Chapter 22Building and Sustaining Relationships in Retailing

RETAIL MANAGEMENT:

A STRATEGICAPPROACH,

9th Edition

BERMANBERMAN EVANS EVANS

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Chapter Objectives

To explain what “value” really means and highlight its pivotal role in retailers’ building and sustaining relationships

To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace

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How Customers Make Their Choices

In a team, choose a product and discuss:

Task 1

• How do you make a choice what product to buy?

• What are your selection criteria?

• What do you consider?

• What do you compare?

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What is Value?

Channel Perspective:

Value is a series of activities and processes - the value chain - that provides a certain value for the consumer

Customer Perspective:

Value is the perception that the shopper has of the value chain

It is the view of all the benefits from a purchase versus the price paid.

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Defining Customer Value

• Customer Perceived Value (CPV)

• Customer Delivered Value (CDV)

–Total customer value

–Total customer cost

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Determinants of Customer Delivered Value

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Customer Value

• Customer delivered value – the difference between total customer value and total customer cost

• Total customer value – the bundle of benefits customers expect from a given product or service

• Total customer cost – the bundle of costs customers expect to incur in evaluating, obtaining, and using the product or service

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Delivering Customer Value and Satisfaction

• A company can win by creating and delivering customer value

• Value Chain

– Value chain

– The Value Delivery Network (Supply Chain)

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The Generic Value Chain by PorterA firm must examine its costs and performance in each value-creating activity

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Levi Strauss’s Value-Delivery Network

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Retail Value ChainRepresents the total bundle of benefits offered

to consumers through a channel of distribution

– Store location and parking,

– retailer ambience,

– customer service,

– brands/products carried,

– product quality,

– retailer’s in-stock position,

– shipping, prices,

– image, and other elements

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Providing Extra Value for CustomersList the benefits

offered to consumers

at Melonman Store:

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3 Aspects of Value-Oriented Retail Strategy

Expected

Augmented

PotentialList some elements of retail value strategies for a music/records shop:1. expected2. augmented 3. potential

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An expected retail strategyrepresents the minimum value chain elements a given customer segment expects from a type of retailer. These are expected value chain elements:

a.                   Store cleanliness

b.                  Convenient hours

c.                   Well-informed employees

d.                  Timely service

e.                   Popular products in stock

f.                    Parking

g.                   Return privileges

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An augmented retail strategyencompasses the extra elements in a value chain that differentiate one retailer from another.

These are augmented value chain elements: Exclusive brands,Superior salespeople, Loyalty programs, Delivery, Personal shoppers, Valet parking

A potential retail strategy comprises value chain elements not yet perfected by a competing firm in the retailer’s industry category.

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Potential Pitfalls to Avoid in Planning a Value-Oriented Retail Strategy

• Planning value with just a price perspective

• Providing value-enhanced services that customers do not want or will not pay extra for (Wal-Mart Greeters in Germany)

• Competing in the wrong value/price segment

• Believing augmented elements alone create value

• Paying lip service to customer service (на словах, не на деле)

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A Value-Oriented Retailing Checklist Is value defined from a consumer

perspective?

Does the retailer have a clear value/ price point?

Is the retailer’s value position competitively defensible?

Are channel partners capable of delivering value-enhancing services?

Does the retailer distinguish between expected and augmented value chain elements?

Has the retailer identified meaningful potential value chain elements?

Is the retailer’s value-oriented approach aimed at a distinct market segment?

Is the retailer’s value-oriented approach consistent?

Is the retailer’s value-oriented approach effectively communicated to the target market?

Can the target market clearly identify the retailer’s positioning strategy?

Does the retailer’s positioning strategy consider trade-offs in sales versus profits?

Does the retailer set customer satisfaction goals?

Does the retailer periodically measure customer satisfaction levels?

Is the retailer careful to avoid the pitfalls in value-oriented retailing?

Is the retailer always looking out for new opportunities that will create customer value?

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Customer Relationships

1. The Customer Base

2. Customer Service

3. Customer Satisfaction

4. Loyalty Programs

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Customer Service

• Expected customer service is the service level that customers want to receive from any retailer such as basic employee courtesy

• Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage

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Figure 2.4 Classifying Customer Services

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Fundamental DecisionsWhat customer services are expected and what

customer services are augmented for a particular retailer?

What level of customer service is proper to complement a firm’s image?

Should there be a choice of customer services?

Should customer services be free?

How can a retailer measure the benefits of providing customer services against their costs?

How can customer services be terminated?

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Customer Services

Delivery

Installations

Packaging/ gift wrapping

Complaints/ Return handling

Gift certificates

Trial purchases

Special sales

Extended store hours

Mail and phone orders

Credit

Information

Shopping bags

Interior designers

Personal shoppers

Ticket outlets

Parking

Water fountains

Pay phones

Baby strollers

Restrooms

Restaurants

Baby-sitting

Fitting rooms

Beauty salons

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Customer Satisfaction:

Expectations vs. Experience

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What are the factors influencing Customer Expectations?

• ?

• ?

• ?

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Customer Satisfaction

• Satisfaction is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations

• The challenge of implementing Total Customer Satisfaction is to create a company culture in which everyone within the company aims to delight the customer

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Complete Customer Satisfaction: Hampton Inns

A subcommittee of the board of directors of Hampton Inns has made a bold proposal that customers be given a guarantee of “complete satisfaction or your night’s stay is free”.

• Why would employees not want to guarantee customer satisfaction?

• What are possible customer reactions to such a guarantee?

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Attracting and Retaining Customers

• Partner relationship management (PRM)

• Customer relationship management (CRM)

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Attracting and Retaining Customers

• Attracting Customers

– Costly: Research has found that what it costs to gain a new customer is about 5 times more then keeping customer we’ve got

• Computing the Cost of Lost Customers

– Customer defection

Adding water to a leaking bucket

– Lifetime value

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Computing the Cost of Lost Customers  Stew Leonard, who operates a highly profitable single-store

supermarket, says that he sees $50,000 flying out of his store every time he sees a dissatisfied customer. Why?

Because his average customer spends about $100 a week,

shops 50 weeks a year and remains in the area for about 10 years.

$100 x 50 weeks x 10 years = $ 50 000

If this customer has an unhappy experience and switches to another supermarket. Stew Leonard has lost $50,000 in revenue. The loss can be much greater if the disappointed customer shares the bad experience with other customers and causes them to defect.

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Stew Leonard’s VideoRule # 1 - the customer is always right

Rule # 2 - if the customer is ever wrong, reread rule #1

3 S’s of quality service

– Strong service STRATEGY

– Customer friendly SYSTEMS

– Very good STAFF

Why is Stew Leonard’s so successful?

How did Stew Leonard’s use 3 S’s to satisfy their customers?