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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 5-4 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 5-5 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 5-6 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 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 5-8 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 5-9 Customers at Risk Formula Overall % Experiencing a Problem X % Specific Problem Frequency X % Customers Not Likely to Repurchase = % of Customers at Risk 5-10 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% 5-11 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 5-12 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) 5-13 Segmentation & Positioning Marketing Building Blocks • Market Definition • Segmentation • Group potentials into homogeneous clusters • Describe / Profile segment characteristics • Targeting • Evaluate & Rank segments • Select 1 or more to target • Positioning • ID positioning alternatives for each target segment • Select desirable positioning • Design / Implement Marketing Program • Develop appropriate marketing mix for target segments • Implement 5-15 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 5-16 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. 5-17 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? 5-18 Target Marketing Sellers • distinguish major market segments, • target 1 or more, and • develop products & • marketing programs tailored to each segment. 5-19 Picking (a) Target Market(s) • • • • • • Size & sales potential Growth potential Profitability Competitors’ strengths / weaknesses Organizational strengths / weaknesses Resource requirements / availability 5-20 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 5-21 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 5-22 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. 5-23 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. 5-24 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. 5-25 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. 5-26 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 5-27 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. 5-28 Positioning • Designing an offering & image in order to occupy a meaningful & distinct competitive position in the target customers’ minds. 5-29 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. 5-30 The 5 Differentiation Dimensions • • • • • Product Services Personnel Channel Image 5-31 Product Differentiation Variables • • • • • • • Features Performance Quality Conformance Quality Durability Reliability Reparability Style 5-32 Services Differentiation Variables • • • • • • Ordering Ease Delivery Installation Customer Training Customer Consulting Maintenance & Repair 5-33 Personnel Differentiation Variables • • • • • • Competence Courtesy Credibility Reliability Responsiveness Communication 5-34 Channel Differentiation Variables • Coverage • Expertise • Performance 5-35 Image Differentiation Variables • Symbols • Written & Audiovisual Media • Atmosphere • Events 5-36 A Difference is Worthwhile as a Differentiation Variable if it is: Important Distinctive Superior Communicable Preemptive Affordable Profitable 5-37 5-38 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. 5-39 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. 5-40