Understanding and Managing Customers

Understanding

andManaging Customers

Edited by: Isobel Doole • Peter Lancaster • Robin Lowe

Want to understand and practice a number of elements essential to gaining a competitive

advantage through better customer management skills? Then Understanding and Managing

Customers is the book for you.

Designed for first year undergraduate students on

both business studies and marketing degrees,

Understanding and Managing Customers is also

useful to HND students, those studying for the

Chartered Institute of Marketing certificate, and

practitioners in the early stages of their careers. This

book provides a thorough understanding of the

process and pitfalls of understanding and managing

customers.

Isobel Doole, Peter Lancaster, Robin Lowe, Mark Godson, Debbie Hill, Colin

Gilligan, Jeanette Baker, Chris Dawson, Andy Cropper, Rod Radford, and Simon

Kelly are academics at Sheffield Hallam University. Between them, they have a

wealth of research, consultancy and industrial experience in a wide variety of

market sectors.

“The practical and theoretical discussions in

Understanding and Managing Customers are really

interesting. Topics are current and easy to read thus

making theoretical contributions more understandable.

Overall, an engaging read.”

Mari-Ann Karlsson, Lecturer, Örebro University, Sweden

“Understanding and managing customers effectively is crucial for business success. This book is essential

reading for undergraduates and business managers alike.”

Rita Carmouche, University of Huddersfield

“Understanding and Managing Customers should be a

compulsory read for both students and practitioners in

the field. The book's accessible style and wide range of

relevant cases and examples will also be of interest to

those studying marketing more generally.”

Colin Mattey, Director Commercial Brands, BT

Clearly written and divided

into three main parts:

The book is packed with:

• Identifying the customer

• Understanding the customer

• Influencing the customer

For additional learning resources visit:

www.booksites.net/doole

Understanding and Managing Customers

Understanding

andManaging

Customers

Edited by:

Isobel Doole • Peter Lancaster • Robin Lowe

www.pearson-books.com

“IBM prides itself on developing business through customer understanding. This book provides the

foundation for students and people in business.”

Kevin Condron, Head of Public Sector Marketing, IBM UK

• Strong pedagogy with

learning outcomes

• Introductions

• Illustrative materials,

Spotlights and Dilemmas

• Mini-cases

• Case studies

• Review questions for

self-assessment and revision

• Selective further readings

Understanding and Managing Customers

We work with leading authors to develop the

strongest educational materials in business,

finance and marketing, bringing cutting-edge

thinking and best learning practice to a

global market.

Under a range of well-known imprints, including

Financial Times Prentice Hall, we craft high quality

print and electronic publications which help readers

to understand and apply their content, whether

studying or at work.

To find out more about the complete range of our

publishing please visit us on the World Wide Web at:

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Understanding and

Managing Customers

Edited by

Isobel Doole

Peter Lancaster

Robin Lowe

Pearson Education Limited

Edinburgh Gate

Harlow

Essex CM20 2JE

United Kingdom

and Associated Companies throughout the world

Visit us on the World Wide Web at:

www.pearsoned.co.uk

First published 2005

© Pearson Education Limited 2005

The rights of Isobel Doole, Peter Lancaster and Robin Lowe to be identified

as the authors of this work have been asserted by them in accordance with the

Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored

in a retrieval system, or transmitted in any form or by any means, electronic,

mechanical, photocopying, recording or otherwise, without either the prior

written permission of the publisher or a licence permitting restricted copying

in the United Kingdom issued by the Copyright Licensing Agency Ltd,

90 Tottenham Court Road, London W1T 4LP.

All trademarks used herein are the property of their respective owners. The

use of any trademark in this text does not vest in the author or publisher any

ownership rights in such trademarks, nor does the use of such trademarks imply

any affiliation with or endorsement of this book by such owners.

ISBN 0 273 68562 7

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

Understanding and managing customers / edited by Isobel Doole, Peter Lancaster, Robin Lowe.

p. cm.

Includes bibliographical references and index.

ISBN 0-273-68562-7 (alk. paper)

1. Customer services. I. Doole, Isobel. II. Lancaster, Peter, 1952- III. Lowe, Robin,

1945-

HF5415.5.U46 2004

658.8’12--dc22

2004056329

10 987654321

09 08 07 06 05

Typeset in 10/12.5 pt Palatino by 30

Printed and bound by Asford Colour Press, Gosport

The publisher’s policy is to use paper manufactured from sustainable forests.

Case studies xi

Figures xii

Tables xiv

The contributors xv

Preface xvii

Acknowledgements xx

Structure of the book xxii

1 Customers, quality and exchange 3

Robin Lowe

Learning outcomes 3

Key words 3

Introduction 4

1.1 The challenge of providing customer satisfaction 4

1.2 Organisations and customer satisfaction 5

1.3 The concept of exchange 9

1.4 The concept of quality and value 13

1.5 Quality 16

1.6 The different customer situations 17

1.7 Influencing the customer 19

Summary 21

Discussion questions 21

Case study 1.1: Customer–supplier exchange at university 22

Further reading 23

Website 23

Part One Identifying the customer

Contents

2 Who is the customer? 24

Isobel Doole

Learning outcomes 24

Key words 24

Introduction 25

2.1 Are customers different from consumers? 25

2.2 Are customers buying goods different from those

buying services? 26

2.3 Are customers different from clients? 26

2.4 Different types of customer 27

2.5 The individual/family customer 28

2.6 How do customers make their purchasing decisions? 31

2.7 Are there different types of purchasing decision? 36

2.8 Typologies of individual customers 37

2.9 Buying roles 38

2.10 The organisational customer 39

2.11 The business-to-business customer 40

2.12 The government as a customer 43

2.13 Not-for-profit customers 45

2.14 Internal customers 45

Summary 46

Discussion questions 46

Case study 2.1: Stadium Ltd 47

Further reading 48

References 48

3 The marketing environment 49

Jeanette Baker

Learning outcomes 49

Key words 49

Introduction 50

3.1 The marketing environment 51

3.2 Environmental scanning 52

3.3 Analysing the environment 53

Summary 70

Discussion questions 71

Case study 3.1: The Day Chocolate Company 72

Further reading 75

References 75

4 Building information on the customer 76

Debbie Hill

Learning outcomes 76

Key words 76

Introduction 77

vi Contents

4.1 Why do organisations need information? 77

4.2 Information sources 86

4.3 The process of information collection 93

Summary 103

Discussion questions 104

Case study 4.1: Males boost use of cosmetics in Europe 104

Further reading 106

References 106

5 Why organisations need to understand

customer behaviour 109

Peter Lancaster

Learning outcomes 109

Key words 109

Introduction 110

5.1 The scope and importance of customer behaviour

to business organisations 110

5.2 How customers make buying decisions 112

5.3 Motivation 117

5.4 Learning 120

5.5 Attitudes 126

Summary 131

Discussion questions 132

Case study 5.1: Tokai Guitars 132

Further reading 136

References 136

6 How customers are segmented and organised 137

Chris Dawson

Learning outcomes 137

Key words 137

Introduction 138

6.1 Principles and process of market segmentation 138

6.2 What is market segmentation? 139

6.3 Advantages and disadvantages of market segmentation 140

6.4 The necessary requirements for viable segmentation 142

6.5 Recognising the criteria used to identify consumer and

industrial market segments 145

6.6 Profile segmentation 145

6.7 Psychographic segmentation 148

Contents vii

Part Two Understanding the customer

6.8 Behavioural segmentation 150

6.9 Critical events segmentation 153

6.10 Hybrid segmentation 153

6.11 Segmenting industrial markets 155

6.12 Customer segmentation in the business-to-business area 158

Summary 159

Discussion questions 159

Case study 6.1: Levi’s leaps into the mass market 160

Further reading 161

References 161

7 What the customer is looking for 163

Mark Godson

Learning outcomes 163

Key words 163

Introduction 164

7.1 Meeting customer demands 164

7.2 Products and services for industrial customers 167

7.3 The difference between products and services 169

7.4 The different levels of a product 172

7.5 Branding 175

7.6 New product development and innovation 180

Summary 185

Discussion questions 185

Case study 7.1: Driving the past 186

Further reading 187

8 Customers’ perceptions of quality 188

Robin Lowe

Learning outcomes 188

Key words 188

Introduction 189

8.1 What quality means to customers 189

8.2 Service quality and the total customer experience 197

8.3 Quality issues for customers in business-to-business sectors 205

8.4 Customers expect quality companies to behave ethically 207

Summary 209

Discussion questions 210

Case study 8.1: New-style quality is just a fiddle 210

Further reading 211

Website 211

References 211

viii Contents

9 Organising internally to serve external customers 215

Andy Cropper

Learning outcomes 215

Key words 215

Introduction 216

9.1 So what do we mean by the ‘customer’? 218

9.2 Customer and supplier interaction 220

9.3 Adopting a service culture 226

9.4 Building and managing the service culture 232

9.5 Managing the external customer relationship 237

Summary 241

Discussion questions 241

Case study 9.1: Who lost the sale? 241

Case study 9.2: Outside, looking in – a customer experience 243

Further reading 244

10 Customer-led communications 245

Rod Radford

Learning outcomes 245

Key words 245

Introduction 246

10.1 Customer communication 246

10.2 Influencing external and internal customers 253

10.3 How communications influence customers 261

Summary 269

Discussion questions 269

Case study 10.1: Metro 270

Further reading 271

References 272

11 Developing and managing customer relationships 273

Simon Kelly

Learning outcomes 273

Key words 273

Introduction 274

11.1 Why are customer relationships important? 274

11.2 What is value? 275

11.3 The case for customer relationships 276

11.4 What is relationship marketing? 279

11.5 What is customer relationship management? 280

Part Three Influencing the customer

Contents ix

11.6 Principles of relationship marketing 281

11.7 Types of customer relationship 286

11.8 Properties of effective relationships 291

11.9 Planning effective relationships 297

Summary 301

Discussion questions 301

Case study 11.1: Text R for relationships? 302

Further reading 303

References 303

12 The emergence of the ‘new consumer’:

coming to terms with the future 305

Colin Gilligan

Learning outcomes 305

Key words 305

Introduction 306

12.1 The changing marketing environment

(or the emergence of a new marketing reality) 306

12.2 The rise of the new consumer 308

12.3 The changing social, cultural and demographic environments 310

12.4 The rise of the new consumer and the implications for

marketing planning 318

12.5 The new consumer and the growth of relationship marketing 322

Summary 325

Discussion questions 326

Case study 12.1: The new consumer and the rise of the Internet – new

rules for the new world 326

Further reading 329

References 329

Index 331

x Contents

Companion Website resources

Visit the Companion Website at www.booksites.net/doole

For lecturers

• Complete, downloadable Instructor’s Manual

• PowerPoint slides that can be downloaded and used as OHTs

Case studies

Chapters Case study outline

Part One Identifying the customer

1 Customer–supplier exchange at university

Criteria for satisfaction

2 Stadium Ltd

Customer client relationships

3 The Day Chocolate Company

Environmental and competition analysis

4 Males boost use of cosmetics in Europe

Improving popularity of skin care products in the EU

Part Two Understanding the customer

5 Tokai Guitars

Explores how a Japanese guitar manufacturer can obtain customer belief

and favourable attitudes

6 Levi’s leaps into the mass market

Segmentation by outlet and price

7 Driving the past

Product relevancy to customers

8 New-style quality is just a fiddle

Techniques to achieve customer satisfaction

Part Three Influencing the customer

9 Who lost the sale?

Outside, looking in – a customer experience

Problems with suppliers

10 Metro

Has a tired medium still got legs?

11 Text R for relationships?

Relationship marketing in the mobile phone industry

12 The new consumer and the rise of the Internet – new rules for the new world

Satisfying the new customer with new technology

Figure 1.1 The exchange process 9

Figure 1.2 Customer expectation and satisfaction 11

Figure 1.3 The exchange process and the environment 12

Figure 2.1 The decision-making process 31

Figure 3.1 Chapter overview 50

Figure 3.2 The changing environmental dynamics 51

Figure 3.3 The marketing environment 53

Figure 4.1 Customer information system 83

Figure 4.2 CIS revisted 92

Figure 4.3 Information collection process 93

Figure 4.4 Primary information 96

Figure 4.5 Market share of cosmetics and toiletries (%), 1998 105

Figure 5.1 A simplified model of customer decision making 111

Figure 5.2 The customer decision-making process 113

Figure 5.3 Types of customer decision-making process 115

Figure 5.4 The motivation process 117

Figure 5.5 A hierarchy of needs 119

Figure 5.6 Schools of learning 122

Figure 5.7 Pavlov’s experiment 123

Figure 5.8 Skinner’s experiment 123

Figure 5.9 The traditional tricomponent model of attitudes 127

Figure 5.10 The contemporary view of attitude components 128

Figure 5.11 The interaction of attitudes and behaviour 130

Figure 6.1 Selected methods for segmenting business markets 155

Figure 7.1 The different levels of a product 173

Figure 7.2 The four stages of product adoption 184

Figure 7.3 The demand curve of a product 184

Figure 9.1 Elements of the business chains 217

Figure 9.2 Stylised company structure 219

Figure 9.3 Company functional relationships 219

Figure 9.4 The many levels of contact 221

Figure 9.5 The organisation as a process and functions 227

Figure 9.6 The elements of customer relationship 230

Figures

Figure 10.1 Extended mix communications 247

Figure 10.2 Communications model 248

Figure 10.3 Levels of communication 249

Figure 10.4 Commercial communications process 250

Figure 10.5 Communications ladder 257

Figure 10.6 Brand repositioning map 258

Figure 10.7 Map of internal stakeholder awareness 260

Figure 10.8 Consumer decision-making model 263

Figure 11.1 The shift from mass marketing to one-to-one marketing 275

Figure 11.2 The transition to relationship marketing 277

Figure 11.3 The consequences of a 5% reduction in customer

losses in different fields 277

Figure 11.4 The development of value categories in the course of a

customer relationship 278

Figure 11.5 Relationship marketing and CRM – a hierarchy 280

Figure 11.6 Loyalty snakes and ladders 281

Figure 11.7 The five steps of permission marketing 284

Figure 11.8 B2B decision making 287

Figure 11.9 Planning for effective relationships – the five

building blocks 297

Figure 12.1 The shift from the old to the new consumer 319

Figures xiii

Table 1.1 Some examples of what can be exchanged 9

Table 2.1 Customers versus clients 27

Table 2.2 The UK consumer 29

Table 2.3 How UK consumers spend their money 29

Table 4.1 Sources of secondary data 88

Table 5.1 Consumer decision processes for high- and

low-involvement purchase decisions 116

Table 6.1 Market segmentation type and selected variables

for consumer markets 145

Table 6.2 Lifestyle dimensions 148

Table 6.3 ACORN User Guide 154

Table 7.1 The world’s biggest brands, 2002 176

Table 8.1 B2B purchasing responsibilities 206

Table 10.1 Properties of commercial communication tools 254

Table 10.2 Commercial medium attributes 266

Table 12.1 The changing marketing environment and the

emergence of a new marketing reality 307

Table 12.2 The emergence of the new consumer 308

Table 12.3 European consumers: the changing PEST environment 316

Table 12.4 The three nations society 317

Tables