation gap: Pretest communications to make sure message
is clear and unambiguous
– Present communication materials to a sample of customers in
advance of publication
5. Service gap: Close gaps 1 to 6 to meet customer expectations
consistently
59. The University of Choice
Soft and Hard Measures of Service Quality
•
•
Soft measures—not easily observed, must be collected by talking to
customers, employees, or others
– Provide direction, guidance, and feedback to employees on ways to
achieve customer satisfaction
– Can be quantified by measuring customer perceptions and beliefs
• For example: SERVQUAL, surveys, and customer advisory
panels
Hard measures—can be counted, timed, or measured through audits
– Typically operational processes or outcomes
– Standards often set with reference to percentage of occasions on
which a particular measure is achieved
– Control charts are useful for displaying performance over time
against specific quality standards
61. The University of Choice
Productivity in a Service Context
•
Productivity measures amount of output produced relative to the
amount of inputs.
•
Improvement in productivity means an improvement in the ratio of
outputs to inputs.
•
Intangible nature of many service elements makes it hard to
measure productivity of service firms, especially for informationbased services
– Difficult in most services because both input and output are hard
to define
– Relatively simpler in possession-processing services, as
compared to information- and people-processing services
62. The University of Choice
Service Efficiency, Productivity, and Effectiveness
•
•
•
Efficiency: Involves comparison to a standard,
usually time-based (for example: how long
employee takes to perform specific task)
– Problem: Focus on inputs rather than
outcomes
– May ignore variations in service quality/value
Productivity: Involves financial valuation of outputs
to inputs
– Consistent delivery of outcomes desired by
customers should command higher prices
Effectiveness: Degree to which firm meets goals
– Cannot divorce productivity from quality and
customer satisfaction
63. The University of Choice
Measuring Service Productivity: Variability Is a Major Problem
•
•
•
Traditional measures of service output tend to ignore variations in
quality or value of service
– Focus on outputs rather than outcomes
– Stress efficiency but not effectiveness
Firms that consistently deliver outcomes desired by customers can
command higher prices; loyal customers are more profitable
Measures with customers as denominator include:
– Profitability by customer
– Capital employed per customer
– Shareholder equity per customer
65. The University of Choice
Questions When Developing Strategies to Improve Service
Productivity
How to transform inputs into outputs efficiently?
Will improving productivity hurt quality?
Will improving quality hurt productivity?
Are employees or technology the key to
productivity?
Can customers contribute to higher productivity?
66. The University of Choice
Generic Productivity Improvement Strategies
•
Typical strategies to improve service productivity:
– Careful control of costs at every step in process
– Efforts to reduce wasteful use of materials or labor
– Replacing workers by automated machines
– Installing expert systems that allow paraprofessionals to take on
work previously performed by professionals who earn higher
salaries
• Although improving productivity can be approached incrementally,
major gains often require redesigning entire processes
?
?
?
67. The University of Choice
Long Waiting Times May Indicate Need for Service
Process Redesign
68. The University of Choice
Improving Service Productivity: (1) Operations-driven
Strategies
•
Control costs, reduce waste
•
Set productive capacity to match average demand
•
Automate labor tasks
•
Upgrade equipment and systems
•
Train employees
•
Broadening array of tasks that a service worker can perform
•
Leverage less-skilled employees through expert systems
•
Service process redesign
69. The University of Choice
Improving Service Productivity: (2) Customer-driven
Strategies
•
Change timing of customer demand
– By shifting demand away from peaks, managers can make
better use of firm’s productive assets and provide better service
• Involve customers more in production
– Get customers to self-serve
– Encourage customers to obtain information and buy from firm’s
corporate websites
• Ask customers to use third parties
– Delegate delivery of supplementary service elements to
intermediary organizations
70. The University of Choice
Backstage and Front-stage Productivity Changes: Implications
for Customers
•
•
Backstage improvements can ripple to front and affect customers
– Keep abreast of proposed backstage changes, not only to identify
such ripples but also to prepare customers for them
• For example: New printing peripherals may affect appearance of
bank statements
Front-stage productivity enhancements are especially visible in high
contact services
– Some improvements only require passive acceptance, while others
require customers to change behavior
– Must consider impacts on customers and address customer
resistance to changes
– Better to conduct market research first if changes are substantial
71. The University of Choice
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