MARKETING MANAGEMENT

Creating
Customer Value,
Satisfaction, and
Loyalty

Presented By
Jalaj Mathur
Figure 5.1 Organizational Charts
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.
 Total customer value is the perceived
monetary value of the bundle of economic,
functional & psychological benefits
customers expect from a given market
offering.
 Total customer cost is the bundle of costs
customers expect to incur in evaluating,
obtaining, using, disposing of the given
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

A Customer-Oriented Model?

5-5
The Value Proposition
The cluster of benefits the
company promises to deliver

5-6
Customer Value &
Satisfaction
 Value delivery system includes all the
experiences the customer will have on
the way to obtaining & using the
offering.
 Satisfaction is a person’s feeling of
pleasure or disappointment resulting
from comparing a product’s perceived
performance in relation to his or her’s
expectations.
BUILDING CUSTOMER VALUE,
SATISFACTION, AND LOYALTY
Customer perceived value is a useful
framework that applies to many
Periodic
Periodic Surveys
Surveys situations and yields rich insights. Its
implications are:
First, the seller must assess the
total customer value and total
Customer
Customer Loss
Loss Rate
Rate customer cost associated with each
competitor’s offer.
Second, the seller who is at a
Mystery
Mystery Shoppers
Shoppers customer perceived value
disadvantage has two alternatives:
To increase total customer value
(by strengthening or augmenting
Monitor
Monitor competitive
competitive the offer’s product, services,
performance
performance personnel, and image benefits).
To decrease total customer cost
(by reducing price, simplifying the
ordering, and delivery process, or
absorbing some buyer risk by
offering a warranty.
BUILDING CUSTOMER VALUE,
SATISFACTION, AND LOYALTY
Delivering High Customer Value
•Loyalty is defined as “a deeply held
commitment to rebuy or repatronize a
preferred product or service in the
future despite situational influences
and marketing efforts having the
potential to cause switching behavior.”
•The key to generating high customer
loyalty is to deliver high customer
value.
•The value proposition consists of the
whole cluster of benefits the company
promises to deliver, it is more than the
core positioning of the offering.
•Whether the promise is kept depends
on the company’s ability to manage its
value-delivery system.
BUILDING CUSTOMER VALUE, SATISFACTION,
AND LOYALTY
Customer Expectations
How do buyers form their
expectations?
•From past buying experiences.
•Friends and associates advice.
•Marketers’ and competitors’
information and promises.
• A customer’s decision to be loyal or to
defect is the sum of many small
encounters with the company.
•Companies need to create a “branded
customer experience.”

•We can say that a seller has delivered

quality whenever the seller’s product or
service meets or exceeds the
customers’ expectations.
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.
BUILDING CUSTOMER VALUE, SATISFACTION, AND
LOYALTY Total Quality Management
TQM is an organization-wide
approach to continuously •Total quality management
improving the quality of (TQM) is an organization-
all the organization’s processes, wide approach to
products, and services. continuously improve the
quality of all the
organization’s processes,
products, and services.

•TQM ran into

implementation problems
as firms became overly
focused on how they were
doing business and not the
why they were in business.
Companies lost sight of
consumer needs and wants.
BUILDING CUSTOMER VALUE, SATISFACTION, AND
LOYALTY
•ROQ advocates improving quality
only on those dimensions that
produce tangible customer
benefits, lower costs, or increased
sales.
•Companies define and deliver
high-quality goods and services to
target customers.
•Marketers play several roles in
helping their They bear the major
responsibility for correctly
identifying the customers’ needs
and requirements.
•They must communicate
customer expectations
properly to product designers.
BUILDING CUSTOMER VALUE,
SATISFACTION, AND LOYALTY
•They must make sure
that customers have
received proper
instructions, training,
and technical
assistance in the use of
the product.
•They must stay in
touch with customers
after the sale to ensure
that they are satisfied
and remain satisfied.
•They must gather
customer ideas for
product and service
MAXIMIZING CUSTOMER LIFETIME VALUE
Marketing is the art of
attracting and keeping
profitable customers.
The 80/20 rule states that the
top 20 percent of the
customers may generate as
much as 80 percent of the
company’s profits.
Suggests amending the rule
to read 20-80-30, to reflect the
idea that the top 20 percent of
customers generate 80 percent
of the company’s profits, half of
which are lost serving the
bottom 30 percent of
unprofitable customers.
The implication is that a
MAXIMIZING CUSTOMER LIFETIME VALUE

Customer Profitability
A profitable customer is a
person, household, or company
Customer that over time yields a revenue
Profitability stream that exceeds by an
acceptable amount the
company’s cost stream of
attracting, selling, and
servicing that customer.
Customer Lifetime
Equity Value Customer profitability can be
assessed individually, by
market segment, or by
channel.
Most companies fail to
measure individual customer
profitability.
MAXIMIZING CUSTOMER LIFETIME VALUE

A profitability analysis. Customer Profitability

Analysis
Customer 1 is very profitable.
Customer 2 is mixed
profitability.
Customer 3 is a losing
customer.
What can the company do
about customers 2 and 3?
•It can raise the price of
its less profitable
products or eliminate
them.
•It can try to sell them
MAXIMIZING CUSTOMER LIFETIME VALUE

A profitability analysis. Customer profitability

analysis (CPA) is best
conducted with the tools of
an accounting technique
called Activity-Based Costing
(ABC).
•Platinum customers
(most profitable).
•Gold customers
(profitable).
•Iron customers (low
profitability but
desirable).
MAXIMIZING CUSTOMER LIFETIME VALUE

Competitive Advantage
Competitive advantage is a
company’s ability to perform in one
or more ways that competitors
cannot or will not match.
Michael Porter urged companies to
build a sustainable competitive
advantage.
Few competitive advantages are
sustainable, at best they may be
leverageable.
•A leverageable advantage is
one that a company can use as a
spring-board to new advantages.
•Any competitive advantage
MAXIMIZING CUSTOMER LIFETIME VALUE

Measuring
Customer Lifetime
Value
Customer Lifetime Value
(CLV) describes the net
present value of the
stream of future profits
expected over the
customer’s lifetime
purchases.
•CLV calculations provide
a formal quantitative
framework for planning
 MAXIMIZING CUSTOMER LIFETIME VALUE
Simple Example
Customer acquisition cost:
•Cost of average sales call (including salary, commission, benefits, and expenses)
:$300/call
•Average number of sales calls to convert an average prospect into a customer: 4
times
Cost of attracting a new customer: $1,200
(perhaps other costs e.g., ads, promotion, probability of failure case that may
probably end up become a cost of success case, etc)
Estimate Average Customer Lifetime Value
•Annual customer revenue: $500
•Average number of loyal years: 20 years
•Company profit margin: .10
Customer Lifetime value = $1,000
•This mean co. is spending more to attract new customers than they are worth.
•Unless the co. can sign up customers with fewer sales calls, spend less per sales
call, stimulate higher new-customer annual spending, retain customers longer, or
sell them higher-product products, it is headed for bankruptcy.
CULTIVATING CUSTOMER RELATIONSHIPS
Customer Relationship
Management (CRM)
Customer relationship
management (CRM) 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.
•
CULTIVATING CUSTOMER RELATIONSHIPS
Identify prospects and customers
Differentiate customers by needs
and value to company
Interact to improve knowledge
Customize for each customer
Peppers and Rogers outlined a four-
step framework for one-to-one
marketing that can be adapted to CRM
marketing:
•Identify your prospects and
customers.
•Differentiate customers in terms
of: (1) their needs and (2) their
value to your company.
•Interact with individual customers
to improve your knowledge about
individual needs and to build
stronger relationships.
•Customize products, services, and
messages to each customer.
CULTIVATING CUSTOMER RELATIONSHIPS
A key driver of shareholder
value is the aggregate value of
Reduce
Reduce the
the rate
rate of
of defection
defection the customer base. Winning
companies improve the value
of their customer base by
Increase
Increase longevity
longevity excelling at strategies such as:
•Reducing the rate of
Enhance
Enhance “share
“share of
of wallet”
wallet” customer defection.
•Increasing the longevity of
Terminate
Terminate low-profit
low-profit the customer relationship.
customers
customers •Enhancing the growth
Focus
Focus more
more effort
effort on
on high-
high- potential of each customer
profit through “share-of-wallet,
profit customers
customers
cross-selling, and up-
selling.”
•Making low-profit
customers more profitable
CULTIVATING CUSTOMER RELATIONSHIPS
Two main ways to
strengthen customer
retention:
Erect high switching
costs.
Deliver high customer
satisfaction.
Most companies now
recognize the importance of
satisfying and retaining
customers.
Satisfied customers constitute
the company’s customer
relationship capital.
•Acquiring new customers
cost five times more than
 CULTIVATING CUSTOMER RELATIONSHIPS
Building Loyalty
Five different levels of investment in customer-relationship building:
The likely
Basic marketing: salesperson simple sale the product
level of
relationship Reactive marketing: salesperson sell & encourages to call if has
marketing questions, complaint, comments
depends upon Accountable marketing: phones to check whether product meet
the number of expectations, suggest & ask for product/service improvements
customers and Proactive marketing: salesperson contacts from time to time with
profit margin suggestions about improve products uses or new product
levels.
Partnership marketing: company works continuously with its large
customers to help improve their performance.
 Breaking Down CRM: What CRM Really
Comprises CRM Imperative

Acquiring the Crafting the right Instituting the Motivating Learning to

right customer value proposition best processes employees retain customer

You Get It When…

•Have identified •Have studied what •Have researched •Know what tools •Have learned why
most valuable products/services the best way to our employees customers defect
customers customers need deliver need to use to and how to win
•Have calculated today, tomorrow products/services to foster customer them back
share of their wallet •Have surveyed customers relationships •Have analyzed
for goods/services what competitors •Including alliance •Have identified HR what competitors
offer today, need to strike, tech systems needed to do to win your high
tomorrow need to invest, and boost employee value customers
•Have spotted what services capabilities loyalty •Senior
products/services that need to be management
we should offer developed or monitors customer
acquired defection metrics
CRM Technology Can Help…
•Analyze customer •Capture relevant •Process •Align incentives •Track customer
revenue & cost product/service transaction faster and metrics defection and
data to identify behavior data •Provide better info •Deploy knowledge retention levels
current and future •Create new to the front line management •Track customer
high value distribution •Manage logistic systems service satisfaction
customers channels and supply chain levels
•Target direct- •Develop new more efficiently
marketing efforts pricing models •Catalyze
better •Build communities collaborative
commerce

Source: Darrel K., Reichheld F., and Schefter P., “Avoid the Four Perils of CRM” Harvard Business Review (Feb, 2002) pg. 106