Marketing 5000 Week 2: Building Customer Satisfaction, Value, and Retention and Market Research I

1
Marketing 5000Week 2 Building Customer
Satisfaction, Value, and Retention and Market
Research (I)

• Webster MBA Shanghai/Shenzhen
• August 26th 27th , 2006
• Jack Marr

2
Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review from Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

3
Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review from Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

4
Review from Week I

• Class objectives
• Group presentations, keep thinking!
• Marketing create, promote, and deliver goods
  and services to consumers
• Types of goods/services
• Types of customers
• Lots of key terms, build your marketing
  vocabulary but be careful in using it!
• Production vs. selling vs. marketing
  orientation towards the marketplace
• Integrated marketing internal external
  marketing
• Three forces changing business and markets
• Reactions on corporate and marketing level

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Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review From Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

6
Building Customer Satisfaction, Value, and
Retention (1/)

• How can companies win customers and outperform
  competitors? The answer lies in doing a better
  job of meeting or exceeding customer
  expectations. Customer-centered companies are
  adept at building customers, not just products
  they are skilled at market engineering, not just
  product engineering Too many companies think
  that it is the marketing or sales departments
  job to acquire and manage customers, but, in
  fact, marketing is only one factor in attracting
  and keeping customers. The best marketing
  department in the world cannot sell products that
  are poorly made or fail to meet a need. (56)
• Why do people eat at McDonalds (or KFC?) Not
  the best burgers, but QSVC. A brand, an
  expectation.

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Building Customer Satisfaction, Value, and
Retention (2/)

• Defining customer value and satisfaction How do
  customers make choices?
• Customer perceived value total value- total
  cost. Figure 3.1(56)
• Based on rational choice theory (M. Weber et.
  Al. If Interested, check out http//uregina.ca/gi
  ngrich/f1000.htm)
• Is this too rational? How did you all decide to
  buy your PCs? Or to study here?
• Seller must understand non-rational factors and
  address them (negotiations)
• Total Customer Satisfaction Buyers feelings in
  relation to his/her expectations
• Not proportional to loyalty! (58)
• 1 Highly dissatisfied - Abandon or bad-mouth
• 2 Somewhat dissatisfied - Stay wait
• 3 Satisfied - Stay wait
• 4 Somewhat pleased - Stay wait
• 5 Very pleased - 6 times more likely to
  repurchase than 4

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Building Customer Satisfaction, Value, and
Retention (4/)

• Whether customers will actually receive the
  promised value proposition will depend on the
  marketers ability to influence the core business
  processes. Marketers need to spend as much time
  influencing the companys core processes as they
  do on designing a brand profile.
• Value proposition set of specific and unique
  benefits that a product or service delivers to a
  customer
• Total process, not just slogans
• Raja fashions case (59) change business to fill
  gap
• Measuring satisfaction
• Complaint and suggestion systems (Quaker)
• Customer surveys/ focus groups
• Ghost shopping
• Lost customer analysis
• How does your firm measure satisfaction?
• Skip high performing businesses

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Building Customer Satisfaction, Value, and
Retention (5/)

• Attracting and Retaining Customers Customer
  Relationship Management (CRM) Process of
  managing detailed information about individual
  customers and carefully managing customer
  touchpoints to maximize loyalty and
  profitability (67)
• Not produce satisfied customers. Produce
  delighted and loyal customers.
• There will always be some need for selling. But
  the aim of marketing is to know and understand
  the customer so well that the product or service
  fits him and sells itself. Ideally, marketing
  should result in a customer who is ready to buy.
  All that is needed is to make the product
  available. Peter Drucker
• Lost customers (1) Define and measure retention
  rate (2) distinguish causes of attrition (68),
  (3) Lifetime customer value lost customers x
  value/customer x margin. And can do an NPV
• How much would it cost to reduce this rate? If
  less, then do it!
• Why retain customers? Cheaper than finding new
  ones! Plus, can become advocates (71) (Google,
  McKinsey, clubs)

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Building Customer Satisfaction, Value, and
Retention (6/)

• 96 of dissatisfied customers dont complain,
  just leave higher in Asia?
• Listen 54-70 do business again if resolved,
  95 if resolved quickly
• Switching costs apply to consumer as well as
  marketer
• Giordano example
• Facts
• New customers 5x more expensive than retaining
• Average company loses 10 base/year
• 5 reduction in defection increases profits by
  25!
• Profit rate increases over relationship life
• Customer lifetime value revenue x loyal years x
  margin value
• Acquisition cost sales call x calls (ad
  spend/total) cost
• Example (70). Business development is a losing
  proposition. How much do you spend to attract a
  new customer? What is their CLV?

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Building Customer Satisfaction, Value, and
Retention (7/)

• Three types of equity in CRM value (product),
  brand (image), relationship (personal). Which
  lever to focus on?
• How much to spend/customer? Coca-cola vs.
  Boeing. 5 levels of marketing (1) basic (2)
  reactive (3) accountable (4) proactive (5)
  partnership. Framework (72)
• Technology is radically altering this mix
• Forming strong bonds the basics
• Cross- departmental buy-in Voice of customer
  in all decisions
• Superior targeted products Database no
  limit
• Be reachable (sales 101) Build and award
  advocates
• Good and bad approaches (74)
• Benefit programs cover under strategy
• Dont loyalize, influence proclivity to
  repurchase (1) Long term contracts, (2) Discounts
  for large orders, (3) Turn product into service
  (Daim/Chr)

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Building Customer Satisfaction, Value, and
Retention (8/)

• Measuring profitability Ultimately, marketing
  is the art of attracting and keeping profitable
  customers. Best vs. others 16-1 retailing, 13-1
  restaurant, 12-1 airlines. Your business? Do you
  know?
• Mid-sized customers receiving good service and
  little discount often most profitable. MNCs
  moving in (Thomas Friedman)
• Measure INDIVIDUAL customer profitability.
  Getting easier (RIFD, CRM, etc.)
• Figure 3.7 (76) . Split into platinum, gold,
  iron, lead.
• Fidelity case (76)
• TQM one word marketers must learn language of
  other functions and learn their needs. Hence, the
  MBA
• Insight pp. 79 ROI vs. SVA. Most of a
  companys value resides in marketing assets
  brands, knowledge, relationships, partners.
  Long-term drivers. My argument against
  IBM-Lenovo
• Homework take reality check on pp. 78 for your
  company. Keep your answer to less than one page,
  print out, and bring next week.

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Building Customer Satisfaction, Value, and
Retention (8/)

• Case (80-81)
• Split into 4 groups. Read the Banyan Tree case,
  and prepare answers for questions a,b, c, and
  also answer the question of would this kind of
  resort marketing succeed in China? Each team
  member should present a different aspect. Take 10
  minutes to prepare and give a 2-3 minute
  presentation of your findings.

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Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review from Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

15
Strategic Planning (1/)

• The marketing manager is the most significant
  functional contributor to the strategic planning
  process, with leadership roles in defining the
  business mission analysis of the environmental,
  competitive, and business situations developing
  objectives, goals, and strategies and defining
  product, market, distribution, and quality plans
  to implement the businesss strategies. This
  involvement extends to the development of
  programs and operating plans that are fully
  linked with the strategic plan. GE (85)
• Strategic plan, at core of business, strategic
  marketing plan, one level below.
• Both strategic and tactical (explain) Strategy
  is the overall plan, and tactics are ways to deal
  with specific aspects of this plan
• Should have sign offs from all key divisions
• Figure 4.1 (86)

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Strategic Planning (2/)

• Mission Statements (86-87)
• Classic questions what is out business? Who is
  the customer? What is of value to the customer?
  What will out business be? What should our
  business be? (Peter Drucker)
• Three major characteristics (1) Focus on
  limited number of goals, (2) Stress the major
  policies and values company aspires to, and (3)
  Define major competitive scope in which company
  will operate. unique
• Should NOT be revised every few years, but at
  core of beliefs
• We will devote out people and technology to
  create superior products and services, thereby
  contributing to a better global society
  (Samsung)
• Our vision is to make Cathay Pacific the most
  admired airline in the world by ensuring that
  safety comes first, providing service straight
  from the heart, encouraging product leadership,
  delivering superior financial returns, and
  providing rewarding career opportunities.
  (Cathay Pacific)
• "To help our clients make distinctive, lasting,
  and substantial improvements in their performance
  and to build a great firm that attracts,
  develops, excites, and retains exceptional
  people (McKinsey)
• Your firm?

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Strategic Planning (3/)

• Business Unit Strategic Planning
• Portfolio strategy BCG matrix (89)
• Business unit (BU or SBU) where the action is
• SWOT analysis (Strengths, weaknesses,
  opportunities, threats)
• SW Internal, OT External
• OT the internet (amazon.com on buying,
  google.com on information, reflect.com on
  customization), generic pharma for prices, WTO
  for outsourcing and new markets, war in Iraq for
  business, SARS for airlines, what else?
• 5 key questions (97)
• SW It is one thing to discern attractive
  opportunities and another to be able to take
  advantage of these opportunities. The proof is
  in the pudding.
• Salespeople are failed engineers or engineers
  are failed salespeople?
• One your own, do the analysis on pp. 100
• Matrix, 4.7 (also very BCG!)
• Once SWOT is done, must develop specific goals.
  4 chcracteristics prioritized, quantitative,
  realistic, consistent

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Strategic Planning (4/)

• The Marketing Process
• Understand and deliver vs. make and sell (chart
  106)
• No such thing as mass market anymore. Smart
  companies must have clearly defined markets. How
  about in China? Shanghai vs. village in Hunan?
• Begins before product exists and continues after
  sale.
• Japanese zero concept customer feedback time,
  improvement time, purchasing time, setup time,
  defects (Toyota)
• Four major steps, rest of the book!
• Analyze opportunities research ch. 5,
  environment (ch. 6), understand (78),
  competition (9), segment and target (10)
• Develop strategies positioning (11),
  development/testing/launch (12), shifting world
  (13)
• Planning programs spend, offering (14), support
  (15), price (16), distribute (17 18), promote
  (19-21)
• Implement execute (22)

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Strategic Planning (5/)

• The Marketing Plan
• Marketing plans are becoming more customer and
  competitor oriented and better reasoned and more
  realistic than in the past. The plans draw more
  inputs from all the functions and are team
  developed. Marketing executives increasingly see
  themselves as professional managers first and
  specialists second
• Vary in length, 5 to 50 pages. Why?
• In preparing for battle, I have always found
  that plans are useless but planning is
  indispensable Eisenhower
• Contents of the plan
• Exec summary (trailer) short and punchy
• Current situation sales, costs, profits,
  competition, channels, macro
• Opportunities and issues all kinds of analysis
  (SWOT etc.)
• Objectives Volume, share, profit, growth,
  segments, etc.
• Strategy Why? how to coordinate?
• Actions Who, what, how, where, and when
  Finances revenues and costs
• Controls How to measure (Key performance
  indicators (KPIs)

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Case

• Sonic Part I
• Split into teams of 5
• Take 5 minutes to review the case on pp. 111-113
• Take 10 minutes to develop a mission statement
  for Sonic and answer the question of how your
  mission fits Sonics stated marketing and
  financial objectives? Which needs to change if
  any?
• Mission Statement Things to Consider
• Overall market for PDAs and related devices
• Partnerships vs. Original development
• Target customer market
• Financial goals
• BUSINESS GOALS VALUES BUSINESS SCOPE

21
Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review from Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

22
Gathering Information and Measuring Demand (1/)

• Some firms have developed marketing information
  systems (MIS) that provide management with rapid
  and incredible detail about buyer wants,
  preferences, and behavior. For example the
  Coca-Cola company knows that Americans put 3.2
  ice cubes in a glass, see 69 of its commercials
  every year, and prefer cans to pop out of vending
  machines at 35 degrees. Kimberly-Clark, which
  makes Kleenex, has calculated that the average
  person blows his or her nose 256 times a year
  (117)
• A MIS consists of people, equipment, and
  procedures to gather ,sort, analyze, evaluate,
  and distribute needed, timely, and accurate
  information to marketing decision makers. Should
  represent a cross between what managers think
  they need, what they really need, and what is
  economically feasible.
• Do you have an MIS?
• Key questions for managers (117)

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Gathering Information and Measuring Demand (2/)

• Internal Records Systems
• Order to payment cycle from PO to TT. Fast,
  quick, and accurate
• Sales information systems timely and accurate,
  Giordano Example
• If you have three yellow mustangs sitting on a
  dealers lot and a customer wants a red one, the
  salesman is really good at figuring out how to
  sell the yellow Mustang. So the yellow Mustang
  gets sold, and a signal gets sent back to the
  factory that, hey, people want yellow Mustangs
  Michael Dell. This means?
• 7-11 case ??????? (Salaryman heaven)
• Databases, warehouses, and mining increasingly
  sophisticated, 1996 study says 400 ROI in 3
  years IF the analysis is correct (119)
• Al Cawns Webster
• Marketing Intelligence System
• How to get everyday information about the
  market?
• Sell the sales force on importance
• Motivate distributors, retailers, and other
  intermediaries. How?
• Competitor intelligence. MBA 007
• Customer consultants, reports, and the internet

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Gathering Information and Measuring Demand (3/)

• Market Research Systems
• Market research systematic design,
  collection, analysis, reporting of data
  findings relevant to specific marketing situation
  facing the company (120)
• In-house (PG, Wacoal), syndicated firms
  (Nielsen, EIU), custom (Intralink, McKinsey),
  functional (focus groups, field interviews,
  Gallup)
• The process 5 steps and Malaysian Air Systems
  Case
• Define problem, alternatives, and research
  objectives
• Framing questions is key. Not too broad, not too
  specific. Will offering an inflight internet
  service create enough incremental preference and
  profit for MAS to justify its cost against other
  possible investments?
• Now specific research objectives what types of
  passengers? How many at what price? How many new
  customers attracted? Goodwill value? Importance
  vs. other offerings?
• 2. Develop the research plan
• Cost/benefit how much should we spend to
  generate what value? McK 5x
• Data sources primary and secondary secondary
  first (desk research table pp 121)

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Gathering Information and Measuring Demand (4/)

• Market Research Systems (cont.)
• 2. Develop the research plan (cont.)
• Primary research most valuable and most
  expensive
• Types observational, focus groups, surveys,
  behavioral, experimental, and the Interview
• Questionaire spend a few minutes on 5.2 (126)
  but use China Eastern
• Sampling plan unit (who?), size (how many?),
  procedure (128) snowball
• Contact method mail? Tepephone? Email? Personal?
  Advantages and disadvantages.
• 3. Collect the information automated?
  Traditional?
• Exercise spend 3 minutes interviewing the person
  next to you to learn company size (revenues),
  market share in 1 product, 2 direct competitors,
  one indirect competitor, and something else not
  available through desk research.
• 4. Analyze the information. Depends on the
  consumer The pack! (deck)
• 5. Present the findings Random sample of
  presentations.
• 6. Make the decision

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Gathering Information and Measuring Demand (5/)

• Market Research Systems (cont.)
• Seven characteristics of good research (131)
• Common problems narrow conception of research
  (summer client), uneven caliber of researchers,
  poor framing of problem (New Coke), late and
  erroneous findings, personality differences
• Asia issue big market, lots of languages,
  different levels of sophistication and
  technology. Pilot, adpation (localization),
  rollout. Abbot example
• Forecasting and Demand
• Once the research is complete, the company must
  forecast the size, growth, and profit potential
  of each market opportunity. Sales forecasts are
  used by finance the needed cash for investment
  and operations, by manufacturing to establish
  capacity and output levels, by purchasing to
  acquire the right amount of supplies, and by HR
  to hire the right number of workers.
• And by the CEO or SBU head to make critical
  strategic decisions
• Coke only 2 ounces of 64 ounces of liquid
  consumed each day. The enemy is coffee, milk,
  tea, and water Roberto Goizueta ex-CEO
• 90 types of demand (6 x 5 x 3) (135)

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3. Market Overview
China Market
import vs. local manufacture, 2002 to 2006E
Source Interviews, Media Search, Analysis
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3. Market Overview
Drivers End Use Market Sizes

• The concrete market is nearly 100 times larger
  than the asphalt market, but it is more
  fragmented. In 2006, consumption of concrete is
  expected to reach 1.1 billion tons compared to
  13.2 million tons of asphalt and both markets are
  growing annually at 11.4 and 5.5 respectively
  by volume.

• Concrete Consumption
  2002-2010 (million tons)

• Asphalt Consumption
  2002-2010 (million tons)

Compound Annual Growth Rate 2002-6 5.5
Compound Annual Growth Rate 2002-6 11.4
02 03 04 05 06 07 08 09 10
02 03 04 05 06 07 08 09 10
Source Media Search, analysis
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3. Market Overview
Usage (cont.)
Total China Market 2002-2010 forecast (000
tons)

02 03 04 05 06 07 08 09
10
1000
Total demand 300 332 378 450 520 600 665
737 817
x
900
Domestic capacity 290 328 370 418 497 591
660 784 932
x
800
x
x
Tons (000)
700
x
x
x
600
Source Wangfang Data, Ianalysis
x
x
x
500
x
x
400
x
x
x
x
x
300
x
200
2002 2003 2004
2005 2006E 2007E 2008E
2009E 2010E
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4. Competition
Polypropylene Domestic Competitors
Top Chinese PP construction fibre manufacturers,
2005
Source Interview PP Fibre, Intralink analysis
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Gathering Information and Measuring Demand (6/)

• Forecasting and Demand (cont.)
• Market set of all actual and potential buyers
  for a product (133)
• Available market set of consumers who have the
  interest, income, and access
• Target market those who you go after
• Penetrated market consumers buying product.
  White goods example. Color TVs? Autos? Private
  jets? Plus second purchase or replacements.
• Chart (136) effect of market spend.
• Growth market (expansible) autos in China.
  Mature market (nonexpansible) basic cell phones
  in Shanghai. Other examples?
• Sales forecast only valid as basis for marketing
  plan if market is mature! (ie further marketing
  activities will NOT change purchasing). Should be
  other way around.
• Sales quotas (Stretch targets, the bane of all
  salespeople!)
• Total market potential. Very difficult to get a
  good number!
• Book market example avg. books/year x avg
  price/book x total book buyers. 6 billion. Or
  from literacy 261 million people x 80 literate
  buyers 146.3. 9 billion! Which is correct???
  Market buildup model.
• Class exercise cocktail napkin research. What is
  the total annual market value for xiaolongbao in
  Shanghai? Take 1 minute to calculate!

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Gathering Information and Measuring Demand (7/)

• Future Demand
• Not easy, but critical success factor. The more
  unstable the market the more important!
• Three stages macroeconomic forecast (country),
  industry forecast (total market), sales forecast
  (your product)
• How to do it? Buy it or make it yourself.
  Interviews are key!
• Purchase probability scale (141) Good tool but
  limited use.
• Past sales analysis. Also limited use due to
  competitive markets.
• Composite of sales force opinions interview
  multiple sources and triangulate ( use at least
  three unrelated data points and make sure it
  makes sense in terms of other data)
• Expert opinion dealers, distributors, suppliers,
  consultants, professors, trade organizations,
  government officials. And, of course,
  competitors!

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Case

• Stay in your groups
• Case page 144. Answer all the questions and give
  a 5 minute presentation of your findings. Take 15
  minutes to prepare

34
Week 2 Building Customer Satisfaction, Value,
and Retention and Market Research (I)

• Review from Week I
• Building Customer Satisfaction, Value, and
  Retention
• Strategic Planning
• Gathering Information and Measuring Demand
• Scanning the Market Environment

35
Scanning the Market Environment (1/)

• The major responsibility for identifying
  significant marketplace changes falls to the
  companys marketers. More than any other group in
  the company, they must be the trend trackers and
  the opportunity seekers. Although every manager
  in the organization needs to observe the outside
  environment, marketers have two advantages they
  have disciplined methods marketing intelligence
  and market research for collecting information
  about the marketing environment. They also spend
  more time with customers and more time watching
  competitors. (147)
• Fads unpredictable, short-lived, and without
  social, economic, or political significance
  Pokeman and Beanie Babies. China example?
• Trends durable. Shisedos whitening products.
  Prepackaged fresh foods.
• Megatrends the future. Portable wireless
  internet. Others?
• The Tipping Point Malcom Gladwell. In Chinese?
• detecting opportunity does not guarantee
  success, even if it is technically feasible
  Execution, execution, execution!

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Scanning the Market Environment (2/)

• Six major forces demographic, economic, natural,
  technological, political-legal, and
  social-cultural. What are some for China or your
  county?
• Global village 52 women, 48 men (arbitrage!),
  33 children and 6 over 65, 1 college grads and
  33.5 illiterate (!!!), 5.2 North Americans,
  5.5 Russians, 8.4 Latinos, 9.5 Europeans,
  58.4 Asians (not sure what this means), 16.5
  speak Chinese, 8.6 English, 8.3 Hindu
  languages, 6.4 Spanish, 5.8 Russian, and 3.7
  Arabic. 32.9 Christian, 17.8 Muslim, 6.2
  Buddhist, .3 Jewish.
• Population statistics (150)
• Little Emperors 40 of family income on
  children in BJ/SH/GZ!!!!
• Age mix, a critical factor for consumer
  products. China vs. Japan, rural China vs. urban?
  
• Customer prototypes Yuppies, Dinks, Puppies,
  Skippies, Early adaptors, advocates, net-gens.
• Work to define 5 consumer groupings in Shanghai
  today.

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• Next Week
• Will send reading assignment by email
• Homework reality check on pp. 78