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Marketing Management 2 Notes

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McGill University
MRKT 354
George Dracopoulos

Simon Blanchette Chapter 1: in todays globally competitive world, customers expect more, have more choices, and are less brand loyal companies must restructure their organizations to address changing customer needs and emerging competitive forces the ONLY constant is change o customers will continue to change in needs, demographics, lifestyle, and consumption behaviour o competitors will continue to change as new technologies emerge and barriers to foreign competition shift o the environment in which businesses operate will continue to change as economic, political, social, and technological forces shift Customer Focus and Profitability the major benefit of a strong customer focus is long-run survival Western companies have been criticized for their short-term perspective which lacks strong customer focus and a commitment to customer relations Businesses with a strong customer focus not only outperform their competition over the long term, but they also realize higher profits in the short run How to Underwhelm customers and Shareholders a business with a weak customer focus underwhelms the customer and shareholders it only has a superficial understanding of the customer and the market and its competition **FIGURE 1-1 UNDERWHELMING CUSTOMERS AND SHAREHODERS PAGE 7** & FIGURE 1-2 PAGE 8 Customer Satisfaction an essential performance metric is customer satisfaction one of the ways to compute this is by a customer satisfaction index (CSI) which is based on customers ratings of their overall satisfaction derived from a 6 point scale that ranges from zero for very dissatisfied to 100 for very satisfied to determine a CSI for a given number of customers, a business simply computes the average of the customers satisfaction ratings A Wide-Angle View of Customer Satisfaction a CSI score of 72 (where 100 is the maximum) is seen as acceptable. However managing the average masks a true understanding of customer satisfaction and opportunities for increased profit If we expand our view of customer satisfaction by including the percentage for each category, it is more meaningful 1 Simon Blanchette That way you can see where people are dissatisfied and try to keep them away from the competition by fixing the problem Customer satisfaction is a valuable marketing performance metric because it has the ability to forecast future revenues and profits It is a forward-looking indicator whereas sales and market share are backward looking De-Averaging Customer Satisfaction and Customer Profitability de-averaging is most important in understanding customer profitability very satisfied customers not only buy more, but they also buy higher margin products and services dissatisfied customers buy less and often buy promotional items so, after considering the cost of marketing, these customers lose the company money despite unsatisfied customers less significant role in profitability, a market- based management business gives them as much attention as the satisfied ones when a dissatisfied customer leaves, the company suffers economic consequences, not because they bought high margin products or bought a lot as customers, but because it costs more to attract a new customer than retain an old one it cannot neglect a customer just because they arent happy a very small number of them actually complain, but this is valuable information and can lead to opportunity 78% do not complain exiting customers directly erode market position, and they make it more difficult to attract new customers as they will tell 8 to 10 people about their dissatisfaction they are called customer terrorists when they tell other people about how unhappy they are with your business negative word of mouth makes it more costly and more difficult to attract customers you must encourage them to tell you their thoughts and complaints try to resolve the issue in 24 hours to retain the customer the more time the less likely they are to stay only by learning about complaints can we take corrective action Profit Impact of Customer Dissatisfaction: retaining a customer can make the difference in profits even a 5% increase in retention can be 16-fold increase on profit to hold market share in a mature market, a business must replace its lost customers most of the lost customers come from those who are dissatisfied but do not complain 2 Simon Blanchette retained customers are the profit drivers in some businesses keeping dissatisfied customers often means the employees working harder in terms of giving them deals, better customer service, adjustments to inventory or terms of sale new customers though are also less profitable advertising and sales promotion dollars must be spent to get them in your business and generate any sales at all also need trial purchases new customers also generally buy less because they are in the evaluation stage and not yet fully committed Profit Impact of Customer Retention $1 million spent on customer retention would produce only a slight increase in sales revenue. The business however would see a tremendous improvement in marketing efficiency and profitability We can readily see the immense potential for increased profit and cash flow when a company places a high priority on customer satisfaction and retention Customer Satisfaction and Customer Retention the relationship between the two is inherent but it differs in different competitive markets ex) in less competitive markets, customers are more easily retained even with poor levels of customer satisfaction because there are few substitutes or switching costs are high Customer Retention and Customer Life Expectancy attract, satisfy, and retain target customers customers are a marketing asset that businesses have yet to quantify in their calculations should not see them as individual purchase transactions but as lifetime partners the higher a businesss customer retention rate, the greater the profit impact it also has a positive impact on the average life of customers, increasing their lifetime value as a business moves to higher retention, the life expectancy of a customer also grows The Lifetime Value of a Customer in general it costs 5 times more to replace a customer than to retain one Customer Retention= 1- 1/N (where N is the period/year) 3 Simon Blanchette Net Promoter Score customer conviction when a customer recommends a product or service it means that they have the utmost confidence in it Net Promoter Score= Promoters-Detractors promoters= percentage of customers who would promote the brand or product detractors= percentage who would not recommend the brand or product there is also passive who would not likely recommend but are unsure companies that have customers who promote them enjoy superior levels of marketing productivity (marketing profits per dollar of marketing investment) Customer Loyalty and Manager Customer Loyalty Measuring Customer Loyalty using findings on customer satisfaction, retention, and recommendation, a company can determine its overall customer loyalty score (CLS) measure at the 6 levels of satisfaction (from very satisfied to very dissatisfied) CLS= customer satisfaction X customer retention X Recommendation It is more accurate to measure all of them together than just one The customer retention rate on its own can be misleading because it can be high but the customer loyalty may actually be quite low For example, if the opportunity arose, they might leave Managing Customer Loyalty 4 types of customers Top Performers o They are the gold nuggets of any business. They come in two varieties o Advocates they buy nearly everything a business has to sell and purchase regularly. They are like unpaid sales force in marketing o Loyalists they are less ardent than advocates, but they would recommend the business with prompting. They have a high level of loyalty and prefer the company over others o For many businesses, top performers comprise 30-36% on the customer portfolios High Potentials o They are the rough cut diamonds. They make up about 15-20% of the portfolio o Big Spenders they are repeat customers who buy above average and do it regularly. They may also buy from the competitor 4
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