Chapter 7

Managing Customer
Relationships with Measures

 To achieve wants and needs of both

the customer and organization the
means are
To win potentially profitable new
customers,
To ensure profitable existing customers
do not defect and, you guessed,
To win back profitable former customers
who have already defected
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The components of achieving

customer satisfaction and contribution
Customers want
Fast
Rapid and reliable delivery of products and
services

Right
High quality products and services

cheap
Reasonably priced products and services

easy
Hassle free transactions and easy to do business
with
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The components of achieving

customer satisfaction and contribution
Organizations wants and needs
Profit
Good level of profit to reinvest in improved products and services

Loyal customer

Growth
Increase sales volume

Opinion
Feedback from customers in terms of formal and informal survey inputs
Focus group participation in their product and services development
initiatives
Process and delivery improvement suggestions

Trust
Access to crucial information such as budget, capital investment in order
to make the supply chain effective and establish long-term relationship
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Intermediaries
Who is our customer?
Is it the end users?
Is it the organization that buys and
distributes the product?
The children or the parents?

Intermediaries
Retailers: FMCG
Wholesalers
Brokers: financial services
Agents: financial services
Merchants
Dealers: car and truck selling
Distributors: pharmaceutical products

What about doctors for the

pharmaceutical industries?
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 The central points are:

who are our customers?
What are their wants and needs?

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Strategies
Extend and renew the products and/or
services it offers to its various customers.
Attract those potentially profitable new (and
lapsed) customers to buy the products and
services offered.
Ensure that existing customers are retained
by satisfying their wants and needs very
well.
Grow the firms share of the target market
segments it has identified as being
attractive.
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Processes
Develop products and services
R & D in manufacturing, merchandizing skill in retailing

Build market offering alliances

Joint venture

Generate demand
linked with the development stage

Fulfill demand
activities between customer order and payment made;
after-sales services

Plan and manage enterprise processes

Resources and systems are made available

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Capabilities
Resources and systems are made
available
Employees are trained in the best
practices
Policies are implemented
Facilities are built, upgraded and
maintained

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Measures for Customer Relationship

Measure customer complain
Find the root causes and solve them
The problem is most of the customers dont
complain
Their general perception is the organization will
not listen
Collecting complaints is hard in industrial goods
Improper complaint handling may lead the
customers to vote with feet
Satisfied customers are not always loyal
customers
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Customer behaviors and certain

rules of thumb
It costs five or six times more to win a new customer than it does
to maintain an existing one in banking, apparently it can be as
much as 11 times more expensive.
2 Between 9496 per cent of dissatisfied customers dont complain
they simply walk away. It is reckoned that 91 per cent of them will
never come back.
3 Of the customers who register a complaint, between 54 per cent
and 70 per cent will do business with the company again if their
complaints are resolved satisfactorily this figure goes up to around
95 per cent if customers feel their complaints are resolved quickly.
4 A typical dissatisfied customer will tell eight to ten people about
their problem. One in five will tell 20. The advent of the internet
now makes it possible to tell several thousand. On the other hand, a
satisfied complainer will on average tell five people about the
problem and how it was resolved to their satisfaction.
1

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Customer behaviors and certain

rules of thumb
5 It takes around 12 positive service encounters to make up for
one negative incident.
6 Only about 5 per cent of customers who experience an out-ofstock situation return to make the purchase originally planned.
7 Around 68 per cent of customers stop doing business with
suppliers because of an attitude of indifference towards them
only 14 per cent quit because they are dissatisfied with the
product (so customers with a service problem are five times more
likely to defect than customers with a product problem) and just 9
per cent leave for competitive reasons. 8 Between 80 per cent to
90 per cent of defecting customers say they are satisfied. But
very satisfied customers are four (consumer products) to seven
(industrial products) times more likely to repeat their purchase
within the next 18 months than those customers who were merely
satisfied.
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Customer behaviors and certain

rules of thumb
9 A rise of as little as 5 per cent in customer
retention can result in an 80 per cent to 100
per cent increase in profits.
10 Businesses with low service quality
average only 1 per cent return on sales and
lose market share at a rate of 2 per cent per
annum. Businesses with high service quality
average a 12 per cent return on sales, gain
market share at the rate of 6 per cent per
annum and charge significantly higher prices.
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Measures for Customer Relationship

Use CRM Data
CRM should not be just plugging in some
software that enables standardized
customer interface processes and captures
basic transactional data.
CRM software systems should act as a
platform for gaining insights and making
judgements on product and, particularly,
service improvements that benefit a broad
range of customers.
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Measures for Customer Relationship

Service quality data
SERVQUAL MODEL: Dimensions of
service quality
Reliability
Responsiveness
Assurance
Empathy
Tangibles
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Measures for Customer Relationship

Service quality data
Dimensions of service quality
Reliability is the ability to perform the promised
service dependably and accurately.
Responsiveness is defined as the willingness to
help customers and provide prompt service.
Assurance is the knowledge and courtesy of
employees and their ability to convey trust and
confidence. It consists of four component parts:
competence, courtesy, credibility and security.
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Measures for Customer Relationship

Service quality data
Dimensions of service quality
Empathy is the caring, individualized
attention the firm provides its customers. It
has three sub-components: accessibility,
communication and understanding the
customer.
Tangibles are the appearance of physical
facilities, equipment, personnel and
communication materials.
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Measures for Customer Relationship

Gaps in Service quality
Gap 1: Insufficient Marketing Research
the gap between what customers expect
and what the organization thinks they
expect.
Gap 2: The Wrong Service Quality
Standards the gap between internal
perceptions of customer expectations and
performance specifications for service
delivery.
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Measures for Customer Relationship

Gaps in Service quality
Gap 3: The Service Performance Gap the gap
between service specifications and actuals.
Gap 4: When Promises Do Not Match Delivery
the gap between promises and delivery
caused by inadequate horizontal
communications within the organization and
the propensity to over-promise.
Gap 5: when the organization has no real idea
what its customers do want.
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Measures for Customer Relationship

Brand value and impact data
Many consumer products and services companies
view their brands as a significant part of their
intangible assets and would like to see this
represented on their balance sheet. Such a
balance sheet entry would go some way towards
explaining the often substantial difference
between the market value of the company and
the book value of its assets and liabilities.
Advertising is one element of brand value
building
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Measures for Customer Relationship

Customer segmentation and
behavior data
Consumer: millions of customers
Industrial customer: may be hundred or
thousand

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Measures for Customer Relationship

Website behavior data
Accentures research result on e-business
shoppers in 1999

Product was out of stock.

Item wasnt delivered on time.
Paid too much for delivery.
Connection trouble.
Didnt get a confirmation or status report.
Selections were limited.
Site was hard to navigate.
Site didnt provide enough information.
Prices werent competitive.
Site didnt offer enough gift ideas.
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The customer relationship measures

design process
Who are our key customer groups and what do they
each want and need?
And what does our organization want and need from
these customers?
What are our strategies for satisfying these sets of
wants and needs?
How will our internal business processes effectively
and efficiently deliver
them?
Which particular capabilities do we need to build,
maintain and improve in
order to execute them?
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The customer relationship measures

design process
The first is to ensure that the measures
(and, particularly, their metrics) are applied
consistently across the organization and not
in a localized ad hoc manner.
The second is to create a hierarchy of
measures so that all parts of the
organization can understand how their
operating measures relate to the
organizations strategic objectives, rather
than in isolation.
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Some process and capability

performance measures of supply chain

Supply Chain Planning

Stock days of cover (by warehouse location)
Inventory holding costs (cost of capital +
warehousing).
Stock age profile (by product category/by
location).
Stock accuracy (write-ups/downs by location)
Sales forecast accuracy (by product/by country).
Adherence to weekly production schedule.

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Some process and capability

performance measures of supply chain

Order Fulfillment
Percentage of orders delivered to first promise (by
location).
Percentage of orders delivered to customer request
(by location).
Number of stock-outs per month (by product/by
location).
Level of distribution-related customer complaints
(by category).
Customer supply satisfaction level versus
competitors (by country).
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Some process and capability

performance measures of supply chain

Physical Distribution

Cost per tonne shipped (per destination).

Tonnes shipped (per destination).
Warehouse man hours per tonne shipped.
Percentage packs repacked versus
shipped.
Percentage packs relabelled versus
shipped.
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The Customer Relationship Measures

Failure Mode Test
Validation of the customer measures selected
Sanity check on the selected measures to ensure
that important aspects of customer relationship
measurement have not been overlooked
It is formulated by putting forward some sort of
potential worst case scenario and then tracking
back to ensure that the right strategy, process and
capability measures are in place to enable prevention
of this failure mode from severely affecting the
business.
It is a means of helping to mitigate the most
potentially serious customer-related risks.
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Customer-centred measures
Customer satisfaction measures
Existing customer satisfaction level
(perception surveys and independent or
internal audits):
product design/quality/reliability in use
value-for-money

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Customer-centred measures
Customer-related strategy measures
Number of customers
Level of new/existing product sales
trend
Level of new/repeat business trend
Market share (by market
product/segment/geography)
Customer profitability (by market
product/segment/geography)
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Customer-centred measures
Customer-related process measures
On-time delivery-to-promise performance
Level of requested delivery date/time refusals
Average delivery lead time/order cycle time
Level of inventory stock-outs (and inventory
records accuracy)
Level of shipping/delivery/installation/billing errors
[by type]
Cost of poor quality (e.g. scrap and rework,
complaints handling, inventory, etc.)
Advertising/Promotion response rates [by source]
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Customer-centred measures
Customer-related capability measures
Level of demand versus capacity
Customer segmentation and profiling
Brand awareness, perceptions and positioning
Comparative selling price benchmarking
Revenues per sales channel/sales
representative
Cost of attracting new customers versus
retaining existing ones [and breakeven level?

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