Owing to the radical changes taking place in the company-market relationship, the satisfaction of the customers' needs is now a necessary condition of company sur- vival.
There is no unanimous definition of customer satisfaction in the literature (Cuomo, 2000; Rajola, 1999); however, it is possible to identity three main orien- tations:
a) Psychocognitive: this school studies the motivations at the base of cus- tomer satisfaction, comparing expected benefits with actually obtained ones. When the former match the latter, we speak of confirmation, as op- posed to disconfirmation in the case of discrepancies.
b) Operational: this one ties customer satisfaction to a number of actions and technical solutions, for which business units have direct contact with customers.
c) Strategic: the customer is regarded as a major factor in the company's survival and development. Customer satisfaction is viewed as a down- right philosophy, "an entrepreneurial modus operandi explicating the ability to create value for customers, anticipating and managing their ex- pectations and showing in all tactical choices competence and responsi- bility, in order to fulfil their needs."
The above are three different yet complementary approaches. As a matter of fact, it is not possible to implement a customer satisfaction system "operationally"
without having in mind a strategic vision of the customer's satisfaction and with- out considering the psychocognitive aspects of the consumer's behaviour.
Now we have stressed the strategic importance of customer satisfaction, it is pos- sible to analyse its role within the company's organizational approaches, for which we refer to three relational levels (Cuomo, 2000):
a) In the strictest sense, the customer-oriented approach is used only for final consumers.
b) In a wider sense, attention is focused on all subjects with any kind of re- lationship with the company (providers, competitors, personnel), since all operators, internal and external, are actually company customers.
c) In an integrated sense, customer strategies are applied collectively to all company partners within the same production area or strategic group, in order to gain competitive strength and increase each component's value.
104 The Evolution of Customer Relationships and Customer Value
The company's behaviour may not be unequivocal, but it will have to be consis- tent with the position it occupies at that given moment.
In any case, the company must be aware that the customer himself is the source of the strongest and most constructive inputs that allow it to take up a proactive role and give rise to a virtuous circle (Fig. 6.5), which will lead in time to substantial increases in competitive advantages (Valdani, 1995; Morris, 2002).
The company is only able to produce sustainable competitive advantages if its offer generates a positive or neutral differential between the perceived use value (PUV) (Cantone, 1996) and the expected value (EV) (Rountree, 2001; Pavia,
1999; Morris, 2002; Cantone, 1996):
S=PUV -EV where:
S = "absolute" customer satisfaction
EV=the net value the customer expects to obtain once the offered product/service is at his full disposal, which is given by the difference between expected benefits (EB) and expected costs (EC).
In order to compare the degree of satisfaction provided by the company's offer, as opposed to the one provided by the competition, it is necessary to refer to the
"relative" or "comparative" satisfaction, i.e. the relation between the absolute sat- isfaction produced by the company and the average absolute satisfaction produced by all competitors.
The consumer is considered as the fundamental party to establish a durable rela- tionship with, through the activation of bi-directional communication channels, allowing sharing of values and full appreciation of incoming information about the customers (Morris, 2002).
This can explain the statement that customer satisfaction affects both internal and external relationships. In fact, strong and steady interactions are created, based on objective sharing and on collaboration for the achievement of expected results.
The direct involvement contributes to the creation of a favourable climate, leading to an increase in the company's ability to create value, as well as to effectively anticipate and manage customers' expectations, be they internal or external.
The Concepts of Customer Satisfaction and Loyalty 105
I Customer I I satisfaction
I
Offered quality
I Customer fidelity
Attention to the t Profits
customers
I +
Staff satisfaction Business
satisfaction
I
I Increase in Renewal of
human resources business climate
Figure 6.5 The virtuous circle of customer satisfaction (Valdani, \995)
This virtuous circle allows the company to consolidate its strong points and im- prove its competitive advantage, even in the presence of an increasingly global and critical market. From this standpoint, customer satisfaction is the major asset for the creation of the conditions needed to loyalize customers (Keene, 2001).
6.7.2 Organizing the Concept of Loyalty
The 1990s have established the importance of customer satisfaction as the key element in the implementation of effective growth and power-up strategies (Nadin, 2000). A further objective has been added since, namely customer loyalty (Keene, 200 I). As a matter of fact, satisfaction is a decisive factor in establishing a lasting relationship with the customer and gaining his loyalty, particularly for those firms which, not enjoying a dominant market position based on distinctive and unique competencies, have to face extremely lively competition and are liable to loss of even the customers they have already acquired (Nadin, 2000).
In the business-to-business area, it is often the customer who seeks a tight bond with his provider. This is especially true for network companies, which need strong partners to whom they can entrust nonvital, yet no less important, phases of their management processes (Ptacek, 2001).
106 The Evolution of Customer Relationships and Customer Value
But what, then, is loyalty exactly? Oliver (J 997) has defined it as "a deep com- mitment to constantly reacquire or promote products or services, in spite of the influence of particular situations and competition marketing efforts, which could potentially affect the company's behaviour."
To put it simply, it is about defining the conditions that will cause the customer to stick to the same company in the future.
The loyalty creation process can ideally be subdivided into evolution phases (PricewaterhouseCoopers, 2000):
a) Knowledge phase: the company must get to know the customer and his expectations. Loyalty is virtually absent from this phase, for the relation- ship is merely based on the knowledge of products and prices. The cus- tomer might very well switch to a competitor boasting a better offer.
b) Emotional or understanding phase: the company watches and analyses the customer's behaviour in all phases leading up to and following the purchase. Loyalty is no longer based only on product and price, for the re- lationship between customer and provider is getting to be the key factor.
c) Will or loyalization phase: the relationship with the customer must be- come a personal one. In order to maintain and enhance loyalty, the satis- faction level must be high and reciprocal.
Therefore, loyalty is a primary objective for the achievement of lasting positive effects, even in the case of price modifications making the prices higher than the competition's (premium price). In fact, if the customer is loyal, he is likely to stick to his brand even if the competition is cheaper, for he will focus more on the value-for-money ratio than purely on the price. He will even be willing to pur- chase other products offered by the same company (cross-selling), thus contribut- ing to a multiplication mechanism of sorts, based on the "bush telegraph" created by people expressing their satisfaction to each other.
While it is absurd to think of a company not having customer satisfaction among its objectives, it is certainly possible to find companies which prefer maintaining a high customer turnover rate to investing in loyalty (Nadin, 1999).
These situations are properly shown in the "decisional matrix" (Fig. 6.6). The matrix shows:
• Two completely antithetical situations (pure loyalization and spot ex- change),
• One transition situation, typical of companies entering a new market or testing neighbouring businesses (eat and run),
+
High fidelization
Tactics for new entrants
Understanding the Role of the Customer 107
Stratified scheme
One-time purchase
Customer number and turnover +
Figure 6.6 Decision matrix (Source: adapted by Nadin, 2000)
• A situation combining pure loyalization and a maximum market exten- sion model (layered pattern).
Companies which decide not to focus on loyalization will not be able to fully ex- ploit the potential given by a lasting relationship with the customer, and will there- fore try to maintain a large number of customers and a quick turnover (which is the typical logic of companies operating in the commodities unit) (Hall, 1999).
It is therefore always more profitable to maintain existing customers rather than try to acquire new ones. In fact, strengthening the relationship leads to a signifi- cant reduction of management and administration costs, thus contributing to the growth of profits over time.