Case on: Building Customer Satisfaction, Value, and Retention

Overview
Today’s customers face a growing range of choices in the products and services they can buy.
They are making their choice on the basis of their perceptions of quality, service, and value.
Companies need to understand the determinants of customer value and satisfaction. Customer
delivered value is the difference between total customer value and total customer cost. Customers
will normally choose the offer that maximizes the delivered value.

Customer satisfaction is the outcome felt by buyers who have experienced a company
performance that has fulfilled expectations. Customers are satisfied when their expectations are
met and delighted when their expectations are exceeded. Satisfied customers remain loyal longer,
buy more, are less price sensitive, and talk favorably about the company.

A major challenge for high-performance companies is that of building and maintaining viable
businesses in a rapidly changing marketplace. They must recognize the core elements of the
business and how to maintain a viable fit between their stakeholders, processes, resources, and
organization capabilities and culture. Typically, high-performing businesses develop and
emphasize cross-functional skills rather than functional skills (overall project management and
results versus functional strengths (best engineers, and so on.). They also build their resources
into core capabilities that become core competencies, distinctive abilities, and competitive
advantages. This along with a corporate culture of shared experiences, stories, beliefs, and norms
unique to the organization are the keys to their success.

To create customer satisfaction, companies must manage their value chain as well as the whole
value delivery system in a customer-centered way. The company’s goal is not only to get
customers, but even more importantly to retain customers. Customer relationship marketing
provides the key to retaining customers and involves providing financial and social benefits as
well as structural ties to the customers. Companies must decide how much relationship marketing
to invest in different market segments and individual customers, from such levels as basic,
reactive, accountable, proactive, and full partnership. Much depends on estimating customer
lifetime value against the cost stream required to attract and retain these customers.
Total quality marketing is seen today as a major approach to providing customer satisfaction and
company profitability. Companies must understand how their customers perceive quality and how

1
much quality they expect. Companies must then strive to offer relatively higher quality than their
competitors. This involves total management and employee commitment as well as measurement
and reward systems. Marketers play an especially critical role in their company’s drive toward
higher quality.

Lecture—Creating Customer Relationships that Last

This lecture is intended for use with Chapter 3, “Building Customer Satisfaction, Value, and
Retention.” The focus is on the increasingly powerful role of customers in the marketing process
and the need for marketers to provide value that exceeds customer expectations. The concept of
relationship marketing is also presented for further discussion, providing a link with other areas
of the text.

Objectives
 Help students to better understand the changing role of the customer in today’s
marketplace

 To explain the concepts of product and service quality as they contribute to perceived
value for the customer

 To present specific methods whereby marketers can engage in value-creating activities

Discussion
Introduction

In the contemporary marketplace, it is hard to believe there was ever a time when customers were
not treated as an integral part of the exchange process. Prior chapters consider some of the many
shifts taking place in today’s marketing environment. Competition in the marketplace, along with
advancing technology, affords customers the ability to learn significantly more about the products
they will consider purchasing.

The same factors also have created both the need and the opportunity for marketers to know their
customers on a more personal level. Ever-increasing competition has forced marketers to seek out
the information necessary to provide customers with the products and services they truly desire.
Technology, when used to create a customer database, is one way marketers are answering to this
new trend. Product development will be discussed in a later chapter; for now, we will focus on
building satisfaction through customer relationship development activities.

2
The concept of perceived value is based on Kotler’s explanation of customer delivered value.
Customers, like marketers, seek to profit from an exchange. Perceived value is aptly named
because it supports the notion that the customer and not the marketer determine value. The
marketer’s responsibility is to create value, in both product and service quality, that lead to
increased satisfaction and encourage a high perceived value.

For example, service excellence is determined by customer perceptions and motivated by

customer needs. Ken Blanchard, author of The One Minute Manager, says that the secret to
competing successfully in today’s environment is to provide customers with service that is so far
above their expectations that it is perceived to be legendary.

Marketers, with both large and small organizations, can engage in activities that exceed
expectations and lead to customer delivered value. Marketers with large organizations have the
ability to tap into a sophisticated database, utilizing past purchase data to customize marketing
programs. These marketers also can become experts at “guerrilla marketing,” or the
implementation of local promotions for the purpose of getting closer to customers. Furthermore,
large organization marketers also have the ability to create Web site and store-specific marketing
programs that create retailer loyalty, build differentiation, and increase sales in desired market
areas.

Small business marketers, however, also have many opportunities to create strong customer
relationships. By placing extra focus on what might generally be considered a commodity
product, these marketers can stimulate demand and compete with large rivals in the same
industry. If a company is small enough, its top executives can serve as the communication link
for the company and various external publics, such as customers and retailers. Even internal
publics, such as the sales staff, should be encouraged to make suggestions to top management.
Finally, database programs are becoming more and more affordable, making direct-mail
programs a viable option even for smaller firms. This leads to a discussion of an evolving
direction for relationship marketing.

Relationship Marketing Expanded

Even though it is becoming increasingly possible, why would any rational customer actually want
a “relationship” with the company that makes his or her razor blades, or dishwasher soap, or toilet
paper? The answer is that the consumer probably would not necessarily desire a “relationship”
with these companies, but the customer will want more spare time. Accordingly, he or she might

3
like to have routine or repeat purchases for soap, paper towels, grocery staples, and so forth
automated.

What if you could turn on your personal computer or your interactive television set, call up a list
of last week’s grocery purchases, make a few changes, and then simply order them delivered to
your door? And what if, when you did this, the computer reminded you to order certain items
such as toothpaste and paper towels because you might be running low on those items? What if,
to help choose the groceries you wanted for your family, you asked the computer for a week’s
worth of dinner menus, specifying recipes and ingredients?

In many product categories, you don’t really care what brand the computer selects, but in some
product categories you have a list of “approved” brands, as well as brands you never want to see
again. The computer automatically seeks out the least expensive basket of products that meet
these criteria. Once you confirm it, your order is paid for via credit card or direct debit. The
elapsed time for all this shopping was just seven minutes.

Now, from the marketer’s side of the equation, consider the immense business opportunity in
serving your customers more thoroughly. Delivering grocery staples is one thing. But what about
pharmaceuticals? Dry cleaning and laundry? Ready-made meals? FedEx and other pickups and
deliveries? The companies become, in essence, share-of-customer marketers.

A marketer’s primary task in the one-to-one future is not to find customers for the marketer’s
products but rather to find more products and services for its customers. Consider that most retail
chains have not really tried to figure out how to offer such conveniences as home delivery,
because they don’t want to consider this for various internal reasons. They want customers to
need to come in to the store (or into the virtual store) because they like to have customers walking
up and down the aisles (or virtual aisles), making last-minute impulse purchases. For a large part
of their business, today’s retailers depend on inconveniencing customers by requiring them to
drive to their store (or virtual store) location to do their shopping.

However, consider that marketers today jam twice as many products in the average supermarket
as there were just over a decade ago (30,000 products now, compared with 15,000 in 1985).
Furthermore, commercial messages abound for these products, the overwhelming majority of
which do not now appeal to any particular consumer. Instead, we must all fight our way through
the increasing number of advertising messages to pick out the information we need, just as we
must struggle through the proliferating barrage of products in or out of stores just to select the

4
ones we want to buy. Every shopping trip becomes an increasingly difficult attempt to
accomplish the same basic task, thus adding to the increasing use of the Internet.

Having an ability to buy these products more conveniently doesn’t mean people will completely
stop going into stores, nor does it mean advertising will cease to exist. But if getting your
regularly consumed products could be made nearly as convenient as “pushing a button,” wouldn’t
you go into the store less frequently? Wouldn’t you, for the most part, prefer not having to shop
for routine things? You could always choose to go out if you wanted to—after all, shopping is
often a social experience, as well as a necessity.

As with stores and other enterprises that cater to the interests of the interactive consumer
(including information and entertainment providers), the manufacturer will be able to succeed
competitively only by relying on individual feedback. For the manufacturer, success in the one-
to-one marketing environment will mean soliciting information from consumers, individually,
and then using that feedback to customize an offering to each individual customer, one at a time.
This is the essence of one-to-one marketing.

Marketing Spotlight—Charles Schwab

Charles Schwab founded the discount brokerage named for him in 1974. The company’s no-frills
investment offerings were predicated on Charles Schwab’s distaste for traditional brokers, who he
labeled “hucksters of inside information, always trying to get me to buy this product or
investment.” Until 1993, Schwab’s brokers were instructed not to offer investment advice, but
rather to refer curious customers to publicly available research from Standard & Poor’s or
Morningstar.

Schwab benefited from the online trading boom. Long before any of the traditional brokerage
houses considered an e-commerce move, in 1997 Schwab was one of the first discount
brokerages to offer online trading. It offered online trades at $29.95 for the first 1,000 shares,
compared with the per-trade fees that exceeded $100. Starting at zero in 1995, online trades
accounted for 85 percent of all trades executed by Schwab by 2001. The company’s retail assets
grew threefold to almost $1 trillion during the same time period, putting it in league with the
biggest brokerages in America. Between 1997 and 2000, daily trades rose 183 percent, while
profits increased 112 percent during that time frame.

Schwab’s marketing activities helped the company become a household name synonymous with
online trading. Early ads used real Schwab customers and employees in testimonial

5
advertisements. In 1999, the company enlisted celebrity spokespersons to advertise its full-service
online investing offerings. The humorous ads featured sports stars such as football player
Shannon Sharpe and tennis star Anna Kournikova in cameo roles as Schwab customers who
surprised competitors with their knowledge of investing principles. The tagline served to
reinforce Schwab’s difference from online-only brokerages: “We’ve created a smarter kind of
investing. We’ve created a smarter kind of investor.” These ads were part of Schwab’s $200
million marketing budget for 1999.

In 2001, as online trading slowed in the wake of the dot-com crash, Schwab sought to expand its
business by providing its customers with a greater number of services. Rather than rely on a high
volume of low-cost trades to drive revenues, Schwab began focusing on providing investment
advice to its clients. In new brokerage offices, Schwab placed financial advisers from whom
clients could seek investment tips and other services for a fee. Schwab also considered offering
proprietary stock research for its customers. Industry experts expected these new services would
recast Schwab in a role more similar to traditional brokerage houses. A former Schwab executive
predicted, “Schwab will be a lot closer to Merrill Lynch than it is to the Schwab of yesterday.”

(Sources: John Gorman, “Charles Schwab, Version 4.0,” Forbes, January 8, 2001, pp.
89–95. Charles Gasparino and Ken Brown, “Schwab’s Own Stock Suffers from Move
into Online Trading,” Wall Street Journal, June 19, 2001, p. A1. Rebecca Buckman and
Kathryn Kranhold, “Schwab Serves Up Sports-Themed Ads,” Wall Street Journal,
August 30, 1999, p. B9.)

Questions
1. What changes in the marketing environment does the Schwab marketing effort reflect?
How has Schwab effectively anticipated the needs of the market?

2. Draw on recent economic developments to anticipate where the next changes likely will
be for Schwab. Consider what past and future events might have a substantial impact on
the way it operates in the future.

6
1. What changes in the marketing environment does the Schwab marketing effort
reflect? How has Schwab effectively anticipated the needs of the market?

Innovation in products and technologies is source of change in the marketing

environment. Schwab benefited from the online trading boom. Long before any of the traditional
brokerage houses considered an e-commerce move, in 1997 Schwab was one of the first discount
brokerages to offer online trading. That company is now more focused on customer needs
and wants. A very traditional marketing organization to a digital marketing this thing has
induced companies to bring innovation in their product features and processes.

Competition: Every business has a main strategy, to remain in the top, to be a successful
business. This basic instinct gives rise to the competition in the market against others.
This leads to the change in the market environment

Market leadership and being first discount brokerage are another change that Schwab
benefit from. As early as in any traditional brokerage firms that move e-commerce,
Schwab was the first discount brokerage firms offer online trading.

Customer Needs: Change in customer’s needs, priorities, demands has a very significant
role in the change in marketing environment. The customer’s taste keeps on changing
constantly.

7
How has Schwab effectively anticipated the needs of the market?

The customer-focused e-business strategy of Charles Schwab Company, the leading

discount brokerage firm in the US. It describes its multi-channel strategy that aimed at
providing the customers as many channels as possible to interact and transact with
Schwab and focused on providing better customer service by promoting its website and
proactively using Internet enabled technologies. The importance of a customer-focused e-
business strategy for the growth and use of Internet can be effectively used for enhancing
customer satisfaction levels and thereby improving the financial performance of the
company.

Keep aware of new technological improvements that other companies made, and
anticipate how to enter new markets. Thus, the Schwab anticipation was effective.

2. Draw on recent economic developments to anticipate where the next changes likely
will be for Schwab. Consider what past and future events might have a substantial
impact on the way it operates in the future.

Each year, Schwab consider the trends that could shake up economies and markets in the years
ahead. This exercise is especially relevant entering 2021, after a year in which COVID19 and its
economic fallout shook up the entire globe.  Volatility may be good times for Schwab has history
of market leadership. Schwab has played a significant role in the digital acceleration seeing
across the financial services industry.

 A deeply personalized investment portfolio has become the norm. Investors expect a plan that’s
specifically tailored to their individual needs and relevant to the current investment climate.
Investors want to experience their financial life in a way that’s customized to them, just as they
experience in other parts of their lives. But now, personalization is becoming deeper and more
impactful, so that it reflects not only financial goals, but is aligned with issues people care about,
whether it’s the environment, social responsibility. Customer purchases a product from a
company because that company advocated for an issue they cared about. Though this is based on
consumers more broadly, to me, this trend will also be reflected in people’s views about financial
services. This means that if Schwab consider the trends providing options and products that allow
investors to customize their portfolios to align with their values, beliefs and circumstances will be

8
increasingly imperative. Thus, it’s likely that 2021 will be another year of transition, change and
uncertainty, year of progress, growth and improvement for Schwab.