CH-05-Creating Customer Value, Satisfaction and Loyalty

Marketing Management
Part : 03
Connecting Chapter-05
with
Customers
Creating Customer Value, Satisfaction

and
Loyalty
Marketing
Management 1
MARKETING MANAGEMENT
12th edition
5
Creating
Customer Value,
Satisfaction, and
Loyalty
Marketing
Management 2
Kotler Keller
Chapter Questions
 What are customer value, satisfaction, and loyalty, and how can
companies deliver them?
 What is the lifetime value of customers?
 How can companies both attract and retain customers?
 How can companies deliver total quality?
 What is database marketing?
Marketing
Management 3
Traditional vs Modern Organizational Chart
 Traditional Organizational Chart puts Top Management at the

top, then Middle Management, Front-line people and finally
Customers.
 Modern Customer-Oriented Organizational Chart puts

Customer at the top, then Front-line people who are in
contact with the customers, then Middle managers, then
finally Top managers. The managers at every level must be
personally involved in knowing, meeting and serving
customers.
Marketing
Management 4
Organizational Charts
Marketing
Management 5
Customer Perceived Value (CPV)
 CPV (Customer Perceived Value) : It is based on the

difference between what the customer gets and what he or
she gives for different possible choices.
 Total Customer benefit : The perceived monetary value of the

bundle of economic, functional and psychological benefits
customers expect from a given market offering.
 Total Customer Cost : Total cost customers expect to incur in
evaluating, obtaining, using and disposing of the given
market offering including monetary, time, energy and psychic
costs.
Marketing
Management 6
Customer Perceived Value (CPV)
Caterpillar sells tractors like this one not just on the

product’s attributes, but also on the value of the services,
personnel, and image the company offers
Marketing
Management 7
Loyalty
A deeply held commitment to re-buy

or re-patronize a preferred product
or service in the future despite situational
influences and marketing efforts having
the potential to cause switching behavior.
Marketing
Management 8
Loyalty and Value
 Loyalty : A deeply held commitment to re-buy or re-patronize

a preferred product or service in the future despite situational
influences and marketing efforts having the potential to cause
switching behaviour.
 Value Proposition : It consists of the whole cluster of benefits

the company promises to deliver.
 Value-Delivery System : It includes all the experiences the

customer will have on the way to obtaining and using the
offering.
Marketing
Management 9
The Value Proposition
The whole cluster of benefits the

company promises to deliver
Marketing
Management 10
Total Customer Satisfaction
 Satisfaction : Person‟s feelings of pleasure or disappointment
resulting from comparing a product‟s perceived performance
in relation to his/her expectations.
a. If the performance of product falls short of expectations, then
the customer is “dissatisfied”.
b. If the performance of product matches expectations, then the

customer is “satisfied”.
c. If the performance of product exceeds expectations, then the

customer is “delighted”.
Marketing
Management 11
Customer Expectations
 Customer Expectations : Buyer‟s form their expectations from
past buying experience, friend‟s advice, marketer‟s promises,
competitor‟s information.
 If marketers raise expectations too high, the buyer is likely to

be disappointed, however if the company sets expectations
too low, it will not attract enough buyers.
 Some of today‟s most successful companies are raising

expectations and raising performances to match.
Marketing
Management 12
Measuring Satisfaction
 Measuring Satisfaction : It is important to measure customer
satisfaction as one key to customer retention is customer
satisfaction.
 A highly satisfied customer generally stays loyal longer, buys
more as the company introduces new products and upgrades
existing products, talks favourably about the company and its
products, pays less attention to competing brands and is less
sensitive to price and costs less to serve than new customers.
 The methods of measuring customer satisfaction include
Periodic Surveys, Customer Loss Rate, and Mystery Shoppers.
 In addition to measuring customer satisfaction, companies
also need to monitor their competitors‟ performance in these
areas.
Marketing
Management 13
Periodic Surveys
Customer Loss Rate
Mystery Shoppers
Monitor Competitive
Performance
Marketing
Management 14
i. Periodic Surveys : They can track customer satisfaction
directly.
ii. Customer Loss Rate : Companies can monitor the customer
loss rate and contact customers who have stopped buying or
who have switched to another supplier to learn why this
happened.
iii. Mystery Shoppers : Companies can hire mystery shoppers to
pose as potential buyers and report on strong and weak
points experienced in buying the company‟s and competitors‟
products.
iv. Competitors‟ Performance : In addition to tracking customer
value expectations and satisfaction, companies need to
monitor their competitors‟ performance in these areas.
Marketing
Management 15
Product and Service Quality
 Satisfaction depends on product and service quality.

 Quality : The quality can be defined as “Fitness for use”,
“Freedom from variation”, “conformance to requirements”
etc., however the most authentic and customer-centred
definition is “Quality is the totality of features and
characteristics of a product or service that bear on its ability
to satisfy needs”.
 Performance and Conformance Quality (See Next Slide)
 Total Quality Management (TQM) : It is an organization-wide
approach to continuously improving the quality of all the
organization‟s processes, products and services.
Marketing
Management 16
Conformance Performance
Quality Quality
Marketing
Management 17
 Performance and Conformance Quality : A Lexus provides

higher performance quality than a Hyundai. The Lexus rides
smoother, goes faster, and lasts longer. Yet both a Lexus and
a Hyundai can be said to deliver the same conformance
quality if all the units deliver their respective promised
quality.
Marketing
Management 18
Maximizing Customer Life-time Value
 Largest Customers, Mid-Size Customers, Smallest Customers :

It is not necessarily the company‟s largest customers who
yield the most profit.
 The largest customers demand considerable service and

receive the deepest discounts.
 The smallest customers pay full price and receive minimal

service, but the costs of transacting with small customers
reduce their profitability.
 The midsize customers receive good service and pay nearly

full price and are often the most profitable.
Marketing
Management 19
 Customer Profitability : A Profitable Customer is a person,
household or company that overtime yields a revenue stream
that exceeds by an acceptable amount the company‟s cost
stream of attracting, selling and servicing that customer.
 Customer Profitability Analysis (CPA) : It is best conducted

with the tools of an accounting technique called “Activity-
Based Costing (ABC)” in which the company estimates all
revenue coming from the customer, less all costs.
 When ABC is done for each customer, it is possible to classify

customers into different profit tiers, i.e. Platinum (most
profitable), Gold (profitable), Iron (low profitability but
desirable), Lead (unprofitable and undesirable) customers.
Marketing
Management 20
 Competitive Advantage : It is a company‟s ability to perform
in one or more ways that competitors cannot or will not
match.
 Few Competitive Advantage are sustainable, at best they may

be ’Leverageable‟.
 A „Leverageable Advantage‟ is the one that a company can

use as a springboard to new advantages.
 Example : Microsoft has leveraged its operating system to

Microsoft Office and then to networking applications. In
general, a company that hopes to endure must be in the
business of continuously inventing new advantages.
Marketing
Management 21
 Customer Lifetime Value (CLV) : It is the net present value of
the stream of future profits expected over the customer‟s life-
time purchases.
 The company must subtract from the expected revenues the

expected costs of attracting, selling, and servicing that
customer, applying the appropriate discount rate (10%-20%
depending on cost of capital and risk attitudes). An estimation
of CLV is given as follows.
Annual customer revenue: $500

Average number of loyal years: 20
Company profit margin: 10%
Customer Lifetime Value (CLV) : $1000
Marketing
Management 22
Estimating Lifetime Value
 Customer Equity : It is the total of the discounted lifetime

values of all the firm‟s customers. Three drivers of customer
equity are Value Equity, Brand Equity, and Relationship
Equity.
Marketing
Management 23
CRM (Customer Relationship Management)
 Customer Relationship Management (CRM) is the process of

managing detailed information about individual customers to
maximize customer loyalty.
 Mass Customization : It is the ability of a company to meet

each customer‟s requirements.
Marketing
Management 24
Cultivating Customer Relationships
 Attracting, Retaining and Growing Customers : There are two

main ways to strengthen customer retention.
i. To erect high switching barriers

ii. To deliver high customer satisfaction
 However the best thing a company can do is to make it easy

for customers to complain, also the company must respond
quickly and constructively to any complaint.
Marketing
Management 25
 The markets can be characterized by how easily and often

customers can enter and leave.
i. Permanent Capture Markets (once a customer, always a

customer)
ii. Simple Retention Markets (Customers can permanently be
lost after each period)
iii. Customer Migration Markets (Customers can leave and come
back).
Marketing
Management 26
Permanent Simple Customer

Capture Retention Migration
Markets Markets Markets
Marketing
Management 27
Building Loyalty
 Five different levels of investment in customer relationship

building.
 Building Loyalty
i. Basic Marketing
ii. Reactive Marketing
iii. Accountable Marketing
iv. Proactive Marketing
v. Partnership Marketing
Marketing
Management 28
Building Loyalty
Partnership
Proactive
Accountable
Reactive
Basic
Marketing
Management 29
Building Loyalty
i. Basic Marketing : The salesperson simply sells the product.
ii. Reactive Marketing : The salesperson sells the product and
encourages the customer to call if he or she has questions ,
comments, or complains.
iii. Accountable Marketing : The salesperson phones the
customer to check whether the product is meeting
expectations.
iv. Proactive Marketing : The salesperson contacts the customer
from time to time with suggestions about improved product
uses or new products.
v. Partnership Marketing : The company works continuously
with its large customers to help improve their performance.
For example, General Electric has stationed engineers at
large utilities to help them produce more power.
Marketing
Management 30
Building Loyalty
 Most companies practice only „Basic Marketing‟ when their

markets contain many customers and their unit profit
margins are small. Like Nestle is not going to phone each
KitKat buyer to express their feedback.
 However in markets with few customers and high profit

margins, most sellers will move toward „Partnership
Marketing‟. Like Boeing, works closely with American Airlines
to design airplanes that fully satisfy American Airlines
requirements.
Marketing
Management 31
Building Loyalty
Levels of Relationship Marketing
Marketing
Management 32
Customer Retention-Some Statistics
 Acquisition of customers can cost 5 times more than retaining

current customers.
 The average customer loses 10% of its customers each year.
 A 5% reduction to the customer defection rate can increase

profits by 25% to 85%.
 The customer profit rate increases over the life of a retained

customer.
Marketing
Management 33
Reducing Customer Defection
 Reducing Customer Defection : Five main steps to reduce the
defection rate.
i. First, the company must define and measure its retention
rate.
ii. Second, the company must distinguish the causes of
customer attrition.
iii. Third, the company needs to estimate how much profit it
loses when it loses customers.
iv. Fourth, the company needs to figure out how much it would
cost to reduce the defection rate. As long as the cost is less
than the lost profit, the company should spend the money.
v. Fifth, listening to customers.
Marketing
Management 34
Forming Strong Customer Bonds
Add Financial
Benefits
Add Social Add Structural

Benefits Ties
Marketing
Management 35
 Three retention-building approaches.
a. Adding Financial Benefits

b. Adding Social Benefits
c. Adding Structural Ties
Marketing
Management 36
a. Adding Financial Benefits : Like Frequency Programs (FPs) are
designed to provide rewards to customers who buy frequently
and in substantial amounts. Also many companies have
created „Club Membership Programs‟. Club membership can
be open to everyone who purchases a product or service, or it
can be limited to an affinity group or to those willing to pay a
small fee.
b. Adding Social Benefits : Company personnel work on
cementing social bonds with customers by individualizing and
personalizing customer relationships. In short, thoughtful
companies turn their customers into clients.
c. Adding Structural Ties : The company may supply customers
with special equipments or computer links that help
customers manage orders, payroll and inventory, like EDI :
Electronic Data Interchange.
Marketing
Management 37
The world-famous motorcycle company,

Harley-Davidson,
Financial Benefits
sponsors the Harley Owners Group (H.O.G.),
Pathmark Advantage Club Cards
which now numbers 650,000 members.
Marketing
Management 38
Focus
on
CRM
This Enterprise Rent-A-Car

ad focuses on CRM :
“There’s a place where the
number one priority is
you.”
Marketing
Management 39
Customer Databases and Database Marketing
Database Key Concepts
 Customer Database  Business Database
 Database Marketing  Data Warehouse

 S
 Customer Mailing List  Data Mining
Marketing
Management 40
Customer Databases
 A Customer Database is an organized collection of
comprehensive information of individual customers or
prospects that is current, accessible and actionable for such
marketing purposes as lead generation, lead qualification,
sale of a product or service or maintenance of customer
relationships.
 A Business Database would contain business customers‟ past

purchase, past volumes, prices, and profits; buyer team
member names, status of current contracts etc.
 A Customer Mailing List is simply a set of names, addresses,

and telephone numbers. While a customer database contains
much more information, accumulated through customer
transactions, telephone queries etc.
Marketing
Management 41
Data Warehouses and Datamining
 Data Warehouse : The data is collected by the company‟s

contact centre and organized into Data Warehouse. Company
personnel can capture, query, and analyze the data.
 Datamining : The use of sophisticated statistical and

mathematical techniques to extract useful information about
individuals, trends and segments from the mass of data.
Marketing
Management 42
Usage of Database
To identify prospects
To target offers
To deepen loyalty
To reactivate customers
To avoid mistakes
Marketing
Management 43
Usage of Database
 In general, companies can use their database in five ways.
a. To identify prospects.
b. To decide which customers should receive a particular offer.
c. To deepen customer loyalty.
d. To reactivate customer purchases.
e. To avoid serious customer mistakes (mistakes that made by
not using its customer database well).
Marketing
Management 44
Database Marketing
 Database Marketing is the process of building, maintaining,
and using customer databases and other databases
(products, suppliers, resellers) for the purpose of contacting,
transacting and building customer relationships.
 Database Marketing is most frequently used by business
marketers and service providers (hotels, banks, airlines,
insurance, credit card and telephone companies that
normally collect a lot of customer data.
 Database Marketing is used less often by packaged-goods
retailers and consumer packaged goods companies where
CLV is low and where there is no direct contact between the
seller and ultimate buyer may not benefit as much from
CRM.
Marketing
Management 45
Database Marketing-Disadvantages
 The Downside of Database Marketing and CRM

a. Large investment in hardwares, softwares and skilled
personnel
b. Difficulty of getting everyone in the company to be customer-
oriented and to use the available information
c. Not all customers want a relationship with the company and
they may resent knowing that the company has collected that
much personal information about them
d. Assumptions behind CRM may not always hold true. For
example, it may not be the case that it costs less to serve
more loyal customers. High-volume customers often know
their value to a company and can leverage it to extract
premium service and price discounts.
Marketing
Management 46
Activity
Marketing
Management 47

CH-05-Creating Customer Value, Satisfaction and Loyalty

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

CH-05-Creating Customer Value, Satisfaction and Loyalty

Hochgeladen von

Copyright:

Verfügbare Formate

Marketing Management

Creating Customer Value, Satisfaction

 What is the lifetime value of customers?

 How can companies both attract and retain customers?

 How can companies deliver total quality?

 What is database marketing?

 Traditional Organizational Chart puts Top Management at the

 Modern Customer-Oriented Organizational Chart puts

 CPV (Customer Perceived Value) : It is based on the

 Total Customer benefit : The perceived monetary value of the

Caterpillar sells tractors like this one not just on the

A deeply held commitment to re-buy

 Loyalty : A deeply held commitment to re-buy or re-patronize

 Value Proposition : It consists of the whole cluster of benefits

 Value-Delivery System : It includes all the experiences the

The whole cluster of benefits the

b. If the performance of product matches expectations, then the

c. If the performance of product exceeds expectations, then the

 If marketers raise expectations too high, the buyer is likely to

 Some of today‟s most successful companies are raising

Customer Loss Rate

 Satisfaction depends on product and service quality.

 Performance and Conformance Quality : A Lexus provides

 Largest Customers, Mid-Size Customers, Smallest Customers :

 The largest customers demand considerable service and

 The smallest customers pay full price and receive minimal

 The midsize customers receive good service and pay nearly

 Customer Profitability Analysis (CPA) : It is best conducted

 When ABC is done for each customer, it is possible to classify

 Few Competitive Advantage are sustainable, at best they may

 A „Leverageable Advantage‟ is the one that a company can

 Example : Microsoft has leveraged its operating system to

 The company must subtract from the expected revenues the

Annual customer revenue: $500

 Customer Equity : It is the total of the discounted lifetime

 Customer Relationship Management (CRM) is the process of

 Mass Customization : It is the ability of a company to meet

 Attracting, Retaining and Growing Customers : There are two

i. To erect high switching barriers

 However the best thing a company can do is to make it easy

 The markets can be characterized by how easily and often

i. Permanent Capture Markets (once a customer, always a

Permanent Simple Customer

 Five different levels of investment in customer relationship

 Most companies practice only „Basic Marketing‟ when their

 However in markets with few customers and high profit

Levels of Relationship Marketing

 Acquisition of customers can cost 5 times more than retaining

 The average customer loses 10% of its customers each year.

 A 5% reduction to the customer defection rate can increase

 The customer profit rate increases over the life of a retained

Add Social Add Structural

 Three retention-building approaches.

a. Adding Financial Benefits

The world-famous motorcycle company,

This Enterprise Rent-A-Car

 Database Marketing  Data Warehouse

 Customer Mailing List  Data Mining

 A Business Database would contain business customers‟ past

 A Customer Mailing List is simply a set of names, addresses,

 Data Warehouse : The data is collected by the company‟s

 Datamining : The use of sophisticated statistical and

 In general, companies can use their database in five ways.