Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
CHAPTER 3: Customer
Relationship Management
3-2
•
Customer-focused marketing
•
Customer service
•
Customer satisfaction
•
Customer success
•
Developing customer relationship
management strategy
Overview of customer relationship
management
3-3
•
From perspective of the total supply chain
–
End user of product in consumer market
–
Company is customer in business market
•
From perspective of specific firm within a supply chain
–
Intermediate customer organizations exist between the firm
and end users
•
From perspective of a logistics manager
–
Any delivery location
•
For example, consumer home’s, retail / wholesale businesses,
receiving docks of manufacturing plants and warehouses
Who is the customer?
3-4
•
Customer needs and requirements are more basic
than products and services
•
Different customers have different needs and
requirements
•
Products and services become meaningful only
when available and positioned from the customer’s
perspective
•
Profit is more important than sales volume
Basic principles of the marketing concept
3-5
Transactional vs. Relationship
Marketing
Transactional marketing is a
traditional strategy with a focus on
creating successful individual
transactions between the
company and its customers
Relationship marketing is a new
strategy with a focus on the
development of long-term relations
with key supply chain participants
in an effort to develop and retain
long-term preference and loyalty
3-6
•
Micromarketing or one-to-one marketing recognizes that each
individual customer may indeed have unique requirements
–
For example, Wal*Mart and Target are both mass merchandisers
•
However, their requirements to interact logistically with suppliers differs
significantly
Relationship marketing to a segment of one
•
One-to-one relationships can
–
Significantly reduce transaction costs
–
Better accommodate customer
requirements
–
Move individual customer transactions
into a matter of routine
3-7
•
Discrepancy in space refers to the fact that the location of
production activities and location of consumption are
seldom the same
•
Discrepancy in time refers to the difference in timing
between production and consumption
•
Discrepancy in quantity and assortment refers to the
mismatch between customer demand and manufacturing
supply
–
Customers seek small quantities and wide assortment
–
Firms specialize in large quantities of a limited assortment
3 discrepancies must be overcome to enable
exchange of goods and services
3-8
Four generic supply chain service outputs
eliminate discrepancies
Spatial convenience is the amount of shopping time and effort will be
required on the part of the customer
Lot size is the number of units to be purchased in each transaction
Waiting time is the amount of time the customer must wait between
ordering and receiving products
Product variety and assortment differs by supply chain
Supermarkets may have over 35,000 items on the shelves
Warehouse stores generally stock 8,000 to 10,000 items with only one brand and
size of an item
Convenience stores may stock only a few hundred items
3-9
•
Supply chains provide a mix of services, both
generic and custom, in order to accommodate a
range of customer requirements
•
Each service mix can be configured to achieve one
of the following levels of customer accommodation
–
Customer service
–
Customer satisfaction
–
Customer success
Three levels of customer accommodation
3-10
•
With the right amount
•
Of the right product
•
At the right time
•
And the right place
•
In the right condition
•
At the right price
•
With the right information
Basic customer service provides customers
3-11
Basic elements of customer service
•
Availability
–
Fill rates
–
Stockout frequency
–
Orders shipped complete
•
Operational Performance
–
Speed
–
Consistency
–
Flexibility
–
Malfunction recovery
•
Service Reliability
–
Damage free
–
Error-free invoices
–
Shipment matches order
–
Shipped to correct location
–
Etc.
3-12
•
Fill rate measures the
magnitude or impact of
stockouts over time
•
Stockout occurs when a
firm has no product
available to fulfill customer
demand
•
Orders shipped complete
requires shipping everything
that a customer orders to
count as a complete
shipment
Availability is the capacity to have inventory
when desired by a customer
3-13
•
Speed of the performance cycle is the elapsed
time from when a customer established a need
to order until the product is delivered
•
Consistency of the order cycle is measured by
the number of times that actual cycles meet the
time planned for completion
•
Flexibility is a firm’s ability to accommodate
special situations and unusual or unexpected
customer requests
•
Malfunction recovery is a firm’s ability to
quickly implement contingency plans when a
failure occurs in the supply chain
Operational performance deals with the time
required to deliver a customer’s order
3-14
•
Service reliability involves a combination of logistics
attributes beyond simply availability and operational
performance. For example:
–
Damage free measures how many shipments arrive without
damaged products
–
Error-free invoices measures what percentage of invoices
contain no errors
–
Shipment matches order measures how many shipments
contain the exact amount of product ordered
–
Shipped to correct location measures how many shipments are
made to the customer’s selected location
•
Plus a capability and willingness to provide customers with
accurate information regarding operations and order status
Service reliability is a firm’s ability to perform all
order-related activities and provide critical info
3-15
•
The perfect order is an order that is
–
Delivered complete
–
Delivered on time
–
Delivered at the right location
–
Delivered in perfect condition
–
Delivered with complete and accurate documentation
•
This requires the total order cycle performance to be
executed with zero defects
The perfect order is the ultimate in logistics
service levels
+ + +
3-16
Example of zero-defect performance
measurement
•
Consider an order cycle that achieves
the following performance levels for
shipments
–
97% delivered complete
–
97% delivered on time
–
97% delivered in perfect condition
–
97% delivered with correct
documentation
•
Probability that any order will be
delivered with no defects is only
88.5%
–
P (zero defects) = .97 x .97 x .97 x .
97 = .885
Therefore, the probability
that any order has a
problem is 11.5%
What resources are needed
to achieve a zero-defect
level?
3-17
The basic service platform is a commitment to
perform each basic element at a given level
•
Availability level = Medium
•
Operational performance = High
•
Service reliability = Above average
•
Availability level = Low
•
Operational performance = Medium
•
Service reliability = Average
Service platform for customer A Service platform for customer B
Basic
Service
Platform
Availability
Level
Operational
Performance
Level
Service
Reliability Level
3-18
•
Many firms establish their basic service
platforms using two factors
–
Competitor or industry acceptable practice
•
Minimum and average service performance levels
have emerged in most industries
–
The firm’s overall marketing strategy
•
High service levels needed to compete on basis of
logistics competency
•
Low service levels are more common when
competing on the basis of price
•
Zero-defect approach is not taken across the
board for all customers
•
Establish internal performance standards for
each service component to reflect industry
practice, cost and resource requirements
How much basic service should the supply
chain provide?
3-19
•
Expectancy disconfirmation
states if a customer’s
expectations of a supplier’s
performance are met or
exceeded, the customer will be
satisfied
–
If Perceived Performance > =
Expectations, then Satisfaction
–
If Perceived Performance <
Expectations, then
Dissatisfaction
What is customer satisfaction?
“Customers will be satisfied if a supplier meets or exceeds the
customer’s expectations”
3-20
Customer expectations related to
logistical performance from Table 3.2
•
Reliability
•
Responsiveness
•
Access
•
Communication
•
Credibility
•
Security
•
Courtesy
•
Competency
•
Tangibles
•
Knowing the customer
3-21
How are customer expectations created?
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
Figure 3.1 Satisfaction and Quality Model
3-22
The model identifies gaps managers
must fill to help satisfy their customers
•
Gap 1: Knowledge
–
Reflects management’s lack of
knowledge or understanding of
customers
•
Gap 2: Standards
–
Exists when internal performance
standards do not adequately
reflect customer expectations
•
Gap 3: Performance
–
The difference between standard
and actual performance
•
Gap 4: Communications
–
Overcommitment or promising
higher levels of performance than
can actually be provided
•
Gap 5: Perception
–
Customers sometimes perceive
performance to be higher or
lower than actually achieved
•
Gap 6: Satisfaction/Quality
–
When one or more gap exists
customer perception is that
performance does not meet
expectations
3-23
•
Performance that meets
customer expectations one year
may result in extreme
dissatisfaction next year
•
Competition in an industry will
often raise the minimum
standards that customer expect
–
For example, Federal Express
introduced real-time tracking of
shipment status
•
In response UPS and other
parcel delivery firms added this
service to their platform
Increasing customer expectations
3-24
•
Satisfied customers may not be
happy with the supplier’s
performance
–
Customer satisfaction focuses on
expectations - not customer’s
real requirements
•
Considerable research
suggests that “satisfied”
customers still are likely to
defect
Why customer satisfaction is not
sufficient
•
What satisfies one customer
may not satisfy other, much
less all, customers
–
There is a tendency by
companies to treat all customers
as being equal and identical
3-25
Low expectations always result in
satisfied customers
Figure 3.2 Satisfaction Is Not the Same as Happiness
But what if customer
requirements are not
met?