In the What is Marketing? tutorial we noted that marketers make decisions which result in value to both the marketer and its customers. Throughout the Principles of Marketing Tutorials we emphasize the importance customers play in helping marketers meet their business objectives. To drive home this point, in this tutorial we concentrate our discussion on understanding customers and examining their role in the marketing process. We will see that for most organizations understanding customers is necessary not only because of their effect on marketing decisions but because customers’ activities influence the entire organization.
Yet understanding customers is a never-ending challenge. One reason is that not all customers are the same and, consequently, benefits sought by one customer may differ from those sought by another. Because of this marketers must continually conduct marketing research to evaluate customers and to determine what they want. And uncovering what customers want is made significantly easier if a company establishes methods designed to manage their customers.
In this tutorial we explore the techniques marketers use to manage their customers. We begin by defining what a customer is and why they are important to an organization. We then look at what tools and strategies must be in place to skillfully manage customers including the crucial requirement that marketers build relationships with their customers. Finally, we conclude with a discussion of how servicing customers is often just as critical as selling products to them.
What is a Customer?
In general terms, a customer is a person or organization that a marketer believes will benefit from the goods and services offered by the marketer’s organization. As this definition suggests, a customer is not necessarily someone who is currently purchasing from the marketer. In fact, customers may fall into one of three customer groups:
Consists of customers who have purchased or otherwise used an organization’s goods or services, typically within a designated period of time. For some organizations the time frame may be short, for instance, a coffee shop may only consider someone to be an Existing Customer if they have purchased within the last three months. Other organizations may view someone as an Existing Customer even though they have not purchased in the last few years (e.g., automobile manufacturer). Existing Customers are by far the most important of the three customer groups since they have a current relationship with an organization and, consequently, they give an organization a reason to remain in contact with them. Additionally, Existing Customers also represent the best market for future sales, especially if they are satisfied with the relationship they presently have with the marketer. Getting these Existing Customers to purchase more is significantly less expensive and time consuming than finding new customers mainly because they know and hopefully trust the marketer and, if managed correctly, are easy to reach with promotional appeals (i.e., emailing a special discount for new product).
This group consists of those who have formerly had relations with the marketing organization typically through a previous purchase. However, the marketer no longer feels the customer is an Existing Customer either because they have not purchased from the marketer within a certain time frame or through other indications (e.g., a Former Customer just purchased a similar product from the marketer’s competitor). The value of this group to a marketer will depend on whether the customer’s previous relationship was considered satisfactory to the customer or the marketer. For instance, a Former Customer who felt they were not treated well by the marketer will be more difficult to persuade to buy again compared to a Former Customer who liked the marketer but decided to buy from someone else who had a similar product that was priced lower.
The third category of customers includes those who have yet to purchase but possess what the marketer believes are the requirements to eventually become Existing Customers. As we will see in the Targeting Markets Tutorial, the requirements to become a customer include such issues as having a need for a product, possessing the financial means to buy, and having the authority to make a buying decision. Locating Potential Customers is an ongoing process for two reasons. First, Existing Customers may become Former Customers (e.g., decide to buy from a competitor) and, thus, must be replaced by new customers. Second, while we noted above that Existing Customers are the best source for future sales, it is new customers that are needed in order for a business to significantly expand. For example, a company that sells only in its own country may see less room for sales growth if a high percentage of people in the country are already Existing Customers. In order to realize stronger growth the company may seek to sell their products in other countries where Potential Customers may be quite high.
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Customers and the Organization
For most organizations, understanding customers is the key to success while not understanding them is a recipe for failure. It is so important that the constant drive to satisfy customers is not only a concern for those responsible for carrying out marketing tasks, it is a concern of everyone in the entire organization.
Whether someone’s job involves direct contact with customers (e.g., salespeople, delivery drivers, telephone customer service representatives) or indirect contact (e.g., production workers, accounting department), all members of an organization must appreciate the role customers play in helping the organization meets its goals. To ensure everyone understands the customer’s role, many organizations continually preach a “customer is most important” message in department meetings, organizational communication (e.g., internal emails), and corporate training programs. To drive home the importance of customers, the message often contains examples of how customers impact the organization. These examples include:
Source of Information and Ideas
Satisfying the needs of customers requires organizations maintain close contact with them. Marketers can get close to customers by conducting marketing research (e.g., surveys) and other feedback methods (e.g., rate-our-services messages) that encourage customers to share their thoughts and feelings. With this information marketers are able to learn what people think of their present marketing efforts and receive suggestions for making improvements. For instance, research and feedback methods can offer marketers insight into new products and services sought by their customers.
Affects Activities Throughout Organization
For most organizations, customers not only affect decisions made by the marketing team but they are the key driver for decisions made throughout the organization. For example, consider how customers may affect a manufacturer. Customers’ reaction to the design of a product may influence the type of raw materials used in the product manufacturing process. With customers impacting such a significant portion of a company, creating an environment geared to locating, understanding and satisfying customers is imperative.
Needed to Sustain the Organization
Finally, customers are the reason an organization is in business. Without customers or the potential to attract customers, a company is not viable. Consequently, customers are not only key to revenue and profits they are also key to creating and maintaining jobs within the organization.
The Importance of Good Customers
For marketers simply finding customers who are willing to purchase their goods or services is not enough to build a successful marketing strategy. Instead, as we note in our definition of marketing in the What is Marketing? tutorial, marketers should look to manage customers in a way that will “identify, create and maintain satisfying relationships with customers.” By using marketing efforts that are designed to “maintain satisfying relationships” rather than simply pursuing a quick sale, the likelihood increases that customers will be more trusting of the marketer and exhibit a higher level of satisfaction with the organization. In turn, satisfied customers are more likely to become “good” customers.
For our purposes we define a “good” customer as one who holds the potential to undertake activities that offer long-term value to an organization. The activities performed by customers not only include purchasing products, these also include such things as:
- being more profitable as they buy more while costing less to satisfy
- making prompt payment for purchases
- offering suggestions for new products
- voluntarily promoting the company’s products to others
These activities along with many others represent the value (i.e., benefits obtained for costs spent) an organization receives from its customers. In the case of “good” customers their potential for providing value should be a signal for marketers to direct additional marketing efforts in building, strengthening and sustaining a relationship with these customers.
The fact that we place the descriptive term “good” in front of customers should not be taken lightly. Not all customers who currently have relationships with an organization (i.e., Existing Customers) should be treated on an equal level. Some consistently spend large sums to purchase products from an organization; others do not spend large sums but hold the potential to do so; and still others use up a large amount of an organization’s resources but contribute little revenue. Clearly there are lines of demarcation between those in the Existing Customer category. For marketers, identifying the line that separates “good” customers from others is critical for marketing success. For larger marketers, this may be done with so-called customer lifetime value (CLV) computer models that calculate a customer’s potential to contribute profitably to an organization. For smaller organizations, CLV assessment may be done using “gut instincts” gained from experience rather than by analytical means. No matter what method is used to assess the value of customers, limited resources force nearly all marketers to establish a line of separation that identifies customers offering value and those customers that do not.
Challenge in Managing Customers
While on the surface the process for managing customers may seem to be intuitive and straightforward, in reality organizations struggle to accomplish this. One reason organizations face a challenge in managing customers is that no two customers are the same. What is appealing to one customer may not necessarily work for another.
For instance, a marketer may change how it issues coupons to customers by reducing the frequency of issuing coupons by regular mail and instead directing customers to electronic coupons found on its website or shopping app. The marketer makes this move with the hope it will: lead to cost savings (e.g., sending out traditional coupons by mail requires postage expense); allow the marketer to acquire more customer information (e.g., monitor their activities when they visit the website or app); and give the marketer the opportunity to sell more products to the customer (e.g., special promotional messages on website or app).
However, some long time customers may view electronic coupons as requiring more work on their part compared to coupons delivered through regular mail. In this example, the challenge in managing customers can be seen in that the introduction of a new feature may satisfy some customers while irritating others.
Customer Contact Points
Another problem is that customers may interact with organizations at different contact points. Customer contact points are the method a customer uses to communicate with an organization. For instance, consider the different ways customers may interact with an organization:
Customers seek in-person assistance for their needs by visiting retail stores and other outlets, and also through discussion with company salespeople who visit customers at their place of business or in their home.
Customers seeking to make purchases or have a problem solved may find it more convenient to do so through phone contact. In many organizations a dedicated department, called a call center, handles all incoming customer inquiries.
The fastest growing contact points are through electronic communication over the internet and through mobile networks, including through mobile apps. The use of these networks for purchasing (i.e., electronic commerce or e-commerce) has exploded and is now the leading method for purchasing certain types of products, including music. These communication networks have also become the primary area many customers look to first for help with their purchases such as seeking online help, product usage information, and recommendations for additional products.
In-Person Product Support
Some in-person assistance is not principally intended to assist with selling but is designed to offer support once a purchase is made. Such services are handled by delivery people and service/repair technicians.
A kiosk is a standalone, interactive computer, often equipped with a touch-screen, that offers customers several service options including product information, ability to make a purchase, and review of a customer’s account. Kiosks are now widely used for airline check-in, banking, making in-store purchases, and much more.
Customer contact may also occur through company personnel who assist customers with financial issues. For instance, credit personnel help customers arrange the necessary funds to make a purchase while personnel in accounts receivable work with customers who are experiencing payment problems.
The challenge of insuring that customers are handled properly no matter which of the customer contact points they use is daunting for many companies. For some organizations the customer contact points cited above operate independently of others. For instance, retail stores may not be directly connected to telephone customer service. The result is that for different contact points many companies have developed different procedures and techniques for handling customers. And for some firms there exists little integration between the contact points so customers communicating through one point one day and another point the next day may receive conflicting information. In such cases customers are likely to become frustrated and question the organization’s ability to service its customers.
Customer Relationship Management
In order to overcome the challenges faced as they attempt to cultivate and manage customers, many marketers must continually conduct marketing research to evaluate customers to determine what they want. And, uncovering what customers want is made significantly easier if a company establishes methods designed to manage its customers. The most widely adopted method for managing customers is a business concept known as Customer Relationship Management (CRM).
CRM and “Good” Customers
CRM is a strategic approach whose goal is to get everyone in an organization, not just the marketer, to recognize the importance of customers. Under CRM, the key driver for marketing success is to treat “good” customers in a way that will increase the probability they will stay “good” customers. This is accomplished, in part, by ensuring that a customer receives accurate information and has a consistent and satisfying experience every time he/she interacts with the organization.
CRM an Other Customers
While CRM is generally used to manage existing customers, it also has application for other customer groups. For instance, CRM is used to help identify former customers that may hold potential to become customers again. This is often possible due to the amount of information that is obtained and subsequently retained when former customers were considered existing customers. Additionally, CRM can serve an integral role in helping to locate potential customers. As we will explore in the Targeting Markets Tutorial, one method for doing this is to use information contained in CRM to determine important characteristics that are exhibited by existing customer and use this information to pursue new customers in untapped customer markets who have similar characteristics.
CRM and Technology
Computer technology plays a key part in carrying out CRM. A proper technology-based system is needed so that nearly anyone in an organization that comes into contact with a customer (e.g., sales force, service force, customer service representatives, accounts receivable, etc.) has access to necessary information and is well prepared to deal with the customer. But CRM is not only about utilizing high-tech products. CRM requires a strong organizational commitment that includes extensive training for all employees.
Other Issues With CRM
While maintaining close and consistent relationships with customers through all contact points makes good business sense, accomplishing this has often been a challenge. Numerous problems, from technology failures and lack of communication between contact points as well as lack of adequate employee training or outright employee resistance, have derailed many CRM efforts. So while CRM is now widely adopted and is becoming an essential tool for most business organizations, it still has a long way to go before it is ingrained as an essential business function within most organizations.
Customer Service and Marketing
As we have noted, to effectively manage customers marketers must be concerned with the entire experience a customer has with an organization. While much of the value sought by customers is obtained directly from the consumption or use of goods or services they purchase (i.e., offers benefits that address a need), customers’ satisfaction is not limited to direct product benefits. Instead the customer’s buying experience covers the entire purchasing experience and is a mix of product and non-product benefits.
When it comes to managing customers, an important non-product benefit that affects customers’ feelings about an organization is customer service, which is defined as activities used by the marketer to support the purchaser’s experience with a product. Customer service includes several activities such as:
Training – services needed to assist the customer in learning how to use a product
Repair – services needed to handle damaged or malfunctioning products
Financial Assistance – services needed to help customers with the financial commitment in purchases or using the product
Complaint Resolution – services needed to address other problems that have arisen with customers’ use of a product
In many industries, customers’ experience with an organization’s customer service can significantly affect their overall opinion of the product. Companies producing superior products may negatively impact their products if they back these up with shoddy service. On the other hand, many companies compete not because their products are superior to their competitor’s products but because they offer a higher level of customer service. In fact, many believe that customer service will eventually become the most significant benefit offered by an organization because global competition (i.e., increase in similar products) makes it more difficult for an organization’s products and services to offer unique advantages.
Customer service manifests itself in several ways, with the most common being a dedicated department to handle customer issues. Whether a company establishes a separate department or spreads the function among many departments, being responsive and offering reliable service is critical and in the future will be demanded by customers.
Customer Service Trends
Marketers have seen the customer service process evolve from an area that received only marginal attention into a primary functional area. In response to customers’ demands for responsive and reliable service, organizations are investing heavily in innovative methods and processes to strengthen their service level.
1. Increase Customer Self-Service
One major trend in customer service is the move by organizations to encourage customers to be involved in helping solve their own service issues. This can be seen in retail industries where self-service ranges from customers placing their own grocery products in shopping bags all the way to having customers do their own checkout, including scanning products and making payment. Also, as we will soon discuss, customers needing information are being encouraged by companies to first undertake the effort themselves often by visiting special company-provided information areas (see Knowledge Base below). Only after they have explored these options are customers advised to contact customer service.
2. Revenue Generators
Organizations maintaining a customer service staff have found that these employees not only can help solve customer problems but they may also be in a position to convince customers to purchase more. Many companies are now requiring sales training for their customer service personnel. At a basic level customer service representatives may be trained to ask if customers are interested in hearing about other products or services. If a customer shows interest then the representative will transfer the customer to a sales associate. At a more advanced level the representative will shift to a selling role and attempt to get the customer to commit to additional product purchases.
One of the most controversial developments impacting customer service is the move by many organizations around the world to establish customer service functions outside of either their home country or the country in which their customers reside. Called outsourcing, companies pursue this strategy to both reduce cost and increase service coverage. For instance, having multiple customer service outlets around the world allows customers to talk via phone with a service person no matter what time of day.
However, moving customer service to another country has raised concerns on two fronts. First, many see this trend as leading to a reduction of customer service jobs within a home country. Second, customer service personnel located offshore may not be sufficiently trained and often lack an understanding of the conditions within the customer’s local market both of which can affect service levels. At the extreme, a poorly managed move to outsource customer service can lead to a decrease in customer satisfaction, which in the long run could affect sales.
Customer Service Technologies
As we will see throughout the Principles of Marketing Tutorials, technological innovation has significantly impacted all areas of marketing. Within the customer service function, improvements in computer hardware and software, as well as expansion of electronic communication networks, such as the internet and mobile networks, has led to numerous innovative methods for addressing customer needs. These methods include:
Next to phone conversation, the most popular method for organizations to address customer questions is though live chat sessions. The primary form of live chat is via text entry within a pop-up browser window, however, more companies are using video chat as a way to offer a more personalized customer service experience. Whether presented using text or video, live chat is undertaken in real-time between customers and customer service representatives. More advanced chat technology, called collaborative browsing or co-browsing, also allows customer service representatives to manipulate a customer’s web browser during a chat session by sending webpages containing relevant information.
As part of customers’ desire to be more involved in solving their own problems, companies have moved to offering technological solutions in ways that appeal to customers’ desire for self-service. The predominant method for doing this is by maintaining a collection of answers to commonly asked questions. The collection may be part of a Knowledge Base that is accessible either online, through such methods as frequently asked questions (FAQ), or through a call system where an automated helper or virtual attendants guide customers to an answer.
The use of social media for customer service gives marketers the opportunity to reach out to customers that actively use these services. For instance, many organizations have created a Twitter account intended to only address customer service questions. However, using social media for customer service is not limited to only responding when a customer poses a question. Instead, organization can proactively use social media to inform and alert customers to important issues that may arise.
Wireless Data Access
Providing a high-level of customer services does not only occur when the customer initiates contact with an organization. Customer service takes place during any potential interaction including those that may be initiated by a company representative who is meeting face-to-face with a customer. For instance, an organization may send salespeople and other support personnel to a customer’s location and their ability to address customer concerns is vital to maintaining strong customer service.
To ensure field people have the most up-to-date information, many companies now equip their field teams with portable devices that can access the Internet from virtually any location. This is accomplished through wireless Internet connections which allow the field person to access company computers and tap into customer data.
Once considered a play toy for teenagers, text messaging is quickly being adopted as a tool for customer service. Many companies and organizations, including colleges and universities, now use text messaging as a means to communicate with their customers. For instance, colleges and universities have set up instant alert security systems where students can receive a text message in the case of on-campus emergency or weather-related problem.
Intelligent Call Routing
Another innovation associated with telephone support deals with technologies that identify and filter incoming customer calls. One method is the use of software that attempts to identify the caller (usually based on the incoming phone number) and then automatically directs the call for proper servicing. For instance, an appliance manufacturer may be able to distinguish between those who have purchased a refrigerator and those who purchased microwave oven.
But some marketers go a step further and can program their call routing system to distinguish “good” customers from others. This may result in these customers receiving preferential placement in the calling order or queue so that they will be serviced before lower rated customers who sequentially may have called before the “good” customer.