5 Creating Customer Value Satisfaction and Loyalty Marketing

5 Creating Customer Value, Satisfaction, and Loyalty Marketing Management, 13 th ed

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 cultivate strong customer relationships? • How can companies both attract and retain customers? • What is database marketing? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -2

Figure 5. 1 Organizational Charts Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -3

What is 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -4

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 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -5

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 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -6

What is Loyalty? Loyalty is a deeply held commitment to re-buy a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -7

What is Satisfaction? Is a persons feelings of pleasure or disappointment that result from comparing products perceived performance (out come) to their expect. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -8

Top Brands in Customer Loyalty • • Avis Google L. L. Bean Samsung (mobile phones) • Yahoo! • Canon (office copiers) • • Land’s End Coors Hyatt Marriott Verizon Key. Span Energy Miller Genuine Draft Amazon Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -9

Measuring Satisfaction • Periodic surveys: contact satisfaction customer directly and ask them about their intention to rebury • Customer loss rate: contact the customers who stop buying • Hire mystery shoppers: report about strong and week points of buying company and competitors products Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -10

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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -11

Maximizing Customer Lifetime Value • Customer profitability: 20 -80 rule • Customer equity : the total asset value of the relationships which an organization has with its customers. Customer equity is based on customer lifetime value, and an understanding of customer equity can be used to optimize the balance of investment in the acquisition and retention of customers. It is also known as customer capital and forms one component of the intellectual capital of an organization. • Lifetime value: Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -12

Figure 5. 4 Customer-Product Profitability Analysis Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -13

Estimating Lifetime Value • • Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -14

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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -15

Framework for CRM • Identify prospects and customers • Differentiate customers by needs and value to company • Interact to improve knowledge • Customize for each customer Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -16

CRM Strategies • • • Reduce the rate of defection Increase longevity Enhance share of wallet Terminate low-profit customers Focus more effort on high-profit customers Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -17

Customer Retention • 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -18

Steps for Creating Customer Evangelists (missionary) • Customer plus-delta: Gather their ideas • Napsterize your knowledge: release your own knowledge data into network • Build the buzz; keep them talking by providing them tools programs and features • Create community; Likeminded customers • Make bite-size chunks; sponsoring charity events • Create a cause; supporting freedom Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -19

Database Key Concepts • Customer database: • Business database; comprehensive business customers information's about • Data warehouse; customers telemarketing could • Database marketing response ; building maintaining • Data mining; marketing and using customer statisticians database • Mailing list: Names , list, tel. n Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -20

Using the Database • • • To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -21

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 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -22

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 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -23