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Increase Brand Impact by Line Extensions

Women's clothing is an area where few companies "own" customers in the sense that customers buy predominantly one brand and would therefore be considered "Platinum" customers. Liz Claiborne, the world's largest women's apparel maker and marketer, however, has changed this customer behavior in its key segments. The company bonded with the female baby boom generation, being one the first companies to target them and truly understand them and their needs. Recognizing that baby boomers were a physically fit generation that didn't want to appear to age, the company created clothing that allowed customers to continue to appear slim despite a few added pounds. It convinced its target group that it really knew them, thereby establishing a fit with them both literally and emotionally. Then the company very successfully extended its product lines: Liz Collection for professional clothing, Liz Wear for casual clothes, Elizabeth for large women, Dana Buchman for women who can afford designer clothing. The company was so successful in its strategy that it extended its lines into pocketbooks, shoes, belts, jewelry, and even perfume.

Create Structural Bonds

Structural bonds (or learning relationships) are created by providing services to the client that are frequently designed right into the service delivery system for that client. Often structural bonds are created by providing customized services to the client that are technology-based and serve to make the client more productive. Allegiance Healthcare Corporation, a spin-off of Baxter Healthcare, provides an example of structural bonds in a business-to-business context. The company has developed ways to improve hospital supply ordering, delivery, and billing that have greatly enhanced their value as a supplier. They created "hospital-specific pallet architecture" that means that all items arriving at a particular hospital are shrink-wrapped with labels visible for easy identification. Separate pallets are assembled to reflect the individual hospital's storage system, so that instead of miscellaneous supplies arriving in boxes sorted at the convenience of Allegiance's needs (the typical approach used by other hospital suppliers), they arrive on "client-friendly" pallets designed to suit the distribution needs of the individual hospital. By linking the hospital through its ValueLink service into a database ordering system, and providing enhanced value in the actual delivery, Allegiance has structurally tied itself to its over 150 acute-care hospitals in the United States. In addition to the enhanced service ValueLink provides, Allegiance estimates that the system saves its customers an average of $500,000 or more each year.(n16)

An excellent example of structural bonds in business-to-consumer markets is Hallmark's Gold Crown Card program that identifies what each customer values about his or her relationship with Hallmark as a platform for turning him or her into a Platinum customer. After enrolling at any Hallmark store, customers are immediately mailed high-quality plastic cards that can be used within a month to earn bonus points. Thereafter, for every dollar spent and for every Hallmark card purchased they earn points that accumulate and turn into dollar savings. At 300 points per quarter, a customer joins the equivalent of a Gold tier, receiving a personalized point statement, a newsletter, Reward Certificate, and individualized news of new products and events at local stores.

In 1996, Hallmark created its Platinum level for the very top 10% of customers who buy more cards and ornaments than others. They are sent elaborate mailing pieces with gold seals and new membership cards clearly identifying them as preferred members. Along with amenities (such as longer bonus periods and their own private priority toll-free number), the company communicates with them individually about the specific products they care about. Buyers of Christmas Keepsake ornaments receive specialized information about them, whereas heavy buyers of cards receive free cards to introduce new lines. Because these communications are not programmed, customers experience surprise and delight.(n17)
Results have been impressive. In addition to over 50 consecutive months of share gains since inception of the program, the revenue represented by Gold Crown Program (in our terminology Platinum) members was more than a billion dollars in 1997 and over $1.5 billion in 1998. Member sales represent 35 percent of total store transactions and 45 percent of total store sales.(n18)

Offer Service Guarantees

Because service problems and dissatisfaction lead to customer defections, companies must use the most powerful methods to find out when service problems occur and then to resolve them quickly and completely. Possibly the most effective strategy for accomplishing this is the service guarantee, whereby a company assures customers that they will be satisfied or else they receive some form of compensation commensurate with their problem. While many forms of service guarantees exist, and cover different aspects of service (meeting deadlines, delivering a smile, achieving reliability), the type of service guarantee most relevant for the very best customers is a complete satisfaction guarantee. This can take several forms, but the form that is best for the customer assures satisfaction and, lacking satisfaction, promises the customer that any problems that occur will be fixed immediately. Strategies exist for effective guarantees--they should, for example, be easy to invoke and have a clear payoff--and these should be followed to create the very best guarantee possible. That way, Gold customers will have no reason to leave and will want to stay and become Platinum customers.

Turning Iron into Gold

Customer alchemy can also change something ordinary (a less profitable Iron customer) into something valuable (a more profitable Gold customer). There are many ways to turn Iron customers into Gold customers. The foundation involves finding out what is most important to the Iron customers--not assuming that it is the same thing that is important to Gold customers--and then attending to the specific factors that drive the Iron customers' satisfaction and behavior. With this lower level of customers, it is rarely necessary to find out what makes each individual customer satisfied. Instead, it is critical to find the key drivers of the relationships across the customers in the tiers. In our example, we saw how improving the key driver of the lower 80% (attitude) could increase both incidence of new business and volume of new business, thereby turning some lower-tier customers into upper-tier customers. Once we identify these factors, we can use one of the following strategies to increase usage and profitability of those customers.

Reduce the Customer's Nonmonetary Costs of Doing Business

Since the idea in the Customer Pyramid is not to reduce price and thereby lower profit margins, a company should constantly be looking for ways to lower the nonmonetary costs of doing business with customers. An excellent approach to this strategy involves reducing the hassle and search costs that customers associate with making purchases in many high-technology categories today. Small businesses, for example, have tremendous difficulty deciding what forms of communication technology to buy and from which suppliers. So many offerings and combinations of offerings exist and a plethora of providers constantly besiege customers with differences that are difficult for them to discern. Alltel, a full-service high-technology communications firm, offers an answer that works very well for small businesses and individuals. A customer can obtain all three components--paging, wireless, and long distance--from the company, have it all appear on the same bill, and deal with all service problems easily by having only one customer service department for all three services. In doing so, the company has also increased its business with the customer, as it now obtains not just the customer's paging business or long distance business or wireless business, but all three. The costs of dealing with the customer are reduced as well, because handling a single customer with three services costs less internally than handling three different customers, each with a single service. The customer is now a Gold customer rather than an Iron customer and is far more strongly linked into the firm because its associations cross service categories.



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