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      In today`s business world, few companies can maintain their competitive advantage through their technological competence alone. Therefore, many companies attempt to improve their competitiveness through motivating their employees, whom we call here internal customers. Particularly in service industry, the role of employees for customer satisfaction and competitive advantage is very important. In one word the system to meet the needs of internal customers should be put in place in order for them to be able to provide high quality service to external customers. This paper applies the basic principals of marketing to what we call internal marketing, i. e., marketing geared toward internal customers. Specifically the paper deals with how a company can differentiate the compensation packages to employees based on segmentation with a view to enhancing their total satisfaction level. Based on the questionnaires filled out by 190 people who work at several leading advertising agencies in Korea, we obtained the following findings. 1. The most important component of a compensation package is education and training program provided by the company. 2. The total utility for employees goes up when the compensation package is differentiated depending upon the segment to which each employee belongs. 3. The utility level for employees goes up most if they are segment based on their preference. Thus advertising companies should expand their training program and provide preference-based compensation packages to their employees. In addition, companies can consider the relative importance of compensation components in developing the compensation policy.
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      In today`s business world, few companies can maintain their competitive advantage through their technological competence alone. Therefore, many companies attempt to improve their competitiveness through motivating their employees, whom we call here i...

      In today`s business world, few companies can maintain their competitive advantage through their technological competence alone. Therefore, many companies attempt to improve their competitiveness through motivating their employees, whom we call here internal customers. Particularly in service industry, the role of employees for customer satisfaction and competitive advantage is very important. In one word the system to meet the needs of internal customers should be put in place in order for them to be able to provide high quality service to external customers. This paper applies the basic principals of marketing to what we call internal marketing, i. e., marketing geared toward internal customers. Specifically the paper deals with how a company can differentiate the compensation packages to employees based on segmentation with a view to enhancing their total satisfaction level. Based on the questionnaires filled out by 190 people who work at several leading advertising agencies in Korea, we obtained the following findings. 1. The most important component of a compensation package is education and training program provided by the company. 2. The total utility for employees goes up when the compensation package is differentiated depending upon the segment to which each employee belongs. 3. The utility level for employees goes up most if they are segment based on their preference. Thus advertising companies should expand their training program and provide preference-based compensation packages to their employees. In addition, companies can consider the relative importance of compensation components in developing the compensation policy.

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