4

Customer Satisfaction
Chapter Objectives
• Understanding what is customer satisfaction
• Identifying the customer: internal and external
• Factors which influence customer satisfaction
• Service quality and customer satisfaction
• Explain what is Customer Relationship Management
• School of Thought of CRM
• Methods of Customer Retention and Reasons of Customer Defection

Introduction
The most important asset of any organization is its customers. An organization’s success depends
on how many customers it has, how much they buy, and how often they buy. Customers that are
satisfied will increase in number, but more, and buy more frequently. Satisfied customers also
pay their bills promptly, which greatly improves cash flow – the lifeblood of any organization.
The organizational diagram in Figure 3-1 best exemplifies just how important the customer is to
any organization.

Increasingly, manufacturing and service organizations are using customer satisfaction as the
measure of quality. The importance of customer satisfaction is not only due to national
competition but also due to worldwide competition. This fact is reflected in the in Malcolm
Balridge National Quality Award where customer satisfaction has high importance in the criteria.
Similarly, customer satisfaction standards are woven throughout ISO 9000:2005. Customer
satisfaction is one of the major purposes of a quality management system.

Total Quality Management (TQM) implies an organizational obsession with meeting or

exceeding customer expectations, so that customers are delighted. Understanding the
customer’s needs and expectations is essential to winning new business and keeping existing
business. An organization must give its customers a quality product or service that meets their
needs at a reasonable price, which includes on-time delivery and outstanding service. To attain
this level, the organization needs to continually examine their quality system to see if it is
responsive to ever-changing customer requirements and expectations.

The most successful TQM programs begin by defining quality from the customer’s perspective.
As defined in Chapter 1, quality means meeting or exceeding the customer’s expectation. Dr.
Deming added that quality also means anticipating the future needs of the customer. Customer
satisfaction, not increasing profits, must be the primary goal of the organization. It is the most
important consideration, because satisfied customers will lead to increased profits.

A simplistic definition of customer satisfaction is illustrated by the Teboul model, which is

shown in Figure 3-2. The customer’s needs are represented by the circle, and the square depicts
the product or service offered by the organization. Total satisfaction is achieved when the offer
matches the need, or the circle is superimposed on the square. The goal is to cover the expected
performance level better than the competitors.

That part of the square that lies within the circle is perceived by the customer as satisfying, and
the part of the square outside the circle is perceived as unnecessary. It is important that the
organization listen to the “voice of the customer” and ensure that its marketing, design,
production, and distribution processes truly meet the expectations of the customer.

Customer satisfaction seems simple enough, and yet it is far from simple. Customer satisfaction
is not an objective statistic but more of a feeling or attitude. Although certain statistical patterns
can be developed to represent customer satisfaction, it is best to remember that people’s opinions
and attitudes are subjective by nature.
Because customer satisfaction is subjective, it is hard to measure. There are so many facets to
a customer’s experience with a product or service that need to be measured individually to get an
accurate total picture of customer satisfaction. Whether or not a customer is satisfied cannot be
classed as a yes or no answer. Errors can occur when customer satisfaction is simplified too
much. The Teboul model, for instance, describes customer satisfaction as the degree to which the
customer’s experience of a service or product matches her expectations. Using this model, a
customer’s satisfaction level would be the same if the experience were mediocre in the context of
low expectations, or if the experience were superior in the context of high expectations.
Customer satisfaction’s focus is creating superior experiences, not mediocre experiences.

Since customer satisfaction is hard to measure, the measurement often is not precise. As with
most attitudes, there is variability among people, and often within the same person at different
times. Often, due to the difficulty of measuring feelings, customer satisfaction strategies are
around clearly stated, logical customer opinions, and the emotional issues of a purchase are
disregarded.
This can be a costly mistake.

Customer satisfaction should not be viewed in a vacuum. For example, a customer may be
satisfied with a product or service and therefore rate the product or service highly in a survey,
and yet that same customer may buy another product or service. It is of little benefit to
understand a customer’s views about a product or service if the customer’s views about
competitors’ product or service are not understood. The value customers place on one product
compared to another may be a better indicator of customer loyalty. Customer loyalty can be
sustained only by maintaining a favorable comparison when compared with competitors. As
mentioned before customer satisfaction is not a simple concept to understand or to measure.

Who is the Customer?

There are two distinct types of customers – external and internal. An external customer can be
defined in many ways, such as the one who uses the product or service, the one purchases the
product or service, or the one who influences the sale of the product or service. For instance,
McDonald’s determined the customer to be the child when they introduced their Happy Meals.
The child never paid for the meals but the child influenced the sale. Often times, parents
purchase mobile phones and yet the teenage children use the mobile phones. The identity of the
external customer is not always easy to determine.
An external customer exists outside the organization and generally falls into three categories:
current, prospective, and lost customers. Each category provides valuable customer satisfaction
information for the organization. Every employee in the organization must know how their job
enhances the total satisfaction of the external customer. Performance must be continually
improved in order to retain existing customers and to gain new ones.

An internal customer is just as important. Every function, whether it be engineering, order

processing, or production, has an internal customer – each receives a product or service and, in
exchange provides a product or service. Every person in a process is considered a customer of
the preceding operation. Each worker’s goal is to make sure that the quality meets the
expectations of the next person. When that happens throughout the manufacturing, sales, and
distribution chain, the satisfaction of the external customer should be assured.

All processes have outputs, which are used by internal or external customers, and inputs, which
are provided by internal or external suppliers. Each supplier performs work that produces some
service or product that is used by another customer. As shown by Figure 3-3, each forms a link in
the customer/supplier chain, where every chain ends with an external customer and starts with an
external supplier. Every employee throughout the organization is part of the chain of internal
customers and suppliers.

One basic concept of TQM is an unwavering focus on customers, both internal and external.
Most employees know about the external customer or end user but may not think of other
employees as internal customers of their output.

In the ideal organization, every employee would have direct contact with customers and be
effective at meeting the needs. But the reality is that most employees are shielded from
customers by organizational layers. For example, the first-line supervisor in a computer factory
may never speak with the businessperson who buys and depends on the organization’s product.
However, that supervisor and countless other employees who lack direct contact must still
contribute to the businessperson’s satisfaction.

The formula for successful internal customer/supplier relationships varies. But it always begin
with people asking their internal customers three basic questions:

1. What do you need from me?

2. What do you do with my output?
3. Are there any gaps between what you need and what you get?

The leader’s role is to process work through the internal customer-supplier chain by helping
workers guarantee that the end product or service fully satisfies the end user. Rather than strive
for personal objectives, each individual or group must identify and satisfy the internal
customer(s) while fostering a team effort where all people help the organization. Each
department must determine what activities are important to both external and internal customers
and manage quality every step of the way.

All quality management systems start with the basic need of ensuring that the external
customer’s requirements are adequately documented. Similarly, the organization must document
explicitly what each internal customer expects. In addition, clear criteria must be provided for
measuring success in meeting the expectations of both internal and external customers.

Customer Perception of Quality

One of the basic concepts of the TQM philosophy is continuous process improvement. The
concept implies that there is no acceptable quality level because the customer’s needs, values,
and expectations are constantly changing and becoming more demanding.

Before making a major purchase, some people check consumer magazines that rate product
quality. During the period 1980 to 1988, the quality of the product and its performance ranked
first, price was second, and service was third. During the period 1989 to 1992, product quality
remained the most important factor, but service ranked above price in importance.

An American Society for Quality (ASQ) survey on end user perceptions of important factors that
influenced purchases showed the following ranking:

1. Performance
2. Features
3. Service
4. Warranty
5. Price
6. Reputation

According to American Customer Satisfaction Index (ASCI), perceived quality is a measure of

the customer’s evaluation via recent consumption experience of the quality of a company’s
products or services. Quality is measured in terms of both customization, which is the degree to
which a product or service meets the customer’s individual needs, and reliability, which is the
frequency with which things go wrong with the product or service.

The factors of performance, features, service, and warranty are part of the product or service
quality; therefore, it is evident that product quality and service are more important than price.
Although this information is based on the retail customer, it appears, to some extent, to be true
for the commercial customer also.
Thanks to the Internet, the world is now flooded with information available to the user in just a
few seconds. Many customers would use online resources in order to compare several of product
features and customer reviews before making a decision to buy. Thus buyers can influence
decisions of potential buyers.

Performance
Performance involves “fitness for use” – a phrase that indicates that the product and service is
ready for the customer’s use at the time of sales. Other considerations are (1) availability, which
is the probability that a product will operate when needed, (2) reliability, which is freedom from
failure over time, and (3) maintainability, which is the ease of keeping the product operable.

Features
Identifiable features or attributes of a product or service are psychological, time-oriented,
contractual, ethical, and technological. Features are secondary characteristics of the product or
service. For example, the primary function of an automobile is transportation, whereas a car
stereo system is a feature of an automobile.

Service
An emphasis on customer service is emerging as a method for organizations to give the
customer-added value. However, customer service is an intangible – it is made up of many small
things, all geared to changing the customer’s perception. Intangible characteristics are those traits
that are not Quantifiable, yet contribute greatly to customer satisfaction. Providing excellent
customer service is different from and more difficult to achieve than excellent product quality.
Organizations that emphasize service never stop looking for and finding ways to serve their
customers better, even if their customers are not complaining. For instance, at Baptist Hospital in
Pensacola, FL, janitors, after cleaning a room, ask if there is anything they can do for the patient.
Often patients will have a request for a window shade to be drawn or a door closed.

Warranty
The product warranty represents an organization’s public promise of a quality product backed up
by a guarantee of customer satisfaction. Ideally, it also represents a public commitment to
guarantee a level of service sufficient to satisfy the customer.

A warranty forces the organization to focus on the customer’s definition of product and service
quality. An organization has to identify the characteristics of product and service quality and the
importance the customer attaches to each of those characteristics. A warranty generates feedback
by providing information on the product and service quality. It also forces the organization to
develop a corrective action system.

Finally, a warranty builds marketing muscle. The warranty encourages customers to buy a
service by reducing the risk of the purchase decision, and it generates more sales from existing
customers by enhancing loyalty. Many manufacturers are using warranty extension as a part of
their marketing strategy. Marketing research company, J. D. Power have published a study titled
“2017 India Vehicle Dependency Study.” This research found that an increasing number of
customers were opting for expended warranty of vehicles as failure rates have significantly gone
up after running for about 40,000 kilometers.

Price
Today’s customer is willing to pay a higher price to obtain value. Customers are constantly
evaluating one organization’s products and services against those of its competitors to determine
who provides the greatest value. However, in our highly-competitive environment, each
customer’s concept of value is continually changing. Ongoing efforts must be made by everyone
having contact with customers to identify, verify, and update each customer’s perception of
value in relation to each product and service.

Reputation most of us find ourselves rating organizations by our overall experience with them.
Total customer satisfaction is based on the entire experience with the organization, not just the
product. Good experiences are repeated to six people and bad experiences are repeated to 15
people; therefore, it is more difficult to create a favorable reputation.

Customers are willing to pay a premium for a known or trusted brand name and often become
customers for life. Because it costs five times as much to win a new customer as it does to
keep an existing one, customer retention is an important economic strategy for any
organization. Although it is difficult for an organization to quantify improved customer
satisfaction, it is very easy to quantify an increase in customer retention. Investment in customer
retention can be a more effective bottomline approach than concentrating on lowering
operational costs. An effective marketing retention strategy is achieved through using feedback
from information collecting tools.

Service Quality
Strategies that have produced significant results in production are often harder to implement in a
service environment. Thanks to the teachings of Deming, Juran, and others, significant strides
have been made in manufacturing. The same results have been slower in service organizations or
service activities in manufacturing.

Customer service is the set of activities an organization uses to win and retain customers’
satisfaction. It can be provided before, during, or after the sale of the product or exist on its own.
Elements of customer service are:

Organization
1. Identify each market segment.
2. Write down the requirements.
3. Communicate the requirements.
4. Organize processes.
5. Organize physical spaces.

Customer Care
6. Meet the customer’s expectations.
7. Get the customer’s point of view.
8. Deliver what is promised.
9. Make the customer feel valued.
10. Respond to all complaints.
11. Over-respond to the customer.
12. Provide a clean and comfortable customer reception area.

Communication
13. Optimize the trade-off between time and personal attention.
14. Minimize the number of contact points.
15. Provide pleasant, knowledgeable, and enthusiastic employees.
16. Write documents in customer-friendly language.

Front-line people
17. Hire people who like people.
18. Challenge them to develop better methods.
19. Give them the authority to solve problems.
20. Serve them as internal customers.
21. Be sure they are adequately trained.
22. Recognize and reward performance.

Leadership
23. Lead by example.
24. Listen to the front-line people.
25. Strive for continuous process improvement.

Service sector now accounts for about 54% of India’s GDP. Some of the industries which have
been growing rapidly include mobile communication, software, hotels, insurance, call centers,
healthcare and retails. Importance of service sector has therefore, increased significantly in the
Indian industry.

Organization
To ensure the same level of quality for all customers, the organization must record and then
communicate to its employees the directions for all tasks. A service quality handbook should be
created with the description of each service quality standard. Communicating the service quality
standard for each task can be done by formal training, videos, personal coaching, or meetings.
Also, intranet sites can be developed so employees can find answers to commonly-asked
questions and contact people for more information.

Sometimes, the entire process used by an organization to do business must be changed in order
to better serve the customer. For example, Indian Railways have completely revolutionized their
reservation system during the last 10 years. It is difficult to believe that one can reserve train
seats/births from any station to any other station sitting at home and print his/her own ticket. The
banking system revolution also has been phenomenal and made our lives much easier.
Other times, physical space must be reorganized to better serve the customer. Harris Methodist
Hospital in Fort Worth redesigned its emergency room around the patient. It designed a “quick
care” unit for emergency room patients with less serious injuries. The average “quick care”
patient now spends 55 minutes in the emergency room instead of 137 minutes. Unfortunately,
patients now wonder why treatment is so costly when it took so little time.

Likewise, Belmont University reorganized its physical space to better serve its customers, the
students. After many years of student complaints, Belmont created a one-stop Belmont Central
where students can add or drop classes, get transcripts, file financial forms, cash checks, and do a
myriad of other administrative tasks. Previously, students had to visit several buildings located at
opposite ends of the campus to accomplish simple administrative tasks.

Customer Care
An organization should revolve around the customer, because customers are the key to any
business. A customer, any customer, should be valued and treated like a friend. Responses to
customer complaints should be immediate and should be more than the customer expected to
receive. If they are treated with respect customers will simply forgive errors and positively
promote the organization. Employees must understand that, as Henry Ford said, “It is not the
employee who pays wages – he only handles the money. It is the customer who pays the wages.”
Employees must please customers not bosses, management committees, or headquarters.
Employees should not follow mind-numbing Rules that provides no benefit to the customer.

Fairview-AFX requires its employees to sign a customer code of ethics. It is also given to all
customers in order to hold Fairview-AFX employees accountable. Their code of ethics is to:

• Keep promises to customers.

• Return calls to customers in an expedient manner.
• Give customers assistance with their concerns, referring an appropriate staff member for
problem-solving action when necessary.
• Treat our customers with respect, courtesy and professionalism at all times.
• Remain aware and evaluate customer satisfaction regularly.
• Continually search for customer-related improvements.
• Deliver service and products quickly and efficiently.
• Give every customer involved and personal attention.
• Maintain a clean and neat appearance, including the workplace, at all times.
• Review and implement customer feedback and suggestions into current procedure when
appropriate.
• Engage in any training or education that will enhance our job performance and our
commitment to customer care.
• Treat every customer just as we would want to be treated ourselves.

Communication
An organization’s communication to its customers must be consistent with its level of service
quality. A customer will become dissatisfied if there is a difference between what has been
advertised and what has been received. An organization communicates to its customers in many
subtle ways. For instance, an organization communicates to its customers even by such means as
an employee’s telephone manners, or an automated voice response system that is fast and easy
for the customer to use. Customer relationships are based on communication. An organization
must listen to its customers and establish a level of trust.

Frequently, the first impression a customer has of an organization is its website. If the
organization’s website is not customer-friendly, the customer will have a bad first impression.
Tomega, the manufacturer of zip drives, improved both the content and the navigation and
support tools on the organization’s website. Within one year, customer satisfaction increased
40%, problem resolution rate was up 320%, and the cost per solution fell from $10.00 to $o.69.

Front-Line People
Customers are the most valuable asset of any company and should not be referred to employees
who have not been properly trained to handle their complaints. Only the best employee is worthy
of a company’s customers. It is best to remember three things about front-line employees:

1. Hire the best

2. Develop the best employees into professionals
3. Motivate the professionals to stay and excel.

To get that “best employee” on the front line, someone with a personality should be hired, for
example, in real estate, the most important aspect is location, location, location. In front-line
employees, the most important aspect is personality, personality, personality. If employees are
not happy, this will be reflected to the customers. Generally, customers are frustrated by small
things. Front-line employees need to care, smile, possess a pleasant voice, and thank the
customer often for their business. In sum, it’s having a positive attitude. Finding good employees
who want to serve customers is not an easy task.

Front-line employees also need training. Managers who conduct training classes or participate in
class along with employees develop a more effective working relationship and therefore convey
the importance of customer satisfaction to new employees.

Of course, front-line employees should possess written and oral communication skills and
Problem-solving skills, and they should be empowere3d to resolve complaints. But more
importantly, front-line employees should genuinely care for their customers. Customers
understand and know when someone empathizes with their feelings and is genuinely trying to
help. The ideal is being overly fair with your customers, putting customers before costs.

In summary, front-line people deal with the customers every day. Front-line people are also a
valuable source of information; they know better than management what the customer wants.
Frontline staff also needs information and support from management to effectively deal with the
public. Management can support front-line staff in various ways. For example, management can
coach newcomers to help integrate them into the organization quickly. Management can also
give front-line people the authority to resolve customer problems. Rewards should be given to
encourage front-line employees’ efforts.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Customer relationship management (CRM) has become a strategic initiative in most companies
today. This is due to several reasons such as the growth of service sector industries, affordable
advances in digital technology and the shift among companies from market share to share in the
wallet of the customer. CRM requires a company to develop a customer-centric business model
(CCM).

CRM first came into focus in the 1980s. In the budding stage, it was in the form of a customer
information system (CIS). These first generation applications were single-function solutions
designed to support a specific set of employees. Typical applications were at the helpdesk, sales
and marketing departments or a particular function within a call centre. Then it shaped into
contact management, sales force automation (SFA), call centre and customer contact centre
(CCC). These CRM applications increased the functionality of the software.

These applications offered inter-operable modules that included marketing, sales, analytics,
customer service and call centre support functions. Today, it has matured to CRM and also
mobile CRM (m-CRM). The term CRM was first coined in the early 1990s. It is a major
strategic approach to customers, and businesses are now investing millions of dollars to acquire
CRM services and solutions. It is the leading business strategy of the new millennium. The scope
of CRM has the customer at the centre. The other four constituencies are suppliers,
owners/investors, employees and other partners, all of who must be managed and coordinated to
ensure that preferred value propositions are created, communicated and delivered to the selected
customer.

CRM DEFINED
CRM is a comprehensive strategy and process of acquiring, retaining and partnering with
selective customers to create superior value for the company and the customer. It involves the
integration of marketing, sales, customer service and the supply-chain functions of the
organization to achieve greater efficiencies and effectiveness in delivering customer value.

The CRM methodology enables the organization to understand customer needs and behavior in a
better manner. It introduces reliable processes and procedures for interacting with customers and
develops stronger relationships with them. The process helps organizations in assimilating
information about customers, sales, marketing effectiveness, responsiveness and market trends.
Then, this information is used to give insights into the behaviour of customers and the value of
retaining those customers. The whole process is designed to reduce cost and increase profitability
by retaining the loyalty of customers.

A simple installation and integration of the software package doesn’t ensure success. It has to be
absorbed into the system. Employees have to be convinced about its positive attributes, and they
also have to be trained. The existing business processes have to be modified. The company has to
decide what kind of information is to be collected about the customers, what is to be done with
the information and prioritize this accumulated information. The company must drill into this
database of its customers and ascertain their buying patterns, product preferences, the potential
for add on sales, etc.
A good strategy is to integrate the various touch-points with customers such as marketing, sales,
customer service and field support. This is achieved with the integration of the people, process
and technology in the business.

SCHOOLS OF THOUGHT ON CRM

The growth of the practice of relationship marketing is supported by the growing research
interest in different facets of this concept. The initial approaches of CRM can be very broadly
classified as:

1. The Anglo-Australian Approach

2. The Nordic Approach
3. The North American Approach
4. The Asian (Guanxi) Approach

The Anglo-Australian approach integrated the contemporary theories of quality management,

services marketing and customer relationship economics to explain the emergence of relationship
marketing.

The Nordic approach views relationship marketing as the confluence of interactive network
theory, services marketing and customer relationship economics. The interactive network theory
of industrial marketing views marketing as an interactive process in a context where relationship
building is an area of primary concern for marketers. In contrast, the initial focus of the North
American scholars was on the relationship between the buyer and seller operating within the
context of the organizational environment, which facilitated the buyer–seller relationship.

Guanxi has become a necessary aspect of Chinese and Asian business due to the lack of codified
enforceable contracts such as those found in Western markets. Guanxi determines who can
conduct business with whom and under what circumstances. Business is conducted within
networks, and rules based on status are invoked. Network members can only extend invitations
to others to become part of their network if the invitee is a peer or a subordinate.

The broadened views of relationship marketing address a total of six key market domains and are
as follows:

1. Customer markets: Existing and prospective customers as well as intermediaries.

2. Referral markets: Existing customers who recommend to other prospects and referral sources
or “multipliers” such as doctors who refer patients to a hospital or a consultant who
recommends a specific IT solution.
3. Influence markets: Government, consumer groups, business press and financial analysts.
4. Recruitment markets: For attracting the right employees to the organization.
5. Supplier markets: Suppliers of raw materials, components, services, etc.
6. Internal markets: The organization including internal departments and staff.

PURPOSE/OBJECTIVES OF CRM
CRM enables an organization to analyse the behaviour of customers and their value. The main
areas of focus are customer, relationship and the management of relationships. The main
objectives of implementing
CRM in business strategy are:

 To simplify marketing and sales processes

 To make call centres more efficient
 To provide better customer service
 To discover new customers and increase customer revenue
 To cross-sell products more effectively
 The CRM processes should fully support the basic steps of customer lifecycle. The basic
steps of customer lifecycle are:
 Attracting present and new customers
 Acquiring new customers
 Serving the customers
 Finally, retaining the customers

COMPONENTS OF CRM
CRM requires that a company develop a customer-centric business model (CCM). This means
that virtually every action within the model supports the strategic agenda of profitably acquiring,
satisfying and retaining target customers. Whether enterprise-wide or within a subsidiary serving
a particular market, a CCM should address six elements:

 Building and leveraging a sufficiently robust customer or prospect database.

 Identifying target customers or segments.
 Defining and delivering against the prescribed customer experience.
 Defining and measuring desirable business outcomes.
 Aligning the organization to deliver against customer experience requirements and desirable
business outcomes.
 Creating a culture of measurement, experimentation, learning and adaptability.

Types of CRM
Four broad classifications are possible when it comes to the application of CRM. They are:

Strategic CRM: It is focused upon the development of a customer-centric business culture. This
culture is dedicated to winning and keeping customers by creating and delivering value better
than competitors.

In a customer-centric culture, you would expect resources to be allocated where they would
best enhance customer value, reward systems to promote employee behaviour that enhance
customer satisfaction and retention and customer information to be collected, shared and
applied across the business.
Operational CRM: It is a process by which companies maximize the process of gathering and
understanding customer information from all touch points, i.e. point of sale, call centres,
web, etc. in an effort to increase customer loyalty and to retain them over their lifetime. It
enables and streamlines communication to and from the customer.

Today, the consumer approaches the business in far too many ways than in the past. Also
known as front office CRM, it involves the areas where direct customer contact occurs.
These interactions are referred to as customer touchpoints.

The customer touchpoints are classified into:

 Face-to-face touchpoints: Sales/service/channel/events/stores/promotions

 Database-driven touchpoints: Telephones/e-mail/mail/SMS/fax/loyalty cards/ATMs
 Mass media: Advertising/PR/Web sites

Analytical CRM: It is also known as back-office or strategic CRM and involves understanding
the customer activities that occur in the front office. It involves analysing large amounts of
cross-functional data using data mining and other methods and feeding the result back to
operational CRM. It also studies consumer behaviour patterns that help to know what
products to position for cross-selling/up selling and the level and kind of service to deliver to
meet customer demand. Analytical CRM requires technology and new business processes.

Collaborative CRM: The primary goal of organizations is to build a long-term and “profitable
relationship” with the “chosen” customers. It is necessary that all concerned parts of the
organization work in collaboration with aligned purpose, objective and strategy to achieve
this outcome. A “lifetime” value extraction is possible only through close collaboration of
internal stakeholders and customers.

Collaborative CRM is a specific functionality that enables a two-way dialogue between a

company and its customers through a variety of channels to facilitate and improve the quality
of customer interactions. The mandate of collaborative CRM is to manage various partners of
the company be it business partners, agents, brokers, OEMs, intermediaries like distributors,
dealers, resellers and retailers. By managing all these partners, it tries to facilitate the
integration of various activities such as marketing, sales, service/support and quality.

CUSTOMER RETENTION PROGRAMMES

How can organizations retain customers? The marketing program should be derived from and
support the company’s mission and business plans. The following step-by-step approach gives a
methodology to develop a comprehensive customer retention program.

Step 1: Review the Mission Statement

The first step is to review the company’s mission statement. Mission statements should be based
on the needs of the customer and not just product or competition based. For example, rather than
saying that the mission is “to offer the best-quality microprocessor to the Information
Technology industry,” the company’s mission should be “to ensure the success and profitability
of customers in the Information Technology industry through offering the finest quality products
and services.” In other words, changing the focus from internal to both internal and external (or
customer) quality.
Step 2: Research Your Customer Base
Research the customer base to identify the most profitable customers and customer segments.
There is much focus today on “one-to-one” marketing. However, many small companies cannot
maintain the massive amounts of data required to market to a “segment of one” (individual
customer). If the company can divide the customer base into several profitable customer
segments, it can refine its marketing message to these “segments of several” rather than to
“segments of one.”

Step 3: Measure Customer Defection Rates

Measuring customer defection rates is essential to take steps to reduce customer defections. Set a
goal for customer retention and communicate that goal to the rest of the company. Making
customer retention a focus may also require organizational changes. Companies that operate with
separate functional departments have a hard time ensuring quality for each customer’s individual
needs. Many companies have had to create customer teams—interdepartmental groups that focus
on the success of one customer or a segment of customers.

Step 4: Stay in Front of Customers

Develop contacts with the customer at least five to six times in a year. The contacts may be in the
form of face-to-face meetings, electronic communications or direct mail pieces informing
customers of new or other products.

Step 5: Take the Extra Mileage

Take extra steps to learn about businesses run by customers. This is needed in order to help them
become more profitable. One company saved its customers 68 million dollars in annual costs by
teaching customers how to use less of its product.

Step 6: Create a Proprietary Way of Communicating or Servicing Customers

Customers should know whom to contact when they have a problem or question. Information
should be provided on the Internet or in customer service manuals. Constantly survey customers
for feedback and ask for detailed responses.

CUSTOMER DEFECTIONS
A customer defection occurs whenever a customer switches to a competitor. Customer defection
is the rate at which customers stop the usage of products of a company. Businesses with high
defection rates would be losing their existing customers. Customer defections can tell a firm a lot
about its products and services from an external perspective, which the firm would otherwise not
have known. The concern for reducing and eliminating customer attrition emerged from studies
that indicated the following:

 Customers are profitable over time. The longer they stay with an organization, the more
profitable they are likely to be.
 Across industries, profits can increase by 35–85 per cent by increasing customer retention by
only 5 per cent.
 About 70 per cent of customers switch to competitive offerings due to the perceived
indifference of the current provider.

Customer defection is often hard to define. Product-oriented companies with no focus on its
customers and no market orientation will be more likely to have high customer defection. Not
many of those firms will take the time to find out why they have lost customers.

Types of Defectors
Customers who defect may be broadly classified as:

Price defectors: These customers shift to a competitor who is offering a cheaper price. In most
cases, these customers are compulsive “bargain hunters” and one may be better off by not
having them. But in some cases, customers do not see value in patronizing their existing
service provider as a competitor is offering similar or better service at cheaper rates.
Product defectors: Product defectors are former customers who are not satisfied with the
existing products offered by the firm. This may be due to a bad experience with the product
performance or availability of better products from competitors.
Service defectors: Service defectors are former customers who are dissatisfied with the service.
The impact of service dissatisfaction is normally very high. At the same time, customers give
enough opportunity for organizations to retain them. Customers not only expect and demand
more, they are also more articulate in saying so.
Market defectors: In almost every market in every developed country of the world, competition
has increased dramatically in the last 10 years. Globalization and advanced manufacturing
technology have resulted in businesses becoming faster and improving product quality.
Market defectors have stopped patronizing their former service providers as they have moved
away.
Technology defectors: These customers would have shifted to another, normally superior
technology. Examples include customers shifting from a typewriter to a word processor, from
a digital diary to a PDA (personal digital assistant), a line printer to an inkjet printer and from
fax to e-mail, etc.
Organizational defectors: If the customer wishes, buying the simplest product or service can be
a very complex decision-making process. Individual users who belong to a group
(organization, club, association, etc.) may shift to an alternate supplier because the group has
switched although some of the individuals may be satisfied with the existing service
provider. An example is the case of shared Internet services in an organization and the
organization deciding to shift from VSNL to Spectranet.
Physical defectors: Physical factors such as a more convenient location are ranked quite low as
are competitor action and invention. Marketing and competitor activity and relationship with
a competitor are about 15 per cent.

The most important and common reason for customer switching is the indifference and lack of
attention of the business and the lack of any reason to stay from the customer’s point of view. It
is important to understand why customers defect and what can be done to reduce defections.
Studies have shown that about 70 per cent of the time, customer’s defect due to the perceived
indifference of the company personnel. Perceived indifference includes lack of proper response
to any query for service, inefficient complaint handling, lack of courtesy, etc. In service
businesses, where customers keep coming back and ensure a continuous stream of revenue such
as in hospitality, retailing, telecom, credit cards, banking, etc. customer defection has serious
implications on profitability. Unfortunately, this gets hidden because customer defection is not
measured by most organizations.

TEN TIPS TO BUILD CUSTOMER LOYALTY

The key to a successful business is a steady customer base. After all, successful businesses
typically see 80 per cent of their business come from 20 per cent of their customers. Too many
businesses neglect this loyal customer base in pursuit of new customers. However, since the cost
to attract new customers is significantly more than to maintain a relationship with existing ones,
efforts toward building customer loyalty will certainly pay off. Customer loyalty is a process, a
program or a group of programs geared toward keeping a client happy so he or she will provide
more business.

The following ten ways can build customer loyalty:

1. Develop communication channels: Communication must be constantly maintained with

customers whether by e-mail, newsletter, monthly flyer, and a reminder card for a tune up or
a holiday greeting card.
2. Provide customer service: Staff must be trained to provide excellent customer service.
3. Develop employee loyalty: If a company is loyal to employees, they will feel positively
about their jobs and pass that loyalty along to customers.
4. Conduct employee training: Employees must be employed in the manner that the company
wants them to interact with customers.
5. Offer customer incentives: Customers must be offered a reason to return to the business.
For instance, a dentist may give a free dental check up to anyone who has seen him
regularly for three years.
6. Provide product awareness: The company should be aware of the products purchased by
regular customers and these items must be kept in stock.
7. Reliability: Be reliable. If something goes wrong, let customers know immediately and
compensate them for their inconvenience.
8. Be flexible: Try to solve customer problems or complaints to the best of your ability.
9. People over technology: A personal touch must be provided to customers in all transactions.
10. Know customer names: Get to know the names of regular customers and try to understand
their likes and dislikes.