4 Creating Customer Value and Customer Relationships

4
Creating
Customer Value
and Customer
Relationships
Chapter Questions
 What are customer value, satisfaction, and
loyalty, and how can companies deliver them?
 What is the lifetime value of customers and
how can marketers maximize it?
 How can companies attract and retain
customers and cultivate strong customer
relationships?
 What are the pros and cons of database
marketing?
Copyright © 2013 Dorling Kindersley (India) Pvt Ltd. Authorized adaptation from 4-2
the United States edition of Marketing Management, 14e.
Eureka Forbes’ “Gift of a Smile”
Figure 4.1 Customer-Orientations
Customer Perceived Value
Customer perceived value is the difference

between the prospective customer’s
evaluation of all the benefits and all the costs
of an offering and the perceived alternatives.
Figure 4.2 Determinants of
Customer Perceived Value
Total customer benefit Total customer cost
Product benefit Monetary cost
Services benefit Time cost
Personal benefit Energy cost
Image benefit Psychological cost
Applying Value Concepts
A firm can improve its offers in three ways:

1. By improving the economic, functional,
and psychological benefits of its product,
services, people, and/or image.
2. By reducing the buyer’s nonmonetary
costs by lesser time, energy, and
psychological investment.
3. By reducing the product’s monetary cost
to the buyer.
Steps in a
Customer Value Analysis
 Identify major attributes and benefits that
customers value
 Assess the qualitative importance of different
attributes and benefits
 Assess the company’s and competitor’s
performances on the different customer values
against rated importance
 Examine ratings of specific segments
 Monitor customer values over time
What Is Loyalty?
Loyalty is 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.
Establishing Value
Delivering Superior Value
Customer Value Management (CVM) by Tata

Steel through a cross-functional joint team of
the company and the customer has succeeded
in delivering superior customer value
Measuring Satisfaction
 Periodic surveys
 Customer loss rate
 Mystery shoppers
 Monitor competitive performance
Managing Customers
Dealing with negative experiences and recovering
customer goodwill:
1. Set up a 7-day, 24-hour toll-free hotline to
receive and act on customer complaints.
2. Contact the complaining customer as quickly as
possible to avoid negative word of mouth.
3. Accept responsibility for the customer’s
disappointment; don’t blame the customer.
4. Use customer service people who are empathic.
5. Resolve the complaint swiftly and to the
customer’s satisfaction.
What is 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.
Maximizing Customer Lifetime Value
Customer Profitability
Customer Equity
Lifetime Value
Figure 4.3 Customer-Product
Profitability Analysis
Estimating Lifetime Value
 Annual customer revenue: $500

 Average number of loyal years: 20
 Company profit margin: 10
 Customer lifetime value: $1000
What Is
Customer Relationship Management?
CRM is the process of carefully managing

detailed information about individual
customers and all customer touch points to
maximize customer loyalty.
Framework for CRM
 Identify prospects and customers

 Differentiate customers by needs and
value to company
 Interact to improve knowledge
 Customize for each customer
Customer Reviews and
Recommendations
• The strongest influence on consumer choice
remains “recommended by relative/friend”.
• With increasing mistrust of some companies
and their advertising, online customer ratings
and reviews and recommendations from
consumers are playing an important role.
• Bloggers who review products or services,
online retailers who add their own
recommendations have also become important.
Attracting and
Retaining Customers
 Reduce the rate of defection
 Increase longevity
 Enhance share of wallet
 Terminate low-profit customers
 Focus more effort on high-profit customers
Figure 4.4 The Marketing Funnel
Loyalty Programs
Database Key Concepts
 Customer database  Business database
 Database marketing  Data warehouse
 Mailing list  Data mining
Using the Database
 To identify prospects
 To target offers
 To deepen loyalty
 To reactivate customers
 To avoid mistakes
Don’t Build a Database When
 The product is a once-in-a-lifetime purchase
 Customers do not show loyalty
 The unit sale is very small
 The cost of gathering information is too high
For Review
 What are customer value, satisfaction, and
loyalty, and how can companies deliver them?
 What is the lifetime value of customers and
how can marketers maximize it?
 How can companies attract and retain
customers and cultivate strong customer
relationships?
 What are the pros and cons of database
marketing?

4 Creating Customer Value and Customer Relationships

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Customer perceived value is the difference

Product benefit Monetary cost

Services benefit Time cost

Personal benefit Energy cost

Image benefit Psychological cost

A firm can improve its offers in three ways:

Loyalty is a deeply held commitment to re-

Customer Value Management (CVM) by Tata

Quality is the totality of features and

 Annual customer revenue: $500

CRM is the process of carefully managing

 Identify prospects and customers

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