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Creating Customer Value, Satisfaction, and Loyalty

Marketing Management, 13th ed

 The only value your company will ever create is the value that comes from customers ones you have now and the ones you will have in the future. Businesses succeed by getting, keeping and growing customers. Without customers you dont have a business.
Don Peppers &
Martha Rogers

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

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In a traditional organizational chart in the form of a pyramid, president was shown on the top, management in the middle and front line people and customers at the bottom. This concept since has become obsolete. The new concept shows the customer at the top then the people who meet, serve and satisfy the customers i.e. the frontline people followed by the people whose job is to support the frontline people so they can serve the customers well and at the bottom is the top management whose job is to hire & support the middle management. The customers are at the sides of the pyramid signifying the fact that mangers at all levels must personally involve themselves with the customers knowing and meeting their needs.
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What is Customer Perceived Value? 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.

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Figure 5.2 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
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Suppose a person has to buy a tractor and has two choices to buy from one prospect is caterpillar and the other is Komatsu. Caterpillar can succeed in in selling to this buyer by improving its offer in three ways; It can increase total customer benefit by improving economic, functional or psychological benefits of the product, services, personnel or image. It can reduce products nonmonetary costs by reducing the time or energy. It can reduce the monetary cost of the product to the buyer Suppose caterpillar concludes that the buyer sees its offer as worth $20,000. further suppose Caterpillars cost of producing the tractor is $14000. this means Caterpillars offer potentially generates $ 6000 over the company cost, so Caterpillar needs to charge between $14000 & $20,000. If it charges less than $14000, it wont cover its costs; if it charges more than $20,000, it will price itself out of the market. If Caterpillar charges $19,000 it is creating $1000 of CPV and keeping $5000 for itself. Thus the lower the caterpillar sets its price the higher the CPV and therefore higher the incentive for the customer to purchase.
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Steps in a Customer Value Analysis

Identify major attributes and benefits that customers value
Customers are asked what attributes, benefits, and performance levels they look for in choosing a product or vendor.

Assess the qualitative importance of different attributes and benefits

Customers are asked to rate the importance of the different attributes and benefits. I

Assess the companys and competitors performances on the different customer values against rated importance
Customers describe where they see the company and competitor's performance on each attributes and benefit. If the company's offer exceeds the competitors offer on all important attributes and benefits, the company can charge a higher price ( thereby earning higher profits), or it can charge same price and gain more market share. The company must periodically redo its studies of customer values and competitors standing as the economy, technology and features change.

Examine ratings of specific segments

Monitor customer values over time

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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.

A customer's decision to be loyal or to defect is the sum of many small encounters with the company. A company though seeks to create high customer satisfaction but it has to cater for other stake holders, dealers & suppliers too; it therefore should try to deliver a high level of customer satisfaction subject to delivering acceptable level of satisfaction to the other stake holders given its total resources.

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Top Brands in Customer Loyalty

Avis Google L.L. Bean Samsung (mobile phones) Yahoo! Canon (office copiers) Lands End Coors Hyatt Marriott Verizon KeySpan Energy Miller Genuine Draft Amazon
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Measuring Satisfaction
Periodic surveys Customer loss rate Mystery shoppers Monitor competitive performance

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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.

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 Performance Quality Conformance Quality Total Quality

Marketers identify the customers needs & requirements. Communicate these needs correctly to product designers. Ensure the orders are fulfilled and delivered in time. Ensure customers have received correct instructions, assistance, and training in the use of the product. Stay in touch with customers to ensure they are satisfied and stay satisfied. Gather customer feedback for improvement of the product features or services.

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What is Customer Relationship Management? CRM is the process of carefully managing detailed information about individual customers and all customer touchpoints to maximize customer loyalty.

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Framework for CRM

One to One Marketing
Identify prospects and customers
Dont go after everyone. Build, maintain & mine a rich database of customers derived from all channels & customer touch points.

Differentiate customers by needs and value to company

Spend proportionately more effort on more valuable customers. Estimate net present value of all future profits coming from purchases, margins less customer-specific servicing costs.

Interact to improve knowledge

Customize offerings & communicate in a personalized way.

Mass Customize
Customer company interaction through the company contact center & website.
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CRM Strategies
Reduce the rate of Customer defection
Selecting & training employees to be knowledgeable & friendly.

Increase longevity of the customer relationship

Companies treat their customers like partners tending to their needs more specifically with product design & services.

Enhance share of wallet, cross selling or upselling

Increase sales from the current customers with new offerings & opportunities.

Make Profitable or terminate

Encourage Low profit customers to buy more or in large quantities, forego certain features or services etc to ensure minimum customer revenue level.

Customize for high-profit customers

Most valuable customers are given a special treatment. To make them feel important.

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Customer Retention
Acquisition of customers can cost 5 times more than retaining current customers. The average firm loses 10% of its customers each year. A 5% reduction to the customer defection rate can increase profits by 25% to 85%.
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Using the Database

To identify prospects
Many companies advertise their products or service which generally contains a response feature like toll free number etc where-from the company builds a database. It sorts through the data base, identifies the best prospects & contacts them via mail, phone or personal call to convert them into customers.

To target offers
Companies decide through the data base which customer should be approached for what offering. After a sale takes place, a sequence of activities may follow:
One week later send a thank you note
Five weeks later send a new offer Ten weeks later phone the customer & offer a discount after negotiation.
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 To deepen loyalty
Companies can build interest and enthusiasm by remembering customer preferences & sending appropriate gifts, discount coupons etc.

To reactivate customers
Companies can install automatic mailing programs that sends birthdays, anniversary, Eid cards or off season promotions. The database can help the company make attractive or timely offers.

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Dont Build a Database When

The product is a once-ina-lifetime purchase Customers do not show loyalty The unit sale is very small The cost of gathering information is too high
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Perils of CRM
Implementing CRM before creating a customer strategy Rolling out CRM before changing the organization to match Assuming more CRM technology is better Stalking, not wooing, customers
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