Essay Test

2.
Define the key terms related to the LOs and their relevance to the topic chaper 12:
Managing Relationships and Building Loyal as well as Chapet 13: Complaint Handling and
Service Recovery”.
*Chapter 12:
Recognize the important role customer loyalty plays in driving a service 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
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
Understand why customers are loyal to a particular service firm.
-Customers stay loyal when we create value for them
-Value can be created for customers through use of technology to control quality
+Confidence benefits
+Confidence in correct performance
+Ability to trust the provider
+Lower anxiety when purchasing
+Knowing what to expect and receive
-Social benefits
+Mutual recognition and friendship between service provider and customer
-Special treatment
+Better price
+Discounts not available to most customer
+Extra services
+Higher priority when there is a wait
Know the core strategies of the Wheel of Loyalty that explain how to develop a loyal
customer base.
Appreciate why it is so important for service firms to target the “right” customers.
-Target the right customer and match them to what firm can deliver
+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?
-Focus on number of customers served as well as value of each customer:
+Some customers more profitable than others in the short term
+Others may have room for long-term growth
-“Right customers” are not always high spenders:
+Can come from a large group of people that no other supplier is serving well
Use service tiering to manage the customer base and build loyalty.
-Customer tiers are typically based on profitability and service needs. Each segment receives a
service level that is customized on the basis of its requirements and its value to the firm.
For example, the platinum tier receives some exclusive benefits that are not available to other
segments. The benefit features for platinum and gold customers should be designed to encourage
them to remain loyal, as they are the ones competitors would like to steal most.
-Marketing efforts can be used to encourage an increased volume of purchases, upgrade the type
of service used, or cross-sell additional services to any of the four tiers.
-However, these efforts have different thrusts for the different tiers, as their needs, usage
behaviors, and spending patterns are usually very different.
Understand the relationship between customer satisfaction and loyalty.
Know how to deepen the relationship through cross-selling and bundling.
-Bundling/cross-selling services makes switching a major effort that the customer is unwilling to
go through unless extremely dissatisfied with service provider.
-Customers benefit from buying all their various services from the same provider.
+One-stop-shopping, potentially higher service levels, higher service tiers, etc
Understand the role of financial and non-financial loyalty rewards in enhancing customer
loyalty.
-Reward Based Bonds
+Can be financial or non-financial bonds or a 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
+Reward-based loyalty program are relatively easy to copy and rarely provide a sustained
competitive advantage
Appreciate the power of social, customization, and structural bonds in enhancing loyalty.
-Higher-level bonds offer sustained competitive advantage
+Social Bonds
Based on personal relationships between providers and customers
Longer and harder to achieve
+Customization Bonds
Achieved when the service provider succeeds in providing customized service to loyal
customers
May be difficult for customers to adjust to another service provider who cannot
customize the service
+Structural Bonds
When customers to align their way of doing things with the supplier’s own processes
Frequently seen in B2B settings; also found in B2C environments (e.g., satellite TV
services)
Understand what factors cause customers to switch to a competitor and how to reduce such
switching.
-Address Key Churn Drivers

+Deliver quality service
+Reduce inconvenience and non-monetary costs
+Have fair and transparent pricing
+Take active steps to retain customers:
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
-Other Ways to Reduce Churn
+Implement Effective Complaint Handling and Service Recovery Procedures
+Increase Switching Costs
Natural switching costs
e.g., 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 bad word of mouth
Understand the part played by CRM systems in delivering customized services and
building loyalty.
-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 aftersales service can be tracked
and facilitated through CRM system
-Customer perspective:
+Unified customer interface that delivers customization and personalization
+Vast service improvement and increase customer value
-Company perspective
+Better segment, tier customer base and target promotion
+Implement churn alert systems if customers are in danger of defecting
-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 allows firms to judge effectiveness of marketing campaigns through the
analysis of responses
-Call center automation
+Call center staff have customer information at their finger tips 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.

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2.

-Address Key Churn Drivers

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