SERVICES MARKETING KMKC 404

Week 4:UNDERSTANDING CUSTOMER REQUIREMENTS Listening to Customers through Research

Instructor: Dr. Paul Omari
Lecture outline
Listening to Customers through Research Objectives
Understanding the Customer
Listening to the voice of the customer
Customer lifetime Value
Market Research
Provider Gap 1
CUSTOME
R

COMPAN
Y

Gap 1:
The Listening Gap
Listening to Customers through Research
Objectives
Present the types of and guidelines for customer research in
services.

Show how customer research information can and should be used

for services.

Describe the strategies by which companies can facilitate interaction

and communication between management and customers.

Present ways that companies can and do facilitate interaction

between contact people and management.
Understanding the Customer
Understand that in order to provide customer value, firms must be
able to listen to the voice of the customer.
Comprehend that businesses must attempt to identify those
customers’ needs that are not being met by competitors.
Understand that businesses should segment their customers to
better meet their needs.
Understand that businesses should consider the lifetime value of
their various customer segments.
Understanding the Customer
Understand that although some businesses can create products and
services based on their intuitive insights, others need to conduct
careful analyses.
Comprehend that new product or service development requires that
organizations support creativity and innovation.
The perceived value proposition offers a significant challenge to any
business.
It requires that a business must have a fairly complete understanding
of the customer’s perception of benefits and costs.
Understanding the Customer
Although market segmentation may help a business better understand some
segments of the market, the challenge is still getting to understand the
customer.
In many cases, customers themselves may have difficulty in clearly
understanding what they perceive as the benefits and costs of any offer.
How then is a business, particularly a small business, able to identify this vital
requirement?
The simple answer is that a business must be open to every opportunity to
listen to the voice of the customer (VOC).
This may involve actively talking to your customers on a one-to-one basis.
Listening to the voice of the customer
(VOC).
It may involve other methods of soliciting feedback from your
customers, such as satisfaction surveys or using the company’s
website.
Businesses may engage in market research projects to better
understand their customers or evaluate proposed new products and
services.
Regardless of what mechanism is used, it should serve one purpose
—to better understand the needs and wants of your customers.
The Voice of the Customer
What Do Customers Value?
The customer-centered organization begins the transformation process by
understanding how to uncover and understand the VOC.
Research, Research, Research
Good research in the area of customer value simply means that one must
stop talking to the customer—talking through displays, advertising, and/or a
website.
It means that firms should be open to listening carefully to the VOC.
Active listening to better identify customer value means firms must be open
to the question of how the business can better solve the problems of
particular customers.
Voice of the Customer
Businesses should address the following questions in an attempt to make customer value the
focus of their existence:
What needs of our customers are we currently meeting?
What needs of our customers are we currently failing to meet?
Do our customers understand their own needs and are they aware of them?
How are we going to identify those unmet customer needs?
How are we going to listen to the VOC?
How are we going to let the customer talk to us?
What is the current value proposition that is desired by customers?
How is the value proposition different for different customers?
How – exactly - is our value proposition different from our competitors?
Do we know why customers have left our business for our competitors?
Voice of the Customer
The central focus must be the customer and providing them with
superior value at a profit for the business/firm.
One way of doing this is by identifying and selecting those customers
who will be profitable.
Some have put forth the concept of customer lifetime value, a
measure of the revenue generated by a customer, the cost generated
for that particular customer, and the projected retention rate of that
customer over his or her lifetime
Customer lifetime Value
This concept is calculated. These days there are lifetime value
calculator templates available on the web.
One of the great benefits in conducting customer lifetime value
analysis is combining it with the notion of market segmentation.
The use of market segmentation allows for recognizing that certain
classes of customers may produce significantly different profits
during their lifetimes. Not all customers are the same or profitable.
Let us look at a simple case of segmentation based on behavioral
factors. Some customers make more frequent purchases - these
loyal customers may generate a disproportionate contribution to the
firm’s overall profit.
Customer lifetime Value
It has been estimated that only 15 percent of American customers
have loyalty to a single retailer, yet these customers generate
between 55 percent and 70 percent of retail sales.
Likewise, a lifetime-based economic analysis of different customer
segments may show that certain groups of customers actually cost
more than the revenues that they generate.
Having segmented your customers, you will probably find that some
require more handholding during and after the service sale.
Some customer groups may also need you to “tailor” your product or
service to their needs.
Customer lifetime Value
Market segmentation can be done along several dimensions. – firms
can use data mining to determine the basis of segmentation, but that
often requires extensive databases, software, and statisticians.
One simple way to segment your customers is the customer value
matrix that is well suited for small retail and service businesses.
It uses just three variables: recency, frequency, and monetary value.
Customer lifetime Value
The three variables: recency, frequency, and monetary value.
Its data requirements are basic. It needs customer identification, the
date of purchase, and the total amount of purchase.
This enables one to easily calculate the average purchase amount of
each customer. From this, you can create programs that reach out to
particular segments.
Customer lifetime Value
Customer Lifetime Value (CLV) is a marketing metric that measures the long-
term value that a customer brings to a company over the course of their
relationship.
That is, CLV tells you how much money a customer is likely to spend on your
products throughout their entire relationship with your company and
estimates how much profit you will generate from that one customer.
By measuring CLV, as a marketer you can:
Identify high-value customers
Know how much to spend on customer acquisition
Know how much to spend on customer loyalty (retention)
Measure the overall success of your marketing strategies
Market Research
Listening to the customer is the domain of market research.
What are some of the common research objectives for the service
industry?
Common Research Objectives for
Services
To discover customer requirements or expectations for service.
To monitor and track service performance.
To assess overall company performance compared with that of competition.
To assess gaps between customer expectations and perceptions.
To identify dissatisfied customers, so that service recovery can be attempted.
To gauge effectiveness of changes in service delivery.
To appraise the service performance of individuals and teams for evaluation,
recognition, and rewards.
To determine customer expectations for a new service.
To monitor changing customer expectations in an industry.
To forecast future expectations of customers.
Portfolio of Services Research:Research
Is NOT Just Surveys!
Customer Complaint Solicitation
Critical Incident Studies
Requirements Research
Relationship and SERVQUAL Surveys
Trailer Calls or Post transaction Surveys
Service Expectations Meetings and Reviews
Process Checkpoint Evaluations
Mystery Shopping
Customer Panels
Lost Customer Research
Future Expectations Research
Critical Incident Studies
critical incident technique - Situation analysis technique in which
actions or behavior (during, for example, a customer service event)
is recorded and examined to ascertain the actual requirements of a
successful operation.
critical incidents are created.
Incidents happen all the time, but critical incidents are produced by
the way we look at a situation: a critical incident therefore is an
interpretation of the significance of an event…
Assign #4
Are you familiar with any customer feedback mechanisms?

Submission guidelines
To be discussed in class. Not to be presented.
Please note that we shall have our mid semester test on the 25th of February in the last
hour of the lecture. It is a one hour test; made up of three essay questions for you to
answer two. It forms 10% of your final tally so please take it very seriously.