However, in each case, these companies have had to restructure (reengineer) their organizations to address changing customer needs and emerging competitive forces. In the long run, every business is at risk for survival. Although companies such as Dell Computer, Microsoft, and Wal-Mart were business heroes of the nineties, there is no guarantee that these same companies will continue to dominate over the next decade. The only thing that is constant is change.
• Customers will continue to change in needs, demographics, lifestyle, and consumption behavior.
• Competitors will change as new technologies emerge and barriers to foreign competition shift.
• The environment in which businesses operate will continue to change as economic, political, social, and technological forces shift.
The companies that survive and grow will be the ones that understand change and are out in front leading, often creating, change. Others, slow to comprehend change, will follow with reactive strategies, while still others will disappear, not knowing that change has even occurred.
Long Run and Short Run Benefits
Businesses that are able to skate to where the puck is going have a strong (external) market orientation. They are constantly in tune with customers need, competitors strategies, changing environmental conditional, and emerging technologies, and they seek ways to continuously improve the solution they bring to target customers. This process enables them to move with-and often lead-change.
One of the benefits of a strong market orientation is long-run survival. Western cultures have long been criticized for being extremely short-term in perspective. Consequently, long-run survival of a business may not be a strong management motive in developing a strong market orientation. Managers are often judged on the last quarter’s results and not on what they are doing to ensure the long-run survival of the business. Likewise, shareholders can be more interested in immediate earnings than in the long-run survival of a business.
Although the long-run benefits of a strong market orientation are crucial to business survival and the economic health of a nation, the purpose of this chapter is to demonstrate the short-run benefits of a strong market orientation. Businesses with a strong market orientation not only outperform their competition in delivering higher levels of customer satisfaction, they also deliver higher profits in the short run. Businesses driven by a strong market orientation create greater customer value and, ultimately, greater shareholder value. But perhaps the best way to understand the marketing logic that links market orientation to customer and shareholder value is to examine the sequence of events that evolves when a business has little or no market orientation.
How to Under whelm Customers and Shareholders
Businesses with a weak market orientation under whelm both customers and shareholders. A business with a weak market orientation has only a superficial or poor understanding of customer needs and competition. Moving clockwise from the top in Figure 1.1, this poor understanding translates into an unfocused competitive position and a me too customer value. Customers are easily attracted to competitors who offer equal or greater customer value, which leads to high levels of customer turnover and market share instability. Efforts to hold off customer switching are expensive, as is the cost of acquiring new customers to replace lost customers.
The combination of market share instability and higher marketing costs results in sporadic business profits. In response, short-term sales tactics and accounting maneuvers are used to achieve short-run financial results. However, investors and Wall Street analysts are able to see through this facade, and shareholder value generally stagnates. Perhaps even worse, as shown in the scenario described in figure 1.1, management is now under even greater pressure to produce short-run results. This means that there is not the time, the inclination, or the motivation to understand customer needs and to unravel competitors strategies, and the circular performance displayed in figure 1.1 continues.
Market Orientation and Customer Satisfaction
Contrary to the scenario presented in figure 1.1, a market oriented business has there management characteristics that make it unique:
• Customer focus: an obsession with understanding customer needs and delivering customer satisfaction.
• Competitor orientation: continuous recognition of competitors sources of advantage, competitive position, and marketing strategies.
• Team approach: cross-functional teams dedicated to developing and delivering customer solutions.
A strong customer focus enables a business to stay in close contact with customer needs and satisfaction. Marketing strategies in these businesses are built around customer needs and other sources of customer satisfaction. The strength of a businesses market orientation also relies on how well it understands key competitors and evolving competitive forces. This aspect to market orientation enable a business to track its relative competitiveness in such areas as pricing, product quality and availability, service quality, and customer satisfaction. Business with a strong market orientation also work well as a team across function, thereby leveraging cross-functional skills and business activities that affect customer response and satisfaction.
The real benefit of a strong market orientation and higher levels of customer satisfaction is a higher level of customer retention. Keeping good customers should be the first priority of market-based management. As shown in figure 1,2, a business with a strong market orientation is in the best position to develop and implement strategies that deliver high levels of customer satisfaction and retention. In turn, customer satisfaction and retention drive customer revenue and the cost of doing business. Ultimately, they are key forces in shaping the profitability of a business.
Customer Satisfaction: A Key Market Performance Metric
While a market-based business will have several external metrics to track market performance, an essential performance metric is customer satisfaction. There are many marketing strategies that can be developed to attract customers, but it is the business that completely satisfies customers that gets to keep them. This viewpoint may sound philanthropic to those who do not accept the whole concept of market orientation and market-based management, but we will demonstrate in this chapter the tremendous leverage a business can create in growing profits from a base of very satisfied customers and proactive management of dissatisfied customers.
There are many ways to measure customer satisfaction. However, one common measure of customer satisfaction can be derived from customers ratings of their overall satisfaction on a seven-point scale that ranges from 0 (very dissatisfied) to 6 (very satisfied), as shown below.
When this method of measuring customer satisfaction is applied to a sample of customers, we can compute an overall measure of customer satisfaction. Assume, for example, that an interview with 100 Xerox copier customers produced an average score of 4.32. An overall average of 4.32 does not tell us much and is not likely to get management's attention. To increase the sensitivity of this measure, we need to index it in a more meaningful way. By dividing the average score by the maximum score of six (very satisfied) and multiplying by 100, we can create an index that varies from 0 to 100. When this index is used, the overall average of 4.32 translates to a score of 72, where 100 would be the maximum. Management can quickly discern that the business has achieved a 72 level of customer satisfaction, whereas a 100 would be equivalent to 100 percent very satisfied customers.
Is an overall customer satisfaction score of 72 a good level of performance? That depends on what the business's overall score was in earlier measurements, its target objective, and the overall score given to a leading competitor. Let's assume that an overall score of 72 is an improvement over earlier average scores and that the average score of a leading competitor is 62. Those numbers would lead many businesses to feel pretty good about their level of performance and perhaps become complacent in their pursuit of customer satisfaction. Also, efforts to increase customer satisfaction cost time and money, and many managers may argue that the incremental benefit is not sufficient to justify the cost. That argument would not apply at Xerox, where customer satisfaction is a top corporate performance metric and priority.4 To really understand customer satisfaction and to leverage its profit potential, we need to expand our view of customer sat¬isfaction.
A Wide-Angle View of Customer Satisfaction
An average customer satisfaction score of 72 (where 100 is the maximum) may be viewed as acceptable, and even very good. However, managing to the average masks our understanding of customer satisfaction and opportunities for increased profits.
If we expand our view of customer satisfaction by reporting the percentage for each category on our customer satisfaction scale, a more meaningful set of insights emerges. The average customer satisfaction score of 72 was derived from 74 percent who reported varying degrees of satisfaction, 10 percent who were indifferent or neutral, and 16 percent who reported varying degrees of dissatisfaction, as illustrated in Figure 1.3. The 10 percent who were neutral in their customer satisfaction are certainly vulnerable to competitor moves, but it is the 16 percent categorized as dissatisfied who are very serious candidates to exit as customers. Thus, our immediate concern should be our dissatisfied customers.
Customer Dissatisfaction and Customer Exit
Dissatisfied customers often do not complain to a manufacturer, but they do walk and they do talk.6 Well documented studies show that out of 100 dissatisfied customers, only four will complain to a business.7 Of the 96 dissatisfied customers who do not complain, 91 will exit as customers, as shown in Figure 1.4. While market position is quietly eroded by exiting customers, attracting new customers is made more difficult because each dissatisfied customer will tell eight to 10 other people of his or her dissatisfaction.
The market impact is enormous, For example, assume that a business has captured 10 percent of a 2 million customer market, or 200,000 customers. If 15 percent of those 200,000 customers were dissatisfied, this business would have 30,000 dissatisfied customers. The statistics presented in Figure 1.4 would indicate that the business would lose 92 percent of those dissatisfied customers 27,600 customers each year. This percentage translates to a 1.4 point reduction in market share. To hold a 10 percent share of the market (customers), the business would have to attract 27,600 new customers. This, of course, is a very expensive way to hold market share.
But the situation is much worse.8 Many dissatisfied customers become "terrorists"; they vent their dissatisfaction by telling others about it. Recall that each dissatisfied customer tells eight to 10 other people. This means that the 30,000 dissatisfied customers will communicate their dissatisfaction to approximately a quarter of a million other individuals. These may not all be potential customers, but this level of negative word of mouth communication makes new customer attraction much more difficult and more expensive.9
This kind of market behavior has led some businesses to develop programs to encourage dissatisfied customers to complain. For example, Domino's Pizza instituted a program in which their strategy was simply to encourage dissatisfied customers to complain rather than just leave.10 Figure 1.5 illustrates that their efforts succeeded in getting 20 percent of their dissatisfied customers to complain. For those who complain, Domino's can resolve 80 percent of the problems in 24 hours. When complaints can be resolved quickly, 95 percent of those customers can be retained. When complaints cannot be resolved within 24 hours, the customer retention rate falls to 46 percent.
Not surprisingly, if customers do not complain, the odds of retention drop below 40 percent. Thus, while it may seem odd at first, one of the jobs of market based management is not only to track customer satisfaction but also to encourage dissatisfied customers to complain. Only with the specific details of a customer complaint and the source of dissatisfaction can a business take corrective action.
Companies such as AT&T proactively address potential customer dissatisfaction by encouraging customer complaints through full page ads with toll free telephone numbers. Their proactive marketing efforts have two important effects. First, their proactive services address problems as they occur, greatly reducing potential customer dissatisfaction and exit. Second, communicating their proactive services reinforces customer satisfaction by communicating the importance of their efforts to provide maximum customer satisfaction.
Customer Satisfaction and Profitability
Customer satisfaction is an excellent market based performance metric and barometer of future revenues and profits, as stated below.
Customer satisfaction is a forward looking indicator of business success that measures how well customers will respond to the company in the future. Other measures of market performance, such as sales and market share, are backward looking measures of success. They tell how well the firm has done in the past, not how well it will do in the future.
Thus, customer satisfaction is a good leading indicator of future operating performance. A business may have produced excellent financial results while underwhelming and disappointing a growing number of its customers. Because customers cannot always immediately switch to alternative solutions, customer dissatisfaction often precedes customer exit and reductions in sales and profitability. Thus, for many businesses, quarterly measures of customer satisfaction provide an excellent leading indicator of future performance. If customer satisfaction is on the decline, an early warning signal is given, providing the opportunity to correct a problem before real damage is done. Of course, if a business does not track customer satisfaction, it forgoes the opportunity to correct problems before declines in sales and profits result.
For example, a dissatisfied FedEx customer can move quickly to an alternative provider of overnight mail. That fact has led FedEx to develop a service quality index for every transaction in order to spot problems as they occur and to avoid the potential loss of customers. In the Iona run, it is more profitable to keep existing customers than to continually have to work to attract and develop new customers to replace exiting ones. FedEx has demonstrated that gains in customer satisfaction, driven by improvements in service quality, provide gains in revenue and lower cost.
Profit Impact of Customer Dissatisfaction
MBNA America is a Delaware based credit card company chat, in the early 1990s, became frustrated with customer dissatisfaction and defection. All 300 employees were brought together in an effort to understand and develop methods of delivering greater levels of customer satisfaction with the intent of keeping each and every customer. At the time, MBNA America had a 90 percent customer retention rate. After several years of dedicating themselves to improved customer satisfaction and retention, they raised customer retention to 95 percent. That may seem like a small difference, but the impact on their profits was a sixteen fold increase, and their industry ranking went from 38th to 4th. 11 Thus, their marketing efforts to satisfy and retain customers paid off in higher levels of profitability.
As demonstrated, most dissatisfied customers do not complain; they just walk away. To hold market share in a mature market, a business must replace those lost customers. Let's examine a business that is in a mature market with 200,000 customers and has a 75 percent rare of customer retention. Each year this business loses 50,000 customers and, to hold a customer base of 200,000, must replace those customers with 50,000 new customers. However, before we look at the profit impact of this level of customer satisfaction and retention, let's look at how this business got to a level of 75 percent customer retention. A closer look at customer satisfaction, complaint behavior, and customer retention enables us to build the Customer Retention Tree in Figure 1.6. As shown, the business is operating at a 70 percent level of customer satisfaction. Of the 30 percent who are dissatisfied, 24.9 percent are lost. Furthermore, the majority of dissatisfied customers who are lost do not complain to the business about the source of their dissatisfaction.
The customer profitability profile shown in Figure 1.7 reflects the information presented in Figure 1.6. It shows the average annual revenue, margin, and marketing expense per customer for retained customers, lost customers, and new customers. As shown, retained customers are the profit driver of this business, producing 80 percent of the sales revenue and 89 percent of the total contribution.
Lost customers are generally dissatisfied or neutral customers. Because they are not with the business for the whole year or are in the process of reducing their purchases from the business, the annual revenue per customer is much lower. However, retaining dissatisfied customers is also expensive because they require the business to expend extra resources in an attempt to keep them. These extra efforts often mean extra work for the sales force, price concessions, adjustments to inventory or terms of sale, and more customer service. The net result of losing dissatisfied customers in this example is a negative net marketing contribution of $2.5 million per year. The net marketing contribution shown in figure 1.7 is the revenue received from customers less variable costs of producing those revenues less direct marketing expenses needed to serve this level of customer volume. This concept will be discussed in detail in chapter 2.
New customers are also less profitable. Advertising and sales promotion dollars have to be spent to generate sales leads and produce trial purchases. This raises the marketing expenses associated with attracting, qualifying, and serving new customers. New customers also generally buy less because they are in the evaluation stage and have not yet fully committed themselves to the business or its products. This lowers both the annual revenue and margin produced by each new customer. The net result in this example' that the business actually loses $10 million in net marketing contribution each year in its efforts to replace lost customers.
Profit Impact of Customer Retention
For the business situation presented in Figure 1.7, overall sales revenues of $150 million produce a net profit of $8.5 million, a 5.67 percent return on sales. But what would be the profit impact of improved customer satisfaction? Let's assume that $1 million was dedicated to reducing the number of dissatisfied customers so that 80 percent of the business's customers could be retained each year. The marketing logic and profit impact of this strategy can be summarized as follows:
If the business can retain 80 percent of its customers each year instead of 75 percent, the business will reduce the cost associated with customer dissatisfaction and exit and will riot have to spend as much on marketing efforts to attract new customers. Also, because retained customers produce a higher annual revenue and margin per customer than do lost or new customers, the total profits of the business should increase.
This effort would produce only a slight increase in sales revenues, as shown in Figure 1.8. However, there would be a tremendous improvement in marketing efficiency and profitability. Because retained customers are more profitable than new customers, the overall total contribution derived from retained customers would increase from $60 million to $64 million. The overall marketing expenses would go up because of the $1 million that was added to the business's marketing budget to achieve an 80 percent customer retention. The net result would be a $3 million improvement in net marketing contribution derived from retained customers.
More important, the net loss of managing dissatisfied customers who exit and the net loss associated with attracting new customers would be reduced by a total of $2.5 million in this example. The cumulative impact of increased customer satisfaction and retention is an increase of net profits from $8.5 to S14 million. This incremental gain in net profits is derived from a larger number of retained customers, the reduced cost of serving dissatisfied customers, and reduced expenses associated with acquiring new customers to maintain the same customer base. This is a 64 percent increase in net profits with essentially no change in market share or sales revenue.
One can readily see the enormous potential for increased profits and cash flow that centers around customer satisfaction and retention. For each additional customer that is retained, net profits increase. Inefficient costs associated with serving dissatisfied customers and the cost of acquiring new customers to replace them are reduced. Thus, there is tremendous financial leverage in satisfying and retaining customers.
Customer Satisfaction and Customer Retention
The relationship between customer satisfaction and customer retention is intuitively easy to discern. However, different competitive conditions modify this relationship.15 For example, in less competitive markets, customers are more easily retained even with poor levels of customer satisfaction because there are few substitutes or switching costs are high. In markets where there are relatively few choices, such as phone service, water companies, or hospitals, customers may stay even when dissatisfied. In these types of markets, where choice is limited or switching costs are very high, higher levels of customer retention are achievable at relatively lower levels of customer satisfaction.
However, in highly competitive markets with many choices and low customer switching costs, even relatively high levels of customer satisfaction may not insure against customer defection. Grocery store, restaurant, and bank customers can switch quickly if not completely satisfied. While the time between purchase events is longer, personal computer, automobile, and consumer electronics customers can also easily move to another brand if not completely satisfied. In these markets, customer retention is much more difficult. And, as a result, it takes higher levels of customer satisfaction to retain customers from one purchase to the next.
Customer Retention and Customer Life Expectancy
Customer satisfaction and retention are important linkages to a market based strategy and profitability. The ultimate objective of any given marketing strategy should be to attract, satisfy, and retain target customers. If a business car, accomplish this objective with a competitive advantage in attractive markets, the business will produce above¬-average profits.
The customer is a critical component in the profitability equation but is completely overlooked in any financial analysis or annual reports. Customers are a marketing asset, that business have yet to quantify in their accounting systems. Yet, the business that can attract, satisfy, and keep customers over their lifetime of purchases is in a powerful position to deliver superior levels of profitability. Businesses that lack a market orientation look at customers as individual purchase transaction. A market-based business looks at customers as lifetime partners.
The higher the rate of customer retention, the greater the profit impact for a given business. In the short run, we showed this to be true on the basis of increased profits from retained customers, reduced losses from lost customers, and a lower cost of attracting new customers in order to maintain a certain customer base. However, there is also a longer-term profit impact of higher levels of customer retention because a higher rate of retention lengthens the life of a customer relationship.
A business that has a 50 percent rate of customer retention has a fifty-fifty chance of retaining a customer from one year to the next. This fact translates into an average customer life of two years, as shown in figure 1.9. The average life expectancy of a customer is equal to one divided by one minus the rate of customer retention. Therefore, as customer retention increases, the customer’s life expectancy increases. But, more important. Customer life expectancy increases exponentially with customer retention, as illustrated in figure 1.9.
The Lifetime Value of a Customer
The Cadillac division of General Motors estimates that a Cadillac customer will spend approximately $350,000 over a lifetime on automotive purchases and maintenance. If Cadillac loses that customer early in this customer life cycle, it forgoes hundreds of thousands of dollars in future cash flow. And, to replace that lost customer, Cadillac has to attract and develop a new customer, which is an expensive process. Thus, the cost of marketing efforts to ensure customer satisfaction is small in comparison with both the current and future benefits of customer purchases, as well as the cost of replacing customers if they become dissatisfied and leave. In general, it costs five times more to replace a customer than it costs to keep a customer.
Figure 1.10 illustrates the average profit per credit card customer generated over a five year period. Acquiring and setting up accounts for new credit card customers nets an annual loss of $51 per customer. Newly acquired credit card customers are also slow to use their new cards; they produce an average profit of $30 the first year, $42 the second year, and $44 the third year. By year 5, the average profit obtained from a credit card customer is $55. Thus, the lifetime value of a credit card customer continues to grow. Of course, if a credit card company loses a customer after year 4 because of customer dissatisfaction, the process of replacing him or her is expensive. This cost in the first year following customer exit is $106 ($55 in lost profit from the exiting customer and the S51 loss associated with attracting a new customer to replace that customer).
In this example, the average customer life is five years. Working backward, we can estimate the customer retention to be 80 percent, as shown below.
To estimate the lifetime value of a customer at this rate of customer retention, we need to compute the net present value of the customer cash flow shown in Figure 1. 10. The initial $51 that it cost to acquire this customer is gone immediately. However, it takes a year to achieve the first year's revenue of $30. The present value of S30 received a year in the future is less than $30 received immediately. In this example, the business has a discount rate of 10 percent. Therefore, the present value of $1 received after one year is $0.909 (the race at which $1 is discounted for one year at 10 percent). Thus, $30 to be received one year later is $27.27 ($30 x 0.909). This discounting is performed for each year's receipts, and the values are totaled to arrive at the net present value of this cash flow. When each year's cash flow is properly discounted, the net present value of the sum of these cash flows is equal to $111.70. This is what this customer is worth in today’s dollars.
If customer life expectancy were only three years, the customer value (net present value) would be considerably smaller. Thus the higher the rate of customer retention the longer the average customer life expectancy and the greater the customer value
Customer Abandonment and Customer Retention
AT&T identified 1.7 million customers as "spinners."18 These are customers that switch carriers at least three times per year while looking for the best deal. Needless to say, this type of customer drives down retention and is one a business would like to avoid. One of the Baby Bell companies estimates that 3 percent of its customers are "movers and shakers." These customers sign up, use the company services, don’t pay their bills, and move on. In this instance, there is only a negative cash flow, which hurts overall profitability.
Customer selection is an important aspect of managing to a higher level of customer retention and profitability. 19 Customer dissatisfaction is not the only cause of poor customer retention. Identifying customers who do not pay their bills, are too costly to serve, Or tend to be "switchers" is an important part of managing customer retention.
Building A Market Orientation
Businesses with a strong market orientation are in the best position to develop responsive marketing strategies that deliver high levels of customer satisfaction and retention. But how does a business build a strong market orientation? Why do some businesses have a strong market orientation and others cannot seem to develop one? There are three fundamental forces that drive the degree to which a business has a market orientation:
• Marketing Knowledge: The degree to which managers and employees have been educated and trained in the area of marketing directly affects the market orientation of a business.
• Marketing Leadership: The market orientation of a business starts at the top. If the senior management and key marketing managers of a business do not have a strong market orientation, it is difficult for a business to establish any level of marketing excellence.
• Employee Satisfaction: If employees are unhappy in their jobs and uninformed as to how they affect customers, the business's market orientation will never achieve even minimal effectiveness regardless of senior management speeches and market based statements of mission and philosophy.
Market Orientation and Marketing Knowledge
A manager's marketing orientation is directly linked to a manager's marketing knowledge, as displayed in Figure 1. 11. This graphic was built from a database of 8,000 managers in over 150 Fortune 500 businesses.21 As shown, the higher one's level of marketing knowledge, the stronger that individual's market orientation. Further analysis of these 8,000 managers also found that marketing knowledge and market orientation could be directly linked to formal marketing education, participation in marketing training pro¬grams, and marketing experience.
While formal marketing education and training are absolutely essential for persons in marketing and higher level positions of leadership, market orientation is also fundamental to every employee of the organization. For example, Disney spends four days training personnel who clean their theme parks.22 They train what they call the "popcorn people" to be information guides because they are the first to be asked where something is located. These "popcorn people' are also trained to treat customers as guests and to consider themselves on stage. Naturally, the individual marketing orientation of these employees plays a key role in creating a Disney company market orientation that delivers high levels of customer satisfaction.
Market Orientation and Marketing Leadership
A marketing orientation audit of a mid sized hi tech company involved assessing marketing attitudes and practices at several layers of the business's management hierarchy. The following comments were given in response to the question "How often do you see customers?"
• Company CEO: I really don’t have too much time for that. I have many financial issues, administrative tasks, and many meetings. So I leave it to my vice president of marketing.
• Vice President of Marketing: Well, I have a rather considerable staff and many responsibilities with regard to marketing plans and day to day decisions regarding our sales force and advertising. So I really don't have the time. But we have a very highly trained sales force, and they talking to customers all the time.
• Sales Force: Sure, we are in continuous contact with our customers and we bring back new ideas all the time. But nobody in management has the time to listen.
Obviously, this business lacks marketing leadership at the top. To build a strong market orientation, all levels of management, and senior management in particular, need to have a strong customer focus. Market orientation and marketing leadership start at the top.
For example, IBM's top 470 executives are personally responsible for more than 1,300 customer accounts.23 In addition, IBM gives frontline employees the authority, without prior management approval, to spend up to $5,000 per complaint to solve problems for a customer on the spot. Nordstrom has created a market based culture in which every customer interaction is an opportunity to build customer satisfaction.24 This initiative is led from the top and permeates all levels of the Nordstrom management hierarchy. Starbucks senior management believes that the first four hours of new employee training are the most important in shaping an employee's market orientation. To the degree that management fails to communicate its customer orientation during this training, it will have failed to shape Starbucks' market orientation.
Every marketing decision implicitly or explicitly sends a message to employees relative to management's commitment to a market orientation. The actions and words of senior and middle management set the tone of a business's market orientation. Their market orientation and leadership are essential in building a market based business culture. A~ top management decision to unjustifiably raise customer prices in order to meet short ~ term profit objectives sends a clear signal of the business's lack of commitment to a market orientation. Thus, consistent market based leadership is a requirement for building a market oriented business culture.
Market Orientation and Employee Satisfaction
Think about calling a business with a complaint and interacting with a person who hates his or her job and the company he or she works for. What kind of reception do you think you will get? Employee satisfaction is a key factor in delivering customer satisfaction.25 As shown in Figure 1.12, employee satisfaction affects customer service, which in turn influences customer satisfaction and retention. And, as we have already shown, higher levels of customer satisfaction contribute to higher levels of customer retention and profitability.
Sears found that in all of its many stores, there was a high correlation between customer satisfaction, employee satisfaction, and store profitability.26 NCR found that, among 12 manufacturing operations, higher levels of employee job satisfaction corresponded with higher levels of customer satisfaction. 2 , Thus, building a strong market orientation requires a healthy business environment in which employees enjoy their jobs and working for the organization.
• Customers will continue to change in needs, demographics, lifestyle, and consumption behavior.
• Competitors will change as new technologies emerge and barriers to foreign competition shift.
• The environment in which businesses operate will continue to change as economic, political, social, and technological forces shift.
The companies that survive and grow will be the ones that understand change and are out in front leading, often creating, change. Others, slow to comprehend change, will follow with reactive strategies, while still others will disappear, not knowing that change has even occurred.
Long Run and Short Run Benefits
Businesses that are able to skate to where the puck is going have a strong (external) market orientation. They are constantly in tune with customers need, competitors strategies, changing environmental conditional, and emerging technologies, and they seek ways to continuously improve the solution they bring to target customers. This process enables them to move with-and often lead-change.
One of the benefits of a strong market orientation is long-run survival. Western cultures have long been criticized for being extremely short-term in perspective. Consequently, long-run survival of a business may not be a strong management motive in developing a strong market orientation. Managers are often judged on the last quarter’s results and not on what they are doing to ensure the long-run survival of the business. Likewise, shareholders can be more interested in immediate earnings than in the long-run survival of a business.
Although the long-run benefits of a strong market orientation are crucial to business survival and the economic health of a nation, the purpose of this chapter is to demonstrate the short-run benefits of a strong market orientation. Businesses with a strong market orientation not only outperform their competition in delivering higher levels of customer satisfaction, they also deliver higher profits in the short run. Businesses driven by a strong market orientation create greater customer value and, ultimately, greater shareholder value. But perhaps the best way to understand the marketing logic that links market orientation to customer and shareholder value is to examine the sequence of events that evolves when a business has little or no market orientation.
How to Under whelm Customers and Shareholders
Businesses with a weak market orientation under whelm both customers and shareholders. A business with a weak market orientation has only a superficial or poor understanding of customer needs and competition. Moving clockwise from the top in Figure 1.1, this poor understanding translates into an unfocused competitive position and a me too customer value. Customers are easily attracted to competitors who offer equal or greater customer value, which leads to high levels of customer turnover and market share instability. Efforts to hold off customer switching are expensive, as is the cost of acquiring new customers to replace lost customers.
The combination of market share instability and higher marketing costs results in sporadic business profits. In response, short-term sales tactics and accounting maneuvers are used to achieve short-run financial results. However, investors and Wall Street analysts are able to see through this facade, and shareholder value generally stagnates. Perhaps even worse, as shown in the scenario described in figure 1.1, management is now under even greater pressure to produce short-run results. This means that there is not the time, the inclination, or the motivation to understand customer needs and to unravel competitors strategies, and the circular performance displayed in figure 1.1 continues.
Market Orientation and Customer Satisfaction
Contrary to the scenario presented in figure 1.1, a market oriented business has there management characteristics that make it unique:
• Customer focus: an obsession with understanding customer needs and delivering customer satisfaction.
• Competitor orientation: continuous recognition of competitors sources of advantage, competitive position, and marketing strategies.
• Team approach: cross-functional teams dedicated to developing and delivering customer solutions.
A strong customer focus enables a business to stay in close contact with customer needs and satisfaction. Marketing strategies in these businesses are built around customer needs and other sources of customer satisfaction. The strength of a businesses market orientation also relies on how well it understands key competitors and evolving competitive forces. This aspect to market orientation enable a business to track its relative competitiveness in such areas as pricing, product quality and availability, service quality, and customer satisfaction. Business with a strong market orientation also work well as a team across function, thereby leveraging cross-functional skills and business activities that affect customer response and satisfaction.
The real benefit of a strong market orientation and higher levels of customer satisfaction is a higher level of customer retention. Keeping good customers should be the first priority of market-based management. As shown in figure 1,2, a business with a strong market orientation is in the best position to develop and implement strategies that deliver high levels of customer satisfaction and retention. In turn, customer satisfaction and retention drive customer revenue and the cost of doing business. Ultimately, they are key forces in shaping the profitability of a business.
Customer Satisfaction: A Key Market Performance Metric
While a market-based business will have several external metrics to track market performance, an essential performance metric is customer satisfaction. There are many marketing strategies that can be developed to attract customers, but it is the business that completely satisfies customers that gets to keep them. This viewpoint may sound philanthropic to those who do not accept the whole concept of market orientation and market-based management, but we will demonstrate in this chapter the tremendous leverage a business can create in growing profits from a base of very satisfied customers and proactive management of dissatisfied customers.
There are many ways to measure customer satisfaction. However, one common measure of customer satisfaction can be derived from customers ratings of their overall satisfaction on a seven-point scale that ranges from 0 (very dissatisfied) to 6 (very satisfied), as shown below.
When this method of measuring customer satisfaction is applied to a sample of customers, we can compute an overall measure of customer satisfaction. Assume, for example, that an interview with 100 Xerox copier customers produced an average score of 4.32. An overall average of 4.32 does not tell us much and is not likely to get management's attention. To increase the sensitivity of this measure, we need to index it in a more meaningful way. By dividing the average score by the maximum score of six (very satisfied) and multiplying by 100, we can create an index that varies from 0 to 100. When this index is used, the overall average of 4.32 translates to a score of 72, where 100 would be the maximum. Management can quickly discern that the business has achieved a 72 level of customer satisfaction, whereas a 100 would be equivalent to 100 percent very satisfied customers.
Is an overall customer satisfaction score of 72 a good level of performance? That depends on what the business's overall score was in earlier measurements, its target objective, and the overall score given to a leading competitor. Let's assume that an overall score of 72 is an improvement over earlier average scores and that the average score of a leading competitor is 62. Those numbers would lead many businesses to feel pretty good about their level of performance and perhaps become complacent in their pursuit of customer satisfaction. Also, efforts to increase customer satisfaction cost time and money, and many managers may argue that the incremental benefit is not sufficient to justify the cost. That argument would not apply at Xerox, where customer satisfaction is a top corporate performance metric and priority.4 To really understand customer satisfaction and to leverage its profit potential, we need to expand our view of customer sat¬isfaction.
A Wide-Angle View of Customer Satisfaction
An average customer satisfaction score of 72 (where 100 is the maximum) may be viewed as acceptable, and even very good. However, managing to the average masks our understanding of customer satisfaction and opportunities for increased profits.
If we expand our view of customer satisfaction by reporting the percentage for each category on our customer satisfaction scale, a more meaningful set of insights emerges. The average customer satisfaction score of 72 was derived from 74 percent who reported varying degrees of satisfaction, 10 percent who were indifferent or neutral, and 16 percent who reported varying degrees of dissatisfaction, as illustrated in Figure 1.3. The 10 percent who were neutral in their customer satisfaction are certainly vulnerable to competitor moves, but it is the 16 percent categorized as dissatisfied who are very serious candidates to exit as customers. Thus, our immediate concern should be our dissatisfied customers.
Customer Dissatisfaction and Customer Exit
Dissatisfied customers often do not complain to a manufacturer, but they do walk and they do talk.6 Well documented studies show that out of 100 dissatisfied customers, only four will complain to a business.7 Of the 96 dissatisfied customers who do not complain, 91 will exit as customers, as shown in Figure 1.4. While market position is quietly eroded by exiting customers, attracting new customers is made more difficult because each dissatisfied customer will tell eight to 10 other people of his or her dissatisfaction.
The market impact is enormous, For example, assume that a business has captured 10 percent of a 2 million customer market, or 200,000 customers. If 15 percent of those 200,000 customers were dissatisfied, this business would have 30,000 dissatisfied customers. The statistics presented in Figure 1.4 would indicate that the business would lose 92 percent of those dissatisfied customers 27,600 customers each year. This percentage translates to a 1.4 point reduction in market share. To hold a 10 percent share of the market (customers), the business would have to attract 27,600 new customers. This, of course, is a very expensive way to hold market share.
But the situation is much worse.8 Many dissatisfied customers become "terrorists"; they vent their dissatisfaction by telling others about it. Recall that each dissatisfied customer tells eight to 10 other people. This means that the 30,000 dissatisfied customers will communicate their dissatisfaction to approximately a quarter of a million other individuals. These may not all be potential customers, but this level of negative word of mouth communication makes new customer attraction much more difficult and more expensive.9
This kind of market behavior has led some businesses to develop programs to encourage dissatisfied customers to complain. For example, Domino's Pizza instituted a program in which their strategy was simply to encourage dissatisfied customers to complain rather than just leave.10 Figure 1.5 illustrates that their efforts succeeded in getting 20 percent of their dissatisfied customers to complain. For those who complain, Domino's can resolve 80 percent of the problems in 24 hours. When complaints can be resolved quickly, 95 percent of those customers can be retained. When complaints cannot be resolved within 24 hours, the customer retention rate falls to 46 percent.
Not surprisingly, if customers do not complain, the odds of retention drop below 40 percent. Thus, while it may seem odd at first, one of the jobs of market based management is not only to track customer satisfaction but also to encourage dissatisfied customers to complain. Only with the specific details of a customer complaint and the source of dissatisfaction can a business take corrective action.
Companies such as AT&T proactively address potential customer dissatisfaction by encouraging customer complaints through full page ads with toll free telephone numbers. Their proactive marketing efforts have two important effects. First, their proactive services address problems as they occur, greatly reducing potential customer dissatisfaction and exit. Second, communicating their proactive services reinforces customer satisfaction by communicating the importance of their efforts to provide maximum customer satisfaction.
Customer Satisfaction and Profitability
Customer satisfaction is an excellent market based performance metric and barometer of future revenues and profits, as stated below.
Customer satisfaction is a forward looking indicator of business success that measures how well customers will respond to the company in the future. Other measures of market performance, such as sales and market share, are backward looking measures of success. They tell how well the firm has done in the past, not how well it will do in the future.
Thus, customer satisfaction is a good leading indicator of future operating performance. A business may have produced excellent financial results while underwhelming and disappointing a growing number of its customers. Because customers cannot always immediately switch to alternative solutions, customer dissatisfaction often precedes customer exit and reductions in sales and profitability. Thus, for many businesses, quarterly measures of customer satisfaction provide an excellent leading indicator of future performance. If customer satisfaction is on the decline, an early warning signal is given, providing the opportunity to correct a problem before real damage is done. Of course, if a business does not track customer satisfaction, it forgoes the opportunity to correct problems before declines in sales and profits result.
For example, a dissatisfied FedEx customer can move quickly to an alternative provider of overnight mail. That fact has led FedEx to develop a service quality index for every transaction in order to spot problems as they occur and to avoid the potential loss of customers. In the Iona run, it is more profitable to keep existing customers than to continually have to work to attract and develop new customers to replace exiting ones. FedEx has demonstrated that gains in customer satisfaction, driven by improvements in service quality, provide gains in revenue and lower cost.
Profit Impact of Customer Dissatisfaction
MBNA America is a Delaware based credit card company chat, in the early 1990s, became frustrated with customer dissatisfaction and defection. All 300 employees were brought together in an effort to understand and develop methods of delivering greater levels of customer satisfaction with the intent of keeping each and every customer. At the time, MBNA America had a 90 percent customer retention rate. After several years of dedicating themselves to improved customer satisfaction and retention, they raised customer retention to 95 percent. That may seem like a small difference, but the impact on their profits was a sixteen fold increase, and their industry ranking went from 38th to 4th. 11 Thus, their marketing efforts to satisfy and retain customers paid off in higher levels of profitability.
As demonstrated, most dissatisfied customers do not complain; they just walk away. To hold market share in a mature market, a business must replace those lost customers. Let's examine a business that is in a mature market with 200,000 customers and has a 75 percent rare of customer retention. Each year this business loses 50,000 customers and, to hold a customer base of 200,000, must replace those customers with 50,000 new customers. However, before we look at the profit impact of this level of customer satisfaction and retention, let's look at how this business got to a level of 75 percent customer retention. A closer look at customer satisfaction, complaint behavior, and customer retention enables us to build the Customer Retention Tree in Figure 1.6. As shown, the business is operating at a 70 percent level of customer satisfaction. Of the 30 percent who are dissatisfied, 24.9 percent are lost. Furthermore, the majority of dissatisfied customers who are lost do not complain to the business about the source of their dissatisfaction.
The customer profitability profile shown in Figure 1.7 reflects the information presented in Figure 1.6. It shows the average annual revenue, margin, and marketing expense per customer for retained customers, lost customers, and new customers. As shown, retained customers are the profit driver of this business, producing 80 percent of the sales revenue and 89 percent of the total contribution.
Lost customers are generally dissatisfied or neutral customers. Because they are not with the business for the whole year or are in the process of reducing their purchases from the business, the annual revenue per customer is much lower. However, retaining dissatisfied customers is also expensive because they require the business to expend extra resources in an attempt to keep them. These extra efforts often mean extra work for the sales force, price concessions, adjustments to inventory or terms of sale, and more customer service. The net result of losing dissatisfied customers in this example is a negative net marketing contribution of $2.5 million per year. The net marketing contribution shown in figure 1.7 is the revenue received from customers less variable costs of producing those revenues less direct marketing expenses needed to serve this level of customer volume. This concept will be discussed in detail in chapter 2.
New customers are also less profitable. Advertising and sales promotion dollars have to be spent to generate sales leads and produce trial purchases. This raises the marketing expenses associated with attracting, qualifying, and serving new customers. New customers also generally buy less because they are in the evaluation stage and have not yet fully committed themselves to the business or its products. This lowers both the annual revenue and margin produced by each new customer. The net result in this example' that the business actually loses $10 million in net marketing contribution each year in its efforts to replace lost customers.
Profit Impact of Customer Retention
For the business situation presented in Figure 1.7, overall sales revenues of $150 million produce a net profit of $8.5 million, a 5.67 percent return on sales. But what would be the profit impact of improved customer satisfaction? Let's assume that $1 million was dedicated to reducing the number of dissatisfied customers so that 80 percent of the business's customers could be retained each year. The marketing logic and profit impact of this strategy can be summarized as follows:
If the business can retain 80 percent of its customers each year instead of 75 percent, the business will reduce the cost associated with customer dissatisfaction and exit and will riot have to spend as much on marketing efforts to attract new customers. Also, because retained customers produce a higher annual revenue and margin per customer than do lost or new customers, the total profits of the business should increase.
This effort would produce only a slight increase in sales revenues, as shown in Figure 1.8. However, there would be a tremendous improvement in marketing efficiency and profitability. Because retained customers are more profitable than new customers, the overall total contribution derived from retained customers would increase from $60 million to $64 million. The overall marketing expenses would go up because of the $1 million that was added to the business's marketing budget to achieve an 80 percent customer retention. The net result would be a $3 million improvement in net marketing contribution derived from retained customers.
More important, the net loss of managing dissatisfied customers who exit and the net loss associated with attracting new customers would be reduced by a total of $2.5 million in this example. The cumulative impact of increased customer satisfaction and retention is an increase of net profits from $8.5 to S14 million. This incremental gain in net profits is derived from a larger number of retained customers, the reduced cost of serving dissatisfied customers, and reduced expenses associated with acquiring new customers to maintain the same customer base. This is a 64 percent increase in net profits with essentially no change in market share or sales revenue.
One can readily see the enormous potential for increased profits and cash flow that centers around customer satisfaction and retention. For each additional customer that is retained, net profits increase. Inefficient costs associated with serving dissatisfied customers and the cost of acquiring new customers to replace them are reduced. Thus, there is tremendous financial leverage in satisfying and retaining customers.
Customer Satisfaction and Customer Retention
The relationship between customer satisfaction and customer retention is intuitively easy to discern. However, different competitive conditions modify this relationship.15 For example, in less competitive markets, customers are more easily retained even with poor levels of customer satisfaction because there are few substitutes or switching costs are high. In markets where there are relatively few choices, such as phone service, water companies, or hospitals, customers may stay even when dissatisfied. In these types of markets, where choice is limited or switching costs are very high, higher levels of customer retention are achievable at relatively lower levels of customer satisfaction.
However, in highly competitive markets with many choices and low customer switching costs, even relatively high levels of customer satisfaction may not insure against customer defection. Grocery store, restaurant, and bank customers can switch quickly if not completely satisfied. While the time between purchase events is longer, personal computer, automobile, and consumer electronics customers can also easily move to another brand if not completely satisfied. In these markets, customer retention is much more difficult. And, as a result, it takes higher levels of customer satisfaction to retain customers from one purchase to the next.
Customer Retention and Customer Life Expectancy
Customer satisfaction and retention are important linkages to a market based strategy and profitability. The ultimate objective of any given marketing strategy should be to attract, satisfy, and retain target customers. If a business car, accomplish this objective with a competitive advantage in attractive markets, the business will produce above¬-average profits.
The customer is a critical component in the profitability equation but is completely overlooked in any financial analysis or annual reports. Customers are a marketing asset, that business have yet to quantify in their accounting systems. Yet, the business that can attract, satisfy, and keep customers over their lifetime of purchases is in a powerful position to deliver superior levels of profitability. Businesses that lack a market orientation look at customers as individual purchase transaction. A market-based business looks at customers as lifetime partners.
The higher the rate of customer retention, the greater the profit impact for a given business. In the short run, we showed this to be true on the basis of increased profits from retained customers, reduced losses from lost customers, and a lower cost of attracting new customers in order to maintain a certain customer base. However, there is also a longer-term profit impact of higher levels of customer retention because a higher rate of retention lengthens the life of a customer relationship.
A business that has a 50 percent rate of customer retention has a fifty-fifty chance of retaining a customer from one year to the next. This fact translates into an average customer life of two years, as shown in figure 1.9. The average life expectancy of a customer is equal to one divided by one minus the rate of customer retention. Therefore, as customer retention increases, the customer’s life expectancy increases. But, more important. Customer life expectancy increases exponentially with customer retention, as illustrated in figure 1.9.
The Lifetime Value of a Customer
The Cadillac division of General Motors estimates that a Cadillac customer will spend approximately $350,000 over a lifetime on automotive purchases and maintenance. If Cadillac loses that customer early in this customer life cycle, it forgoes hundreds of thousands of dollars in future cash flow. And, to replace that lost customer, Cadillac has to attract and develop a new customer, which is an expensive process. Thus, the cost of marketing efforts to ensure customer satisfaction is small in comparison with both the current and future benefits of customer purchases, as well as the cost of replacing customers if they become dissatisfied and leave. In general, it costs five times more to replace a customer than it costs to keep a customer.
Figure 1.10 illustrates the average profit per credit card customer generated over a five year period. Acquiring and setting up accounts for new credit card customers nets an annual loss of $51 per customer. Newly acquired credit card customers are also slow to use their new cards; they produce an average profit of $30 the first year, $42 the second year, and $44 the third year. By year 5, the average profit obtained from a credit card customer is $55. Thus, the lifetime value of a credit card customer continues to grow. Of course, if a credit card company loses a customer after year 4 because of customer dissatisfaction, the process of replacing him or her is expensive. This cost in the first year following customer exit is $106 ($55 in lost profit from the exiting customer and the S51 loss associated with attracting a new customer to replace that customer).
In this example, the average customer life is five years. Working backward, we can estimate the customer retention to be 80 percent, as shown below.
To estimate the lifetime value of a customer at this rate of customer retention, we need to compute the net present value of the customer cash flow shown in Figure 1. 10. The initial $51 that it cost to acquire this customer is gone immediately. However, it takes a year to achieve the first year's revenue of $30. The present value of S30 received a year in the future is less than $30 received immediately. In this example, the business has a discount rate of 10 percent. Therefore, the present value of $1 received after one year is $0.909 (the race at which $1 is discounted for one year at 10 percent). Thus, $30 to be received one year later is $27.27 ($30 x 0.909). This discounting is performed for each year's receipts, and the values are totaled to arrive at the net present value of this cash flow. When each year's cash flow is properly discounted, the net present value of the sum of these cash flows is equal to $111.70. This is what this customer is worth in today’s dollars.
If customer life expectancy were only three years, the customer value (net present value) would be considerably smaller. Thus the higher the rate of customer retention the longer the average customer life expectancy and the greater the customer value
Customer Abandonment and Customer Retention
AT&T identified 1.7 million customers as "spinners."18 These are customers that switch carriers at least three times per year while looking for the best deal. Needless to say, this type of customer drives down retention and is one a business would like to avoid. One of the Baby Bell companies estimates that 3 percent of its customers are "movers and shakers." These customers sign up, use the company services, don’t pay their bills, and move on. In this instance, there is only a negative cash flow, which hurts overall profitability.
Customer selection is an important aspect of managing to a higher level of customer retention and profitability. 19 Customer dissatisfaction is not the only cause of poor customer retention. Identifying customers who do not pay their bills, are too costly to serve, Or tend to be "switchers" is an important part of managing customer retention.
Building A Market Orientation
Businesses with a strong market orientation are in the best position to develop responsive marketing strategies that deliver high levels of customer satisfaction and retention. But how does a business build a strong market orientation? Why do some businesses have a strong market orientation and others cannot seem to develop one? There are three fundamental forces that drive the degree to which a business has a market orientation:
• Marketing Knowledge: The degree to which managers and employees have been educated and trained in the area of marketing directly affects the market orientation of a business.
• Marketing Leadership: The market orientation of a business starts at the top. If the senior management and key marketing managers of a business do not have a strong market orientation, it is difficult for a business to establish any level of marketing excellence.
• Employee Satisfaction: If employees are unhappy in their jobs and uninformed as to how they affect customers, the business's market orientation will never achieve even minimal effectiveness regardless of senior management speeches and market based statements of mission and philosophy.
Market Orientation and Marketing Knowledge
A manager's marketing orientation is directly linked to a manager's marketing knowledge, as displayed in Figure 1. 11. This graphic was built from a database of 8,000 managers in over 150 Fortune 500 businesses.21 As shown, the higher one's level of marketing knowledge, the stronger that individual's market orientation. Further analysis of these 8,000 managers also found that marketing knowledge and market orientation could be directly linked to formal marketing education, participation in marketing training pro¬grams, and marketing experience.
While formal marketing education and training are absolutely essential for persons in marketing and higher level positions of leadership, market orientation is also fundamental to every employee of the organization. For example, Disney spends four days training personnel who clean their theme parks.22 They train what they call the "popcorn people" to be information guides because they are the first to be asked where something is located. These "popcorn people' are also trained to treat customers as guests and to consider themselves on stage. Naturally, the individual marketing orientation of these employees plays a key role in creating a Disney company market orientation that delivers high levels of customer satisfaction.
Market Orientation and Marketing Leadership
A marketing orientation audit of a mid sized hi tech company involved assessing marketing attitudes and practices at several layers of the business's management hierarchy. The following comments were given in response to the question "How often do you see customers?"
• Company CEO: I really don’t have too much time for that. I have many financial issues, administrative tasks, and many meetings. So I leave it to my vice president of marketing.
• Vice President of Marketing: Well, I have a rather considerable staff and many responsibilities with regard to marketing plans and day to day decisions regarding our sales force and advertising. So I really don't have the time. But we have a very highly trained sales force, and they talking to customers all the time.
• Sales Force: Sure, we are in continuous contact with our customers and we bring back new ideas all the time. But nobody in management has the time to listen.
Obviously, this business lacks marketing leadership at the top. To build a strong market orientation, all levels of management, and senior management in particular, need to have a strong customer focus. Market orientation and marketing leadership start at the top.
For example, IBM's top 470 executives are personally responsible for more than 1,300 customer accounts.23 In addition, IBM gives frontline employees the authority, without prior management approval, to spend up to $5,000 per complaint to solve problems for a customer on the spot. Nordstrom has created a market based culture in which every customer interaction is an opportunity to build customer satisfaction.24 This initiative is led from the top and permeates all levels of the Nordstrom management hierarchy. Starbucks senior management believes that the first four hours of new employee training are the most important in shaping an employee's market orientation. To the degree that management fails to communicate its customer orientation during this training, it will have failed to shape Starbucks' market orientation.
Every marketing decision implicitly or explicitly sends a message to employees relative to management's commitment to a market orientation. The actions and words of senior and middle management set the tone of a business's market orientation. Their market orientation and leadership are essential in building a market based business culture. A~ top management decision to unjustifiably raise customer prices in order to meet short ~ term profit objectives sends a clear signal of the business's lack of commitment to a market orientation. Thus, consistent market based leadership is a requirement for building a market oriented business culture.
Market Orientation and Employee Satisfaction
Think about calling a business with a complaint and interacting with a person who hates his or her job and the company he or she works for. What kind of reception do you think you will get? Employee satisfaction is a key factor in delivering customer satisfaction.25 As shown in Figure 1.12, employee satisfaction affects customer service, which in turn influences customer satisfaction and retention. And, as we have already shown, higher levels of customer satisfaction contribute to higher levels of customer retention and profitability.
Sears found that in all of its many stores, there was a high correlation between customer satisfaction, employee satisfaction, and store profitability.26 NCR found that, among 12 manufacturing operations, higher levels of employee job satisfaction corresponded with higher levels of customer satisfaction. 2 , Thus, building a strong market orientation requires a healthy business environment in which employees enjoy their jobs and working for the organization.
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