Service-Loyalty models

Prepared by Steve Raybould 1

Service and Loyalty Models


Service / Loyalty Models:

• Jones and Sasser: Apostle Model• Christopher, Payne and Ballantyne: Segmented

Service Strategy• HBR’s Service-Profit Chain (Heskett & Sasser)• Gallup’s ‘Human Sigma’ © Chain• Hay Group’s 7-circle business model


The ‘Apostle’ Model

Source:"Why Satisfied Customers Defect"

by Thomas O. Jones and W. Earl Sasser, Jr. in Harvard Business Review, November-December 1995.


Is every ‘loyal’ customer a satisfied customer?

• Is customer loyalty always a product of customer satisfaction and the successful handling of complaints?

• Jones and Sasser say it’s not necessarily so.• Their model suggests that we need to

understand a customer’s real reason for staying with us.

• Their idea has become known as the ‘Apostle Model’


Hostage Loyalist / Apostle

Defector / Terrorist Mercenary

Loya

ltySatisfaction

High

HighLow

Customer types in the ‘Apostle Model’


Customer Types:

• Loyalist/Apostle - high loyalty, high satisfaction - "staying and supportive"

• Mercenary - low to medium loyalty, high satisfaction - "coming and going; low commitment"

• Defector/Terrorist - low to medium loyalty, low to medium satisfaction - "leaving or having left and unhappy"

• Hostage - high loyalty, low to medium satisfaction - "unable to switch; trapped"


Some examples:

• Loyalist/Apostle – Customers that keep coming back, even though they may try others.

• Mercenary – Customers may be ‘satisfied’, but are still on the look out for a better deal.

• Defector/Terrorist – Customers with higher expectations or generally not happy and constantly change product / brand.

• Hostage – Customers tolerating ‘the best of a bad lot’, or high costs of changing supplier.


For which products do you fit the customer types?

• Loyalist/Apostle –

• Mercenary –

• Defector/Terrorist –

• Hostage –


The segmented service strategy

Source:: ‘Relationship Marketing’ by Christopher, Payne and Ballantyne.

Published by Butterworth Heinemann


What is the segmented service strategy?

• It is a way of identifying, prioritising customer requirements.

• The segmented service strategy consists of four stages


The four stages of the segmented service strategy

1: Define the market structure

2: Segment customer base and determine segment value

3: Identify segments’ service needs

4: Implement segmental service strategy


Step One: Define the market structure

Insurance company

15% of profits

30% of profits

10% of profits 30% of profits

Channel: Insurance

broker

Channel: Call centre

Channel: High street branches

Channel: e-commerce

Customer Group One

Customer Group Two

Customer Group Three

Customer Group Four

Construct a market map to show relationship of suppliers/producers, intermediaries and the final users. Prioritise channels and channel strategy.


Step Two: Segment the customer base and determine segment value

• Service options• Value sought• Industry type• Geographic• Demographic

• Psychographic• Benefit• Usage• Loyalty• Occasion

Identify your most suitable segments. Segmentation techniques can include:


Determining segment value

1. Determine profit projections for each segment2. Identify potential for increasing customer

retention with in each segment3. Determine how much it would cost to improve

customer service to levels necessary to achieve desired retention – in each segment

4. Calculate net profit per segment – and prioritise


Step Three: Identify segments' service needs

Importance to Customer

Service Elements Performance

Low Medium High Poor Satisfactory Good

SPEED

PRICING OPTION

RESPONSIVENESS

INFORMATION

QUALITY

HOURS OF

ACCESS

CLAIMS HANDLING

A Segment Competitor Profile


Low High

Low

High

Importance to customer

Yo

ur

pe

rce

ived

per

form

an

ce

A B

C F

D

E

A = Speed B = Pricing C = Response D = Information E = Access F = Claims

A Segment Performance Chart (For each segment)


Step Four: Implement segmented service strategy

Low High

Low

High

Yo

ur

pe

rce

ived

per

form

an

ce

Importance to customer

Service Under Performance

Service Over Performance

SERVICE

TARGET

CORRIDOR

1: Identify areas of over-performance and under-performance.


Five areas for developing strategies:1. Good performance in services valued by attractive

customer segments2. Invest in potentially profitable areas3. Reduce investment in less attractive segments4. Withdraw from areas of poor performance in low

profitable segments5. Decide whether to commit in areas of poor

performance in attractive segments

2: Identify costs of improving selective service levels and fit with organisation’s capabilities.


• Matching segment performance to the organisation's capabilities

• Identify savings by reducing levels of service in areas of over-performance

• Re-allocate expenditure to improve levels of service in areas of under performance

• Estimate the additional costs required to achieve the customer retention targets identified in Step Two

• Identify potential lifetime profits of segments in 'net' terms. (Potential 'gross' profits minus the expenditure needed to improve customer retention)

• Determine segment prioritisation

Factors to consider:


Identify:• Your organisation's 'offer' in strategic terms, and the rationale behind it.• Which segments are you going to focus on, within each channel• The overall lifetime profit improvement based on the selective improvement of service, and the resulting improved customer retention• A clear way of measuring your service performance, so that levels of customer service can be monitored and reviewed

3: Finalise the segmented service strategy


Harvard Business Review

Article “Putting the Service-Profit Chain to Work” published in 1994 and 1998.(Authors: James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr., and Leonard A. Schlesinger)Emphasises value of designing a workplace environment that creates satisfied, productive employees.



The Gallup ‘Employee Engagement’

• Great managers contribute to engaged employees

• Emphasizes the human / employee element as the gate to stronger profits.

• Uses Gallup’s ‘Human Sigma’© concept which focuses on managing the employee-customer encounter



5 Rules of ‘Human Sigma’ ©RULE #1: E Pluribus Unum. Employee and customer experiences must be managed together -- not as separate entities. RULE #2: Feelings Are Facts. Emotions drive and shape the employee-customer encounter. RULE #3: Think Globally, Measure and Act Locally. The employee-customer encounter must be measured and managed at the local level. RULE #4: There Is One Number You Need to Know. Employee and customer engagement interact to drive enhanced financial performance. And this interaction can be quantified and summarized with a single performance metric. RULE #5: If You Pray for Potatoes, You Better Grab a Hoe. Have a plan. Sustainable improvement in the employee-customer encounter requires disciplined local action coupled with a companywide commitment to changing how employees are recruited, positioned in roles, rewarded and recognized, and importantly, how they are managed.


The Hay Group 7-circle business model

• Reinforces the importance of leaders’ styles and competencies when creating an engaging organizational climate for employees.

• Hay Group’s research shows that 20 to 30% of the variance in revenue and profit in organizations can be attributed to the differences in organizational climate. (Leadership competencies, leadership styles, etc.)
