LECTURE 5 CREATING CUSTOMER VALUE SATISFACTION AND LOYALTY

LECTURE 5 CREATING CUSTOMER VALUE, SATISFACTION, AND LOYALTY MBA 649 : Marketing Management M Wahidul Islam Fall 2014

RITZ CARLTON - FAMOUS FOR ITS EXCEPTIONAL SERVICE Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -2

5 -3 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall FIGURE 5. 1 ORGANIZATIONAL CHARTS

5 -4 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 WHAT IS CUSTOMER PERCEIVED VALUE?

Total customer cost Product benefit Monetary cost Services benefit Time cost Personal benefit Energy cost Image benefit Psychological cost 5 -5 Total customer benefit Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall FIGURE 5. 2 DETERMINANTS OF CUSTOMER PERCEIVED VALUE

Identify 5 -6 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 STEPS IN A CUSTOMER VALUE ANALYSIS

5 -7 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. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall WHAT IS LOYALTY?

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -8

5 -9 The whole cluster of benefits the company promises to deliver Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall THE VALUE PROPOSITION

5 -10 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall RAISING CUSTOMER EXPECTATIONS

5 -11 Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor Competitive Performance Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall MEASURING SATISFACTION

5 -12 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall J. D. POWER RATES CUSTOMER SATISFACTION

5 -13 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 WHAT IS QUALITY?

5 -14 Customer Profitability Customer Equity Lifetime Value Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall MAXIMIZING CUSTOMER LIFETIME VALUE

5 -15 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall FIGURE 5. 4 CUSTOMER-PRODUCT PROFITABILITY ANALYSIS

5 -16 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 ESTIMATING LIFETIME VALUE

5 -17 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 WHAT IS CUSTOMER RELATIONSHIP MANAGEMENT?

Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer 5 -18 Identify prospects and customers Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall FRAMEWORK FOR CRM

of customers can cost five times more than retaining current customers. The average company losses 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. 5 -19 Acquisition Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall CUSTOMER RETENTION

5 -20 Reduce the rate of defection Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall CRM STRATEGIES MANAGING THE CUSTOMER BASE Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high -profit customers

ON CRM Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5 -21 FOCUS

5 -22 Suspects Prospects First-time customers Disqualified Repeat customers Ex-customers Clients Members Partners Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall FIGURE 5. 5 THE CUSTOMER DEVELOPMENT PROCESS

Business database Database marketing Mailing list database Data warehouse Data mining 5 -23 Customer Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall DATABASE KEY CONCEPTS

5 -24 To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall USING THE DATABASE

5 -25 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 DON’T BUILD A DATABASE WHEN

5 -26 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 PERILS OF CRM

REFERENCES Chapter – 4 Creating Customer Value, Satisfaction, and Loyalty Kotler, Philip, Keller, Kevin L. , Koshy, Abraham and Jha, Mithileshwar (2013 -14) Marketing Management: A South Asian Perspective (14 th. Edition) Pearson Education Inc