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INTRODUCTION TO UNDERSTANING OF CUSTOMER INTRODUCTION TO CUSTOMER The word derives from "custom," meaning "habit"; a customer was someone

who frequented a particular shop, which made it a habit to purchase goods of and with the shopkeeper had to maintain a

relationship to keep his or her "custom," meaning expected purchases in the future. The slogans "the customer is king" or "the customer is god" or "the customer is always right" indicate the importance of customers to businesses although the last expression is sometimes used ironically. This section looks in more detail at what we mean by customers and how they are different from consumers and clients. It considers all external and internal stakeholders as customers, consumers or clients of a marketing activity. So, an internal stakeholder might be the consumer of a service performed by another department in the same organization. The key differences between those stakeholders are who buy a product or service (the customers) and those who use it (the consumers). Customers and consumers may be the same or different people. Note what distinguishes a customer from a client and the different kind of relationship each has with a service provider. In your own work context, when are you a consumer, a customer and a client? Who are your consumers, customers and clients? An understanding of marketing requires a clear understanding of the terms customer, consumer and client. The customer is the person buying from an organization. The customer can also be another organization, for example, when a bookstore buys from a book publisher. The customer will also be the consumer if the person or organization uses what has been bought. This is not the case with the bookstore: there the bookstore is the customer of the publishing company and a person buying a book from the bookstore is likely to be the consumer. Here are two simple examples that highlight the distinction (difference): You choose, buy and eat an ice cream. Here you are the customer and consumer. Your child chooses and eats an ice cream but you pay for it. Here your child is the consumer and you are the customer. Customers and clients

Now we turn to the difference between customers and clients. The term client is generally associated with the provision of professional services (such as accountancy and legal services). In these contexts, the specific service being provided is normally discussed and agreed between client and provider. While the client has more influence over the specification of the product or service being provided, the service provider. The marketer in this context is often in a position to advise the client as to what his or her needs and wants actually are, and then charge fees for delivering services that meet these needs. You should immediately recognize that the power balance between the marketer and the person being provided with a product or service can be quite different according to whether the person is a customer or a client. TYPES OF CUSTOMER Customers play the most significant part in business. In fact the customer is the actual boss in a deal and is responsible for the actually profit for the organization. Customer is the one who uses the products and services and judges the quality of those products and services. Hence its important for an organization to retain customers or make new customers and flourish (grow) business. To manage customers, organizations should follow some sort of approaches like segmentation or division of customers into groups because each customer has to be considered valuable and profitable. Loyal Customers: These types of customers are less in numbers but promote more sales and profit as compared to other customers as these are the ones which are completely satisfied. These customers revisit the organization over times hence it is crucial to interact and keep in touch with them on a regular basis and invest much time and effort with them. Loyal customers want individual attention and that demands polite and respectful responses from supplier. Discount Customers: Discount customers are also frequent visitors but they are only a part of business

when offered with discounts on regular products and brands or they buy only low cost products. If the discount is more, more they tend towards buying. These customers are mostly related to small industries or the industries that focus on low or marginal investments on products. Focus on these types of customers is also important as they also promote distinguished part of profit into business. Impulsive Customer: These customers are difficult to convince as they want to do the business in urge (advise) or caprice (impulse). They dont have any specific item into their product list but urge to buy what they find good and productive at that point of time. Handling these customers is a challenge as they are not particularly looking for a product and want the supplier to display all the useful products they have in their tally in front of them so that they can buy what they like from that display. If impulsive customers are treated accordingly then there is high probability that these customers could be a responsible for high percentage of selling. Need Based Customers: These customers are product specific and only tend to buy items only to which they are habitual or have a specific need for them. These are frequent customers but do not become a part of buying most of the times so it is difficult to satisfy them. These customers should be handled positively by showing them ways and reasons to switch to other similar products and brands and initiating them to buy these. These customers could possibly be lost if not tackled efficiently with positive interaction. Wandering Customers: These are the least profitable customers as sometimes they themselves are not sure what to buy. These customers are normally new in industry and most of the times visit suppliers only for confirming their needs and create the awareness of their product /service. They investigate features of most prominent products in the market but do not buy any of those or show least interest in buying. To grab such customers they should be properly informed about the various positive features of the products so that they develop a sense of interest.

Using this understanding to help turn Discount, Impulse, Need-Based, and even Wandering Customers into Loyal ones will help grow our business. At the same time, ensuring that our Loyal Customers have a positive experience each time they enter our store will only serve to increase our bottom-line profits. ROLE OF CUSTOMER The initial question is: Who is your customer? This is not always obvious since there are many factors involved in the purchase and use of a certain product or service. Yet five main roles can be identified that exist in many purchasing situations. Often several, sometimes all of these roles might be conducted by the same individual but recognizing the needs and requirements of each separately leads to potential areas for service design. The following figure shows the most common roles that customers represent.

Here is a short description of the single roles: Initiator: The individual who initiates the search for a solution to the customers problem. Influencer: Individuals who have some influence on the purchase decision. Decider: Taking into consideration the views of the initiator and influencer some individual will make the decision as to which product or service should be purchased.

Purchaser: The individual who is actually paying for the product or service User: The individual who finally consumes the product or service It is important to understand that in any buying situation. The various actors can and will influence the buying decision and they will also be either active or passive experiencing a product and service. Therefore should be considered when designing the overall brand experience. If different individuals undertake these roles, it is necessary to develop individual and differentiated services to satisfy the different needs and requirements. The standard example for this is a visit to a theme park with children. The initiator might be the child that saw an advertising on TV, while the decider and purchaser are the parents. While it is important to design a great experience for children at a theme park, it might be even more important to focus on the experience of parents because ultimately they will decide and pay for the next trip to Disneyland. The different roles become even more apparent in a business-to-business context. CUSTOMER INFORMATION AND DATABASE Understanding your customers helps you to sell them more of your products and services as well as support them better. And it starts by understanding who are they? And what are their needs?, profiling them also makes it easier to find new ones. You can look for similar prospects, and sell to them in a similar way and retain your existing ones. As you evaluate your options, you face questions like: y What information to track? y How to organize the information? y Which Database Software to Use? The first question about the database you should consider is: WHAT INFORMATION TO TRACK?

This varies dramatically, but there are several frequently used types of business information: y Contact details y Customer preferences y Communications history y Sales history y Actions y Payments Then there is business-specific customer information. For example, family-oriented organizations track family members, real estate companies track the properties, and engineering firms analyze equipment they maintain on behalf of the customers and so on. HOW TO ORGANIZE THE INFORMATION? How all this information can be organized for an easy access and use? Should it fit into a single system or multiple systems? How can I fit my data into the database structure? Single vs Multiple Systems Using a single database minimizes the hassle of synchronizing multiple sources of data and improves data accuracy. However, if your business software must incorporate industry-specific logic, you are unlikely to find an integrated system that includes both that logic and a full-featured customer database. In that case, the best option is to use your industry-specific software as a primary source of information and copy the customer records from that software into the customer database, where you add more information to them. As much as possible avoid synchronizing the two systems both ways there should be just one master customer database. Customizing databases to fit your information The organization analyzes what information goes into your database and where it comes from; consider how this data can fit into the database. The simplest method of customizing a database is creating extra fields in the customer record. Many database programs make it easy and so you can accommodate business-specific information by adding more and more fields.

When you have hundreds of fields, the system becomes difficult to manage. This is probably because you have put together information about different objects. Re-structuring your data makes it easier to access and manipulate. There are two methods of re-structuring such data: Splitting customer records into related record types Storing some information in external files Splitting customer records into related record types: Suppose we need to record basic family information: y Family name y Husband's name and birthday y Wife's name and birthday y Child 1 name and birthday y Child 2 name and birthday y Child 3 name and birthday If you were to add all these details to your customer record, they will occupy eleven fields. Finding a John Smith will be difficult - you need to search four times - for John as the husband, Child 1, Child 2 and Child 3. And the system won't accommodate families with four or more children. To handle this information, the databases can store it in different record types and relate these records to one another. Because of these ability these databases are called relational (as opposed to flat) databases. In a relational database, you would have family and person information in different records and link persons' records to their family record. In our example, each personal record will then have three fields: name, birthday and the link to the family record. John Smith can be easily found with one search, no matter who he is in the family. The difference in ease of use is even more apparent when you need to store more information, like insurance policies with number, name of the insurer, monthly premium, expiration date etc. To see if a piece of customer information should be tracked in a separate record type check whether a customer can have more than one of it.

Can a customer have multiple policies? Family members? Air conditioners? Can a customer be included into multiple lists? If the answer is yes, then those objects should be tracked separately and linked to the customer records. If no, they can be incorporated into the customer record. Store some information in external files. There is a natural desire to track all customer information on the database, but is it really required? There are some data types that databases don't handle well, for example, spreadsheets. The databases are designed to work with large number of similar records, while in a spreadsheet each row could be different from the previous one. Spreadsheets' formulas can be easily modified, while in databases they are programmed. So if you are used to tracking some customers information in spreadsheets or some other external files (photos, text documents etc), perhaps it is worthwhile to continue doing so, linking those files to the customer records. You will keep your database simple and agile and retain the familiar ways of working with these files, but can still easily access all customer information from a central location. The down side is that you cannot easily search on or otherwise process the information that is stored externally. If you store customer borrowing power calculations in Excel spreadsheets, you can easily access this data on any customer, but cannot find customers who can borrow in a specified range without going through each and every record. Which Database Software to Use? Many people consider one or more of the following choices: y Microsoft Access y Popular contact managers, such as ACT or Goldmine y Accounting program y Employing a software developer

A package that is both simple and easily customizable, such as Simply Contacts Database.

Microsoft Access Perhaps one of the first programs people turn to when it comes to building customer database is Microsoft Access, probably the single most popular database program. Most already have it as part of Microsoft Office Professional or Premium, making it an easy choice. The system comes with Wizards assisting in setting up new databases, creating tables and basic forms. Access is a great system in the hands of a professional, but developing a functional customer database in it usually requires more expertise and time than a business person can afford. Popular Contact Managers Many people have heard about ACT and Goldmine. Unlike Access, which is a generic database tool, these programs are business applications designed with customer management in mind. They offer rich contact management functionality out of the box and can be extended by adding extra fields, reports or buying add-on modules. The program's functionality suits a busy salesperson whose day is filled with appointments, pursuing leads, writing proposals, closing sales and so on. But for many other users it is simply excessive. Accounting Program The main purpose of a customer database is to improve service and relationships with your customers. The main purpose of accounting software is to balance your books. Customer database deals with the client side of your business and does not go beyond order fulfillment. Accounting software deals equally with the sale and supply sides. You should track prospects on your customer database, but a prospect is of no interest to accounting. Employing a Software Developer Use a software developer if your needs are radically different from other companies.

Developers can build a system highly tailored to your business but you need to know very well what you want to accomplish and relate this to a developer in a clear and concise brief. Very often business people describe what they need as a "simple program". But as the project unfolds, it turns out the software should do more or handle special cases that were not initially planned. This causes disputes, cost increases and frustration on both sides. Simply Contacts Database Then there are programs like Simply Contacts Database. Out of the box, it includes basic contact information, customer history, and notes and can attach external files, such as text documents, spreadsheets or pictures to the customer records or history. It can print mailing labels and do mail merge and e-mail merge. But the best thing about this software is its flexibility and expandability. There is a simple function to add extra or remove unwanted fields that automatically adjusts all standard screens and reports. On top of this, users can define their own screens and reports. For example, if you want to track both customers and suppliers on your database you can create "customer view" and "supplier view" with different fields to view the respective records, yet display full information in the "contact view". With a program like Simply Contacts Database, you can start with the data that you already have and easily add more fields as the need arises, perfecting the understanding of the business requirements for your customer database. CUSTOMER ANALYSIS The American marketing association: www.marketingpower.com defines market research as: "The systematic gathering, recording, and analysis of data about problems relating to the marketing of goods and services". Consumer analysis is an important part of this marketing research. Without marketing research, it is quite impossible today to start any business. Consumer analysis is the first step of any marketing research.

In this module, our objective is to develop your skills in consumer analysis. Consumer analysis allows you to identify your prospect and segment market. The objectives of this consumer analysis lesson are to give you the fundamental notions about: *Customer benefit *Customer profile *Market customer By the end, consumer analysis techniques will enable you to establish your market segmentation. 1. Customer benefits 2. Customer profile 3. Market customer 4. Do it yourself 5. Coaching Understanding is beginning with segmentation. Segmentation is all about splitting a market up into relevant sections to make marketing more effective. In order for a business to segment its market, it needs to understand and analyze its target customers. A problem that faces any start-up or small business is that customers are not all the same. In short, the challenge for a business is to: Identify groups of customers who have similar needs and wants Find a way of offering (positioning) a product which is attractive to those customer groups Markets consist of customers with similar needs. For example, consider the wide variety of markets that exist to meet the need to: Eat (e.g. restaurants, fast food) Drink (e.g. coffee bars, pubs & clubs) Travel (for business and leisure, near or far) Socialize (as couples, with family, with friends) Be educated (as a child, adult, for work or other reasons) As you can imagine, such markets (if they were not further divided into smaller parts) would be very broad and difficult for a new business to target. The great news for any new business is that customers in any broad market are not the same. For example, within the market to provide meals, customers differ in the:

Benefits they want (food quality, ambience, dietary health) y Amount they are able to or willing to pay (budget, expensive) y Quantities they buy (bulk buy or one-off purchase) y Time and place that they buy (fast-food, up-market restaurant) It therefore makes sense for businesses to divide (or segment) the overall market and to target specific segments of a market so that they can design and deliver more relevant products. Understanding Customers will give you a theoretical introduction to understanding and analyzing business information. Generally the customers are classified into **Internal customers **External customers. Internal customers are members of staff or outside suppliers that contribute towards the service provided to external customers. They include: y Colleagues y Managers/supervisors y Staff in other functional departments Good customer service to internal customers will help to establish good working relationships between colleagues, managers and staff teams. These relationships are important if the business is to function effectively. For example, working in a pleasant environment where staffs are supportive of each other can keep staff turnover and reduce the absenteeism.
y

External customers, on the other hand, are the people who we more usually associate with the term customer, i.e. the people that actually buy or use an organizations products and services. A key point to remember is that there are many occasions in which a business comes into contact with external customers. It is not just about the moment a transaction takes place. Points of customer contact take place: y When a customer is enquiring about the product y Taking a customer order or payment

y y y y

Delivering a product When handling a complaint or problem When making repairs or doing maintenance Providing after-sales care

Knowing vs. Understanding Your Customer There's a difference between knowing who your customer is and understanding your customer. You need to do both. Most people spend most of their time on the former and too little time on the latter. This will ultimately result in failure. Why? If you don't understand your customer, you won't have full clarity on your value proposition. Knowing your customers is information typically collected by a business. It means you know who they are demographically, what content they're reading, and so on. Most companies do a good job on this front. When it comes to understanding customers, however, many companies come up short. Understanding customers helps businesses deliver an online product with meaningful and compelling value propositions that meet not only their current needs but also their evolving and future needs. Nissan Motor India opens first field quality centre and training facility in India. Training facility opens at Nissan manufacturing plant at Oragadam. The purpose for field quality & training centre is to achieve a better understanding of customer needs so it can build vehicles that garner(acquire) a higher level of customer satisfaction. This will be 7th facility set up by Nissan across the globe. Nissan Motor India Managing Director and Chief Executive Kiminobu Tokuyama said, At Nissan, quality is a key attribute in establishing brand value. The training centre will provide product, process and soft skill training for dealership staff, which will help us better focus on ensuring a quality ownership experience for our customers. IMPORTANCE CUSTOMERS TO KNOW ABOUT

First, customers are not created equal. They come and buy from you for different reasons based on different motivations. Some buy because they find your price to be the lowest, some because they find your services to be outstanding, while some purchase from you because of your reputation in the industry. Second, by knowing and understanding your customers, you will be able to better leverage your time, energy and resources to pursuing the right customers. You can adapt your selling strategies to each type of customer: shorter and quicker selling strategies to price-conscious customers, while dedicating more time and resources to your most important and high-potential customers. Especially if you are a one-person business owner, you need to reevaluate your customer relationships and make choices about how to maximize and effectively use your limited time and resources. Below is a list of questions that can help you look at your customer's motivations and in the process learn new insights about your customers, their needs and threats and opportunities that exist. These five questions will help you get a snapshot of your business where your healthy relationships exist, where there are opportunities, and where there are potential problems. Why does your customer buy? Customers have different motivations when they buy. Some consider price as the main deciding factor, often looking for the lowest available price. Others try to find ways to reduce cost and at the same time enhance revenue and improve quality. But most of all, customers buy your products because of the value that it can give them. They are not buying your product per se, but what your product can give them. They are buying the satisfaction of a want. It is important that you know what customers consider most valuable about your products or services. Ask and talk to your customers to find out. Once you have a list, ask them again if you are indeed delivering what they want. The two questions will determine the relationship that you will have with the customer.

What does the customer value with regards to your products and services? How well do you provide that value? How much of the customer's total business do you have compared with your competitors? Your relationship with your customer is also shaped by the amount of business that you have with them. You may either be the sole supplier, or you may be constantly fighting for a share of the customer's business. If you share your customer's business with your competitors, you may want to select and pursue appropriate and inventive (creative) opportunities to increase that share, and carefully document the profitability efforts. Think of possible ways to make the customer want to do business with you alone, or at least bring the major bulk of their business to your company. You can even ask the customer directly, "How can I earn more of your business?" With this knowledge in hand, you can develop a focused strategy for your key customer that delivers on what each customer agrees is important to him or her. How does your customer see you? According to Larry Wilson, author of the book Stop Selling, Start Partnering: The new thinking about finding and keeping Customers, a customer may view you in three ways: you are just another vendor, a problem solver, or a partner. The most ideal would be to be viewed by your customer as a partner. You are trusted and relied upon to make the collaboration work for the both of you. These are the types of relationships that result in long-term profitability. How difficult is it for the customer to shift to your competitor? Loyal customers are important to your bottom line. Studies show that repeat customers often spend more money, generate larger transactions, refer more customers, and buy a broader range of products than one-time shoppers. Hence, it is vital to understand the ease or difficulty with which your customer can shift business to a different supplier.

Some businesses tend to have inherently high switching costs for customers, while others enable to switch to a competitor at a low cost. Customers who have made significant investments in people, time, manufacturing processes or technology to use your products have high switching costs. Some of the strategies to keep the customer locked into your business include lengthening lockin cycle through purchase agreements, contracts or licensing; incorporating proprietary improvements; designing products and promotions to get customers to invest in your product such as special offers to loyal customers or trial usage for new customers; and leverage your customer base by selling complementary products. What does the customer expect after a sale? The hardest part of the sale is after the sale is made. It is the make or break period: the customer's expectations will either be realized or failed. It is the time where you will know whether the level of activity, delivery, customer service and commitment to promises made all supported the sales effort. It is important to carefully establish the level of expectation that customers should have after the sale. Some customer may expect little or no support, while some require processes or systems be put in place to guarantee that their purchasing experience remains smooth (e.g. return of the merchandise, provision of required technical support, etc.). Knowing your customers can help you increase sales, loyalty and profits. If your business is not doing as well as you expected, you may want to think about customers and your business differently than you might have in the past and be willing to change the behaviors that produce your current results. CUSTOMER CHARACTERISTICS You can start by defining your ideal customer and list all characteristics you will expect in this profile: ***Business to consumer: The main characteristics are quite unlimited: Geographic area,

age, sex, income, level of study, employment and so on. So keep close to your benefit analysis and just list the characteristics that correspond to the benefits you offer: If you sell bathing suit, you will not care for people living in North Pole. If you sell fur clothes, do not lose your time with the characteristics of people living in Central Africa! ***Business to business: The main characteristics are the company size, the products or services, the level of technology, the turnover, the staff number, the location and so on. You must describe the required customer profile according to your product or service Example: What's the customer profile for fun board? Demographic characteristics: 15 to 25 years old, male, and healthy Economic characteristics: Student or young professional, not less than $30,000 income coming from parents or work. Social characteristics: Middle and uppermiddle class. Geographical area: North America, Australia, Northern Europe. Special interests: Sport like and sea like. You just have to think in order to define your customer profile: Of course, he is a young man. He has good money because you cannot afford to buy a fun board when you are short for your daily living. So, you can expect that he comes from developed countries. Obviously, he likes sports and sea very much. Why do you need all these characteristics? The response is that you need the larger information to channel effectively your advertisement: For example, the fact to know where he is located will conduct you to advertise mainly in English and in sportsmen newspapers. ***High and low involvement benefits Now, we have to examine another topic: Are these functional or psychological benefits quite

important for the customer. It means that we have to distinguish low and high involvement products. Definition: If a consumer pays attention to buy a product, then it is considered as a high involvement product. If he does not pay too much attention, there is a low involvement product. Of course, all the expensive products are always high involvement products: Flats, cars, antiques and so on. Nevertheless, some inexpensive products can be said high involvement products: For example, the consumers pay attention in buying cheap drugs because health is an important stake. What is more, this feature depends also on the customer: For example, a fashionable dress is a psychological benefit but it becomes also a high involvement item for his appearance. So, it is always fruitful to bring some high involvement topics to your product. High involvement feature to a quite basic product. It enables you to differentiate your product from the competition and to charge a high price. Finally, the product which gives the greater benefit to the consumer must gather both three characteristics: Functional benefits, psychological benefits, high involvement features. Customer buying process According to your customer profile, you have to focus on the customer buying process. It is not the same thing to buy a candy, a car or a real estate. You have to emphasize on the following aspects. I call it the DTHP process:
DECISION TIME HOW PAY

Who is the decision making person?

In business to business, the purchaser may be a top ranking executive: The more hierarchical levels involved, the more difficult the sale. In business to consumer, the buying process could imply on person or the entire family. The same observation applies: The more individuals or groups involved, the more difficult the sale. At what time or period, does he buy? Consider frequency and regularity of the purchases. Some business follows seasoning periods such as the toys, the bathing suit. This period can be short: For example, the selling of flowers on Sunday, or the clothes during the discount periods. How does he buy? The buying decision includes the following process: STEP-1: The customer becomes aware of a need: The need could originate from an impulse (candy) or from a recognized deficiency (such as a refrigerator) STEP-2: The customer begins to explore how meeting the need: He reads newspapers, yellow pages, and so on. It is very important to know how he explores to target advertisement channels. STEP-3: According to the need and his income, the customer refines the buying criteria and defines a budget. STEP-4: He narrows the field of his choice in comparing quality/price ratio. He could need physical touch or face to face interaction such as a test drive. STEP-5: Finally he closes the sales. In many process, he needs to be helped by a salesman. How does he pay? Does he use cash, check, or credit card? Does he ask for times payment? Does he need a loan? If you could link some financial services to your product, such as times payments, it should give you a high advantage especially for expensive items. USES OF CUSTOMER ANALYSIS Identifying WHO your best customer is Customer analysis can help you identify who your customer is and thereby improve the

segmentation targeting and positioning process. Remember 80% of your business will come from 20% of your customers. It is important you know who those customers can be. Planning out retention plans for your new customers New customers are important but so are returning customers. Thus customer analysis can help convert your first time customers to returning customers Inducing further buying from your existing customers Cross selling, impulse purchases are some of the methods which increase purchasing by your existing customers. Example, if you know customers who have bought jogging equipment, you can cross promote other jogging related fashion to them. Improving customer service Once you know who your customer is, you can know what kind of services they will demand. Thus customer analysis will also help in service deliverability. Effective campaign planning The demography and purchasing habits of your customers will help you with planning a highly effective campaign thereby improving your target. Increasing market share What if while doing customer analysis you recognize a set of customers that havent been targeted by you? At the same time, you also establish procedures better then the competitors. It will increase in market share. Increasing overall profitability Once the above factors are analyzed the company reaches or attains profit. Businesses are established for profits. And overall profitability as well as well being of the organization increases once its customers are satisfied. And customer satisfaction will happen only through customer analysis.

CUSTOMER PERCEPTION A customer perception analysis is an investigation into customer expectations as well their requirements by a company or a business or any organization catering to specific customers. Any company needs to be aware of what its customers are thinking, how trends change with their customers preferences, what their expectations are and how to meet those expectations. Thus, a customer perception analysis is a vital exercise which can lead to considerable improvement in the companys handling of its customers, and their behavior towards them. The results of such a customer perception analysis must be tabulated properly and it can be a valuable source of figuring out how customer perceptions change the way a company operates. It is important to underscore the word perception. Perception is the act of discriminating, realizing, and becoming aware of through the senses. The customers perception is what counts, not what we think it is. To understand this point it helps to consider perception categorized into (4) quadrants: How a Graphic Arts Company views itself The real view of the Graphic Arts company How the customer views the Graphic Arts company How a Graphic Arts Company thinks the customer views the company

of 1 3 and deals with a philosophical discussion similar to, If a tree falls in the forest . In practice, our profile of customer perception resides in the third quadrant because our ability to vision, listen, and interpret is in itself a perception which carries filters. A quick review of concepts related to perception helps attain higher degrees of accuracy when assessing customer perception because it is wise to remember that beauty is in the eyes of the beholder and in this case the beholder writes the check. CUSTOMER COMPLIENTS/FEEDBACK Assessing customer perception is useless unless the information leads to actionable feedback. By this I mean that the information is not only relevant, but based on its presentation, it is clear what action should be taken to improve overall customer satisfaction. To this extent, assessing customer perception should be part of an overall systematic approach aimed at improving customer satisfaction. There are five basic categories of methods to gather customer perception information. 1. Surveys 2. Feedback Cards/comment card 3. Focus groups (e.g. 20 groups derived from the auto industry) 4. Face to face interviews 5. Telephone interviews 6. Customer Complaint Process 7. Employee feedback SURVEYS Our experience suggests that providing the customer with a survey is the most frequently used method to obtain customer feedback. These vary in length and focus with the most common categories for questions covering, 1) Quality of product, 2), timeliness of delivery, 3) Price, 4) responsiveness & flexibility, 5) Service quality,

The first quadrant has value, but includes obvious blind-spots. Some of us score higher in self objectivity than do others. The second quadrant is the one that counts most and the goal of assessing customer perception is to develop as accurate a picture of the customers view as possible. The third quadrant is a companys perception of how its customers perceive it. Bias creeps into this quadrant as well. The fourth quadrant is an mixture

6) Cooperativeness of Customer Service Representatives and/or Sales Representatives, 7) Innovation and creativity, 8) Vastness (immensity) of service offerings etc. MERITS: Relatively easy to coordinate the distribution. Relatively inexpensive. DEMERITS: Response rate is not usually stellar. We have not performed a formal study to define an average response rate, but we are told that if you do really well, a company might approach 50%. You cant control who responds and who does not. So, you may not necessarily obtain a representative perspective of the overall customer base. Poorly crafted questions may create a builtin bias by leading the respondent to answer in a certain way. This is an issue with all methods of assessment, but with a survey there is no opportunity for two-way communication that might resolve misunderstanding. FEEDBACK CARDS /COMMENT CARDS These are attached to the product, or to an invoice, and focus on the quality of a product shipment. Areas of focus typically include; 1) product quality, 2) condition of the product when it arrived, 3) timeliness, and 4) packaging.5)name ,age gender, of customer MERITS: Inexpensive to execute. The cards are attached to something that is already going to be shipped or mailed. Because it is smaller in size and therefore less burdensome to complete, the recipient may be more inclined to return it. DEMERITS: The size of the card restricts the number of questions that can be listed.

Although directions for distribution (who should complete it) are included on the card, the card often does not hit its intended target. Sometimes the receiving department throws away the card. You cant control who responds and who does not. So, it is unlikely that you obtain a representative perspective of the overall customer base. FOCUS GROUPS A focus group session is a meeting conducted with a variety of customers to assess a product or service. Meetings can also focus on service or process issues. The automobile industry conducts what it calls 20 Groups where it brings a group of twenty customers together for the purpose of discussion. In a traditional Market Research sense, the results generated in a focus group are not considered scientific and are used to further hone other research instruments like a survey. We know of Graphic Arts firms that use the concept with a twist by bringing buyers and prepress/customer service representatives together for the purpose of improving file transfers and/or job related communication. MERITS: Sometimes a customer will think of an idea with others present that he/she otherwise would not. Generates a good deal of input in a short span of time. DEMERITS: If not facilitated properly (focus on the outcomes and actionable items), the meeting can turn messy. When this happens, it is worse than if nothing was attempted. Sometime individuals in a group are subjected to group think and support the viewpoints of others rather than voice their own. Face to Face Interviews You may see these being executed at shopping mall. Shoppers are escorted into a room where a prepared survey is completed which usually includes both open-ended questions and those that

require a rating. In the Graphics Arts world a company often relies on the sales force to obtain the customers perception by sitting down and having customer-supplier meetings. It is important to use interviewers that are independent of the process. It is not unusual for ownership to say, My sales force has a handle on the customer. After all, thats what I pay them for and they dont get paid unless they keep the customer happy. Ill restate the point that interviewer independence is mission critical. MERITS: The setting provides an opportunity to clarify questions and discussion topics because communication is two-way. The interviewer can check-in for both nonverbal and vocal cues. The interviewee might be more attentive and thorough in answering questions when an interviewer is involved. DEMERITS: The interviewer is constrained by geography. Either the interviewer visits the interviewee or viceversa. So to obtain wider coverage can be expensive. The interviewer may enter bias into the activity, by either saying too much (leading the interviewee), not listening well, or by not accurately or comprehensively recording responses. TELEPHONE INTERVIEWS These are not telephone solicitations. Rather these are contacts made with existing customers for the purpose of assessing their perception of how well a company is meeting their needs. With intelligent crafting of both questions and sequence (the nesting of questions), a tremendous amount of useful and actionable information can be gleaned. As previously stated, it is critical to use interviewers who are completely independent so as not to filter the information. (Eg: TOLL FREE NUMBER) MERITS: The setting provides an opportunity to clarify questions and discussion topics because

communication is two-way. The interviewer can check-in for vocal cues. The interviewer is not constrained by geography. The interviewee might be more attentive and thorough in answering questions when an interviewer is involved. DEMERITS: The interviewer may enter bias into the activity, by either saying too much (leading the interviewee), not listening well, or by not accurately or comprehensively recording responses. Customer Complaint Process By customer complaint process I mean a formal process. Generally a company implements a form or electronic recording method for capturing a complaint. Responsibilities are assigned to individuals to resolve the immediate issue. The log of complaints is analyzed to determine patterns and root causes of customer perceptions for the purpose of permanently eliminating the condition causing the complaint. MERITS: If a company genuinely listens to the complaining customer, it is hearing an unsolicited cry for help and there is no better substitute for that particular perception. Proper handling of the complaint can lead to a save which may improve the relationship. DEMERITS: Making this method the only source of customer perception. Often times customers do not complain; they just never do business with you again. EMPLOYEE FEEDBACK The internal customer or employees gives suggestion n towards the product or service before commercialization Applications for Customer Perception analysis Business performance improvement activities Sales force effectiveness programmes Strategic re-positioning

Exploring current and new market needs and opportunities Strategic change programmes Developing customer-centric capability models EXPECTATION ANALYSIS Understanding customer needs and expectations is very important to a product or service-oriented organization as it protects against dissatisfied customers. Many business men run their business by customers complaint. After customer needs and expectations are identified, customer satisfaction must be monitored and the findings used to generate improvements. Proactively conducting customer satisfaction surveys also generates a positive impression on customers about the organizations interest in them. customers expectations VS perceptions

When a customer begins a relationship with you he or she already has a specific set of expectations. These expectations are based on their perceptions of you, your company and your industry. They are formed through personal past experience, and the experience of others with whom the customer interacts. Performance Customer Satisfaction= ---------------------------------Customer Expectations

Factors that influence customers expectations

CUSTOMER BEHAVIOR Buying Behavior is the decision processes and acts of people involved in buying and using products. Consumer behaviour is the study of when, why, how, and where people do or do not buy a product. It blends elements from psychology, sociology, social anthropology and economics. It attempts to understand the buyer decision making process, both individually and in groups. It studies characteristics of individual consumers such as demographics and behavioural variables in an attempt to understand people's wants. It also tries to assess influences on the consumer from groups such as family, friends, reference groups, and society in general. Customer behaviour study is based on consumer buying behaviour, with the customer playing the three distinct roles of user, payer and buyer. Relationship marketing is an influential asset

for customer behaviour analysis as it has a keen interest in the re-discovery of the true meaning of marketing through the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on consumer retention, customer relationship management, personalization, customization and one-to-one marketing. Social functions can be categorized into social choice and welfare functions. Consumer Buying Behavior refers to the buying behavior of the ultimate consumer. A firm needs to analyze buying behavior for: Buyers reactions to a firms marketing strategy has a great impact on the firms success. The marketing concept stresses that a firm should create a Marketing Mix (MM) that satisfies (gives utility to) customers, therefore need to analyze the what, where, when and how consumers buy. Marketers can better predict how consumers will respond to marketing strategies. The study of consumers helps firms and organizations improve their marketing strategies by understanding issues such as how The psychology of how consumers think, feel, reason, and select between different alternatives (e.g., brands, products, and retailers); The psychology of how the consumer is influenced by his or her environment (e.g., culture, family, signs, media); The behavior of consumers while shopping or making other marketing decisions; Limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome; How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer. One "official" definition of consumer behavior is "The study of individuals, groups, or organizations and the processes they use to select,

secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society." Although it is not necessary to memorize this definition, it brings up some useful points: **Behavior occurs either for the individual, or in the context of a group (e.g., friends influence what kinds of clothes a person wears) or an organization (people on the job make decisions as to which products the firm should use). **Consumer behavior involves the use and disposal of products as well as the study of how they are purchased. Product use is often of great interest to the marketer, because this may influence how a product is best positioned or how we can encourage increased consumption. Since many environmental problems result from product disposal (e.g., motor oil being sent into sewage systems to save the recycling fee, or garbage piling up at landfills) this is also an area of interest. **Consumer behavior involves services and ideas as well as tangible products. **The impact of consumer behavior on society is also of relevance. For example, aggressive marketing of high fat foods, or aggressive marketing of easy credit, may have serious repercussions for the national health and economy. There are four main applications of consumer behavior: Marketing Strategy The most obvious (clear) factor is for marketing strategy. (i.e.)., for making better marketing campaigns. For example, by understanding that consumers are more receptive to food advertising when they are hungry, we learn to schedule snack advertisements late in the afternoon. By understanding that new products are usually initially adopted by a few consumers and only spread later, and then only gradually, to the rest of the population, we learn that (1) companies that introduce new products must be well financed so that they can stay afloat until their products become a commercial success and (2) it is important to

please initial customers, since they will in turn influence many subsequent customers brand choices. Public policy A second application is public policy. In the 1980s, Accutane, a near miracle cure for spots, was introduced. Unfortunately, Accutane resulted in severe birth defects if taken by pregnant women. Although physicians were instructed to warn their female patients of this, a number still became pregnant while taking the drug. To get consumers attention, the Federal Drug Administration (FDA) took the step of requiring that very graphic pictures of deformed babies be shown on the medicine containers. Social marketing Social marketing involves getting ideas across to consumers rather than selling something. Marty Fishbein, a marketing professor, went on sabbatical to work for the Centers for Disease Control trying to reduce the incidence of transmission of diseases through illegal drug use. The best solution, obviously, would be if we could get illegal drug users to stop. This, however, was deemed to be infeasible. It was also determined that the practice of sharing needles was too ingrained in the drug culture to be stopped. As a result, using knowledge of consumer attitudes, Dr. Fishbein created a campaign that encouraged the cleaning of needles in bleach before sharing them, a goal that was believed to be more realistic. As a final benefit, studying consumer behavior should make us better consumers. Common sense suggests, for example, that if you buy a 64 liquid ounce bottle of laundry detergent, you should pay less per ounce than if you bought two 32 ounce bottles. In practice, however, you often pay a size premium by buying the larger quantity. In other words, in this case, knowing this fact will sensitize you to the need to check the unit cost labels to determine if you are really getting a bargain. CONSUMER BUYING PROCESS

There are Six Stages to the Consumer Buying Decision Process (For complex decisions). Actual purchasing is only one stage of the process. Not all decision processes lead to a purchase. All consumer decisions do not always include all 6 stages, determined by the degree of complexity. The 6 stages are: Problem Recognition (awareness of need) It is the Difference between the desired state and the actual condition. For example, Hunger means Food. Hunger stimulates your need to eat. Can be stimulated by the marketer through product information and they did not know you were deficient? Information search *Internal search, memory *External search, if you need more information. Friends and relatives (word of mouth), internet gives lot information about the product. Marketer dominated sources; comparison shopping; public sources etc. A successful information search leaves a buyer with possible alternatives, the evoked set. Hungry, want to go out and eat, evoked set is Chinese food, Indian food, burger king, Klondike kates etc Evaluation of Alternatives Need to establish criteria for evaluation, features the buyer wants or does not want. Rank/weight alternatives or resume search. May think and decide that you want to eat something spicy, Indian gets highest rank etc. If not satisfied with choice they return to the search phase. Can you think of another restaurant? Look in the yellow pages etc. Information from different sources may be treated differently. Marketers try to influence by "framing" alternatives. Purchase decision Choose buying alternative, includes product, package, store, method of purchase etc. Purchase It May differ from decision, time lapse between purchase decision and purchase is product availability. Post-Purchase Evaluation-outcome:

It is Satisfaction or Dissatisfaction. Cognitive Dissonance, have you made the right decision. This can be reduced by warranties, after sales communication etc.After eating an Indian meal, may think that really you wanted a Chinese meal instead. CUSTOMER LIFE TIME VALUE Customer Value Analysis (CVA) and customer loyalty marketing research are far more in-depth than our basic employee or customer satisfaction survey reports. CVA represents the typical benefit a marketing research study can have on an organization. Customer Value Analysis empowers organizations with superior business intelligence capable of unlocking complex market opportunities. This tool helps our clients define the actions that will result in a competitive advantage. In marketing, customer lifetime value (CLV), lifetime customer value (LCV), or lifetime value (LTV) is the net present value of the cash flows attributed to the relationship with a customer. The use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales. Customer lifetime value (CLV)is defined as the sum of cumulated cash flowsdiscounted using the Weighted Average Cost of Capital (WACC) of a customer over his or her entire lifetime with the company. In this chapter, we first discuss the importance and the relevance of CLV and compare it with other traditionally used metrics. Two approaches for measuring CLV, namely the aggregate approach and the individual level approach IMPORTANCE AND RELEVANCE OF CLV CLV is a measure of the worth of a customer to the firm. Calculation of CLV for all the customers helps the firms to prioritize the customers on the basis of their contribution to the firms profits. This can be the basis for formulating and

implementing customer specific strategies for maximizing their lifetime profits and increasing their lifetime duration. In other words, CLV helps the firm to treat each customer differently based on their contribution rather than treating all the customers same. Calculating CLV helps the firm to know how much it can invest in retaining the customer so as to achieve positive return on investment. A firm has limited resources and ideally wants to invest in those customers who bring maximum return to the firm. This is possible only by knowing the cumulated cash flow of a customer over his or her entire lifetime with the company or the lifetime value of the customers. TRADITIONALLY USED METRICS Some of the commonly used metrics for computing customer value include RFM, Share-ofWallet and Past Customer Value. RFM Method RFM stands for Recency, Frequency, and Monetary Value. This technique utilizes these three metrics to evaluate customer behavior and customer value. Recency: It is a measure of how long it has been since a customer last placed an order with the company. Frequency: It is a measure of how often a customer orders from the company in a certain defined period. Monetary value: It is the amount that a customer spends on an average transaction. Two methods are generally used for computing RFM. The first method involves sorting customer data from the customer database, based on RFM criteria and grouping them in equal quintiles and analyzing the resulting data. The second method involves the computation of relative weights for R, F, and M using regression techniques and then the use of those weights for calculating the combined effects of RFM. RFM can be considered as the sum of the

weighted recency, frequency, and monetary value scores for a customer. SHARE-OF-WALLET (SOW) Share-of-Wallet at an aggregate level is defined as the proportion of category value accounted for by a focal brand or a focal firm within its base of buyers. At an individual customer level, SOW is defined as the proportion of category value accounted for by a focal brand or a focal firm for a buyer from all brands that the buyer purchases in that category. It indicates the degree to which a customer meets his needs in the category with a focal brand or firm (Kumar & Reinartz, 2005). It is computed by dividing the value of sales (S) of the focal firm (j) to a buyer in a category by the size-of-wallet of the same customer in a time period. The information about a customers spending with competitors is not normally available with the firms. This is obtained from primary market research or surveys administered to a representative sample of firms customers. The results are then extrapolated to the entire buyer base. However, in certain B-to-B contexts firms can infer the size of wallet for certain products especially when the number of players in the market is few. PAST CUSTOMER VALUE This model is built on the assumption that the past performance of the customer indicates their future level of profitability and an extrapolation of the results of past transactions is a measure of customers value in the future. The value of a customer is determined based on the total contribution (towards profits) provided by the customer in the past. The contributions from past transactions are adjusted for the time value of money and the cumulative contribution till the present period is the past customer value (PCV) of a customer. Customer lifetime value has intuitive appeal as a marketing concept, because in theory it represents exactly how much each customer is worth in monetary terms, and therefore exactly how

much a marketing department should be willing to spend to acquire each customer. In reality, it is difficult to make accurate calculations of customer lifetime value. The specific calculation depends on the nature of the customer relationship. Customer relationships are often divided into two categories. In contractual or retention situations, customers who do not renew are considered "lost for good". Magazine subscriptions and car insurance are examples of customer retention situations. The other category is referred to as customer migration situations. In customer migration situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future. In customer retention situations, the firm knows when the relationship is over. One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned). An ideal customer is one who is highly profitable and loyal. The best marketing strategy is to find such customers and keep them loyal. Customer Loyalty and Profitability are distinct behaviors. Some of your customers could be highly profitable, but not very loyal. On the other hand, there are customers who are just mildly profitable, who tend to stay with you for a long time. However, the vast majority of customers tend to exhibit a behavior between these two extremes. Marketers could alter the behavior of these customers through innovative data-driven marketing strategies. Marketers use Customer Lifetime Value (LTV) as a single unified measure of profitability and loyalty of customers. More and more marketers use LTV as a basis for their marketing programs and strategic planning. LTV is nothing but the cumulative Net Present Value of the profits from a given customer (or a segment of customers) for a given number of years.

challenge for a businesses is to add value by creating an environment where collective customer service processes can outperform the service levels provided by competitors, yet retain the benefits of strong individual customer relationships. The key elements of having a clear customer focus and meeting their needs are: 1. Placing a high value on the customers you do have or attract 2. Identifying the kind of customer your business needs 3. Understanding customer choices that are available 4. Narrowing down the best market for your business (segmentation) 5. Selecting the appropriate level of service required for your chosen target market 6. Marketing your product or service effectively 7. Converting the opportunities created from targeted marketing into actual sales 8. Providing consistently good customer service and have a service improvement culture. CLV can be used to generate customer level strategies and optimize firm performance. Specifically these strategies include: (1) Customer selection, (2) Customer segmentation, (3) Optimal resource allocation, (4) Purchase sequence analysis, and (5) Targeting profitable prospects. These strategies help to maximize the profitability and customer equity of the firm, thereby increasing the shareholder value. They also have strategic impact on profitable lifetime duration of the customers. USES AND ADVANTAGES OF CLV Lifetime value is typically used to judge the appropriateness of the costs of acquisition of a customer. For example, if a new customer costs $50 to acquire (COCA, or cost of customer acquisition), and their lifetime value is $60, then the customer is judged to be profitable, and acquisition of additional similar customers is acceptable.

While estimating the LTV of your customers, there are several factors you need to consider, including: Revenue per customer: One of the key drivers for LTV is the spending rate, or revenue per customer. Retention: Increase in retention rate reduces customer service costs, increases revenue per customer. Additional Purchase: Existing Customer may make additional purchases that could increase their LTV. Referrals: When your customers turn into advocates, they recommend their friends, co-workers or relatives to your company. Referrals typically tend to have higher retention rates and spending rates. Costs: LTV computation should apportion costs to the customer. These costs include cost of services or products, plus the variable administrative costs, as well as the acquisition cost. Developing long-term relationships with individual customers is a critical success factor. The

Advantages of CLV: Management of customer relationship as an asset Monitoring the impact of management strategies and marketing investments on the value of customer assets Determination of the optimal level of investments in marketing and sales activities Implementation of sensitivity analysis in order to determinate getting impact by spending extra money on each customer Optimal allocation of limited resources for ongoing marketing activities in order to achieve a maximum return A good basis for selecting customers and for decision making regarding customer specific communication strategies Measurement of customer loyalty (proportion of purchase, probability of purchase and repurchase, purchase frequency and sequence etc.) Identify the attributes that matter to your customers and the competitors' customers. Show exactly how customers define these attributes. Quantify the company's performance and your competitor's performance. Show which competitors have superior value propositions and what can be done. Reveal which market players are poised to gain or lose market share. Provide a fact-based, data driven system for making decisions, beating the competition and tracking progress. TOOLS FOR CREATING CUSTOMER VALUE There are three values are important to create value analysis USER VALUES PAYER VALUES BUYER VALUES USER VALUES The user create the values in different context

Performance Quality improvement Innovations Mass customization Warranties and guarantees Social Price exclusivity Limited availability Social image ads Exclusive offerings Emotional Emotional communications PAYER VALUES The payer concentrates three main factor before they made purchase Price Low price from lower margins Low price from increased productivity (achieved through economies of scale, modernized plant, automation, business process re-engineering) Credit Acceptance of credit cards Offering of own credit card Deferred payment Financing Leasing Customized financing BUYER VALUES Service Product display and demonstration Knowledgeable salesperson Responsiveness User support and maintenance service Convenience Convenient point-of-access Automated transaction recording Personalization Personal attention and courtesy Interpersonal relationships SELECTION OF PROFITABLE CUSTOMER CRM helps companies understand the value of customers, target their most profitable customers,

cultivate and maintain high-quality relationships that increase loyalty and profits. Precise evaluation of customer profitability and targeting the most profitable customers are crucial elements for the success of CRM In todays competitive business environment, the ability to identify profitable customers, build their long-term loyalty and steadily expand existing relationships is key competitive factors to a company. To meet these factors, companies across a wide range of industries have made Customer Relationship Management (CRM) one of the leading business strategies, integrating sales, marketing and service across multiple business units and customer contact points. CRM helps companies understand the value of customers, target their most profitable customers, cultivate and maintain high-quality relationships that increase loyalty and profits. Precise evaluation of customer profitability and targeting the most profitable customers are crucial elements for the success of CRM. Many CRM researches have been performed to calculate customer profitability based on customer lifetime value and develop a comprehensive model of it. Most of them, however, had some limitations by not considering such as the change of profit contribution resulted from the customer defection (Berger & Nasr, 1998; Gupta & Lehmann, 2003). They need further extensions considering additional factors such as customer reactivation possibility, attracting/service cost and causes of customer defection. On the other hand, the customer segmentation based on their profitability to a company is still an underutilized approach. This study aims at providing an easy, efficient and more practical alternative approach based on the customer satisfaction survey for the profitable customers segmentation instead of using a customer profitability model, which is an important tool for

marketing and managing customer relationships by providing the information of overall satisfaction level, repurchase intentions, word-of-mouth intentions, etc. In our approach, we use intelligent tools such as Data Envelopment Analysis (DEA), SelfOrganizing Map (SOM) Neural network and C4.5 to segment profitable customers. DEA evaluates efficiency through the relation analysis between the companys input costs for a customer (e.g. marketing cost, production cost, inventory cost, delivery cost, service cost and relationship management cost) and the output (e.g. his/her satisfaction level, repurchase intentions and word-of-mouth intentions in the customer satisfaction survey and his/her profit contribution to it). Through the successive mining of customer satisfaction survey and socio-demographic data by SOM and C4.5, we segment profitable customers among all the surveyed customers. Here survey-based profitable customers segmentation system (SPCSS) that designs, executes (on-line, e-mail, etc.) the customer satisfaction survey for all customers in customer database of a company and conducts those mining works for the profitable customers segmentation. SPCSS has an architecture based on intelligent agent technology and also the integration of those mining process into decision support system framework by means of applying that technology. PROFITABLE CUSTOMER SEGMENTATION AND CUSTOMER SATISFACTION SURVEY Traditional customer segmentation models were based on demographic, attitudinal, and psychographic attributes of a customer (Griffin, 2003). Recently, the customer segmentation based on customer transactional and behavioral data (e.g. purchases type, volume and history, call center complaints, claims, web activity data, etc.) collected by various information systems is commonly used.

However, the customer segmentation based on his/her profitability to a company is still underutilized. Customer profitability is a customer-level measure that refers to the revenues less the costs which one particular customer generates over a given period of time and has been studied the name of Customer value, Customer Lifetime Value, LTV and Customer Equity. Much customer profitability researches focused on the future cash flow derived from the past profit contribution and did not considered the change of profit contribution resulted from the customer defection (Berger & Nasr, 1998; Gupta & Lehmann, 2003). It is difficult and complicated to develop an effective and exact customer profitability model and segment profitable customers based on that model. In this study, we provide an easy, efficient and more practical alternative approach through the customer satisfaction survey for the profitable customers segmentation instead of using that model. The typical customer satisfaction survey collects data on the causal context of satisfaction, i.e. antecedents (e.g. perceived performance of various product attributes/service) and consequences (e.g. overall satisfaction level, repurchase intentions and word-of-mouth intentions). According to the Satisfaction-Profit Chain principle (Anderson & Mittal, 2000), improving product and service attributes causes increased customer satisfaction, increased customer satisfaction leads to greater customer retention and improving customer retention greater profitability. The term customers overall satisfaction level, repurchase intentions, word-of-mouth intentions obtained from the customer satisfaction survey and his/her profit/loss to a company derived from the accounting database of it for the first step of profitable customers segmentation.

PROFITABLE CUSTOMERS SEGMENTATION BASED ON CUSTOMER SATISFACTION SURVEY We propose a survey-based profitable customers segmentation system (SPCSS) based on data mining and agent technology that designs, executes (on-line, e-mail, etc.) customer satisfaction survey and conducts predefined mining processes for the profitable customers segmentation. SPCSS has a multi-agent based architecture and the integration of predefined mining processes into decision support system framework.

There are three types of intelligent agents within the SPCSS architecture: Survey management (SM) agent with survey knowledge base that provides system co-ordination, facilitates (mined) knowledge communication, and takes the charge of design and execution of customer satisfaction survey, profitable customers segmentation (PCS) agent that segments profitable customers among all the surveyed customers through the mining of integrated data from the customer satisfaction survey and accounting database and decides the priority order for each non-profitable customer

according to the size of possibility that he/she is converted to profitable one through the mining of integrated data from the customer satisfaction survey and customer database, and user assistant agent that acts as the intelligent interface agent between the user (e.g. the engineer of customer satisfaction center) and the SPCSS. PROFITABLE CUSTOMERS SEGMENTATION BY THE PCS AGENT The first step is to find out the customers among all the surveyed ones that have higher efficiency about their output (e.g. the level of customer satisfaction, repurchase intentions, wordof-mouth intentions and profit/loss to the company) from companys input costs for them (e.g. marketing cost (campaign and advertisement), production cost, inventory cost, delivery cost, service cost and relationship management cost). We call the group of customers with higher efficiency HECG (High Efficiency Customer Group) in this study. To find out HECG, PCS agent employs DEA (Data Envelopment Analysis), an efficiency measurement tool, to evaluate the cost efficiency of all the surveyed customers (Charnes, Cooper, Lewin, & Seiford, 1994). DEA evaluates their efficiencies through the relation analysis between the companys input costs for them and the output. Because the customers who belong to HECG create more superior output than a companys input costs for them, they have an important effect on companys current and future profit generation. However, undesirable customers can belong to HECG because of the inaccuracy and inconsistency of survey data and so on. Therefore, the next step is to form profitable customers group (PCG) by removing undesirable customers that have similar socio-demographic features to non-HECGs ones among the customers belonging to HECG. PCS agent first extracts the sociodemographic (SD) features of HECGs customers

and classifies them into the extracted features using SOM (Self-Organizing Map), a special type of neural network using an unsupervised learning scheme (Kohonen, 1989). In other words, through SOM Training of HECGs SD data from customer database, PCS agent produces SOM weight vectors with the SD features information of HECG. PCS agent classifies all the surveyed customers into the extracted SOM weight vectors (i.e. SD features) of HECG.

The SOM Classification process (Lee, You, Park, 2001) produces similarity scores by using the inner product (or dot product) between the extracted SOM weight vectors (i.e., jZ1,.,k) that show the SD feature patterns of HECG and the SD data vector of a survey customer (i.e. Xi). The similarity score indicates the level of similarity between two vectors, the extracted SOM weight vector and observed SD data vector of customer belonging to the HECG.

In the case of similarity score higher than the similarity criteria that set a lower limit on the level of similarity, the customer is classified into the corresponding SD feature of HECG. In other words, the customer has that SD feature of HECG. For example, in the customers socio demographic data vector, Xi, is classified into the SD feature 1 (i.e.W1) among k SD features because the similarity score of two vectors, 0.98, is higher than the predefined similarity criteria, 0.95. Through the SOM classification with high similarity criteria setting as shown in above example, PCS agent composes the profitable customers group (PCG) by selecting the customers with the very similar SD features to HECGs ones among all the surveyed customers. Finally, PCS agent extracts the common SD rules of customers belonging to the PCG by C4.5 (Quinlan, 1993), a decision tree learning tool, and then these mined rules are accumulated in the survey knowledge base of SPCSS to use them for customer management later. NON-PROFITABLE CUSTOMERS PRIORITY ORDER DETERMINATION BY PCS AGENT After PCS agent segments profitable customers, it evaluates the possibility that nonprofitable customer (non-PC) is converted to profitable customer (PC) for all non-PCs and decides the priority order according to the size of possibility. PCS agent detects the discriminating factors (e.g. quality-related and/or service-related factors in the customer satisfaction survey) except sociodemographic (SD) ones that divide the survey customers into PCG and non-PCG through the analysis of survey data using C4.5. PCS agent chooses the nodes appeared in a decision tree created by C4.5 discriminating factors. It extracts the features of those discriminating factors of PCG through SOM Training and evaluates the similarity score between the customers pattern belonging to non-PCG and the extracted PCGs features in discriminating

factors through SOM Classification process. Finally it decides the priority orders according to the size of similarity score for all non-profitable customers (non-PCs). The resulted priority orders give a company the ability to prioritize customer interaction.