How Does Office Depot Create Value for Its Customers?

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How does Office Depot create value for its customers?

Answer: They have connected their system with a toll-free number that ensures that customers’ calls are not charged. They provide a free interacting atmosphere for the customers and are ready to listen to their problems. They offer delivery services to their customers; they advertise their products through the internet hence easy access by the customers. They have employed several operators who receive order calls from the customers, this minimizes the cost of the customers traveling to the company to make orders (Cravens and Piercy, 2000).

Identify the four broad target markets that Office Depot serves

Answer: Their target markets include offices, schools, homes, Universities, and colleges.

Are Steve and Dana the right customers for Office Depot? Justify your answer.

Answer: Yes they are the right Customers; this is because the products that Office Depot offers can be used at home, in offices, and in learning institutions. Steve is a professor at a university and hopefully requires office accessories like a pen to write; likewise, Dana needs some of these tools to use at home like a pen.

What is the critical element that went wrong with Steve’s order?

Answer: The level of customer management/service was very poor. There was no element of customer-centrism, the Office Depot should evaluate whether they practiced what they preached. The order was not delivered within the required time and at the expected place. The company should use customer equity to ensure that they influence the buying behavior of their customers.

What customer satisfaction problems do you see in the case? Answer this by addressing the following two aspects:

Product delivery

They take longer days to deliver items contrary to what their website indicates. The customers are often comfortable with the companies which perform as they say especially when it comes to timing. The customer also requires their goods to be delivered at the doorstep; this is contrary to the way the service was done where the delivery person remained inside the vehicle expecting the customer to come to him for delivery confirmation. The product deliverer had a communication problem since he never knew how to speak English so well (Cravens and Piercy, 2000).

Steve reporting the situation to Office Depot

The office Depot customer service line is engaged most of the time; this makes the customers wait for a long time before their calls are answered. Steve had to be referred to several individuals before finally being linked to whoever could attend to his complaint. This causes some frustration on the side of customers since some of them, like Steve; also have some other important issues to look into at the workplace. There was no assurance by the Office Depot to take stern actions against whoever caused any dissatisfaction to customers. This jeopardizes the retention management of the customers by the company since it creates some mistrust between the company and its customers (Cravens and Piercy, 2000).

Customer satisfaction is driven by customer expectations – what were Steve’s expectations in this case?

Answer: Steve expected that whenever he made any call to Office Depot his call was to go through successfully without any delay. He expected to be answered immediately by the right person without being taken through many people. At the same time, Steve also expected his dispatched goods to be delivered to him within five business days from the day of making the order. The goods were to be delivered at the doorstep, not at the runway. Therefore the customer expectations focused on effective communication, efficiency in delivery, and time (Cravens and Piercy, 2000).

Describe the concepts of customer lifetime value and customer equity

The Customer Lifetime Value Concept

The customer value comprises all different aspects of the customer’s contribution to the success of the company (Cornelsen, 2000, pp. 38). The customer lifetime value is normally used to measure the rate of profit that comes from a customer to the company over the entire life cycle of the customer. The principles of contemporary finance that is applied through the customer lifetime value, helps in evaluating the customer relations and in knowing the level of profits that each customer gives. Several models have been developed in line with customer lifetime value (Jackson 1992, p. 44).

The variables incorporated in these models can be classified into; revenue, costs, and retention rate (Kumar, 2000, p.9). The retention rate is the probability that an individual customer maintains loyalty to a specific supplier and gives out expected revenue alongside costs within a stated period. The retention rates help in the adjustment of the contribution margins towards the probability of occurrence (Dwyer, 1997, pp. 6). Revenue is a major determinant of the customer’s effects over the life cycle and helps in identifying the specific points on which to adjust. The customer costs are usually shown in the line of product-related accounting. The costs of acquisition are considered as the company’s investment on the customer that cannot be recovered. The marketing costs are those that are used to retain and develop customers while the sales costs comprise the production costs and service costs.

The concept of customer Equity

This concept unifies the value that is accorded to customer management, brand management, and relationship management. This model is a tool that enables companies to identify which drivers to apply to realize a financial benefit. The customer equity model provides a link between marketing and customer spending behavior hence makes it easy for managers to plan wisely.

How are both of these concepts incorporated in this case?

Answer: The concept of the customer lifetime value has been incorporated in the Office depot through the delivery of goods however small the package may be, this makes it easy for the company to acquire customers. The concept of customer equity has been utilized through web advertisements which provides the necessary link between the customers and the company. The relationship management has also been enhanced by the toll-free number the company offers to enable easy communication between the company and the customers.

Based on the following four assumptions what is the net present value of the potential lost revenues if Steve and Dana both stop buying from Office Depot?

The average life of a customer is 4 years;
Office Depot’s weighted average cost of capital is 10%
Dana spends $ 1,000 per annum on office supplies and she expects this to grow by 20% per annum over the next 3 years; and
Steve spends $ 200 per annum on office supplies and he expects this to grow by 5% per annum over the next 3 years

Answer:

Year	Dana (20% p.a.)	Steve (5% p.a.)
1^st	1,000	200
2^nd	1,200	240
3^rd	1,440	288
4^th	1728	346
	NPV = $ 3,333	NPV = $ 941.6

If you were in charge of office Depot’s customer service operation and learned of Steve’s story, what steps would you take to.

Assure Steve that his complaint is being dealt with

Because the marketing issue is striving to become more accountable, the models must be chosen carefully, only the ones that assist in assessing the rate of marketing investment are to be given priority. I would have empathized with Steve’s situation, feel sorry about it on behalf of the company and then ask Steve to help me identify the descriptions of the delivery person and the registration number of the delivery vehicle if at all he had noted down. This will send some messages to Steve that the company is dissatisfied with the way the delivery was made and was ready to take action against the person involved. This action renders the customer value to the company and helps in enhancement and volatility of cash flows (Fahey et al, 1999).

Ensure that Office depot minimizes the chances of this type of poor services recurring

The customer’s satisfaction with the firm always has a crucial impact on the duration to which the customer is willing to relate with the company. Owing to this, I would inform the management to increase the number of call centers and customer attendants to cater to the large customer base. This will ensure that the cases of customers being caused to wait for a longer time before being attended to are minimized. The performance of the delivery persons must also be followed up by calling back the customers to ensure that the delivery was done successfully at the right time and in the right manner to satisfy the customers. The company should also identify profitable customers and allocate their resources accordingly (Kumar and Reinartz, 2006).

Acquisition and retention of customers are two factors that determine the profitability of any business since there is a link between the two. They should acquire customers based on their profitability as opposed to what most businesses look at, and that is based on the acquisition and retention cost (Kumar and Reinartz, 2006).

References

Cornelsen, J. (2000). Customer Value Analyses in Relationship marketing; Theoretical Foundation and Results of an Empirical Study in the Automobile Industry. Numberg.

Cravens, D., and Piercy, N. (2000). Strategic Marketing. McGraw-Hill – Irvin (9^th ed.), Boston.

Fahey, L., Srivastava, R. K. and Shervani, T. A. (1999): Marketing, Business Processes , and Shareholder Value, Journal of Marketing, Vol. 63, Special Issue 1999, pp. 168–179.

Jackson, D. R.(1992). In Quest of the Grail: Breaking the Barriers to Customer Valuation, Direct Marketing, Vol. 55, No. 3, pp. 44–47.

Kumar, V., and Reinarz, W., (2006). Customer Relationship Management: A Data based Approach. New York.

Kumar, V. (2000). On the Profitability of Long-Life Customers in a Non-contractual Setting: An Empirical Investigation and Implications for Marketing, Journal of Marketing, Vol. 64, pp. 17–35.

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