Principles of Marketing

Chapter 2 Customer Relationship: Customer Service

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Customer-Driven Marketing
A customer is a person or organization that transacts with businessperson or business
organization to buy goods or services for monetary or other valuable consideration.
Acquiring and keeping customers is the end goal of businesses because customers
create demand. Through customers' purchases, organizations are able to cover
manufacturing costs, operating expenses, and generate profits. Because businesses
have to be sustainable, products or services are not expected to be purchased only
once. They need to be purchased over and over again in order to maintain profitable
and sustainable operations.
Consumables such as soft drinks and candy are bought frequently. Other products like
shopping goods are purchased less frequently. A mobile phone may be bought once
every year, and a car, perhaps every five years. Real estate and properties may be
purchased every 10-15 years, or even longer.
Because customers have varying needs and preferences over time, organizations must
be able to offer products and services at the time when customers need them.
Marketers cannot force the customers to buy any products or services that the company
offers. Instead, consumer needs and wants must be understood and anticipated, as well
as be satisfied adequately and exceedingly. Companies must predict customer needs.

CUSTOMER RELATIONSHIP: CUSTOMER SERVICE

Customer service and customer-driven marketing
Customer relationship management
Customer lifetime value
Successful customer relationship management strategies

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Since there are other businesses that offer the same product or service to the same
customers, companies outdo each other in terms of value offering. Once an individual
becomes a customer, everything must be done to ensure that the customer is kept and
retained.
Customers wield tremendous influence over other people. A satisfied customer shares
his experience with relatives and friends, which can result in additional sales. On the
other hand, when a customer is not satisfied, the experience he shares will dissuade
other people from purchasing the product. This is particularly important ais the
popularity of the social media magnifies these positive and negative experiences!
When choosing from several vendors, what does the customer consider in his purchase
decision? This is when customer service is essential.

Customer Service
Customer service is the process of ensuring customer satisfaction with a product or
service. Customer service can take on many forms—salesperson assistance, product,
delivery, technical advice, help desks, or other means. It involves activities designed to
enhance customer satisfaction, or the perception that a product has met or exceeded
expectations. This perception can be shaped and influenced by the level and type of
service that customers receive before, during, and after the actual purchase. Good
customer service 1 can cause customers to perceive the value offered superior over its
competitors. This is because a customer not only buys a product and service, but also
the entire purchase or shopping experience.

The value of customer service is evident in the local setting. As Philippine organizations
become involved with ASEAN and global business, the importance of service quality
increases. Due to exposure to western practices, Filipino consumers are becoming
more I sophisticated and discriminating. They are also more demanding in level of
service that they receive. Filipinos believe that their service demands are reasonable.
This is because the cost of labor (and, therefore, customer service) in the Philippines is
comparatively lower than other countries. As a result, local businesses have, over the
years, launched programs satisfy increasing customer service needs.

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Customer service may be quite easy for small businesses and start-up operations.
However, as business expands, resources are strained and are spread thinly. It
becomes easier to ignore services to customers. Customer service is crucial at this
stage to ensure sustainability of the business.
Although most customer service is performed by company representatives, technology
provides alternatives. Help desks, contact centers, and touch-tone telephones and
smart phone capabilities can address product problems and customer concerns 24
hours a day, days a week. Company websites, social media, and blogs can also proyide
platforms for customer feedback.

Customer Service Programs

Retail establishments have realized that customers are not only drawn to stores
because of their product offerings and convenient locations, but also by the superior
customer services they provide.
In the early 70’s, Budji Layug, now a prominent, well-respected, and highly successful
interior design entrepreneur, opened a high-end salon, Budjiwara. The salon was
located in Pasay Road (now Antonio Arnaiz Avenue). It boasted of luxurious interiors
and facilities, offered iced tea, coffee, and similar refreshments to customers upon their
entry. While waiting, customers can browse through the latest issues of fashion
magazines. Customer relation assistants entertained customers while music played in
the background. When other salons and barber shops could complete a haircut in 15 to
20 minutes, the same service offered at Budjiwara took 45 minutes to an hour. Not only
were the needs of their customers satisfied, their wants were fulfilled as they were
literally pampered during their visit and stay the salon. For the experience, Budjiwara
charged over P300 for a basic trim. In contrast, other and barber shops charged only
P20 to P30.
Most high-end boutique stores employ highly qualified salesperson to deliver excellent
customer. Rustan’s Department Store employs highly qualified salespersons who are
trained to refrain from "hard selling” to customers. They give customers "space" to
browse through merchandise leisurely. Salespeople maintains physical distance from
the shoppers, offering assistance only when required. They are trained to discern if a
customer prefers to browse and select on his own, or if he already needs assistance.
When the customer has decided on a product to purchase, the salesperson will
personally bring the merchandise together with the payment to the cashier. After which,
he/she delivers the bagged merchandise, receipt, and change to the customer. The
purchase can also be gift-wrapped at no additional cost.
In contrast, salespersons of similar establishments hover and shadow the customer
throughout his stay at the store. They mention the product’s price and recite a litany of
product information every time a customer inspects or holds an item. They attempt to
close the sale at seemingly every opportunity, giving shoppers the feeling of being
harassed into buying. Shoppers who have decided to purchase an item are directed to a
particular cashier’s station, and must personally wait until the item is processed and
bagged. Rustan’s charges premium prices, not only because of the exclusive and
branded merchandise they carry, but because their customers experience comfortable
and stress-free shopping.

Managing Customer Service Quality

Because services are variable, maintaining high levels of customer service quality may
be challenging. In order to ensure the consistency of customer service quality,
organizations conduct rigid customer service training and assess periodically how well
services are I delivered. This assessment can result in the identification of customer
service problems, I improvements, and current levels of customer satisfaction.
Maintaining customer service quality is important. Disgruntled customers tend to tell
others about a bad service experience more often than a pleasant one. This can lead to
deterioration of the organization’s image. It shall be perceived as being unable to deliver
the level of service expected by customers.
Companies can best manage customer service quality by:
 Establishing service objectives with specific and measurable targets
 Committing sufficient organizational resources towards the achievement of these
targets
 Collecting customer feedback on service quality regularly
 Reviewing target accomplishment
 Identifying customer service weaknesses and connecting them
Organizations must constantly bear in mind that it is better to exceed customer service
expectations than to simply fulfill or underachieve them.

Managing Customer Service Differentiation

How can organizations make their customer service stand out? How can they protect
their services from being duplicated by competitors? For physical products,
differentiation can be easily undertaken and protected through patents. This is,
however, not the case with services.
Customer-centered organizations can differentiate their customer service through: (1)
the development and training of competent customer contact personnel and (2)
designing and implementing a superior service delivery environment and process.
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For example, the store’s layout can be configured to permit shoppers to move around
freely without bumping into a fixture at every turn. Comfortable lounge furniture may be
strategically placed for use of shoppers who need to take a short break from shopping.
Merchandise display must be neat and orderly. Store interiors should be clean.
Transport facilities such as elevators and/or escalators must be in good working
condition.
Store processes must be periodically reviewed and improved. Internal procedures
should be streamlined to reduce customer waiting time. Merchandise in stockrooms
should be arranged for easy access.
Organizations should continuously improve their customer service. An intimate
knowledge and understanding of customer needs and wants can lead to effective'
customer service that can result in long-term customer loyalty.
The following are some of the more popular customer service practices in the
Philippines:
Customer Service Practice Practicing Organization(s)
Free delivery Most restaurants and fast food chains
Automated in-home ordering system Rustan’s Supermarket, Mercury Drug
Free-gift wrapping/document pick-up Rustan’s Department Store, Fully-booked
Merchandise/document pick-up DHL and selected courier services
Free parking Some churches and religious
organizations
Valet parking Some hotels and resorts
Reservations, installment plans Some large department stores,
bookstores
Complimentary refreshments, waiting Most car dealerships
lounge
Help desks, touch phone access, 24- Telecommunication and technical firms
hours customer hotline most utility firms

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Customer Relationship Management
Customer relationship management (CRM) is a process of managing an
organization’s interactions with current and future customers. The rationale for CRM is
the recognition that companies can sustain long-term profitability by attracting and
maintaining their most valuable customers. These are customers that can directly or
indirectly generate the greatest revenues and financial returns. But how can these
customers be identified? This can be done through the use of consumer databases.

Initially, marketing companies create and maintain customer databases that

record and keep the following information: customer names, birthdates, contact
numbers, and physical and email addresses. The information progresses to include
customers’ buying history and behavior, i.e., what they buy, when and where they buy,
in what quantities and prices, and their responses to sales promotion efforts.
 While most consumers may not be willing to share personal information, product
retailers utilize different strategies to coax customers into sharing. A common practice is
through a shopper’s club. Benefits of joining the club include earning points on
purchases or participation in in-store contests. The customer swipes his membership
card, at check-out counter every time he/she shops. This updates his/her purchasing
history. The information can yield customer purchased value, preferences, and buying
habits, among others.

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Among some coffee shops and specialty stores, customers are encouraged to
drop business card into a glass bowl strategically located beside the counter. To
encourage participation, some stores give incentives by way of weekly or monthly
raffles. Others depend on customer responses on service feedback forms that stores
request customers to fill after a shopping or dining experience.

Customer database information is also used in customer segmentation and

profiling. Through databases, businesses can have a precise identification of their
customer base. These information could include the geographical area of their
residence or work, the distance they are willing to travel to shop, their age profiles, and
occupations. Knowing the customer’s date of birth can reinforce relationship with the
customer. It is common for loyal customers to receive greetings from stores. Email
addresses can be used to update customers on new merchandise, promotional offers,
and other store activities.

Customer shopping history can be used to accurately identify, the type of

merchandise I frequently purchased, the amount spent, the preferred days for shopping,
etc. Promotions can be personalized as customers will only receive those that truly
interest them and are most likely to purchase.

Customer Lifetime Value

Customer lifetime value (CLV) is the forecasted sales or profits that a company
can derive from the entire span of the future relationship with a particular customer. A
customer’s lifetime value can be based upon the potential value and profitability of their
relationship with the company.

The CLV perspective has several distinct implications:

 It considers a longer-term perspective of a company's relationship with customers in
contrast to a short-term view of “take the customer’s money and run.”
 It calculates and compares costs of acquiring new customers and keeping old ones.
This can be used to determine the revenues that are lost when an existing customer
switches to another product. Costs for getting new customers are called acquisition
costs, whereas, costs for maintaining existing customers are called retention
costs. These are normally in the form of customer support and promotional
incentives.
 It highlights the importance of market segmentation, with the recognition that some
customer groups are more profitable than others.
CLV can be measured using the formula:

Customer Lifetime Value

average peso value of a sale to a particular
X number of repeat purchases in a year
X average retention time in months or years
= customer lifetime value

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For example, an athlete who spends P2,000 for every visit to a spa and goes to the spa
twice monthly for an expected time period of five years would have a CLV of;

Customer Lifetime Value

P2,000 average peso value of a sale to a particular
x 24 number of repeat purchases in a year
x5 average retention time in months or years
= customer lifetime value
P240,000Lifetime Value is P240,000.
The athlete’s Customer

If gross profit is used instead of sales, the result will show the total profit that can
be generated from a customer in his entire lifetime.
By knowing the value or worth of its customers, a company can focus its
resources in attracting and keeping the “right” type of customers. This focus will improve
CRM efforts and will position the company for innovation and growth.
Companies must, however, exercise care in favoring high-value over medium-
value customers. Sometimes, high-value customers can become “saturated” and limit
future purchases. On the other hand, medium-value customers can be converted into
high-value customers through marketing programs designed to increase usage, usage
frequency, or usage per occasion.
Innovators or early adapters are valuable CLV targets. These are customers who
are quick to buy a new product or try a new service. This is especially true when they
are also opinion leaders and are capable of substantially influencing demand. Although
their CLV may be relatively low because some of them may not buy again for quite a
while, they nevertheless wield a lot of influence to the early majority or those customers
who purchase the product after them.

Successful Customer Relationship Management Strategies

The following are effective guidelines in the implementation of customer
relationship management:

1. Adopt the right mindset towards customer service

If product improvement is not anymore effective, businesses turn to customer
service. Investments in customer service will not strain, but will instead improve a
company’s finances over time. Customer service is the provision of service to the
customer before, during, and after a purchase. It may be in a form of innovation, pricing
scheme, extra services, customer feedback mechanism, or staff trainings that aims to
promote customer satisfaction. An excellent customer satisfaction rating enhances a
service or a product’s features,

2. Purchase or develop CRM software

Through CRM, a company manages a company's interaction with current and
future customers with ease. CRM often involves the use of technology to organize,
automate, and synchronize sales and marketing with customer service and technical
support, A CRM software should have service-oriented features based on customer
needs. It should provide solutions to easy and complicated problems, address customer
requirements, and facilitate communication between the company and its present and
future clients.
Creating and maintaining customer databases is necessary and essential in
Customer Relation Management. Although customer, information can be maintained
manually, the volume of work involved is tedious and cumbersome. Available software
can create and maintain customer database in real time. Moreover, companies may
engage services of software engineers to create custom-made applications to fit the
company's requirements.

3. Quantify customer acquisition and retention costs

Using CLV, the total cost for acquiring or retaining a customer can be calculated
and determined. CLV can also be a guide in selective product discounting.

4. Develop and implement a customer service training program

The customers are the life-blood of any business. This makes customer service
critically important. Customers expect to get what they pay for. Satisfaction is key.
Keeping the customer satisfied should be the goal of the company because this makes
customers purchase over and over again. To develop, maintain, and expand business,
a Customer Service Skills program can be developed to instill a customer-driven
behavior among all employees.
Implement a training program that commits the entire organization to customer
relationship management. Make every functional department understand their vital role
in CRM. Skills such as listening skills, conflict resolution, customer needs anticipation,
and empathy should be acquired.

6. Establish communication lines between your customer and customer

contact staff
Communication is essential for the CRM strategies. Personalize and humanize
the business and its atmosphere. Make sure to require the sales contact personnel to
introduce themselves to customers. Customers prefer living and breathing sales people
over cold and impersonal organizations. Oftentimes, a customer who has a concern or
inquiry would prefer talking to a salesperson who has already gained his trust.

■Keeping the customer satisfied should be the goal of the company.

7. Shop your competition

Keep track of what competitors are doing in the area of customer service. Adopt
their good practices to stay ahead of the game.

8. Keep innovating customer service

Never be satisfied with the level of your service. Try to discover how the
organization can make experience of customers better. Keep customer service costs in
check by occasionally doing cost-benefit analysis.

9. Promote genuine customer service with a passion

Customers can easily discern if customer service is insincere. Customer contact
personnel must internalize that the customer is the actual source of their livelihood.