LRC Simulation Series: Lesson Two


Welcome to Lesson 2.

This lesson and the ones that follow use an example company to illustrate key concepts in building customer loyalty.

Imagine being responsible for a budget that calls for decisions on investment in four areas of experience: Product, Price, Service and Delivery – really the operations of the company. You know your performance across these areas varies and you want to make an investment to improve. But in which areas?

You use a survey where customers rate each experience on a scale from 1 (lowest) to 7 (highest).

Assume that current scores are at a middle value of 4. Improving in all of these areas of experience likely would result in stronger customer loyalty.

However, what if you could improve in only one area? (Doing so also may prove easier for communicating the new benefit to the market.) The results that follow were generated for a given set of customer preferences under simplified conditions.

Please choose one of the four options below to improve your current customer loyalty profile—raising the level from 4 to 5—then compare your choice to the other options.

Raise approval level of Product from 4 to 5.

 Raise Price from 4 to 5. Note that raising the approval level of Price generally means lowering prices.

Raise Service from 4 to 5.

Raise Delivery from 4 to 5.

Given the assumption that the money spent is the same across all four areas, simulated results show that raising the level of Product (from 4 to 5) is most effective at strengthening customer loyalty.

In fact, in terms of driver strengths identified by the simulation for this set of runs Product is a very strong driver of loyalty, Service is a moderate driver, and Price & Delivery are both weak drivers.

So? How did you do? What did you learn?

That the strongest driver was most effective at strengthening customer loyalty, right? How will you apply what you have learned? Not an easy question. In real life, how would you make your decision without this information? An iterative approach of making one small change at a time may not be practical, time-wise, and a “blanket” approach of exploring combinations of changes may not be cost effective.

What information would help you make a sound decision?

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