BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTY

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTY

With the rise of digital technologies like the Internet, todays increasingly informed consumers expect companies to do more than connect with them, more than satisfy them, and even more than delight them

Customer Perceived Value

(CPV) is the difference between the prospective customers evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering

 Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychic costs. Customer perceived value is thus based on the difference between what the customer gets and what he or she gives for different possible choices.

 Applying Value Concepts The customer adds up values from the four sources for Caterpillarproduct, services, personnel, and image and compares them to Komatsu. The buyer evaluates these elements together with the monetary cost to form a total customer cost. The buyer will choose whichever source he thinks delivers the highest perceived customer value.

 Delivering High Customer Value Loyalty is defined as a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior. The key to generating high customer loyalty is to deliver high customer value.

 The value proposition consists of the whole cluster of benefits the company promises to deliver, it is more than the core positioning of the offering. Whether the promise is kept depends on the companys ability to manage its value-delivery system. The value-delivery system includes all the experiences the customer will have on the way to obtaining and using the offering.

 Whether customers will actually receive, the promised value proposition will depend upon the marketers ability to influence various core business processes. Total Customer Satisfaction Whether the buyer is satisfied after the purchase depends on the offers performance in relation to the buyers expectations

 Satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance (or outcome) in relation to his or her expectations. Customer Expectations
How do buyers form their expectations?
From past buying experiences. Friends and associates advice. Marketers and competitors information and promises.

A customers decision to be loyal or to defect is the sum of many small encounters with the company.

 Measuring Satisfaction
Many companies are systematically measuring customer satisfaction and the factors shaping it. A company would be wise to measure customer satisfaction regularly because one key to customer retention is customer satisfaction. The link between customer satisfaction and customer loyalty, however, is not proportional. A number of methods exist to measure customer satisfaction.

Periodic surveys can track customer satisfaction directly. Companies can monitor the customer loss rate and contact customers who have stopped buying and learn why this happened.

 Companies can hire mystery shoppers to pose a potential buyers and report on strong and weak points experienced in buying the companys and competitors products. For customer satisfaction surveys, it is important that companies ask the right questions.
Would you recommend this product or service to a friend?

In addition to tracking customer value expectations and satisfaction, companies need to monitor their competitors performance in these areas as well. For customer-centered companies, customer satisfaction is both a goal and a marketing tool.

 Companies that do achieve high customer satisfaction ratings make sure that the target market knows it.

Product and Service Quality Satisfaction will also depend on product and service quality. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

 We can say that a seller has delivered quality whenever the sellers product or service meets or exceeds the customers expectations

 Total Quality Management Total quality management (TQM) is an organization-wide approach to continuously improve the quality of all the organizations processes, products, and services

 Product and service quality, customer satisfaction, and company profitability are intimately connected. TQM ran into implementation problems as firms became overly focused on how they were doing business and not the why they were in business. Companies lost sight of consumer needs and wants. Companies are now concentrating efforts on return on quality or ROQ. ROQ advocates improving quality only on those dimensions that produce tangible customer benefits, lower costs, or increased sales

 Marketers play several roles in helping their companies define and deliver high-quality goods and services to target customers.
They bear the major responsibility for correctly identifying the customers needs and requirements. They must communicate customer expectations properly to product designers. They must check that customers orders are filled correctly and on time.

 They must make sure that customers have received proper instructions, training, and technical assistance in the use of the product. They must stay in touch with customers after the sale to ensure that they are satisfied and remain satisfied. They must gather customer ideas for product and service improvements and convey them to the appropriate departments.

 MAXIMIZING CUSTOMER LIFETIME VALUE Marketing is the art of attracting and keeping profitable customers.
The 80/20 rule states that the top 20 percent of the customers may generate as much as 80 percent of the companys profits. Suggests amending the rule to read 20-80-30, to reflect the idea that the top 20 percent of customers generate 80 percent of the companys profits, half of which are lost serving the bottom 30 percent of unprofitable customers.

The implication is that a company could improve its profits by firing its worst customers.

 Customer Profitability
A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the companys cost stream of attracting, selling, and servicing that customer.

Customer Profitability Analysis Customer 1 is very profitable. Customer 2 is mixed profitability. Customer 3 is a losing customer.
What can the company do about customers 2 and 3?
It can raise the price of its less profitable products or eliminate them. It can try to sell them its profit-making products.

It can encourage customer 3 to switch to competitors

Customer profitability analysis (CPA) is best conducted with the tools of an accounting technique called Activity-Based Costing (ABC).
Platinum customers (most profitable). Gold customers (profitable). Iron customers (low profitability but desirable). Lead customers (unprofitable and undesirable).

 Competitive Advantage Competitive advantage is a companys ability to perform in one or more ways that competitors cannot or will not match Measuring Customer Lifetime Value Customer Lifetime Value (CLV) describes the net present value of the cash flows attributed to the relationship with a customer.

 CULTIVATING CUSTOMER RELATIONSHIPS Maximizing customer value means cultivating longterm customer relationships. Mass customization is the ability of a company to meet each customers requirementsto prepare on a mass basis individually designed products, services, programs, and communications

 Customer Relationship Management (CRM) Customer relationship management (CRM) is the process of managing detailed information about individual customers and carefully managing all customer touch points to maximize customer loyalty.

A customer touch point is any occasion on which a customer encounters the brand and productfrom actual experience to personal or mass communications to casual observation.

 Peppers and Rogers outlined a four-step framework for one-to-one marketing that can be adapted to CRM marketing:
Identify your prospects and customers. Differentiate customers in terms of: (1) their needs and (2) their value to your company. Interact with individual customers to improve your knowledge about individual needs and to build stronger relationships. Customize products, services, and messages to each customer.

 Attracting, Retaining, and Growing Customers

Customers are becoming harder to please. Companies seeking to expand profits and sales have to spend considerable time and resources searching for new customers.
Suspects are people or organizations that might conceivably have an interest in buying but many not have the means or real intention to buy. Prospectscustomers with the motivation, ability, and opportunity to make a purchase Customer churnhigh customer defection

Most companies now recognize the importance of satisfying and retaining customers. Satisfied customers constitute the companys customer relationship capital.
Acquiring new customers cost five times more than the costs involved in satisfying and retaining current customers. The average company loses 10 percent of its customers each year. A 5 percent reduction in customer defection rate can increase profits by 25 percent to 85 percent depending on the industry. Customer profit rate tends to increase over the life of the retained customer.

The starting point is everyone who might conceivably buy the product or service (suspects).
Prospects. First-time customers. Repeat customers. Clientspeople whom the company treats very specially and knowledgeably. Members. Advocatescustomers who enthusiastically recommend the company. Partners.

Markets can be characterized by long-term buying dynamics and how easily customers can enter and leave.
Permanent capture marketsonce a customer always a customer. Simple retention marketscustomers lost after each period. Customer migration marketscustomers can leave and come back.

 Building Loyalty
Five different levels of investment in customerrelationship building:
Basic marketing. Reactive marketing. Accountable marketing. Proactive marketing. Partnership marketing.

 Reducing Customer Defection

Five main steps a company can take to reduce the defection rate:
The company must define and measure its retention rate. The company must distinguish the cause of customer attrition and identify those that can be managed better. The company needs to estimate how much profit it loses when it loses customers. The company needs to figure out how much it would cost to reduce the defection rate. Finally, listening to customers.

 Forming Strong Customer Bonds

Berry and Parasuraman have identified three retention-building approaches:
Adding financial benefits. Adding social benefits. And adding structural ties.