Marketing Management

Creating Customer Value, Satisfaction, and Loyalty

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Marketing Management

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Customer Value
Customer Value may be defined as the difference between customer realization of benefits of an offering and the cost to acquire it. Realization is what the customer receives, which includes product features, quality, and service. This takes into account the customer's cost to use, maintain, and dispose of the product or service. Acquisition cost is what a customer gives up, which includes the amount the customer pays for the product plus the time and effort spent acquiring the product and learning how to use it. Maximizing customer value means maximizing the difference between realization and the cost.

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Customer Value
Value of a product within the context of marketing means the relationship between the consumer's expectations of product quality to the actual amount paid for it. It is often expressed as the equation : Value = Benefits / Price There are parallels between cultural expectations and consumer expectations. Thus pizza in Japan might be topped with tuna rather than pepperoni, as pizza might be in the US; the value in the marketplace varies from place to place as well as from market to market. For a firm to deliver value to its customers, they must consider what is known as the "total market offering." This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitors' market offerings and prices. Value can thus be defined as the relationship of a firm's market offerings to those of its competitors. Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of individual's emotional, mental and physical condition plus various social, economic, cultural and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars. For an organization to deliver value, it has to improve its value : cost ratio. When an organization delivers high value at high price, the perceived value may be low. When it delivers high value at low price, the perceived value may be high. The key to deliver high perceived value is attaching value to each of the individuals or organizationsmaking them believe that what you are offering is beyond expectationhelping them to solve a problem, offering a solution, giving results, and making them happy.

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Customer Value

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Customer Value
Total customer benefit Total customer cost

Product benefit

Monetary cost

Services benefit

Time cost

Personal benefit

Energy cost

Image benefit
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Psychological cost
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Customer Satisfaction
Customer Satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance in relation to his or her expectations. If the performance falls short of expectations, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted.

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Customer Satisfaction
Measuring Customer Satisfaction It is becoming increasingly important for companies to measure customer satisfaction levels for the following reasons.

To retain customers, because it takes longer and is costlier to acquire new customers than to retain existing customers. To increase business in the form of repurchasing by satisfied customers. To enjoy the benefits of Viral Marketing. Delighted customers will do word of mouth publicity for the company and create new buyers.
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Customer Satisfaction
Measuring Customer Satisfaction
A number of methods are employed to measure customer satisfaction. The key methods being:

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Periodic Surveys Customer Loss Rate Mystery Shoppers Internet Feedback Sites
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Customer Satisfaction
Periodic Surveys Periodic Surveys can track customer satisfaction levels directly. Respondents can be asked directly about their intentions to repurchase and the likely hood or willingness to recommend the company and brand to others. These surveys can be conducted by using any of the following tools:
Internet Surveys Market Research (Questionnaires) Questionnaires included in the product packing Feedback questionnaires at hotels and airlines

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Customer Satisfaction
Customer Loss Rate
Companies can monitor the customer loss rate and contact customers who have stopped buying or have switched to other suppliers to learn why this happened.

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Customer Satisfaction
Mystery Shoppers Companies can hire mystery shoppers to pose as potential buyers and report on strong and weak points experienced in buying the companys and competitors products. Managers themselves can enter company and competitor's sales situations where they are unknown and experience firsthand the treatment they receive, or phone their own company with questions and complaints to see how calls are handled.

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Customer Satisfaction
Internet Feedback Sites There are many internet feedback sites that publish consumers responses towards various commodities that they may have an experience with. Keeping abreast of few prominent community sites may give an unadulterated view of the customers about a particular brand.

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Maximizing Customer Lifetime Value

Customer Profitability

Customer Equity
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Lifetime Value
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Estimating Lifetime Value

Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: .10 Customer lifetime value: $1000

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Customer Relationship Management

CRM is the process of carefully managing detailed information about individual customers and all customer touch points to maximize customer loyalty.

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Framework for CRM

Identify prospects and customers
Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer
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CRM Strategies
Reduce the rate of defection Increase longevity Enhance share of wallet Terminate low-profit customers Focus more effort on high-profit customers
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Customer Retention
Customer retention is important for the success of any business for the following reasons:

Acquiring new customers can cost five times more than it takes to satisfy and retain current customers. On an average any company looses 10 per of its customers every year. It becomes like a leaking bucket. Large number of loyal customers create customer equity for an organization.

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Customer Retention
In the light of the fact that it is becoming more and more important by the day to retain customers, lets look at the ways how customers can be retained.

High Switching Barriers: Customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs or the loss of loyal customer discounts. Deliver High Customer Satisfaction: By increasing the customer perceived value, it becomes harder for the competitors to offer lower prices or inducements to switch.

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Customer Retention

Complaint Avenues: It is also possible to maintain satisfaction levels by making it easier for the customers to complain. This makes them feel more comfortable it is in the best interest of the businesses that the customers vent out their feelings within the company rather than in the marketplace. Suggestion forms, toll free numbers, websites, email addresses make it easier for the customers to reach out and complain. Prompt Action: Merely making it easy to complain or conducting satisfaction level fact finding is not enough. The companies must be quick to respond to take corrective action against specific or generic complaints.

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