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Market-Based Management
Customers are the only assets that do not appear on a company’s balance sheet. Yet, they are the only source of company cash flow that will drive profits and shareholder value.
Market-Based Management provides a the concepts, tools and strategies to build a customer focused organization and management system that delivers superior levels of customer satisfaction, customer value and profitability.
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Preface
“Marketing is viewed in the old sense of “pushing” products or in the new sense of “customer satisfaction engineering”. -Kotler and Levy, 19691
This quote by two recognized marketing scholars in 1969 remained a hollow statement until 1996, when the first edition on Market-Based Management made customer satisfaction and profit impact the central theme of the first edition. Each of the following editions built on this theme. The 7th edition builds the importance of customer focus, customer satisfaction measurement, and management as a pathway to improved performance and profitability.
Gains in marketing knowledge without application are missed learning opportunities. The strength of Market-Based Management lies in its focus on processes and tools for building marketing strategies that deliver superior levels of customer satisfaction, value, and profitability.
The 7th edition of Market-Based Management is presented in four parts – Customer Focus (3 chapters), Market Position & Performance (3 chapters), Brand Strategies (3 chapters), and Customer Engagement Strategies (2 chapters). This more focused organization will allow students and professionals to grasp the importance of customer performance in building market-based strategies that deliver superior customer value and profitability. This learning is aided with interactive MBM/APPs added to each chapter.
Market-based management is intuitively easy but deceptively difficult. Our approach is to take important marketing concepts that are intuitively appealing and add operational measures that are often omitted, making marketing deceptively more difficult. The old saying below is at the heart of this book:
“If you cannot measure it, you cannot manage it.”
Concepts, by themselves, are important and are the backbone of market-based management. However, they are of limited value if they cannot be applied in a way that delivers superior customer value and profitability. Those in marketing need to take a greater level of responsibility for managing profits and the external performance metrics of a business.
We hope this new edition of Market-Based Management will help achieve that goal, and we hope that it will also help you in your understanding of, commitment to, and practice of market-based management.
Roger Best
Vikas Mittal
Shrihari Sridhar
1.“Broadening the Concept of Marketing,” by Philip Kotler and Sidney J. Levy, Journal of Marketing, 1969, 33(1), 10-15. Page 10
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Authors
Roger Best
Roger is an Emeritus Professor in Marketing at the University of Oregon and co-founder of the UO Sports Product Management Program. He authored the first six editions of Market-Based Management, co-authored seven editions of Consumer Behavior with Del Hawkins, and, more recently, co-author of The Global Sports Industry
He has published over 40 journal articles, one of which was The Academy of Marketing Science article of the year Roger started his career at GE in engineering, where he earned a patent and later moved into product management As a professor, he has taught at the University of Arizona, INSEAD in Fontainebleau, France, and the University of Oregon. He has been awarded numerous teaching awards and honored as AMA Distinguished Teacher of the Year. Roger has extensively worked consulting and executive education with many Fortune 500 companies such as 3M, Dow Chemical, DuPont, GE, HP, Textron, and many others.
Vikas Mittal
Vikas is the J. Hugh Liedtke Professor of Marketing at the Jesse H. Jones Graduate School of Business Previously, he was on the faculty at the University of Pittsburgh and Northwestern University. His publications appear in Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Management Science. It has been featured in Forbes, Times, New York Times, Harvard Business Review, and Sloan Management Review.
His research has been funded by the National Institutes of Health, Heinz Endowments, and the Department of Education. He has been the co-editor of the Journal of Marketing and Journal of Marketing Research. His papers have received the William F. O’Dell Award and the FedEx Excellence in Service Research award. He is an award-winning teacher who has been voted best professor multiple times and featured in Poets and Quants. He has consulted with over 200 companies, including Fortune 500 companies.
Shrihari (Hari) Sridhar
Shrihari is a Professor of Marketing, Joe Foster ’56 Chair in Business Leadership, Presidential Impact Fellow, and Chancellor’s EDGES Fellow at Mays Business School, Texas A&M University. He is the Editor in Chief of the Journal of Marketing.
His publications appear in the Journal of Marketing, Journal of Marketing Research, and Marketing Science. He has been a finalist for the Marketing Science Institute/H. Paul Root Award, Paul Green Award, and featured in Forbes, Harvard Business Review, National Public Radio (NPR), Reuters, and Sloan Management Review. He received the Varadarajan Award for Early Career Contributions to Marketing Strategy and is an MSI Scholar. Dr Sridhar is an award-winning teacher recognized by Poets and Quants and has been co-author of two books titled Focus: How to Plan Strategy and Improve Execution to Achieve Growth and Marketing Strategy: Based on First Principles and Data Analytics.
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TABLE OF CONTENTS
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PART I: Customer Focus
“Being market-driven means that everything done by everyone in the company is driven by the needs of the target market(s) you serve.”1
A market-based business has a strong customer focus that is reflected by all its functions and employees. Whereas the marketing personnel have the primary responsibility for creating marketing excellence, all members of a market-based business are customer-focused. All members are sensitive to customers’ needs, are aware of competitors’ moves, and work together toward a timely market-based customer solution. What’s the payoff from customer focus? Market-based businesses are more profitable because of their customer focus.
Part I demonstrates the connectivity of customer focus with customer satisfaction, customer value, and profitability.
Chapter 1 examines the relationship between customer satisfaction and profitability. This is the core of a customer-focused organization. We extend this paradigm to include customer retention, customer lifetime value and customer recommendation to others as ways of promoting customer and sales growth. Each core element of customer focus is presented with examples and interactive MBM/APPs to enhance the readers’ understanding of the importance of customer satisfaction in managing a customer-focused company. A customer-focused company has a customer compass that directs its focus on a particular set of customers, not all consumers.
Chapter 2 provides a qualitative look at how companies build a strong customer focus. A customer-focused company uses the voice of the customer to understand customer experience and use it as the essential input in building a strong customer focus. This chapter presents the various methods used to gather and integrate the customer voice and customer experience into a customer-focused company. This information is key to measuring customer satisfaction and creating customer value for the products and services targeted for company customers. MBM/APPs enable readers to experience major qualitative tools used to capture the customer voice and customer experience.
Chapter 3 shows different ways to create and measure customer value. To be meaningful as a market-based management concept, firms must measure and manage concepts like customer value. You can’t manage what you don’t measure. This chapter looks at performance and price relative to the top-3 competitors to create one measure of relative customer value. We extend this to a performance-price analysis and dollar metric of customer value. Finally, we expand the view of value creation to the ownership cost. MBM/APPs enhance the readers’ understanding of customer value metric with experimentation.
1. M. Frichol (2009), “Marketing in a ‘Market-Driven’ Company,” The Marketing Mélange, http://marketing.infocat.com/2009/02/marketing-in-market-driven-company.html, retrieved February 12, 2009.
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CHAPTER 1:
Customer Focus, Customer Satisfaction, and Profit Impact
Customer Focus & Sastifaction
Customer Retention & Loyalty
Customer & Company Profitability
CUSTOMER SATISFACTION AND PROFITABILITY
Customers who say they are Extremely/Very Satisfied with a company have the greatest impact on company profitability. Though results vary by industry, Extremely/Very Satisfied customers typically account for a large portion of company profits.1 Managing dissatisfied customers is also important, as they are often unprofitable and likely to share their dissatisfaction.2
Social media makes it easier than ever for dissatisfied customers to share their experi-ences with others.
To understand this dynamic, we have created an MBM/APP in Figure 1.1 that displays how a company’s customer change with customer satisfaction.
Figure 1.1: Customer Satisfaction and Profitability
| CUSTOMER SATISFACTION | Extremely Dissatisfied | Very Dissatisfied | Somewhat Dissatisfied | Neither Satisfied nor Dissatisfied | Somewhat Satisfied | Very Satisfied | Extremely Satisfied | TOTAL |
|---|---|---|---|---|---|---|---|---|
| Scale Score | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 3.6 |
| Sample Percent | 5% | 10% | 35% | 35% | 5% | 5% | 5% | 100% |
| Customer Profit | ($1,563) | ($2,800) | ($8,750) | ($3,150) | $750 | $5,000 | $5,850 | ($4,662.50) |
Instruction: Click on Customer Satisfaction Index in the yell ex and observe changes in the distribution of customer satisfaction and customer profit.
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In today’s globally competitive marketplace, customers expect more, have more choices, and are less brand loyal. Sears, Eastman Kodak, and General Motors all seemed invincible at one time.3 Some formerly-leading firms no longer exist, while others have restructured to satisfy changing customer needs and emerging competitive forces. In the long run, every business’s survival is at risk.
Companies like Intel, Dell, IBM, and Wal-Mart were business heroes of the 1990s, and Google and Netflix dominated the 2000s, but new heroes like Amazon and Facebook have emerged.4 Nothing guarantees the same companies will continue to dominate over the next decade. The only constant is change:
Customers will continue to change in needs, demographics, lifestyle, and consumption behavior.
Competitors will continue to change as new technologies emerge and market barriers shift.
Environments in which businesses operate will continue to change as economic, political, social, and technological factors evolve. The companies surviving and growing will be the ones that understand change or lead and create change.
Firms slower to comprehend change will follow with reactive strategies, while still others will disappear, unaware change is even occurring.
The Customer Compass
Businesses with a strong customer focus embedded in their strategy are forward looking and continuously improve as a result of their passion to satisfy customers. A customer-focused company has a “customer compass.” As shown in Figure 1.2, the customer compass sets its direction toward a well-defined target segment.5
Customer-focused businesses are in sync with customers’ needs, competitors’ strategies, changing environmental conditions, and emerging technologies. They seek ways to continuously improve their solutions, which satisfy target customers. The process enables them to move with—and often lead—change.
A strong customer focus leads to long-run survival.6 Western cultures are often criticized
for their short-term perspective. Businesses with short-term perspectives usually lack a strong customer focus and are less motivated to build long-term relationships. Their managers are often judged on last quarter’s results, not their efforts to ensure long-run survival, and their shareholders are primarily interested in immediate earnings.
Although a strong customer focus is critical for long-run business survival, the strategy also has short-run benefits. Businesses with a strong customer focus not only outperform their competition over the long term by consistently delivering higher customer satisfaction levels,
Figure 1.2: THE Customer Compass
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but they also realize higher profits in the short term.7 A customer-focused business creates greater customer value and manages customer loyalty as a means to deliver above-average firm profits and shareholder value. A strong customer focus also creates a measurement-based culture in which a business uses a variety of performance metrics to analyze external conditions related to marketing performance and profitability.
How to Underwhelm Customers and Shareholders
How is customer focus linked to shareholder value? Consider the sequence of events occurring when a business has little or no customer focus.
In Figure 1.3, a company without a customer compass or focus is unable to present a meaningful customer experience, which leads to low customer satisfaction. Low customer satisfaction leads to low levels of repurchase and customer retention, as customers are easily attracted to competitors. The dissatisfied customers are less likely to recommend the company’s products and, in some cases, tell others not to buy its products.8
Figure 1.3: UNDERWHELMING CUSTOMERS AND INVESTORS
This makes attracting new customers difficult. The combination of low customer retention and attraction requires the company to spend more on marketing and sales. An uninspiring customer experience and low customer satisfaction force the company to lower prices,9 reducing profit margins and gross profits. The combination of lower gross profits and higher marketing and sales expenses results in lower earnings and profits per share, which leads to a lower share price and less shareholder value.
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Customer Focus, Customer Satisfaction, and Profitability
Customer-focused businesses stay close to their customers to deliver high satisfaction levels and build loyalty. The businesses’ senior executives focus on meeting customer needs and achieving satisfaction. The strength of the businesses’ customer focus also depends on how well senior executives understand key competitors and evolving competitive forces.
The understanding allows the businesses to track their relative competitiveness in pricing, product performance, product availability, ongoing service and support, safety, customer satisfaction, and customer loyalty.11
The American Customer Satisfaction Index (ACSI) provides a customer satisfaction database from which managers can gain important insights.12 ACSI measures customer satisfaction for more than 200 companies in 43 industries. The database can be used to classify companies according to their customer satisfaction level. Figure 1.4 illustrates how stock price varies for companies with high and low customer satisfaction levels relative to the S&P Index.3
FIGURE 1.4: CUSTOMER SATISFACTION AND STOCK PRICE INDEX
For each company, a stock price index was created in year one, pegged to 100 based on the company’s end-of-year share price. The average stock price index for high customer satisfaction companies increased from 100 to over 300 in 10 years. For companies with low customer satisfaction, the index dipped below 100 during the decade. The S&P 500 stock price index for the same time period increased from 100 to about 200.14
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A business with a strong customer focus is well positioned to develop and implement strategies delivering high levels of customer satisfaction and loyalty. Customer satisfaction and loyalty drive customer profitability.
CUSTOMER SATISFACTION AND PROFITABILITY
Figure 1.5 shows high and low customer satisfaction performers in four industries, along with industry averages. The figure is based on an analysis of customer satisfaction among 6,003 respondents representing 637 publicly traded companies between 2017 and 2019.
FIGURE 1.5: CUSTOMER SATISFACTION INDEX
The chemicals industry shows the largest variance in customer satisfaction, with an average lower than the bottom performers for the specialty retail, telecom, and personal computers industries. The customer satisfaction index for AT&T, Apple, and Home Depot is much higher than the average chemical company’s index. For telecom, the top performer is AT&T. The personal computer and specialty retail sectors feature high satisfaction averages with relatively small differences between the top and bottom performers. The bottom performers in the sectors produce an index similar to the top performer in the chemicals industry.
Measuring Customer Satisfaction
Customer satisfaction is measured on a 5- or 7-point scale varying from a high level of customer dissatisfaction to a high level of customer satisfaction. A 7-point scale varying from Extremely Dissatisfied (1) to Extremely Satisfied (7) is shown next for a sample of 100 consumers rating a company’s product.
The 5.2 customer satisfaction score found in the sample data in Figure 1.6-A is an abstract number without context. But if the example company converts the score to a
0-100 scale, management has a better sense of what it means.
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FIGURE 1.6-A: Creating a customer satisfaction index
After conversion to a scale on which 0 is Extremely Dissatisfied, 50 is Neither
Satisfied nor Dissatisfied, and 100 is Extremely Satisfied, the 5.2 becomes a 70.
The 1-7 scale is useful for customers rating their satisfaction level, while the 0-100 converted scale is better for management understanding and planning. A competitor average of 4.5 would be 58 on a 0-100 scale, making it easy for managers to interpret a score of 70 as meaningfully higher.
A Wide-Angle View of Customer Satisfaction
A company may view a customer satisfaction index of 70, where 100 is the maximum, as acceptable or even very good. However, simply targeting an
average or high customer satisfaction index can mask the opportunities to increase profits and create shareholder value that a broad view of satisfaction
provides.
FIGURE 1.6-B: DE-AVERAGING CUSTOMER SATISFACTION
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If a firm expands its view of customer satisfaction to include the percentage of respondents falling in each scale category, more meaningful insights emerge. As shown in Figure 1.6-B, the sample customer satisfaction index of 70 was derived from 70% of customers reporting varying degrees of satisfaction, 15% reporting different degrees of dissatisfaction, and 15% reporting neither. The company’s score of 70 might be better than its competitors, but 30% of its customers are less-than-satisfied. Such customers are vulnerable to attraction by competitors offering better quality, lower prices, or better deals. Hence, executives may want to focus on less-than-satisfied customers, even as they celebrate their above average satisfaction scores.
Customer Satisfaction Analytic
Figure 1.7 provides a customer satisfaction analytic. A firm can use it to compute its customer satisfaction index for any 100-response distribution.
To better understand how different distributions of customer satisfaction ratings can produce different customer satisfaction indexes, let’s consider the average telecom score presented in Figure 1.5. As shown, the customer satisfaction index is 88 for AT&T, with the Telecomm industry average being 78.
Figure 1.7 takes a deeper look at the customer satisfaction index for AT&T (88). The overall score masks important insights into how different levels of customer satisfaction shape AT&T’s overall customer satisfaction index. While we do not have the actual numbers that created these overall measures, we created a distribution for AT&T that yielded the same overall customer satisfaction index.
For AT&T to attain an overall customer satisfaction index of 88 the company must have a higher number of Very Satisfied and Extremely Satisfied customers. As shown in Figure 1.7, 85% of customers were Extremely/Very Satisfied. A lower percentage of Extremely/Very Satisfied customers would have made it impossible to achieve an overall score of 88. The hypothetical data illustrates the high level of customer satisfaction a business needs to achieve to attain a customer satisfaction index of 88. Home Depot and Apple must have a similar level of performance to attain their customer satisfaction indexes of 87.
Using the Telecom average score of 78 presented in Figure 1.5, we carried out the same analysis. We started with what percentage of Extremely/Very Satisfied customers was required to produce an overall score of 78. As shown, we adjusted the value to 60% along with other percentages to obtain an overall customer satisfaction index of 78. This level of performance is a good representation of the customer satisfaction indexes for BASF (78), Dell (79) and Bed, Bath & Beyond (79) shown in Figure 1.5.
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FIGURE 1.7: CUSTOMER SATISFACTION ANALYTIC
CUSTOMER SATISFACTION AND CUSTOMER PROFITABILITY
De-averaging the customer satisfaction index provides a more insightful view of how a certain level of customer satisfaction is achieved. We can take this one step further to see how customer revenues and profits vary with changes in how customers rate their satisfaction with a company’s product.
In Figure 1.8, we use real company data to help understand how customer and company profits shift with changes in how customers rate their customer satisfaction. This is an MBM/APP where you can change any yellow input cells to observe changes in performance.
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FIGURE 1.8: CUSTOMER SATISFACTION PROFIT IMPACT ANALYTIC
| CUSTOMER SATISFACTION INDEX | 80.00 |
| CUSTOMER SATISFACTION | Extremely Dissatisfied | Very Dissatisfied | Somewhat Dissatisfied | Neither | Somewhat Satisfied | Very Satisfied | Extremely Satisfied | TOTAL AVERAGE |
|---|---|---|---|---|---|---|---|---|
| Scale | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |
| Percent | 100% | |||||||
| Number of Customers | 0 | 2 | 3 | 15 | 15 | 25 | 40 | 100 |
| Revenue by Customer | $4,255 | |||||||
| Percent Margin | 29.3% | |||||||
| Margin Per Customer | $250 | $250 | $250 | $300 | $625 | $1,500 | $1,800 | $1,246.25 |
| Customer Expense | $277.35 | |||||||
| Customer Profit | ($313) | ($280) | ($250) | ($90) | $150 | $1,300 | $1,620 | $968.90 |
| Revenue | $0 | $2,000 | $3,000 | $18,000 | $37,500 | $125,000 | $240,000 | $425,500 |
| Margin | $0 | $500 | $750 | $4,500 | $9,375 | $37,500 | $72,000 | $124,625 |
| Expense | $0 | $1,060 | $1,500 | $5,850 | $7,125 | $5,000 | $7,200 | $27,735 |
| Profit | $0 | ($560) | ($750) | ($1,350) | $2,250 | $32,500 | $64,800 | $96,890 |
Instruction: Click on any yellow input cells to experiment with how customer satisfaction impacts customer and company profits.
In this example, the average revenue per customer is $3,358, but as shown, these revenues vary from $1,000 to $6,000 across the seven categories of customer satisfaction. The same is true for margin and expenses, which in this example produces an average customer profit of $629.30. When totaled for 100 customers, the total profit is $62,930.
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The analysis shows a firm’s effort to reduce customer dissatisfaction and improve its satisfied customer percentage can raise overall satisfaction and profits. Just a 10-point customer satisfaction index increase from 70 to 80 would increase average profit per customer from $629.30 to $961.55, a 52% increase with the distribution of scores shown below. Using the analysis, managers can evaluate different customer satisfaction scenarios with respect to overall customer satisfaction and average profit per customer.
CUSTOMER SATISFACTION AND PERFORMANCE
Customer satisfaction has a positive association with financial and customer
outcomes, as shown in Figure 1.9. The impact factors shown are based on
satisfaction ratings from 6,003 customers representing 637 publicly traded
companies from 2017 to 2019. Each arrow shows the impact a 10-point customer satisfaction index increase has on various outcomes.
FIGURE 1.9: IMPACT OF IMPROVING CUSTOMER SATISFACTION INDEX
Financial Outcomes: Sales, Gross Margins, and Operating Income
A 10-point customer satisfaction index increase improves sales, gross margins,
and operating income. Average yearly sales for the 637 publicly traded
companies are $60 billion. A 10-point customer satisfaction index increase
yields a $3.4 billion sales increase.
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Home Depot had annual sales of $100.9 billion and net income of $8.63 billion in 2018, processing 1.62 billion customer transactions.15, 16 What is the potential financial impact of a 10-point customer satisfaction index increase for Home Depot? Using this model, the impact is increased sales of $3.55 billion and net income of $267 million.
Customer Outcomes: Customer Retention and Attraction
The sales and profit impact of customer satisfaction is possible largely because
of improved customer retention and attraction. Customer retention implies an individual is more likely to repurchase from a company and pay a higher price due to higher perceived value. Customer attraction implies a satisfied customer will recommend the company to friends and family and spread positive word-of-mouth through online and offline channels, enabling the company to attract new customers.
In 2018, Home Depot carried out 1.62 billion customer transactions, with an average transaction size of $62.30. What is the customer base impact of a 10-point satisfaction index increase? A 9.61% increase in customer retention. This implies Home Depot’s customer transactions are likely to grow to 1.78 billion, an increase of 156 million. Because customers are satisfied, they perceive value in Home Depot, and the company does not need to discount its products. The additional 156 million transactions are therefore worth at least $9.72 billion in additional sales. Some of the new transactions are the result of customer attraction—new customers flowing to Home Depot due to recommendations and positive word-of-mouth.
Industry Differences in Customer and Financial Outcomes
The relationship between customer satisfaction index and financial and
customer outcomes, though generally positive, varies across industries.17 In less competitive markets, customers are more easily retained, even with low customer satisfaction levels, because of fewer substitutes or higher switching costs. In markets where relatively few choices are available, such as water service, electricity service, and hospital care, even dissatisfied customers stay with their providers.
In highly competitive and fragmented markets, customers can easily switch
between providers. Therefore, it is important for firms to increase customer
satisfaction relative to their closest rivals to retain and attract new customers.18
The companies should not only focus on their own customer satisfaction index
scores, but also look at their competitors’ scores. Retaining and attracting new
customers should be approached through a customer-focus lens, i.e., building
a customer base whose needs closely match the company’s value drivers.
ESTIMATING CUSTOMER RETENTION
Banks, wholesale suppliers, and other businesses engaged in recorded
transactions can easily determine their customer retention rates. Many businesses, however, are removed from end-user customers and cannot
determine their retention rates using transaction records. The businesses must therefore use a customer survey, as outlined in Figure 1.10. The survey should first categorize customers based on their repurchase likelihood level. The next step is to determine repurchase probability at each level.
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In Figure 1.10, repurchase probability is 1.0 among the 54% of customers stating they are Extremely Likely to rebuy. Repurchase probability is 0.8 among the 19% of customers saying they are Very Likely to rebuy and declines further for other categories of repurchase likelihood.
The customer retention for each level of repurchase likelihood is the percent
in that category times the probability of rebuying. The sum across levels of repurchase likelihood provide an overall customer retention of 83% among the company’s current customers.
Recall from Figure 1.9 that repurchase likelihood is dependent on customer satisfaction. As customer satisfaction increases, so does repurchase likelihood and customer retention rate. Increasing customer satisfaction, therefore, is the key to increasing retention.
FIGURE 1.10: Estimating Customer Retention
How likely are you to purchase from this company in the next six months?
ESTIMATING CUSTOMER ATTRACTION
Many companies use customer relationship management software to understand the new customers they attract. However, linking customer attraction to customer satisfaction index is not as easy. To estimate customer attraction rates, businesses can use another customer survey, as outlined in Figure 1.11. The survey should first categorize customers based on recommendation likelihood levels. The next step is to determine the probability a new customer receiving a recommendation will buy at each level.
FIGURE 1.11: Estimating Customer ATTRACTION
How likely are you to recommend this company to a collegue or friend?
Among the example company’s current customers, 36% are Extremely Likely to recommend. Potential customers receiving a recommendation to buy have a 60% probability of purchase. Multiplying 36% times 60% provides a customer attraction rate of 22%. The total customer attraction rate for the company is 36%.
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Because attracting new customers often depends on current customer recommendations, the key to increasing attraction is enhancing customer
satisfaction.
Customer Satisfaction’s Financial Impact
Figure 1.12 demonstrates the sales and profit impact of an increase in customer retention and attraction. Figures 1.12-A and 1.12-B show two scenarios—70% and 80% customer retention. For both levels, the tables show the example firm’s average annual revenues, margins, and marketing and sales expenses per customer for retained, lost, and new customers.
Retained customers drive profits for the business. With a retention rate of 70%, retained customers account for 74.4% of sales and 80% of gross profits. They produce $24.5 million in net marketing contribution (gross profit minus marketing and sales expenses), while lost customers contribute $2.1 million. Because acquiring new customers is costly and new customers generally buy less, their net marketing contribution is -$9 million. After $10 million in fixed expenses are taken into account, a 70% customer retention level produces before-tax profits of $17.6 million.
By increasing customer retention, the business improves the quality of its
customer base. Retained customers buy more and yield higher gross profits.
They have higher perceived value relative to price paid, and their higher satisfaction level increases their repurchase likelihood.
In Figure 1.12-B, the business increases its marketing and sales expenses by 25% per retained customer, improving its overall retention rate to 80%. The company’s profit before taxes clearly increases.
FIGURE 1.12-A: CUSTOMER RETENTION AND ATTRACTION PROFIT IMPACT
The marketing cost of retaining customers is much lower than the cost of
replacing them. Because the business has fewer lost customers and needs fewer new customers, it improves profits from retained customers and reduces losses associated with acquisition.
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However, customer retention efforts are not free. In Figure 1.12-B, marketing
and sales expenses for retained customers increase from $7 million to $10 million. But the marketing and sales expenses devoted to lost customers and acquiring new customers drops from $16.5 million to $13 million, decreasing the firm’s overall marketing and sales budget from $23.5 million to $23 million.
FIGURE 1.12-B: CUSTOMER RETENTION AND ATTRACTION PROFIT IMPACT
Additional satisfied customers retained by a company almost always increase net profits. The costs associated with serving dissatisfied customers and acquiring new customers to replace them are reduced. As shown in Figure 1.9, a 10-point customer satisfaction index increase yields a 9.61% retention increase and 10.74% attraction increase. The increases in turn leads to jumps of 3.52% in sales, 3.4% in gross margins, 3.97% in operating income, and 3.09% in net income.
Customer Retention and Life Expectancy
The ultimate objective of any marketing strategy should be to attract, satisfy, and retain target customers. If a business can accomplish this objective with a competitive advantage in attractive markets, it will produce above average profits.
The customer is a critical component in the profitability equation but often
overlooked in financial analyses and annual reports. While businesses attracting, satisfying, and keeping customers over their purchasing lifetimes are in a powerful position to deliver superior profitability, many have yet to quantify them in their accounting systems. Businesses lacking a customer focus see customers as individual purchase transactions; market-based management businesses see high-quality customers as lifetime partners.
The New York Times tracks its customer retention rates and competitors’ rates
by length of subscription.19,20 Among mature subscribers—longer than 24
months—the Times has a retention rate of 94%. Its closest competitor has an
80% retention rate in the mature segment.
The higher the customer retention rate, the greater the profit impact.
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In the short run, firms see increased profits from retained customers, reduced
losses from defecting customers, and lower costs of attracting new customers.
But higher customer retention levels also have long-term positive impacts on
profits, as they lengthen average customer life and increase lifetime value.
FIGURE 1.13: NETFLIX—CUSTOMER RETENTION AND CUSTOMER LIFETIME
A business with a 50% customer retention rate has a 50/50 chance of retaining any single customer from one year to the next, yielding an average customer life of two years, shown as follows:
As shown in Figure 1.13, Netflix improves customer retention each year from 2002 to 2006.21 Over the five-year period, average customer life increases from 3.6 to 6.7 years. Another example, focused on wireless telecommunications companies with different retention rates, is shown in Figure 1.14.22 With a 78% retention rate in 2017, Sprint’s customer life is calculated at 4.5 years:
With a higher retention rate of 88%, Verizon has a customer life of 8.3 years. As customer retention increases, customer life expectancy increases exponentially. For example, Verizon’s retention rate of 88% in 2017 is 13% higher than Sprint’s rate of 78%. However, Verizon’s 8.3-year customer life expectancy is 84% higher than Sprint’s, at 4.5 years.
Companies can increase customer lifetime by improving retention. An increased customer lifetime also increases revenue over its duration. In 2018, the average telecom customer spent $1,188 per year,23 with Verizon customers having a lifetime value of $9,860. A similar approach can be applied to different sectors. A loyal Lexus customer buying a $75,000 car and replacing it every five years for 30 years could be worth more than $450,000 during the period. If Lexus loses the customer after the first purchase, it loses more than $375,000 in future sales. To replace the customer, Lexus would need to attract someone new, an expensive process.
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FIGURE 1.14: CALCULATING CUSTOMER LIFETIME FROM CUSTOMER RETENTION
CUSTOMER LIFETIME VALUE
Figure 1.15 illustrates the average profit per credit-card customer generated over a five-year period. Acquiring and setting up accounts nets an annual loss of $51 per new credit-card customer. Newly acquired customers are also slow to use their cards; they produce an average profit of $30 their first year, $42 their second year, and $44 their third year. By year five, the average profit obtained is $55. While the value of a credit card customer grows over time, if a company loses a customer after four years because of dissatisfaction, it incurs replacement costs.
The cost in the first year following customer exit is $106, including $55 in lost profits and $51 in costs associated with attracting a replacement. In the example, the average customer life is five years. Working backward, the example company can estimate 80% customer retention:
To estimate customer lifetime value at an 80% retention rate, the firm must compute the customer cash flow’s net present value, as shown in Figure 1.15. The $51 customer acquisition cost is removed, but because it takes one year to achieve the initial profit, the customer’s present value is less than $30. In the example, the business uses a discount rate of 10%, making the value of $1 after one year $0.909. Accordingly, $30 to be received one year later has a present value of $27.30. The discounting is performed for each year’s customer profits, and the values are totaled to provide net present value. After each year’s customer cash flow is discounted, the sum equals $91.17, the amount the customer is worth in current dollars. See Appendix 1.1 for more on discount rates.
Figure 1.15 is an MBM/App which allows you to visualize the relationship between customer life and customer retention. The example shown assumes a five-year customer life, which for the cash flow shown yields a lifetime value of $91.17.
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FIGURE 1.15: CUSTOMER LIFETIME VALUE
| Period | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
|---|---|---|---|---|---|---|---|
| Cash Flow | |||||||
| Present Value of $1 (*) | 1.000 | 0.870 | 0.756 | 0.658 | 0.572 | 0.497 | 0.432 |
| Present Value (Cash Flow) | ($51) | $26.10 | $31.75 | $28.95 | $28.03 | $27.34 | $0 |
| Net Present Value | $91.17 | ||||||
| Customer Life (Periods) | 4 | 5 | 6 | ||||
| Customer Retention | 75.0% | 80.0% | 83.3% | ||||
Instruction: Select a Customer Life of 4, 5 or 6 periods to see how customer lifetime value changes. You can also change any of the yellow input cells to see how customer lifetime value changes.
If the customer life was reduced to 4 years we can estimate from the data provided that the customer lifetime value would drop by $24.34 (year 5 value) to $53.83. This is a 30% reduction in customer lifetime value. Likewise a 3-year customer life would further reduce customer lifetime value to $35.80 and a 60.70% reduction in lifetime value with a 5-year customer life.
For the example presented in Figure 1.15, what would be the impact of extending the customer life to 6 years? Assume that the year-6 cash flow is $55, the same as year 5. What is the most the company would invest per customer to grow the customer life from 5 years to 6 years?
Using this MBM/APP you will discover that the lifetime value increases to $114.93 by adding one more year to customer life. This is a 26.1% increase and additional $23.76 in customer lifetime value. This amount also sets the upper limit on how much a business would want to spend in order to extend the customer life one more year in this example. If the company were to invest $5 per customer to further improve customer retention to 6 years, this would net the company a lifetime value of $109.93. This would be a worthwhile investment that would increase the overall profits of the company.
Consider two Amazon customers for a certain product that yield different profit levels, as shown in Figure 1.16 Amazon Customer A produces an average profit of $76 per year and has a 3.33-year customer life. The customer profit in year 4 ($25.31) is one-third of $76, since the customer exits after one-third of the year.
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FIGURE 1.16: CUSTOMER LIFETIME VALUE AND RETENTION
This is a 70% customer retention rate (1-1/N). The lifetime value of Amazon
Customer A using a 20% discount rate is $172.
Amazon Customer B is more profitable ($94 per year) and has an 80% customer
retention and 5 year life (1/(1-CR)). This customer is retained longer in part because they have a higher level of customer satisfaction. This contributes to a longer customer life and higher customer profit at $94 per year. The lifetime value of Amazon Customer B using a 20% discount rate is $281, 63% higher than Amazon Customer A. If Amazon has limited resources to invest in customer retention, Customer B would be the preferred choice to grow profits.
NET PROMOTER SCORE
The net promoter score (NPS) has been used by many companies as a single metric to capture customer loyalty.24 Figure 1.17 describes calculating NPS and its relationship with financial performance. To calculate NPS, companies ask customers to rate the likelihood they would recommend them. Respondents providing a rating of 0-6 are classified as detractors, 7-8 are passives, and 9-10 are promoters.
NPS is calculated as the difference between a company’s percentage of promoters and detractors. A sample calculation is shown in Figure 1.17 Panel B.
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Some analysts believe a high NPS signals a strong base of committed customers. Despite its widespread use, NPS has been shown ineffective for predicting sales growth, gross margin, operating cash flow, market share, and shareholder return.25 As summarized in Figure 1.17 Panel C, customer satisfaction predicts all five financial metrics. An investigation by The Wall Street Journal determined NPS was a “management fad” and found no company using NPS could produce evidence it led to financial benefits.26
FIGURE 1.17: NET PROMOTER SCORE
While NPS is a useful customer metric that gauges customer recommendation, it is not as powerful as customer satisfaction in its sales and profit impact.
For companies interested in a customer focus to increase retention and
profitability, the most important metric is customer satisfaction. Satisfaction
can be easily converted to an index score, which can be communicated to
stakeholders like employees and suppliers. Because the index is predictive of sales, margins, and operating income, its relevance and importance is clear to shareholders. Moreover, computing customer satisfaction indexes across competitors in industries allows thorough market analyses.
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HOME DEPOT: BENCHMARKING COMPANY PERFORMANCE
Home Depot had a customer satisfaction index of 87 in 2018, as shown in Figure 1.18. The company also had high customer retention (85%) and attraction (43%) rates that year (Figure 1.19). Home Depot’s customer satisfaction index of 87 corresponded to annual sales of $100.9 billion, net income of $8.63 billion, and customer transactions of 1.62 billion in 2018.27,28 Using the model in Figure 1.18, Home Depot can see a 10-point increase in its customer satisfaction index would correspond to a $3.55 billion increase in sales and $267 million increase in net income.
FIGURE 1.18: HOME DEPOT CUSTOMER SATISFACTION INDEX
What fuels the sales increase? The two critical drivers are customer retention and attraction. As shown in Figure 1.19, Home Depot retains 85% of its customer base, which lowers its marketing and customer service costs. The company achieves a 43% customer attraction rate through increased recommendations and positive-word of-mouth, which also grows sales and net income.
FIGURE 1.19: HOME DEPOT BENCHMARK PERFORMANCE
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Figure 1.19 shows that Home Depot can increase customer retention by 9.61% and customer attraction by 10.74% by increasing its customer satisfaction index 10 points. Customer-focused companies like Home Depot recognize and explicitly manage customer satisfaction, retention, and attraction as the primary drivers of sales and net income.
Customer retention is driven by higher repurchase likelihood (Figure 1.20),
and recommendation likelihood drives customer attraction (Figure 1.21).
FIGURE 1.20: HOME DEPOT CUSTOMER RETENTION
How likely are you to repurchase from Home Depot in the next six months?
Home Depot customers are loyal—94% are likely to repurchase—because of their high customer satisfaction index level. At the same time, 93% are likely to recommend the company to a colleague or friend.
How do increased customer satisfaction, retention, and attraction drive
financial performance for Home Depot? Retention is related to customer
lifetime and lifetime value. With an 85% retention rate, Home Depot has a customer life of 6.7 (CL = 1 / 1 – retention), which yields high customer
lifetime values.
FIGURE 1.21: HOME DEPOT CUSTOMER ATTRACTION
How likely are you to recommend Home Depot to someone in the next six months?
Home Depot has two important segments. Do-it-yourself (DIY) customers
spend $719 per year. Professional contractors and businesses (PRO) spend
$7,202 per year. With a net margin of 9%, DIY customers provide $64.71
in annual net income, while PRO customers provide $648.63.29 Using a
customer lifetime of 6.67 years, Home Depot can calculate the customer
lifetime value of each segment, as shown in Figure 1.22.30 The calculations in Figure 1.22 are based on the methodology shown in Figure 1.15.
A typical DIY Home Depot customer has a lifetime value of $233.25, which
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represents the net present value of cash flows over seven years. A typical PRO customer has a much higher lifetime value of $2,338.05.
For Home Depot, 50% of total sales come from PRO customers, which comprise 5% of the company’s customer base. Given the segment’s higher customer lifetime value, Home Depot focuses on strengthening its presence among PRO customers. For example, the company acquired Interline Brands in 2015.30 At the time, Interline was the leading supplier and wholesale distributor to maintenance, repair, and operations professionals.
FIGURE 1.22: HOME DEPOT CUSTOMER LIFETIME VALUE
HOME DEPOT: BENCHMARKING COMPANY PERFORMANCE
As shown in Figure 1.23, customer leadership, attention to the customer’s voice, and customer satisfaction management are the driving forces of a business with a strong customer focus. Each key force is associated with behaviors and practices contributing to a customer focus and customer satisfaction. Leadership, organizational training, a customer measurement mentality, and some level of investment are required to reach full acceptance of the key forces across an organization. The extent to which a business lives by these behaviors and practices determines its performance and the profit benefits a strong customer focus offers.
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FIGURE 1.23: CUSTOMER FOCUS, PERFORMANCE, AND PROFITABILITY
Building Customer Focus
Although customer focus starts at the top, all managers and employees must be engaged in the process and realize they have jobs because customers buy their products. If customers stop buying, jobs start disappearing. Senior management leadership, employee customer training, and customer involvement are essential components of building customer focus.
Senior Management Leadership—Senior management sets the tone for a company’s customer focus. If senior managers are not fully committed, it is unlikely the rest of the organization will adopt a strong customer focus. Lower-level managers and employees have an internal compass sensing what is important, but senior management must send clear and credible signals.
Consider the following quote from Southwest Airlines Investor Relations.31 According to Gary Kelly, Chairman of the Board and Chief Executive Officer: “We’ve hung our hat on customer satisfaction for 47 years, and we’re world-famous for the hospitality we offer our customers every year. Being recognized as both low-cost and high care by J.D. Power further validates why Southwest stands above the competition. Thank you to our employees who make Southwest a champion for our customers every day.” Southwest Airlines cultivates a culture around its customer focus. All managers and employees understand their paychecks come from the customers they serve.
They know if they serve their customers better, the customers are more likely to share their positive experiences and continuously come back to Southwest.
Employee Customer Training—Employees, especially new employees, need some level of customer training. Starbucks, for example, spends its first four hours with new employees explaining their role in creating a positive customer experience. Waste Management has all its new employees, even VPs, ride in a waste removal truck for one day to see customers and learn how the company serves them. A business can take many actions to train and reward employees with respect to customer focus; however, if the business does no customer training, employees are unlikely to make extra efforts to create positive experiences. Companies ensuring employees understand their customers’ needs and sources of satisfaction build the strongest customer focus.32
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Customer Feedback—Customer feedback, good and bad, must be shared across a customer-focused organization. Feedback allows employees to learn how their job affects customers, how customers use their products, and what frustrations and problems arise. For example, FedEx tracks 10 areas of service failure and reports performance to managers and employees every day. Companies like Worthington Steel host customer field trips so employees can see how their products are used. Many companies use focus groups and experience videos to communicate the frustrations customers might encounter using their products. Consumers often see things uniquely, as stated by Anderson and colleagues: “Only 8% of customers describe their experience as superior, yet 80% of companies believe the experience they provide is indeed superior.”33
No report or management presentation can replace the customer’s words. Without the voice of the customer, companies may believe they are creating a superior experience, when in fact they are not.
Customer Experience, Solutions, and Complaints
Customers express both satisfaction and frustration in words only they can voice. To build a customer-focused organization, businesses must capture the customer’s voice and share it to help management and employees understand what customers are thinking and saying about their products and services. The companies can capture and communicate the customer’s voice in several ways.34
Customer Experience—The best way to understand the customer experience is to see it. Intuit, maker of QuickBooks and other software, has a “Follow the Customer Home” program to observe how clients install and use its products. The observations and customer comments help Intuit improve its products and enhance customer experiences. For high-tech and business-to-business customers, similar “a day in the life of a customer” programs examine how products are acquired, used, maintained, and replaced, highlighting the total customer experience.
Customer Solutions—Companies often become overly focused on building and selling products they believe their customers want, while customers seek different solutions for their situations.
For example, 3M observes and talks with its lead users, as they try to implement the company’s products in ways beyond their design intentions. Understanding lead users’ adaptations helps 3M develop its next-generation products.35 Apple has set up online chat rooms for customers to discuss features they would like to see in products; their suggestions have led to innovations in the iPod, iPhone, and iPad.
Customer Complaints—Most businesses view complaints as negative feedback and prefer not to hear them. What’s more, they make the resolution process overly difficult for customers. A customer-focused business views negative feedback as an opportunity to understand sources of customer dissatisfaction and address them. Domino’s Pizza listened to customers who said its product tasted like cardboard and improved. In one year, Domino’s increased revenues by 18.4% and profits by 3.2%.36 Social media platforms afford numerous mechanisms for companies to solicit candid customer feedback for ongoing product and process improvement.
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Loyalty Programs and Dissatisfaction
A company’s first priority in managing customer satisfaction must be
to understand its Extremely/Very Satisfied customers and develop a relationship with them. The second priority is managing dissatisfied customers.
Loyalty Programs—Creating rewards programs for Extremely/Very Satisfied customers has three potential benefits. One, it builds stronger relationships with them. Two, it enhances retention, which can extend customer life and lifetime value. Three, it provides the opportunity to sell more and different products to loyal customers, raising revenues and profits per customer. Loyal customers typically have long histories with companies, buy more than the average customer, and are more likely to recommend the companies’ products. Loyal customers usually account for a large percentage of overall profits.
Managing Customer Dissatisfaction—Dissatisfied customers buy fewer products than satisfied customers and often favor low-margin or promotional products. In Figure 1.8, after the example company subtracts marketing costs from customer gross profits, the firm finds it loses money on dissatisfied customers. Despite the small role dissatisfied customers play in profitability, market-based management businesses give them nearly as much attention as satisfied customers. When a dissatisfied customer leaves, businesses suffer several consequences lowering their profits. Most significantly, it costs more to attract new customers than retain current customers.
Studies have shown a small percentage of dissatisfied customers complain.37 In Figure 1.24, of the 16,000 dissatisfied customers who do not complain, 12,800 (80%) take their business elsewhere. Exiting customers erode market position, and because they each tell an average of eight to 10 people about their dissatisfaction, they make it more difficult to attract new customers.
Managing Customer Dissatisfaction—Figure 1.24 illustrates the importance of focusing on dissatisfied customers who do not complain. This sample business has 100,000 customers, 80% satisfied and 20% dissatisfied. The business retains 78,800 customers, as shown in Figure 1.24.
To maintain a customer base of 100,000, the business needs to attract 21,200 new customers, which is expensive.
The business retains 90% of satisfied customers (72,000) and 90% of the dissatisfied customers who complain (3,600). However, of the 16,000 dissatisfied customers that do not complain, only 3,200 customers are retained, a 20% retention rate. The 80% dissatisfied customers who do not complain present an opportunity to learn why these customers are dissatisfied and address sources of dissatifaction to improve on customer satisfaction and retention.
The strategic implication is to drive more dissatisfied customers to complain,
raising customer retention and lowering the number of new customers needed each year to maintain a customer base of 100,000. For example, increasing the percentage of dissatisfied customers who complain from 20% to 50% would allow this business to increase its customer retention from 78.8% to 83%.
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FIGURE 1.24: MANAGING CUSTOMER DISSATISFACTION
SUMMARY
Customer-focused businesses deliver high levels of value to their customers and shareholders by staying close to their customers and satisfying them to build loyalty. This is done through a culture of customer focus among em-ployees, executives, and suppliers. This sets up a virtuous cycle of increased customer attraction and retention, along with lowered marketing and sales expenses. The increased sales and margins come not from cost cutting, but carefully investing in those strategic areas of a company that drive customer value. Customer value ultimately drives shareholder value.
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References:
We have added links to many references for direct and easy access. While we have tested each link, there are a few instances where the websites are no longer accessible. We will continue to monitor the accessibility of citation references and remove any links no longer active.
- Anderson, Eugene W., Claes Fornell, and Donald R. Lehmann (1994), “Customer satisfaction, market share, and profitability: Findings from Sweden,” Journal of Marketing, 58(3), 53-66.
- Anderson, Eugene W. (1998), “Customer satisfaction and word of mouth,” Journal of Service Research, 1(1), 5-17.
- Morris, Seren (2019), “Sears and Kmart Closing List: How Many Stores are Left?” Newsweek, 10/15/2019. https://www.newsweek.com/sears-kmart-stores-closing-2019-2020-1465364 Last accessed on 7/7/2020.
- Bursztynsky, Jessica (2020), “Amazon will grow 25% every year ‘like clockwork’ Chamath Palihapitiya says,” CNBC, 2/26/2020. https://www.cnbc.com/2020/02/26/amazon-will-grow-25percent-every-year-like-clockwork—palihapitiya.html Last accessed on 7/7/2020.
- Morgan, Neil A., Eugene W. Anderson, and Vikas Mittal (2005), “Understanding firms’ customer satisfaction information usage,” Journal of Marketing, 69(3), 131-151.
- Saboo, Alok R., Anindita Chakravarty, and Rajdeep Grewal (2016), “Organizational debut on the public stage: Marketing myopia and initial public offerings,” Marketing Science, 35(4), 656-675.
- Anderson, Eugene W., Claes Fornell, and Sanal K. Mazvancheryl (2004), “Customer satisfaction and Shareholder Value,” Journal of Marketing, 68(4), 172-185.
- Mittal, Vikas, and Carly Frennea (2010), “Customer satisfaction: a strategic review and guidelines for managers,” MSI Fast Forward Series, Marketing Science Institute, Cambridge, MA.
- Anderson, Eugene W. (1996), “Customer satisfaction and price tolerance,” Marketing Letters, 7(3), 265-274.
- Chernova, Yuilya (2011), “Loan was Solyndra’s undoing,” Wall Street Journal, 9/16/2011. https://www.wsj.com/articles/SB10001424053111904491704576572872256772948 Last accessed on 7/7/2020.
- Mittal, Vikas, and Shrihari Sridhar (2020), “Customer based execution and strategy: Enhancing the relevance & utilization of B2B scholarship in the C-suite,” Industrial Marketing Management, 88, 396-409.
- Fornell, Claes, Forrest V. Morgeson III, and G. Tomas M. Hult (2016), “Stock returns on customer satisfaction do beat the market: gauging the effect of a marketing intangible,” Journal of Marketing, 80(5), 92-107.
- Aksoy, Lerzan, Bruce Cooil, Christopher Groening, Timothy L. Keiningham, and Atakan Yalçın (2008), “The long-term stock market valuation of customer satisfaction,” Journal of Marketing, 72(4), 105-122.
- Dow Jones 100 Year Historical Chart. https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart Last accessed on 7/9/2020.
- Home Depot annual report abstracted from finance.yahoo.com. https://finance.yahoo.com/quote/HD/financials/ Last accessed on 7/9/2020.
- https://www.statista.com/statistics/318849/number-of-customer-transactions-at-the-home-depot-and-lowe-s-worldwide. Last accessed on 7/9/2020
- Anderson, Eugene W. (1994), “Cross-category variation in customer satisfaction and retention,” Marketing Letters, 5(1), 19-30.
- Rego, Lopo L., Neil A. Morgan, and Claes Fornell (2013), “Reexamining the market share–customer satisfaction relationship,” Journal of Marketing, 77(5), 1-20.
- Reichheld, Frederick F., and Phil Schefter (2000), “E-loyalty: your secret weapon on the web,” Harvard Business Review, 78(4), 105-113.
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- Moses, Luca (2017), “To get 10 million subscribers, The New York Times is focusing on churn,” Digiday, October 26, 2017. https://digiday.com/media/get-10m-subscribers-new-york-times-focusing-churn/ Last accessed on 3/12/2020.
- Wiesel, Thorsten, Bernd Skiera, and Julian Villanueva (2008), “Customer equity: an integral part of financial reporting,” Journal of Marketing, 72(2), 1-14.
- Data obtained from Statista. Source: https://www.statista.com/statistics/283511/average-monthly-churn-rate-top-wireless-carriers-us/ Last accessed on 3/13/2020.
- Data obtained from Bureau of Labor Statistics. Source: https://www.cnbc.com/2019/10/25/you-can-save-up-to-268-a-year-by-switching-your-cell-phone-plan.html Last accessed on 3/13/2020.
- Reichheld, Frederick F. (2003), “The one number you need to grow,” Harvard Business Review, 81(12), 46-55.
- The following research papers are relevant for NPS: a. Morgan, Neil A., and Lopo Leotte Rego (2006), “The value of different customer satisfaction and loyalty metrics in predicting business performance,” Marketing Science, 25(5), 426-439. b. Keiningham, Timothy L., Bruce Cooil, Tor Wallin Andreassen, and Lerzan Aksoy (2007), “A longitudinal examination of net promoter and firm revenue growth,” Journal of Marketing, 71(3), 39-51. c. Mittal, Vikas (2018), “Which customer metric best predicts financial performance,” Marketing News, January, 20-21.
- Safdar, Khadeeja and Inti Pacheco (2019), “The dubious management fad sweeping corporate America, The Wall Street Journal, May 15, 2019. https://www.wsj.com/articles/the-dubious-management-fad-sweeping-corporate-america-11557932084 Last accessed 7/14/2020.
- Home Depot 2018 annual report (2018), https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/2019_Proxy_Updates/HDAnnualReport2018.pdf, Last accessed 7/9/2020.
- https://www.statista.com/statistics/318849/number-of-customer-transactions-at-the-home-depot-and-lowe-s-worldwide. Last accessed on 7/9/2020.
- Cochrane, Matthew (2018), “Home Depot is leaving it to the pros,” The Motley Fool, August 24, 2018. https://www.fool.com/investing/2018/08/24/home-depot-is-leaving-it-to-the-pros.aspx Last accessed 3/17,2020.
- Based on data from 27-29 above, and using the methodology shown in Figure 1.15.
- Southwestern Airlines, Investor Relations, June 15, 2018. https://www.southwestairlinesinvestorrelations.com/news-and-events/news-releases/2018/06-15-2018-155031252 Last accessed 2/12/2022.
- Morgan, Neil A., Eugene W. Anderson, and Vikas Mittal (2005), “Understanding firms’ customer satisfaction information usage,” Journal of Marketing, 69(3), 131-151.
- Anderson, Eugene W., Claes Fornell, and Sanal K. Mazvancheryl (2004), “Customer satisfaction and shareholder value,” Journal of Marketing, 68(4), 172-185.
- Mittal, Vikas, and Carly Frennea (2010), “Customer satisfaction: a strategic review and guidelines for managers,” MSI Fast Forward Series, Marketing Science Institute, Cambridge, MA.
- Von Hippel, Eric, Stefan Thomke, and Mary Sonnack (1999), “Creating breakthroughs at 3M,” Harvard Business Review, 77(September-October), 47-57.Journal for Healthcare Quality, 27(6), 6-44.
- Than, Cynthia (2017), “Domino’s Admitted Their Pizza Tastes Like Cardboard And Won Back Our Trust” Inc., Magazine. https://www.inc.com/cynthia-than/dominos-admitted-their-pizza-tastes-like-cardboard-and-won-back-our-trust.html, Last accessed 7/9/2020.
- Yilmaz, Cengiz, Kaan Varnali, and Berna Tari Kasnakoglu (2016), “How do firms benefit from customer complaints?” Journal of Business Research, 69(2), 944-955.