Professional Development

Analyzing Customers to Build Loyalty

Editor's note: Building customer loyalty is never so important as in a down market. Loyal customers provide reliable and repeat revenue, purchase add-on services more quickly, and provide all-important references to skeptical new prospects. Analyzing your customers to assess loyalty and support new loyalty initiatives is thus a critical task in today's market. This adaptation of Dr. Philip Dover's presentation at ITSMA's February 2001 Client-Centric Marketing course outlines the whys and hows of effective customer analysis. Dr. Dover is faculty director at the Babson School of Executive Education, associate professor of marketing at Babson College, and an expert on technology market planning and services marketing. Babson College, a national leader in executive education, is ITSMA's partner in services marketing education.

The role of marketing is to be an expert on the customer, to advocate for customer needs, and to ensure that the organization is customer- and market-driven. At a time when true differentiation is increasingly difficult to create, customer knowledge has become a critical, distinctive competence.

To analyze customers, we need to think in terms of a customer activity cycle. Before any purchase, customers define problems or needs, consider past experience with potential vendors (perhaps including your firm), search for relevant information, and evaluate alternatives.

The purchase process itself involves choosing among product and service options and packages, considering brand and price, and accepting delivery and implementation.

Following their purchase, customers evaluate their initial satisfaction, the efficacy of continued service and support, and possible alternatives for future purchase.

Services marketers must devise appropriate market strategies for every stage of this customer activity cycle. Specific questions that marketers must answer include the following:

• What are current and potential future needs for their customers?
• What alternatives do customers consider in evaluating how to meet those needs and how do they perceive these alternatives?
• How do customers make decisions to purchase services?
• How do customers assess the value of their purchase choices?

Defining Customer Needs
Discovering what customers need requires marketers to move beyond specific service features to identify the perceived benefits and values resulting from the concrete services experience. What really motivated customer choice? Is the customer most interested in improving productivity through cutting-edge technology, eliminating human resource headaches, or perhaps simply positioning him- or herself for a promotion?

Useful tools to help identify deep customer needs go beyond traditional surveys and focus groups to techniques such as means-end analysis, anthropological research (day-in-the-life studies; listening posts), and memory mapping (story-telling; metaphor elicitation techniques).

Understanding Customer Perceptions
Once you have a good understanding of customer needs, you must evaluate yourself through your customer's eyes, in comparison with competitors. What other firms are under consideration, and how do you measure up on critical service attributes and benefits sought?

Perceptual maps are great strategic tools to assess competing services providers along two or more determinant attributes. Creating such a map requires highlighting the key attributes wanted by target customers, such as ease of use, service coverage, and industry expertise, and then plotting your services offerings against those of competitors. The resulting map helps you better understand how to leverage strengths and shore up weaknesses through service improvement and new or refined value propositions.

Analyzing Customer Purchase Decisions
Marketers must turn from perceptions to preferences in order to forecast demand. But typical "intention to purchase" measures are notoriously unreliable.

Conjoint (or tradeoff) analysis is a clever multi-attribute technique that puts the customer in a choice mode. The customer goal is to maximize perceived value from services, given their specific priorities and the constraints of available options. Customers select their most preferred choice from a set of likely competitive options, each represented by a specific bundle of attributes. For example, a customer might have to trade-off paying an additional $100 for a service visit if the provider responds within one hour instead of one day. Consequently, conjoint analysis is also extremely useful in the new services design process and in determining marketing variables such as price levels.

Measuring Customer Loyalty
Finally, once the customer purchases your service, how can you measure customer satisfaction? Even more important, how can you assess loyalty and retention? There are many ways to measure satisfaction (surveys, frequency of complaints, repeat business rates, and so on). But satisfied customers are not necessarily loyal. They might appear pleased with a particular service purchase, but they could jump to another provider as soon as a better price or a different package is available.

Loyalty measures capture the drivers of long-term relationships and provide a more complete picture of a customer's feelings. Linking satisfaction to loyalty involves answers to at least three questions: Are you very satisfied with our firm's overall performance? Would you definitely repurchase from our firm again? Would you definitely recommend our firm to others?

Note that all the described measures are vital inputs into the development of needs-based market segmentation programs and benefit-driven positioning strategies. These in turn act as the building blocks of customer relationship management (CRM) and the move towards one-to-one marketing. But this is a subject for a future note!

- Philip Dover

For more information on customer analysis or customer loyalty, contact Dr. Dover at dover@babson.edu or Steve Hurley, ITSMA vice president of learning and development, at +1-781-862-8500, ext. 34 or shurley@itsma.com.

ITSMA offers several useful tools to support customer analysis. Visit http://www.itsma.com/research/research_rt.htm for more information.

About ITSMA
ITSMA specializes in helping companies market and sell services and solutions more effectively. As a membership organization, we provide research, consulting, and training to the world's leading technology, communications, and professional services providers to generate increased demand, strengthen customer relationships, and improve brand differentiation. ITSMA is based near Boston, and has offices in London and Tokyo. Learn more at www.itsma.com.