Customer care refers to the manner in which a business treats its customers. It involves creating an organizational culture that prioritizes the delivery of high-quality services and acknowledges that customers have rights and expectations that must be met. As an entrepreneur, integrating customer care into your business operations is essential for achieving success. A customer-centric vision emphasizes employees putting customers first, ensuring transparency, accountability, and responsiveness. The philosophy "the customer is king and always right" underscores the importance of valuing customer demands for quality services. In today's business environment, there's a growing focus on enhancing service delivery and ensuring promises are kept. Entrepreneurs should be responsible, accessible, quick to resolve problems, reliable, knowledgeable, courteous, empathetic, and maintain a clean and organized work environment.
Ten Tips for Customer Care
1. Reliability: Reliability is the cornerstone of good customer care. It refers to the consistency of performance and dependability. This involves performing services correctly the first time and fulfilling promises made to customers. It also means being impartial and avoiding favoritism, even with friends and relatives in business transactions.
2. Responsiveness: Responsiveness is the willingness and readiness of entrepreneurs and their employees to provide services within a reasonable timeframe, ideally immediately or sooner. This ensures that customer needs are addressed promptly and efficiently.
3. Competence: Competence refers to the possession of the required skills and knowledge by those delivering services to customers. This builds confidence and trust, assuring customers that their needs are being handled by capable individuals.
4. Accessibility: Accessibility is the degree to which entrepreneurs and their employees are approachable and easily contacted. This involves being available to customers, greeting and serving them promptly, and making it easy for them to reach out for assistance.
5. Courtesy: Courtesy encompasses politeness, respect, consideration, and friendliness in all customer interactions. This is especially important for front-line staff such as receptionists, secretaries, and telephonists, who must maintain a polite and courteous demeanor at all times.
6. Communication: Effective communication involves keeping customers well-informed in a language and style they understand. It's crucial to listen and understand what customers are saying and to communicate effectively with suppliers as well.
7. Credibility: Credibility is about being trustworthy and faithful to customers. This involves putting customers' interests at heart and ensuring they feel prioritized and confident that their orders will be executed and received as expected.
8. Security: Customers should feel protected from danger, risk, or doubt within the business premises. This involves creating a safe and secure environment where customers feel comfortable and confident.
9. Knowledge of Customer: Entrepreneurs should understand their clients' specific requirements, recognize regular clients, strive to provide individualized attention, and understand what drives their purchasing decisions.
10. Tangibles: Tangibles include the physical evidence of the business, such as the building, handling, tools, equipment, and packages, as well as the appearance of personnel. Employees should be neat, orderly, and clean.
Benefits/Importance of Customer Care
Prioritizing customers leads to new business, increased profit margins, and sales. Customer care creates new customers and fosters constructive consumer dialogue, enabling entrepreneurs to understand customer needs and wants. It builds strong relationships and customer loyalty, turning passive customers into loyal advocates. Good customer care enhances corporate excellence, builds a positive reputation and image, and transforms the business into a market-driven entity.
Perquisites of Meeting Customer Expectations
Meeting customer expectations involves:
1. Being courteous and tactful.
2. Being friendly and helpful.
3. Dealing promptly and decisively with customers.
4. Rectifying faults quickly and keeping promises.
5. Listening to customers attentively and responding promptly.
6. Avoiding sarcasm when dealing with customers.
7. Presenting information logically and comprehensively.
8. Sticking to commitments.
9. Informing customers about business updates that may affect them.
10. Being fair and honest.
11. Demonstrating the right skills at the right time.
12. Giving customers professional treatment.
13. Knowing the customer's business and needs.
Who Decides if Customer Service is Good?
Customer service is a function of customer perceptions, not internal standards. Even if all standards are met, poor customer perception results in poor service. Customer satisfaction is the sum of the customer's experience. Customers return to places that provide a pleasant experience, so focus should be on creating that experience.
Prime Examples of Poor Customer Care
1. Poor delivery and accessibility of services.
2. Poor quality and state of merchandise.
3. Long customer queues.
4. Dirty business environment.
5. Failure to meet client expectations.
Dealing with Unprincipled Customers
Never show a customer they are wrong. Assume they are right. Understand that some customers have hidden agendas. Deter bad intentions by being upright.
Steps to Defeat Unprincipled Customers:
1. Continue to show a good image.
2. Smile when talking to customers.
3. Accept blunders and apologize.
4. Avoid arguing.
5. Maintain composure.
Building Customer Trust
1. Keep promises.
2. Make promises you can keep.
3. Keep commitments.
4. Communicate if you can't fulfill promises.
5. Call back as promised.
6. Follow up on orders.
7. Handle complaints properly.
8. Make recommendations best for customers.
9. Recommend competitors when needed.
10. Be available after the sale.
Creating Customer Comfort
Customer comfort is about meeting needs and enabling a sense of control. Customers feel in control when they understand how things work.
Developing and Maintaining a Customer Charter
A customer charter and mission statement should be visible. The charter reminds workers and assures customers of service expectations and grievance procedures. It should outline service standards and duties.
Customer Charter Elements:
1. Telephone: Answer within a set number of rings.
2. Enquiries: Short turnaround time, follow-up, courtesy options.
3. Correspondence: Correct, short turnaround, acknowledgment.
Ensure the charter includes a grievance redress system.
Costing and Pricing
Definition of Costing Terms
Costing
Costing is the method or process used to calculate the total expenses involved in producing or selling a product or providing a service. It's a systematic approach to determining the overall cost structure, which is essential for pricing decisions, profitability analysis, and financial planning.
Costs
Costs represent all the monetary expenditures a business incurs in the production and sale of its goods or services. These expenditures encompass a wide range of items, from raw materials and labor to overhead expenses. Understanding and managing costs is crucial for maintaining profitability and competitiveness.
Direct Costs
Direct costs are those expenses that can be directly attributed to the production of specific products or services. They are easily traceable and directly linked to the output. Direct costs are typically categorized into direct material costs and direct labor costs.
Direct Material Costs
Direct material costs refer to the expenses incurred on raw materials, components, and parts that directly become part of the finished product or are essential for providing a service. For retailers and wholesalers, the cost of purchasing goods for resale is considered a direct material cost. To qualify as a direct material cost, the quantity and cost of the material must be easily measurable and significant enough to substantially impact the total direct material costs.
Direct Labor Costs
Direct labor costs encompass the wages, salaries, and benefits paid to employees who are directly involved in the production of goods or services. The time spent by these employees on manufacturing the product must be easily calculable, and the cost of their labor must be substantial enough to significantly contribute to the total direct labor costs. Retailers and wholesalers typically do not have direct labor costs related to product manufacturing; instead, all salaries and wages are considered indirect costs.
Direct Expenses
Direct expenses are any costs directly related to the production of a specific product. These can include delivery costs specifically for raw materials used in one product, or the cost of hiring specialized machinery used exclusively for one product. These expenses are easily traced to the product being made.
Indirect Costs
Indirect costs, also known as overheads or expenses, are all other costs incurred by the business in its day-to-day operations. These include rent, interest, electricity, and the salaries of supervisors, managers, accounting clerks, secretaries, and other administrative staff. Indirect costs are not directly attributable to a specific product or service but are essential for running the business.
Calculating Total Cost Per Item: A Step-by-Step Guide
Identify and Calculate Direct Costs:
1.1. Direct Material Costs: Begin by identifying all the raw materials and components that are directly used in the production of the item. Determine the cost of each material per unit. Calculate the total direct material cost per item by summing the costs of all materials used. Example: If a wooden chair requires 2 meters of wood at $5 per meter and $3 worth of screws, the direct material cost is (2 * $5) + $3 = $13.
1.2. Direct Labor Costs: Determine the wages or salaries paid to employees who are directly involved in the production of the item. Calculate the time spent by these employees to produce one unit of the item. Calculate the direct labor cost per item by multiplying the hourly wage rate by the time spent. Example: If it takes 1 hour to assemble a chair and the labor rate is $15 per hour, the direct labor cost is $15.
1.3. Direct Expenses: Identify any expenses that are directly related to the production of the item. Calculate the direct expense per item. Example: If a special glue is used only on one product and the glue cost 1 dollar per item, then the direct expense is $1.
1.4. Total Direct Costs: Sum the direct material costs, direct labor costs, and direct expenses to arrive at the total direct cost per item. Example: using the values from above. $13 (direct material) + $15 (direct labor) + $1 (direct expenses) = $29 (total direct costs).
Calculate Total Indirect Costs (Overheads):
2.1. Identify All Indirect Costs: List all the indirect costs incurred by the business, such as rent, utilities, administrative salaries, and depreciation.
2.2. Determine the Allocation Base: Choose a suitable allocation base to distribute the indirect costs among the products. Common allocation bases include: Direct labor hours, Direct material costs, Machine hours, Sales revenue. The chosen base must be appropriate to the type of business.
2.3. Calculate the Allocation Rate: Divide the total indirect costs by the total allocation base. Example: If Total indirect costs are $10,000 and the total direct labor hours are 500 hours, then the allocation rate is $10,000 / 500 hours = $20 per labor hour.
2.4. Allocate Indirect Costs to Each Item: Multiply the allocation rate by the amount of the allocation base used by each item. Example: If each chair requires 1 labor hour then each chair has $20 of indirect cost allocated to it.
Calculate Total Cost Per Item:
3.1. Add Direct and Indirect Costs: Sum the total direct cost per item and the allocated indirect cost per item. Example: Using the example values from above, $29 (total direct cost) + $20 (allocated indirect cost) = $49 (total cost per chair).
Costing Process Where More Than One Product Is Produced:
When a business produces multiple products, the process becomes more complex. Here’s how to approach it:
1. Separate Direct Costs: Accurately track and separate the direct material, labor, and expenses for each product.
2. Allocate Indirect Costs: Choose an appropriate allocation base that reflects the consumption of resources by each product. Calculate the allocation rate. Apply the allocation rate to each product based on its usage of the allocation base.
3. Calculate Total Cost Per Product: Sum the direct costs and allocated indirect costs for each product separately.
4. Cost Per Unit: Divide the total cost per product by the number of units produced of that product.
Important Considerations:
• Accuracy: Ensure accurate tracking of all costs.
• Consistency: Use consistent costing methods.
• Regular Review: Periodically review and update costing methods to reflect changes in production and costs.
• Documentation: Maintain detailed records of all costing calculations.
Pricing
Definition:
Pricing is the process of determining the amount of money a business will charge customers for its products or services. It involves strategic decisions that consider costs, market conditions, and competitive factors.
Calculations of Prices of Products
After determining the cost of producing a product, the next step is to calculate the selling price. Two common methods are mark-up and margin.
Mark-up: Mark-up is the profit expressed as a percentage of the cost. Formula: Mark-up = (Profit / Cost) * 100%
Margin: Margin is the profit expressed as a percentage of the selling price. Formula: Margin = (Profit / Selling Price) * 100%
Profit: Profit is the difference between the selling price and the cost. Formula: Profit = Selling Price - Cost
Example:
If the selling price is $250.00 and the cost is $200.00:
When establishing prices for products or services, entrepreneurs must consider several key factors to ensure competitiveness and profitability.
a) Customers
Understanding customer willingness to pay is crucial for effective pricing. Businesses should conduct surveys and market research to determine the price range customers are comfortable with. Setting a price higher than what customers are willing to pay will result in lost sales and reduced demand. Therefore, the selling price should align with customer perceptions of value.
b) Competitors
Competitive analysis is essential for setting prices that are competitive within the market. Entrepreneurs should research the pricing strategies of their competitors to avoid losing customers to lower-priced alternatives. Customers, being economically rational, will typically choose products that offer the best value for their money. Therefore, the selling price should be equal to or lower than the prices charged by competitors to maintain a competitive edge.
c) Cost and Profit
Entrepreneurs must consider the costs associated with producing or providing their products or services. To ensure profitability, the selling price must exceed the total cost of production. The minimum price should cover the cost of goods sold plus a desired profit margin. Conversely, the maximum price should be aligned with competitor pricing or customer willingness to pay, whichever is lower, to balance profitability and market competitiveness.
Pricing Strategies
A pricing strategy is a planned approach to setting prices that aligns with business objectives. The price an entrepreneur charges should fall within a range that balances profitability and demand. Product costs establish the lower limit, while consumer perceptions of value set the upper limit. Entrepreneurs must consider competitor pricing and other external and internal factors to determine the optimal price within this range.
Cost-Based Pricing: Cost-based pricing strategies determine prices based on the cost of production or acquisition. These methods include:
Cost-Plus Pricing:This involves adding a standard mark-up percentage to the total cost of the product. It is a straightforward method that ensures all costs are covered and a profit margin is achieved.
Break-Even Pricing (Target Profit Pricing):This strategy sets prices to cover the costs of producing and marketing a product, allowing the business to break even. Alternatively, it can be used to set prices that achieve a specific target profit.
Value-Based Pricing: Unlike other cost-based methods, value-based pricing focuses on the customer's perceived value of the product rather than the seller's cost. This approach sets prices based on how much customers are willing to pay for the perceived benefits.
Value Pricing: This involves offering a combination of quality products and excellent service at a fair price. It focuses on providing value to customers, enhancing customer satisfaction and loyalty.
Competition-Based Pricing: Competition-based pricing strategies set prices based on the prices charged by competitors for similar products.
Going-Rate Pricing: This approach sets prices based largely on competitors' prices, with less emphasis on the company's own costs or demand. The business may choose to price its products at, above, or below the prices of its major competitors.
Sealed-Bid Pricing: This strategy is used when businesses submit sealed bids for projects or contracts. The price is determined based on how the entrepreneur believes competitors will price their bids, rather than solely on their own costs or demand.
Other Pricing Strategies:
Skimming Pricing: This strategy involves setting a high initial price for a new product to maximize revenue from early adopters who are willing to pay a premium. The goal is to "skim" maximum revenue from each segment of the market.
Market Penetration Pricing: This strategy involves setting a low initial price for a new product to attract a large number of buyers and gain a significant market share quickly.
Discount and Allowance Pricing: This includes various discount strategies such as:
Cash Discount: Offering a discount for prompt payment.
Quantity Discount: Providing a discount for purchasing large quantities.
Functional Discount (Trade Discount): Offering discounts to channel members for performing certain functions.
Seasonal Discount: Providing discounts for purchasing products during off-peak seasons.
Business Growth
Introduction
Business growth refers to the expansion of an organization's size, encompassing aspects such as operational capacity, number of employees, and capital. Growth is a natural outcome for successful businesses and can occur through organic or external means. Organic growth involves a firm expanding through its own efforts, resources, and reinvested profits. External growth, on the other hand, occurs when a business combines its resources with another, resulting in either a merger or acquisition.
Important Terms
Merger: A merger is the consolidation of two business organizations, where they combine their shareholding and fixed assets to form a single, unified business entity.
Acquisition: An acquisition, or takeover, occurs when one business purchases the shareholding and assets of another, absorbing the acquired business into its operations.
Internal Growth
Internal business growth can be effectively understood through the application of the Ansoff Product/Market Matrix.
Ansoff Product/Market Matrix
The Ansoff Growth Matrix is a strategic tool that assists businesses in determining their product and market growth strategies. It posits that a business's growth efforts depend on whether it markets new or existing products in new or existing markets. The matrix generates a series of suggested growth strategies that guide the business's strategic direction.
Market Penetration
Market penetration is a growth strategy where a business focuses on selling its existing products within its existing markets. This strategy aims to achieve several key objectives:
Maintaining or increasing the market share: of current products through competitive pricing, advertising, sales promotion, and enhanced personal selling efforts.
Securing dominance in growth markets: by capitalizing on existing market presence.
Restructuring mature markets: by driving out competitors through aggressive promotional campaigns and strategic pricing.
Increasing product usage: among existing customers through loyalty programs and other initiatives.
Market penetration is essentially "business as usual," focusing on familiar markets and products. This strategy leverages existing knowledge of competitors and customer needs, minimizing the need for extensive new market research.
Market Development
Market development is a growth strategy that involves selling existing products into new markets. This can be achieved through various approaches:
Entering new geographical markets: by exporting products to new countries.
Introducing new product dimensions: or packaging to appeal to different customer segments.
Utilizing new distribution channels: to reach a wider audience.
Implementing different pricing policies: to attract new customers or create new market segments.
Product Development
Product development is a growth strategy where a business aims to introduce new products into its existing markets. This strategy may require the development of new competencies and necessitates the creation of modified products that appeal to existing customer bases.
Diversification
Diversification is a growth strategy that involves marketing new products in new markets. This is an inherently riskier strategy, as the business is entering unfamiliar markets with limited or no experience. To adopt a diversification strategy, a business must have a clear understanding of the new market and possess the necessary resources and capabilities to succeed.
