CREATING CUSTOMER VALUE, SATISFACTION,

AND LOYALTY

Marketing Management, 13th edition

5

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.

DETERMINANTS OF CUSTOMER PERCEIVED VALUE

Image benefit Psychological cost

Personal benefit Energy cost

Services benefit Time cost

Product benefit Monetary cost

Total customer benefit Total customer cost

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.

SATISFACTION

Satisfaction is a person's feelings of pleasure or disappointment resulting from comparing a product's perceived performance (or outcome) in relation to his or her expectations.

1.If the performance falls short of expectations, the customer is dissatisfied.

2.If the performance matches the expectations, the customer is satisfied.

3.If the performance exceeds expectations, the customer is highly satisfied or delighted.

MONITORING & MEASURING SATISFACTION

• Periodic surveys

• Customer loss rate

• Mystery shoppers

• Monitor competitive performance

COMPLAINTS

Encourage your customers and Make it easy for them to Complain!

WHAT IS QUALITY?

Quality is the totality of features andcharacteristics of a product or

service that bear on its ability to satisfy

stated or implied needs.

TQM is an integrative philosophy of management for continuously improving the quality of products and processes.

oManagement approach to long-term success through customer satisfaction.

oLearning organization

oContinuous improvement

oPrevention rather than inspection

o80-20 rule

oA six sigma process, introduced by Motorola, is one in which 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million)

TOTAL QUALITY MANAGEMENT

MAXIMIZING CUSTOMER LIFETIME VALUE

• Customer profitability

A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company's cost stream of attracting, selling, and servicing that customer.

• Lifetime value

The net present value of the stream of future profits expected over the customer's lifetime purchases. The company must subtract from the expected revenues the expected costs of attracting, selling, and servicing that customer.

CUSTOMER-PRODUCT PROFITABILITY ANALYSIS

ESTIMATING LIFETIME VALUE

• Annual customer revenue

• Average number of loyal years

• Company profit margin

• Cost of average sales call (including salary, commission, benefits, and expenses)

• Average number of sales calls to convert an average prospect into a customer

• Cost of attracting a new customer

CUSTOMER RELATIONSHIP MANAGEMENT

In the past, producers customized their offerings to each customer: The tailor fitted a suit and a cobbler made shoes for each individual.

The Industrial Revolution ushered in an era of mass production.

To maximize economies of scale, companies made standard goods in advance of orders and left it to individuals to fit into whatever was available.

Producers moved from built-to-order marketing to built-to-stock marketing. Companies are now moving away from wasteful mass marketing to more precision marketing

designed to build strong customer relationships.

Today's economy is supported by information businesses.

Information has the advantages of being easy to differentiate, customize, personalize, and dispatch over networks at incredible speed.

BACKGROUND

The ability of a company to meet each customer's requirements—to prepare on a mass basis individually designed products, services, programs, and communications.

While Levi's and Lands' End were among the first clothing manufacturers to introduce custom jeans, now there are many players in the mass-customization market:

A Nike lets consumers customize athletic shoes for $10 more. A shopper with two different size feet can even get a nonmatching pair.

Interactive Custom Clothes, which began making made-to-order jeans and pants in 1996, has grown so fast that it had to stop taking orders in 2003. The company is now trying to find an apparel manufacturer or retailer partner to help ease the load.

MASS CUSTOMIZATION

This is the process of managing detailed information about individual customers and carefully managing all customer "touch points" to maximize customer loyalty.

A customer touch point is any occasion on which a customer encounters the brand and product—from actual experience to personal or mass communications to casual observation.

For a hotel, the touch points include reservations, check-in and check-out, frequent-stay programs, room service, business services, exercise facilities, laundry service, restaurants, and bars.

CUSTOMER RELATIONSHIP MANAGEMENT

ONE-TO-ONE MARKETING

• Identify prospects and customers

• Differentiate customers by needs and value to company

• Interact to improve knowledge

• Customize for each customer

FRAMEWORK FOR CRM

5-19

Identify prospects and customers

Differentiate customers by needs and value to company

Interact to improve knowledge

Customize for each customer

CRM STRATEGIES

• Reduce the rate of customer defection

• Increase longevity

• Enhance share of wallet

• Terminate low-profit customers

• Focus more effort on high-profit customers

CUSTOMER RETENTION FACTS

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.

• Customer database

• Database marketing

• Mailing list

• Business database

• Data warehouse

• Data mining

DATABASE KEY CONCEPTS

Reasons Why CRM is Important during Recession?