1. McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 16
Customer Retention
and Maximization

3. THE NATURE OF A CUSTOMER
Customer Relationships can be found at any level
Always-A-Share Highest Level
Customer Relationship
THE KEY FACTOR:
SWITCHING COSTS
The Direct and
Indirect costs a
buyer will have
to pay to go to
another supplier
Lost-For-Good Lowest Level
Customers Relationship
16-3

4. DEFINING THE EXTREMES OF CUSTOMER NATURE
LOST-FOR-GOOD ALWAYS-A-SHARE
Customers are tied to a Customers can allocate
system. Switching their purchases to
costs may include: several vendors . A
• Specific investments period of no purchases
• Cancellation penalties can be followed by a
• Setup costs for a new number of purchases.
supplier Doesn’t want to rely on
•Retraining a single vendor.
•Finding/Evaluating a Suppliers are largely
new supplier interchangeable
Exhibit 16-1
16-4

5. PAYOFFS TO SELLERS FROM
LONG TERM CUSTOMER RELATIONSHIPS
• GROWS ADDITIONAL BUSINESS OPPORTUNITIES for
new products or increased purchases
• PREMIUM PRICES result from giving first-rate service and
product quality
• REDUCED SELLING COSTS from tighter coordination of
production and logistics
• ADDITIONAL REVENUES POSSIBLE from customers’
referrals and joint sales calls with customers
16-5

6. RELATIONSHIP BENEFITS TO SELLERS
500
400 Referrals
Reduced
300 costs
Profits
Price
200
Premium
Increased
100 Purchases
Base profit
0
1 2 3 4 5 6
Years in Relationship
Exhibit 16-5
16-6

7. TWO REASONS COMPANIES STAY
IN A BUSINESS RELATIONSHIP
REASON 1. THEY HAVE TO
No alternatives, binding actions
such as contracts, product ties
REASON 2. THEY WANT TO
Relationship is satisfying
because of cooperation and
meeting financial objectives
16-7

8. TIES THAT BUILD RELATIONSHIPS
• SUPERIOR PERFORMANCE at a good price (value)
• SOCIAL RELATIONSHIPS created by frequent interaction
• TECHNICAL DEPENDENCIES brought about by reliance on a
supplier’s products or support
• FORMAL AGREEMENTS involving investments or contracts
16-8

9. SOURCES OF
COMPETITIVE ADVANTAGE
TO BUILD CUSTOMER LOYALTY, DEVELOP A
COMPETITIVE ADVANTAGE BY PROVIDING
1. Superior performance
2. Quality products and support as defined by the
customer
3. Distinctive and reliable service
16-9

10. THE IMPACT OF TRUST AND COMMITMENT ON BUSINESS RELATIONSHIPS
Relationship
Termination Acquiescence
Costs
+ +
Relationship
+ Propensity
Benefits Relationship -
To leave
Commitment
+ +
Shared Values + Cooperation
+ +
Trust +
+
Communication Functional
Conflict
- -
Opportunistic
Behavior Uncertainty
Exhibit 16-8
16-10

11. COMMUNICATING WITH CUSTOMERS
Telephone Confirm appointment
Answer a questionnaire about delivery
Fax Summarize yesterday’s meeting
FYI: an article in a trade magazine
E-mail Request the name of a former consultant
Give congratulations on a story in the press
Request easy-to-find data in a planning document
Business Formally introduce a new account representative
Letter Summarize reasons for next quarter’s price increase
Thank you for the order
Face-to-face Negotiate production commitments
Resolve dispute about marketing effort
Exhibit 16-9
16-11

12. A TOOL FOR CUSTOMER RETENTION:
CUSTOMER SATISFACTION SURVEYS
REQUIREMENTS FOR A USEFUL SURVEY:
1. CHOOSE MAIL OR TELEPHONE TO DO THE
SURVEY
2. DETERMINE THE KIND OF INFORMATION YOU
NEED
• Ascertain satisfaction with overall relationship
• Measure specific aspects of the relationship
• The unspoken concerns of customers
• Determine what will get measured regarding
customer expectations (The TERRA model works
well)
• Having meaningful and measurable ratings and
scores
16-12

13. 4-QUESTION SATISFACTION SURVEY
1 General overall
Satisfaction question
Process 1 Process 2 Process 3 Process 4 Process 5
(Parts handling) (Parts reps) (Service manuals) (Technical Support) (etc.)
Attribute 1 Attribute 1 Attribute 1 Attribute 1 Attribute 1
Attribute 2 Attribute 2 Attribute 2 Attribute 2 Attribute 2
Attribute 3 Attribute 3 Attribute 3 Attribute 3 Attribute 3
Suggest Suggest Suggest Suggest Suggest
2
change for change for change for change for change for
improvement improvement improvement improvement improvement
Loyalty questions
3 • Willingness to recommend
4 • Repurchase intentions
Exhibit 16-10
16-13

14. MEASURING SATISFACTION
AFTER THE SURVEYS
MANAGEMENT QUESTIONS
1. WHAT DO THE SURVEYS TELL US?
2. HOW DO WE USE THE INFORMATION WE
HAVE?
3. HOW RELIABLE IS THE INFORMATION?
16-14

15. SATISFACTION SURVEYS:
GUIDELINES FOR USE
1. LOOK AT OVERALL SCORES
2. COMPARE SCORES TO PREVIOUS MEASURES,
PREFERABLY OVER SEVERAL YEARS
3. ARE TRENDS UP, DOWN, STABLE?
4. HOW MANY FACETS OF SATISFACTION DO WE
MEASURE?
5. HOW MANY ATTRIBUTES FOR EACH FACET
SHOULD WE MEASURE
6. WHAT IS OUR RELATIONSHIP FACET
PERFORMANCE SCORE (RFPscore )?
16-15

16. DETERMINING THE RFP SCORE
sales reps. report cards, warranty claims, product
OVERALL SATISFACTION = f
lit., tech support, etc.
3.2 + .82 (RFPwarranty)
OVERALL SATISFACTION = + .53 (RFPrep) + .06 (RFPlit )
+ .12 (RFPtech support) + e
THE REGRESSION COEFFICIENTS SHOW RELATIVE IMPORTANCE
OF EACH FACET. 0.82 FOR WARRANTY CLAIMS IS MOST
IMPORTANT FOR OVERALL SATISFACTION, FOLLOWED BY
SALES REP PERFORMANCE
16-16

17. STRONG STATISTICAL MODEL
OF CUSTOMER SATISFACTION
Satisfaction
Score
Warranty
Service RFP
Exhibit 16-12
Score
16-17

18. WEAK STATISTICAL MODEL
OF CUSTOMER SATISFACTION
Satisfaction
Score
Technical
Support RFP
Exhibit 16-13
Score
16-18