Page 325 - Introduction to Business

CHAPTER 8 Marketing Basics 299

where your customers rank in terms of profitability is the future of business and
companies that are doing it now have a distinct advantage over their competitors.” 52
Royal Bank of Canada determines the profitability of all of its 10 million cus-
tomers on a monthly basis. In so doing, the bank found out that only 17 percent of
its customers accounted for 93 percent of its profits. This means that 83 percent of
its customers provided only 7 percent of its profits, calling into question the prof-
itability of many of that 83 percent. One of the United States’ largest retailers stated
that it had no unprofitable customers, yet analysis found that it was directing mar-
keting effort to those which were not profitable and never would be. “This company
was actually spending money to bring in customers who were reducing the value of
the firm.” 53
Profitable customers justify being provided high levels of service. Companies do
not want to lose them; what companies need to do is determine their characteris-
tics and try to get more of them to do business with the company. Efforts to increase
revenues, such as mailings describing sales, can be directed to them. But such mail-
ings would be inappropriate for unprofitable customers since any resulting busi-
ness would reduce the company’s profits.
The best approach for dealing with unprofitable customers is to try and serve
them at a lower level of cost so that the revenue they bring in becomes profitable.
This is what Fidelity Investment, the world’s largest mutual funds company, did.
After it discovered that many of its customers were unprofitable because they took
up a lot of costly service reps’ time, customers were encouraged to use automated
telephone lines and the company’s website. When they needed to talk to a service
rep, they were routed into longer queues, allowing profitable customers to be served
more quickly. This approach turned out to be a win-win situation for Fidelity: If
unprofitable customers used these other contact options, they became profitable; if
they balked and went to another firm, Fidelity’s profits also increased. 54

Customer Satisfaction
Companies in the United States spend close to $4 billion annually to find out how
well their customers are satisfied. However, many companies do not monitor cus-
tomer satisfaction. When John McDonough took over as Rubbermaid’s CEO, he was
flabbergasted to discover that the company was not assessing levels of customer
satisfaction. 55
Companies with satisfied customers benefit greatly. Satisfied customers are less
price sensitive and more willing to pay for additional services, and purchase more
frequently and in greater quantities. They are far less expensive to serve than new
customers. Free publicity is obtained because satisfied customers make favorable
comments to other customers and noncustomers. Satisfied customers are likely to
become loyal customers. In short, customer satisfaction is associated with higher
revenues, lower costs, and higher profits.
Marketers need to understand that total satisfaction for customers is the key to total satisfaction The postpurchase
success, not anything less. Sixty to 80 percent of restaurant diners who defect to response in which the customer has no
dissatisfaction at all with the product or
competitor establishments have indicated that they were “satisfied” or even “very
service accompanying the product
satisfied” with their dining experience. Here is evidence that total satisfaction is
essential.
• In the automobile industry, completely satisfied customers are much more
loyal than customers who are only “satisfied.”
• Xerox found that its totally satisfied customers were six times more likely to
repurchase its products over the next year and a half than were its “satisfied”
customers.

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.