Understanding

customer
expectation
through
market
research

Module 2
Key reasons for GAP 1

Using marketing research to understand customer expectation

Types of service research

Building customer relationship through retention strategies –

relationship marketing
Evaluation of customer relationships, benefits of customer
relationship, levels of retention strategies
Market segmentation-basis & targeting in services.

Topics to be covered
The Listening Gap
Key Factors Leading to Provider Gap 1
 • Customer research must
focus on
• What features are most
Using customer important to customers?
research to • What levels of these
understand customer features customers
expectations expect?
• What customers think the
company can and should
do when problems occur
in service delivery?
Research objectives
• To discover customer requirements or expectations for service.
• To monitor and track service performance.
• To assess overall company performance compared with that of
competition.
• To assess gaps between customer expectations and perceptions.
• To identify dissatisfied customers, so that service recovery can be
attempted.
• To gauge effectiveness of changes in service delivery.
• To appraise the service performance of individuals and teams for
evaluation, recognition, and rewards.
• To determine customer expectations for a new service.
• To monitor changing customer expectations in an industry.
• To forecast future expectations of customers.
 01 02
Service research must In Service research there
continually monitor and is a need to consider and
track service performance monitor the gap between
because performance is expectations and
subject to human validity perceptions
and heterogeneity

Services Research - Additional

attention
 Can be defined as the portfolio of
Service research studies and types needed
Research to address research objectives and
execute an overall measurement
Program strategy
Service research in low-income countries
Criteria for an Effective
Service Research Program
• Includes both qualitative and quantitative research
• Not limited to surveys and numbers
• Exploratory and preliminary are conducted to clarify
problem definition
• E.g.: Talk directly to customers about what they want
• Includes both expectations and perceptions of
customers
• Measurement of perception- a critical component
• Expectation research- content of customer
expectations
Criteria for an Effective
Service Research Program
• Balances the cost of the research and the value of
the information
• Time cost, payment to respondents and information
collection costs
• Includes statistical validity when necessary
• E.g.: Salesman salary based on customer feedback
• Measures priorities or importance of attributes
• Customers have many service requirements, but not all
are equally important
Criteria for an Effective
Service Research Program
• Occurs with appropriate frequency
• A single of service only provides snapshot
• Research should be ongoing to understand the
customer expectations and perceptions with a pattern
of studies at appropriate intervals
• Includes measures of loyalty, behavioral intentions,
or actual behavior
• Behavioural intention are willingness to recommend
the service to others and repurchase the event
Elements in an Effective Customer Research
Program for Services

• To identify and attend to dissatisfied customers

Complaint and solve problems
solicitation
• To identify common service failure points

• An interview in which customers are asked for

verbatim stories about (dis)satisfying service
Critical encounters.
incident
• To identify “best” practices” at transaction level
studies
• To identify systemic strengths and weaknesses in
customer-contact services
5-22
Elements in an Effective Customer Research
Program for Services
• Relationship surveys contain questions regarding all
elements in the customer’s relationship with the
Relationship company
and
• Include service, product, and price and helps diagnosis
SERVQUAL
the strengths and weaknesses of the company.
surveys
• To assess gaps between customer expectations and
perceptions

• Customers are asked a series of questions immediately

Trailer Calls after their transaction to obtain feedback on
or Post- performance of trailer service transactions
transaction • To assess service performance of individuals and teams
Surveys • To use as input for process improvements; to identify
common service failure points

5-23
Elements in an Effective Customer Research
Program for Services

• Identifying the benefits and attributes that customers

expect in a service.
Requirements
Research
• Qualitative and quantitative research is necessary.
• Qualitative techniques are appropriate to begin
followed by quantitative

• Highly effective research involves eliciting expectations

from a client at a specified time of the year, then
Service following up a year later to discuss whether the
Expectation expectation was fulfilled.
Meetings
• What are the expectations?
and Reviews
• What aspects of the expectations the team
performed well and where improvement is needed?
5-24
Elements in an Effective Customer Research
Program for Services

• Service provider defines a process for delivering

Process the services and then structures the feedback
Checkpoint around the process, checking at frequent points
Evaluations
• To ensure client’s expectations are met

• To fully understand how customers assess and use

Market- services
oriented
ethnography • Researchers to observe consumption behaviour in
natural setting
• Techniques involve observation and interview

5-25
Elements in an Effective Customer Research
Program for Services

• Companies hire outside research organizations to

send people into service establishments and
Mystery experience the service as if they were customers
shopping
• Mystery shoppers trained in the criteria important
to the customers of the establishment

• To fully understand how customers assess and use

Market- services
oriented
ethnography • Researchers to observe consumption behaviour in
natural setting
• Techniques involve observation and interview

5-26
Elements in an Effective Customer Research
Program for Services

• Are group of customers assembled to provide

attitudes and perceptions about a service over
Customer time.
panels
• Used in the entertainment industry to screen
movies before they are released

Lost • Enquiring the customers who have dropped

customer company’s services to inquire about reasons for
research leaving
• Similar to exit interviews

5-27
Elements in an Effective Customer Research
Program for Services

• Customer expectation change rapidly in a

dynamic environment
Future • Includes features research(Environmental
expectations scanning and querying of customers about
research desirable features of possible services)and
lead user research( opinions of opinion
leaders)

5-28
Analyzing and interpreting Research
findings
• Complexity of converting large data to a meaningful
format
• Graphic representations are used to communicate
research findings effectively
• Types
• Zones of tolerance charts
• Importance/ Performance Matrices
Zones of tolerance
charts
• When companies
collect data on dual
expectation levels
(desired and
adequate service)
along with
performance data,
information can be
concisely presented
in zones of tolerance
chart
Importance/ Performance Matrices

• Chart combines information about customer perceptions

and importance ratings
Key Factors Leading to Provider Gap 1
Upward Communication
Upward communication

• Small organizations managers or owners are in

direct contact with the customers
• In larger organisations such interactions don’t occur
often
• Hands-on knowledge of what really happens in
stores , on telephone lines , in service queues and
face to face encounters should reach top
management
Research for Upward communication

• Executive visit to customers

• Used frequently in B2B marketing
• Meetings and telephonic interactions
• Executive or management listening to customers
• Conducting formal program for encouraging informal
interaction
• Research on intermediate customers
• Researching needs and expectations
Research for Upward communication

• Research on internal customers

• Employee satisfaction surveys
• Direct link between quality of internal service received
by employees and quality of service they provide to
customers
• Executive or management listening approaches to
employees
• Interacting with customer contact personnel
• Employee suggestions
• Ideas for improving work
 Stages in the (Marketing) Research Process

Define Develop Implement Collect Interpret Report

Problem Services Research and and Findings
and Research Measurement Program Tabulate Analyze
Objectives Strategy Data Findings
Key Factors Leading to Provider Gap 1
Building customer Relationships
Relationship Marketing
• Is a philosophy of doing business
that focuses on keeping and
improving current customers
• Does not necessarily emphasize
acquiring new customers
• Is usually cheaper (for the firm) to
keep a current customer costs less
than to attract a new one
• Goal is to build and maintain a base
of committed customers who are
profitable for the organization
• Thus, the focus is on the attraction,
retention, and enhancement of
customer relationships
Bucket theory of marketing
• Firms frequently focus on attracting
customers –the “first act”
• Pay little attention to what they
should do to keep them the “second
act”
• When the business is running well
any holes are small and few
customers are leaving
• When the operation is weak and
customers are not satisfied, people
start falling out the bucket through
the holes faster than they can be
poured in through the top
Evolution of customer Relationships

• Customers as strangers
• Strangers are those who have not yet had any
transactions(interactions) with a firm and may not even
be aware of the firm
• Primary goal is to initiate communication with them to
attract and acquire their business
• Customers as Acquaintances
• Establishing familiarity
• Customer and firm become acquaintances
• Goal is to build a relationship that satisfies the customer
Evolution of customer Relationships

• Customers as friends
• Frequent interactions by customers and firm
• Provision of unique offering, and thus differential value,
transforms the relationship from acquaintances to friends
• Focus on retention
• Customers as partners
• To build into a partner relationship, a firm must use
customer knowledge and information systems to deliver
highly personalised and customised offerings
• Goal is to enhance the relationships
Goal of
relationship
marketing
• Primary goal of
relationship marketing is to
build and maintain a base
of committed customers
who are profitable for the
organization
Benefits of Relationship Marketing
Benefits for Customers
• Receipt of greater value
• Confidence benefits:
• Trust
• Confidence in service provider
• Reduced anxiety
• Social benefits:
• Familiarity (E.g.: haircut)
• Social support
• Personal relationships
• Special treatment benefits:
• Special deals
• Price breaks
Benefits of Relationship Marketing
Benefits for firms
• Economic benefits:
• Increased revenues
• Reduced marketing and administrative costs
• Regular revenue stream
• Customer behavior benefits:
• Strong word-of-mouth endorsements
• Customer voluntary performance
• Social benefits to other customers
• Mentors to other customers
• Human resource management benefits:
• Easier jobs for employees
• Social benefits for employees
• Employee retention
Relationship Value of Customers

Is a concept or calculation that looks at customers

from the point of view of their lifetime revenue
and/or profitability contributions to a company
Important when companies start thinking of long
term relationships

Also include sales generated from referrals

provided by the customer
Profitability Tiers – The Customer Pyramid
 Platinum tier
• Company’s most profitable customers, typically heavy users of
the product, not overly price sensitive, willing to invest in and
try new offerings, and committed customers of the firm

Gold tier
• Profitability levels are not as high, perhaps because customers
want price discounts that limit margins or are simply not as
loyal.
• May be heavy users who minimize risk by working with
multiple vendors.

Customer Profitability Segments

 Iron tier
• Essential customers that provide the volume needed to utilize
the firm'’ capacity but their spending levels, loyalty, and
profitability are not substantial enough for special treatment

Lead tier
• Customers who are costing the firm money.
• Demand more attention than they are due given their
spending and profitability
• Are sometimes problem customers—complaining about the
firm to others and tying up firm resources.

Customer Profitability Segments

Strategies for Building Relationships
• Core service provision:
• A firm needs to begin the relationship development process
built upon delivery of excellent service:
• Satisfaction, perceived service quality, perceived value
• Switching barriers:
• A customer may face a number of barriers that make it difficult
to leave one service provider and begin a relationship with
another
• Switching barriers influence consumers’ decisions to exit
• Customer inertia
• Certain amount of effort may be required to change firms
• Firms might consider increasing the perceived effort required on
the part of the customer to switch service providers
• Switching costs:
• Include investments of time, money or effort
• Setup costs, learning costs and contractual costs
 Strategies for
Building
Relationships
• Relationship bonds:
• Firms can engage
in activities that
encourage
customers to
remain in the
relationship
• Thus creating
relationship bonds
Retention strategies
• Financial bonds
• Starts with Low prices for great volume purchases or loyal
customer benefits
• “Frequent flyer” programs provide financial incentives
and rewards for travellers who bring more of their
business to a particular airline
• Relatively short lived as it could be imitated

Loyal customer offer Price bundling

 Retention strategies

• Social bonds
• Level 2 retention
marketers build long-
term relationships
through social and
interpersonal as well
as financial bonds
• Customers are viewed
as “clients” not
nameless faces and
become individuals
whose needs and
wants the firm seeks to
understand
• Often found in health
clubs
• Difficult to imitate
Social Bonding among customers -Harley-Davidson HOG Rally Parade 2016
Retention strategies

• Customization bonds
• Customer loyalty can be encouraged through intimate
knowledge of individual customers
• Often referred as customer intimacy
• Development of one to one solutions that fit individual
customer’s needs
Retention strategies

• Structural bonds
• Most difficult to imitate
• Involve structural, financial, social and customisation
bonds between the customer and firm
• Created by providing customised services to the client
that are technology based and make the customer
more productive
• E.g.: Fed Ex provides free computers to customers with
stored addresses and shipping data, printed mailing
labels, and a tracking system for packages.
• E.g.: VTU-Mindlogicx Partnership
Relationship Challenges

• The customer is not always right

• The wrong segment
• Company can’t target its services to all customers
• E.g.: Hotel may choose likely future customers over
occasional customers for preference of party hall
booking
• Not profitable in the long term
• Organisations will prefer not to have long term
relationships with unprofitable customers
• Difficult customers
• Difficulty with dysfunctional customers whose actions
intentionally/unintentionally act in a manner that
disrupts other functional encounters
 Difficult customers

A Heated Argument At The Railway Ticket Counter of Lokmanya Tilak Terminus

Relationship Development Model
Market segmentation
Basis & Targeting in Services

• Many aspects of segmentation and targeting for

services are the same as those for manufactured goods.
• Differences
• The need for compatibility in market segment, because other
customers are typically present when a service is delivered
• Service providers must recognize the need to choose compatible
segments or to ensure that incompatible segments are not receiving
service at the same time.
• Service providers have a far greater ability to customize service
offerings than manufacturing firms
• A services marketer can choose a broader set of segments or sub
segments to serve than many manufacturing firms

Refer 1st Semester Marketing Module 3 for STP

Basic focus strategies for services

Focus underlies the search for competitive advantage

Fully focused: Limited range of services to narrow and
specific market
Opportunities
• Developing recognized
expertise in a well-defined
niche may provide
protection against would-
be competitors
• Allows firms to charge
premium prices
Risks
• Market is too small to
generate needed volume
• Demand may be displaced
by generic competition
from alternative products
• Purchasers in chosen
segment may be
susceptible to economic
downturn
Market focused

01 02 03
Narrow market Need to make sure Need to
segment with wide firms have understand
range of services operational customer
capability to do purchasing
and deliver each of practices and
the different preferences
services selected
Service focused

01 02
Narrow range of As new segments are
services to fairly broad added, firm needs to
market develop knowledge
and skills in serving
each segment
Unfocused

01 02 03
Broad markets Many service Danger –
with wide range providers fall into becoming a “jack
of services this category of all trades and
master of none”
Market Segmentation

• Firms vary widely in ability to serve different types

of customers
• Adopt strategy of market segmentation, identifying those
parts of market can serve best
• A market segment is composed of a group of buyers
sharing common:
• Characteristics
• Needs
• Purchasing behavior
• Consumption patterns
• Within segments, they are as similar as possible. Between
segments, they are as dissimilar as possible
Identifying and Selecting Target Segments

• A target segment is one that a firm has selected from among

those in the broader market and may be defined on the
basis of multiple variables
• Must analyze market to determine which segments offer
better opportunities
• Target segments should be selected with reference to
• Firm’s ability to match or exceed competing offerings directed at the
same segment
• Not just profit potential
• Some ‘underserved’ segments can be huge, especially poor
consumers in emerging economies, e.g. low-income group in
India
End of Module 2

Thank You