CHAPTER

5 CREATING LONG-TERM
LOYALTY
RELATIONSHIPS
LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are customer value, satisfaction, and loyalty, and how can companies
deliver them?
2. What is the lifetime value of customers and how can marketers maximize it?
3. How can companies attract and retain the right customers and cultivate strong
customer relationships?
4. What are the pros and cons of database marketing?

CHAPTER SUMMARY
1. Customers are value maximizers. They form an expectation of value and act on it. Buyers
will buy from the firm that they perceive to offer the highest customer-delivered value,
defined as the difference between total customer benefits and total customer cost.
2. A buyers satisfaction is a function of the products perceived performance and the buyers
expectations. Recognizing that high satisfaction leads to high customer loyalty, companies
must ensure that they meet and exceed customer expectations.
3. Losing profitable customers can dramatically affect a firms profits. The cost of attracting a
new customer is estimated to be five times the cost of keeping a current customer happy. The
key to retaining customers is relationship marketing.
4. Quality is the totality of features and characteristics of a product or service that bear on its
ability to satisfy stated or implied needs. Marketers play a key role in achieving high levels of
total quality so that firms remain solvent and profitable.
5. Marketing managers must calculate customer lifetime values of their customer base to
understand their profit implications. They must also determine ways to increase the value of
the customer base.
6. Companies are also becoming skilled in customer relationship management (CRM), which
focuses on developing programs to attract and retain the right customers and meeting the
individual needs of those valued customers.
7. Customer relationship management often requires building a customer database and doing
data mining to detect trends, segments, and individual needs. A number of significant risks
also exist, so marketers must proceed thoughtfully.

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OPENING THOUGHT
Although most students understand the concept of buying, some will have difficulty in
understanding the differences between total customer value and total customer cost. It will be
beneficial for long-term understanding and retention to cover what the definition is and what it
is not. Secondly, the distinction between satisfaction and total customer satisfaction for the
consumer might be challenging for some students. Some students may have a hard time
understanding the distinction between perception and expectation. Finally, it might be
necessary to reemphasize the concepts of Customer Relationship Management (CRM),
customer databases, and database mining often in the lecture. Students may confuse the
concept of mailing lists with databases. However, most of the students today are proficient in
Internet usage and can cite examples of relationship marketing from their own favorite
Internet sites such as Amazon.com.

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS
1. At this point in the semester-long marketing plan project, students should have completed
their value proposition for the fictional product, defined how they will deliver satisfaction
and maintain customer loyalty.

2. Have students (in groups or individually) select a local firm in their community, or a local
division of a national firm, and seek permission to interview their corporate executives on
their corporations definition of customer satisfaction, loyalty, and what their particular
firm does to foster such customer relations. This project can be combined with the project
on marketing research and as such, students can create questionnaires suitable for mailing
to these executives. The students can then present these findings to the class in a group or
by individual presentations. This could be a full-semester project or limited to a few weeks
of the semester.

3. Sonic PDA Marketing Plan: Sonic has decided to focus on total customer satisfaction,
because studies have shown that customers who are completely satisfied with the
product or service are much more likely to buy more from the company than customers
who report they are satisfied. You have been asked by Jane Melody to:

Recommend how Sonic should measure total customer satisfaction.

Review the possible ways to gain customer satisfaction information and write the
recommended approach in a marketing plan or enter into the Positioning section of Marketing
Plan Pro.

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ASSIGNMENTS
Key manufacturers and others must be concerned with how customers view products
(customer satisfaction perceptions) being disseminated throughout the electronic world via
the Internet. No longer can one discount the power of the mouse for affecting potential
customers. In small groups, students are to select a particular firm or product and are to
research what is being said on the Internet regarding this company/product. What
affects/effects does this type of dissemination of consumer opinions via the Internet have on
the companys marketing strategies? What can the company do to stem the tide of such
comments? How does a company defend itself against blatantly untrue consumer opinions?

Have each of the students read 1 Michael Tsiros, Vikas Mittal, William T. Ross Jr., The
Role of Attributions in Customer Satisfaction: A Reexamination, Journal of Consumer
Research, 31 (September), 2004, pp. 476-483 and comment on their findings.

Customer relations management is a current business buzz word. Students can be directed to
do an Internet research project from named marketing/business journals on the subject of
customer relations management (the chapters endnotes can provide a good source of leads for
the students). Each student can be directed to research, read, and compile a report on their
findings from a minimum of five articles from five different marketing (and business
magazines such as Fortune). The students report is to comment on how these articles
compare, complement, or contrast the material contained in this chapter.

The research firm J.D. Powers and Associates (jdpower.com) lists eight categories of products
for consumers to research before purchasing the product or service. Breaking up the class into
eight groups, have the students research the top performers for each category and be able to
share their findings as to what characteristics, policies, procedures, and vision these top rated
companies have in common. Is there a common link among all of the winners? Are there
differences? In terms of the material contained in this chapter, how would you explain these
similarities and differences?

END-OF-CHAPTER SUPPORT
MARKETING DEBATEOnline Versus Off-Line Privacy
As more firms practice relationship marketing and develop customer databases, privacy issues
are emerging as an important topic. Consumers and public interest groups are scrutinizing
and sometimes criticizingthe privacy policies of firms and raising concerns about potential
theft of online credit card information or other potentially sensitive or confidential financial
information. Others maintain online privacy fears are unfounded and that security issues are as
much a concern offline. They argue that the opportunity to steal information exists virtually
everywhere and its up to the consumer to protect their interests.
Take a position: (1) Privacy is a bigger issue online than off-line versus Privacy is no
different online than off-line.

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Pro: Privacy is a larger issue in the online world than the off-line world simply because the
information has a greater opportunity to be exposed to more people than off-line transactions.
The transmission of private information electronically travels through electronic channels each
of which presents opportunity for misdirection or computer hacking activities. In many of
these cases, the person, or firm transmitting this information, redirecting this information
receiving this information and storing this information is unknown to the consumer. In the off-
line world, the consumer has the opportunity to know the company, personnel, or firm
receiving this information and has the opportunity to accept or decline sharing their personal
information.
Con: Transmission of personal information in the off-line world still travels electronically, in
many cases. The act of paying with a credit card still involves the transmission of data
electronically at some point in the transaction. What differs is the fact that the consumer is
initially interfacing with a person (or firm). Although this does not mitigate the risks involved
to the consumer, it does present some concrete knowledge of the people, or firm involved in
the transaction.

MARKETING DISCUSSION: Using CLV

Consider the lifetime value of customers (CLV). Choose a business and show how you would
go about developing a quantitative formulation that captures the concept. How would that
business change if they totally embraced the customer equity concept and maximized CLV?
Suggested Response
A) CLV describes the net present value of the stream of future profits expected over the
customers lifetime purchases. Each students example will differ but the main tenets of each
report should include the following:
1) Add:
a) Profit from a sale (dollar or percent).
b) Number of sales per customer per year.
c) Average age of a customer.
d) Average expected lifespan of a customer.
2) Subtract:
a) Appropriate discount rate.
b) Costs of attracting one customer.
c) Selling one customer.
d) Servicing one customer.

B) Organizations would change by beginning to take a long-term perspective rather than a

short-term (quarter-to-quarter view). No longer viewing a customer as a transaction but
rather as a lifetime value solidifies and demonstrates the impact that a single consumer has
to a firm in a language they understanddollars. Firms would begin to customize offerings

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and messages to each customer, ensure that retention strategies are in place, differentiate
customers in terms of needs and value to the company, and build stronger relationships with
key customers. Because of a change in the loci of focus for the firm, strategies, and actions
based upon which would provide the best return on its marketing investments would be
implemented.

Marketing Excellence: NORDSTROM

1) How else can Nordstrom continue to provide exceptional customer service and grow brand
loyalty?
Suggested Answer: Nordstrom knows that its customers are value maximizers. Customers
form an expectation of value and act on it, thats what makes Nordstrom and has made
Nordstrom so successful to date.
Buyers will buy from the firm that they perceive to offer the highest customer-delivered value,
defined as the difference between total customer benefits and total customer cost. This is
Nordstroms objective and target albeit a moving one!
As customer and consumer tastes change and their expectations change, Nordstrom must
change with them change in the quality of products they offer, the type of stores they build,
stock, and man.
Nordstrom must begin to data mine and grow their customer base their Fashion Rewards
Program has 4 levels based on customer spending. Nordstrom must grow their lowest level
shopper to become their highest level spender.
2) What are Nordstroms greatest risks and who are its biggest competitors?
Suggested Answer: Nordstrom must constantly be adding new customers and cultivate the
occasional Nordstrom shopper to become a regular.
Nordstroms biggest competitors are those companies who recognize the value of customer
service and that the consumer will and do form an expectation of valueprice versus quality
or price/quality versus service.
Nordstroms competitors include existing retailers and online retailers.

Marketing Excellence: HARLEY DAVIDSON

1. What kinds of things has Harley-Davidson done well with its Harley Owners Group
(H.O.G.) program to create an extraordinary customer experience that is unique and valuable
to its members?

Suggested Answer: This question serves to revise and relate key concepts learnt. The
following are key areas that Harley-Davidson has done well in creating an extraordinary
customer experience that is unique and valuable to its members.

(i) Customer-perceived value is based on the difference between benefits that the customer
gets and costs the customer assumes for different choices. Harley-Davidson has increased the

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value of the customer offering by raising economic, functional, or emotional benefits and/or
reducing one or more costs.

For example, the Harley Owners Group (H.O.G.) program offers purchasers of Harley-
Davidson motorbikes an initial one year of free membership with its H.O.G and riding club.
This provides opportunities for new Harley owners to come together and instills a sense of
belonging to the Harley community. With the renewal of membership, membership privileges
include various discounts and benefits that members can enjoy.

(ii) Delivering high customer value. Consumers have varying degrees of loyalty to specific
brands, stores and companies. Oliver defines loyalty as a deep held commitment to rebuy or
repatronize a preferred product or service despite situational influences and marketing efforts
having the potential to cause switching behavior. The value proposition is a promise about
the experience customers can expect from the companys market offering and their
relationship with the supplier. Harley-Davidson delivers high customer value in that it offers
more than the tangible benefits of a quality motorcycle but other intangible benefits such as
encouraging good service and consistent service by independent dealers, thereby providing
H.O.G members the genuine Harley-Davidson experience. Members have ownership of an
asp rational brand, experiences of freedom and relational benefits through H.O.G. membership
and community, indulgence in shared activities and hobbies.

(iii) Customer relationship management (CRM) is the process of carefully managing detailed
information about individual customers and all customer touch points to maximize loyalty.
CRM is important because a major driver of company profitability is the aggregate value of
the companys customer base. Personalized Marketing is about making sure the brand and its
marketing are as relevant as possible to as many customers as possible.

Harley-Davidson sells its motorbikes globally through its dealers which supports the activities
of H.O.G.

Harley-Davidson dealers, ranging from the CEO to sales staff, maintain personalized
relationships with customers through face-to-face and social media contact.

Harley owners can chat electronically through various channels such as social media, which
allows communication with dealers and owners of Harley-Davidson. This creates relevance
and an emotional connection.

Knowing customers as an individual, developing ongoing customer research to keep up with

changing customers expectations and experiences defines customer needs better and builds
customer relationships.

(iv) Building customer loyalty, listening to customers and becoming a customer advocate.

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Harleys Management was told by its current customers to keep the identity and keep the
look and sound of the motorcycles because they are unique. Globally, these current
customers accept the U.S. brand as it stands. When customers views are heard and accepted
by management, customers develop greater brand loyalty, creating an extraordinary customer
experience that is a unique and valuable.

2. To enlarge its customer base, what kinds of things would you recommend Harley-
Davidson do to cultivate long-term relationships with a younger audience, e.g., aged 18-34?

Suggested Answer: This is an application, strategic question. Cultivation of long term

relationships with a younger audience can include the following recommendations.

(i) Customer relationship management activities such as greater exposure of the Harley-
Davidson brand and Harley-Davidson motorcycles, accessories, spare parts, motor clothes to
connect with the younger audience. Harley-Davidson has also made in-person connections
with new potential riders at music festivals such as South by Southwest in Austin and Texas
by using dynamometers to create an interactive experience called Jump Start, which allows
novice or non riders an opportunity to feel what its like to ride and hear a Harley. The
company also brings dynamometers to Garage Parties to connect with potential women riders.

To consider customization of Harley Davidson products, services and programs for the
younger Harley owners. Customers can request for customized seat, personalized designs,
colors and textures on its motorcycles when they want to purchase a motorcycle.

Provide a trial or experience with the existing riders so that all the benefits associated in the
Harley-Davidson motorcycles can be thoroughly experienced before actual purchase. Also,
create an interactive experience called Jump Start, which allows novice or non riders an
opportunity to feel what its like to ride and hear a Harley.

(ii) Introduction and development of new models of motorcycles (Product) regularly such as
cool looking motorcycles that has the impactful, powerful sounding engine, sophisticated
charismatic look of designs, better handling motorcycles. For example, for its Dark Custom
series, Harley-Davidson merely modified some design elements as it consists largely of
existing Harley motorcycles that have flat black paint, much less chrome and toned-down
styling. It portrayed its heritage message of freedom, unique, individual expression and shared
experience that was similar with its older customers.

(iii) Successfully connecting with younger customers through social media applications such
as Facebook and personalized programs and H.O.G. programs (Place). Continue maintaining
engaging relationships with its young adults who are global fans on its Facebook page.
Continue to gather important feedback about the appeal of Harleys strong brand name and its
brand associations. For example,Harley-Davidson just being Harley-Davidson gives an
essential and authentic cool factor.

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(iv) Promotional effects in appropriate materials such as newsletter, lifestyle magazines for
specific target audience (Promotion).

(v) H.O.G. activities like frequent rides, gatherings for Men, Women, Children, friends to
relax and talk shop (Loyalty program and promotion).

(vi) Charities and social events can be organized through educational institutions, or
established companies/MNCs. Charity campaigns, internships can be held for positive
exposure of its brand name (Promotion-Publicity).

DETAILED CHAPTER OUTLINE

Today, companies face their toughest competition ever. Moving from a product-and-sales
philosophy to a holistic marketing philosophy, however, gives them a better chance of
outperforming competition. And the cornerstone of a well-conceived holistic marketing
orientation is strong customer relationships. Marketers must connect with customers
informing, engaging, and maybe even energizing them in the process. Customer-centered
companies are adept at building customer relationships, not just products; they are skilled
in market engineering, not just product engineering.
A pioneer in customer relationship management techniques is Harrahs Entertainment. As
Harrahs experience shows, successful marketers are those that carefully manage their
customer base.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTY

Managers who believe the customer is the companys only true profit center consider
the traditional organization chart in Figure 5.1aa pyramid with the president at the top,
management in the middle, and frontline people and customers at the bottomobsolete.
Successful marketing companies invert the chart (Figure 5.1b). At the top are customers;
next in importance are frontline people who meet, serve, and satisfy customers; under
them are the middle managers, whose job is to support the frontline people so they can
serve customers well; and at the base is top management, whose job is to hire and support
good middle managers.
We have added customers along the sides of Figure 5.1b to indicate that managers at
every level must be personally involved in knowing, meeting, and serving customers.
Some companies have been founded with the customer-on-top business model, and
customer advocacy has been their strategyand competitive advantageall along.
With the rise of digital technologies such as the Internet, increasingly informed
consumers today expect companies to do more than connect with them, more than satisfy
them, and even more than delight them. They expect companies to listen and respond to
them.
Customer Perceived Value

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Consumers are better educated and informed than ever, and they have the tools to verify
companies claims and seek out superior alternatives.
A) Customers tend to be value-maximizers within the bounds of search costs and limited
knowledge, mobility, and income.
B) Customers estimate which offer will deliver the most perceived value and act on it
C) 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.
D) Total customer benefit is the perceived monetary value of the bundle of economic,
functional, and psychological benefits customers expect from a given market offering
because of the product, service, people, and image.
E) Total customer cost is the perceived bundle of costs customers expect to incur in
evaluating, obtaining, using, and disposing of the given market offering, including
monetary, time, energy, and psychological costs.
F) Customer-perceived value is thus based on the difference between benefits the
customer gets and costs he or she assumes for different choices.

Applying Value Concepts

A) Managers conduct a customer value analysis to reveal the companys strengths and
weaknesses relative to those of competitors. These steps are:
1) Identify the major attributes and benefits customers value.
2) Assess the quantitative importance of the different attributes and benefits.
3) Asses the companys and competitors performances on the different customer
values against their rated importance.
4) Examine how customers in a specific segment rate the companys performance
against a specific major competitor on an individual attribute or benefit basis.
5) Monitor customer values over time.
Choice Processes and Implications
Some marketers might argue the process we have described is too rational. Suppose the
customer chooses the Komatsu tractor. Here are three possibilities.
A) The buyer might be under orders to buy at the lowest price.
B) The buyer will retire before the company realizes the Komatsu tractor is more
expensive to operate.
C) The buyer enjoys a long-term friendship with the Komatsu salesperson.
Customer perceived value is a useful framework that applies to many situations and yields rich
insights.
It suggests that the seller must assess the total customer benefit and total customer cost
associated with each competitors offer in order to know how his or her offer rates in the
buyers mind.

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It also implies that it is at a disadvantage and has two alternatives:
1) To increase total customer value (by strengthening or augmenting the offers
product, services, personnel, and image benefits).
2) To decrease total customer cost (by reducing price, simplifying the ordering,
and delivery process, or absorbing some buyer risk by offering a warranty).
Delivering High Customer Value
Consumers have varying degrees of loyalty to specific brands, stores, and companies.
A) 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.
B) 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.
C) The value-delivery system includes all the experiences the customer will have on the
way to obtaining and using the offering.
Total Customer Satisfaction
Whether the buyer is satisfied after the purchase depends on the offers performance in
relation to the buyers expectations.
A) Satisfaction is a persons feelings of pleasure or disappointment that result from
comparing a products perceived performance (or outcome) to expectations.
B) A customers decision to be loyal or to defect is the sum or many small encounters
with the company. Many companies now strive to create a branded customer
experience.
C) How do buyers form their expectations?
1) Expectations result from past experience; friends and associates advice; and
marketers and competitors information and promises.
Monitoring Satisfaction
A) Many companies are systematically measuring how well they treat customers,
identifying the factors shaping satisfaction, and changing operations and marketing as
a result.
B) Wise firms measure customer satisfaction regularly, because it is one key to customer
retention.
C) The link between customer satisfaction and customer loyalty is not proportional.
D) The company needs to recognize that customers vary in how they define good
performance.
Measurement Techniques
A) Periodic surveys can track customer satisfaction directly.

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 B) Companies can monitor their customer loss rate and contact those who have stopped
buying or who have switched to another supplier to find out why.
C) Companies can hire mystery shoppers to pose as potential buyers and report on strong
and weak points experienced in buying the companys and competitors products
D) Companies need to monitor their competitors performance too.
Influence of Customer Satisfaction
A) For customer-centered companies, customer satisfaction is both a goal and a marketing
tool.
B) Companies that do achieve high customer satisfaction ratings make sure their target
market knows it.
Marketing Insight: Net promoter and customer satisfaction
Defines customer satisfaction as How likely would you recommend this product or service to
a friend or colleague. This is the only question that matters in defining customer satisfaction.
Customer Complaints
Some companies think theyre getting a sense of customer satisfaction by tallying complaints.
A) Customers are dissatisfied 25% of the time
B) Only 5% complain
C) 95% will do business again with that company if their complaint is resolved quickly.
D) It is critical that marketers deal with negative experiences properly.
Product and Service Quality
Satisfaction will also depend on product and service 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.
Impact of Quality
Product and service quality, customer satisfaction, and company profitability are intimately
connected.
Marketing Memo: Marketing and Total Quality
Marketers play several roles in helping their companies define and deliver high-quality
goods and services to target customers
They correctly identify customers needs and requirements.
They communicate customer expectations properly to product designers.
They make sure customers orders are filled correctly and on time.
They check that customers have received proper instructions, training, and
technical assistance in the use of the product.
They stay in touch with customers after the sale to ensure they are, and remain,

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 satisfied.
They gather customer ideas for product and service improvements and convey
them to
MAXIMIZING CUSTOMER LIFETIME VALUE
Marketing is the art of attracting and keeping profitable customers.
A) The 20-80 rule says the top 20% of customers generate 80% or more of the companys
profits.
Customer Profitability
A) A profitable customer is a person, household, or company that over time yields a
revenue stream exceeding by an acceptable amount the companys cost stream for
attracting, selling, and serving that customer.
Customer Profitability Analysis
A useful type of profitability analysis is shown in Figure 5.4.
A) Customer 1 is very profitable.
B) Customer 2 is mixed profitability.
C) Customer 3 is a losing customer.
1) What can the company do about customers 2 and 3?
a. It can raise the price of its less profitable products or eliminate them.
b. It can try to sell them its profit-making products.
c. It can encourage them to switch to competitors.
Customer profitability analysis (CPA) is best conducted with the tools of an accounting
technique called Activity-Based Costing (ABC).
1) Companies that fail to measure their costs correctly are also not measuring their
profit correctly and are likely to misallocate their marketing effort.
Measuring Customer Lifetime Value
Customer Lifetime Value (CLV) describes the net present value of the stream of future profits
expected over the customers lifetime purchases.
A) CLV calculations provide a formal quantitative framework for planning customer
investment and helps marketers to adopt a long-term perspective.
Marketing Memo: Calculating customer lifetime value
Shows the formula for calculating customer lifetime value for a company.

CULTIVATING CUSTOMER RELATIONSHIPS

Companies are using information about customers to enact precision marketing designed to
build strong long-term relationships

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 A) Information is easy to differentiate, customize, personalize, and dispatch over
networks at incredible speed.
B) Customer empowerment has become a way of life for many companies that have had
to adjust to a shift in the power with their customer relationships.
Customer Relationship Management (CRM)
Customer relationship management (CRM) is the process of carefully managing detailed
information about individual customers and all customer touch points to maximize loyalty.
Personalizing Marketing
Personalized marketing is about making sure the brand and its marketing are as relevant as
possible to as many customers as possible.
A) An increasingly essential ingredient for the best relationship marketing today is the
right technology.
B) E-commerce companies looking to attract and retain customers are discovering that
personalization goes beyond creating customized information.
C) Companies are also recognizing the importance of the personal component to CRM
and what happens once customers make actual contact with the company.
1) Employee can create strong bonds with customers by individualizing and
personalizing relationships.
D) To adapt to customers increased desire for personalization, marketers have embraced
concepts such as permission marketing and one-to-one marketing.
1) Permission marketing is the practice of marketing to consumers only after gaining
their expressed permission, is based on the premise that marketers can no longer
use interruption marketing via mass-media campaigns.
a) It is anticipated, personal, and relevant.
2) Presumes consumers know what they want.
a) Participatory marketing may be more appropriatemarketers and
consumers work together to find out how the firm can best satisfy consumers.
A four-step approach to one-to-one marketing:
A) Identify your prospect and customers.
B) Differentiate customers in terms of their needs and their value to your company.
C) Interact with individual customers to improve your knowledge about their individual
needs and to build strong relationships.
D) Customize products, service, and messages to each customer.

Customer Empowerment
A) Consumers are beginning in a very real sense to own brands and participate in their
creation.

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 B) Other marketers have begun to advocate a bottom-up grassroots approach to
marketing.
C) Marketers are helping consumers become evangelists for brands by providing them
resources and opportunities to demonstrate their passion.
D) It is true that only some consumers want to get involved with some of the brands they
use and then only some of the time.
Customer Reviews and Recommendations
A) An increasing important decision factor on consumer choice is recommendations by
consumers.
B) Online customer ratings and reviews are playing an important role for Internet
retailers.
C) For smaller brands with limited media budgets, online word of mouth is critical.
D) Negative reviews can be helpful.
Attracting and Retaining Customers
A) Companies seeking to expand their profits and sales must spend considerable time and
resources searching for new customers.
B) Different acquisition methods yield customers with varying CLVs.
Reducing Defection
To reduce the defection rate, the company must:
1. Define and measure its retention rate.

2. Distinguish the causes of customer attrition and identify those that can be managed
better.
3. Compare the lost customers lifetime value to the costs of reducing the defection rate.
Retention Dynamics
A) The marketing funnel identifies the percentage of potential target market at each stage
in the decision process, from merely aware to highly loyal (Figure 5.5).
B) By calculating conversion rates the funnel allows marketers to identify any bottleneck
or barrier to building a loyal customer franchise.
C) The funnel also emphasizes how important it is not just to attract new customers, but
to retain and cultivate existing ones.
D) Satisfied customers are the companys customer relationship capital.

Managing the Customer Base

A key driver of shareholder value is the aggregate value of the customer base. Winning
companies improve the value of their customer base by excelling at strategies such as:

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 A) Reducing the rate of customer defection.
B) Increasing the longevity of the customer relationship.
C) Enhancing the growth potential of each customer through share-of-wallet, cross-
selling, and up-selling.
D) Making low-profit customers more profitable or terminating them.
E) Focusing disproportionate effort on high-value customers.
Building Loyalty
Creating a strong, tight connection to customers is the dream of any marketer and often the
key to long-term marketing success.
Retention-building activities include:
a) Financial benefits
b) Social benefits
c) Structural ties
A) Interacting with Customers
Listening to customers
B) Developing Loyalty Benefits
Two customer loyalty programs that companies can offer are frequency programs and club
marketing programs.
1. Frequency programs (FPs)
2. Club membership programs
C) Creating Institutional Ties
The company may supply customers with special equipment or computer links that help them
manage orders, payroll, and inventory.
D) Win-Backs
The challenge is to reactivate lost customers through win-back strategies such as exit
interviews and lost-customer surveys.
CUSTOMER DATABASES AND DATABASE MARKETING
Marketers must know their customers. And in order to know the customer, the company must
collect information and store it in a database from which to conduct database marketing.
A) A customer database is an organized collection of comprehensive information about
individual customers or prospects that is current, accessible, and actionable for lead
generation, lead qualification, sale of a product or service, or maintenance of customer
relationships.
B) Database marketing is the process of building, maintaining, and using customer
databases and other databases to contact, transact, and build customer relationships
Customer Databases
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 A) Customer databases are not customer mailing lists.
1) A customer mailing list is simply a set of names, addresses, and telephone
numbers.
a. Ideally, a customer database also contains the consumers past purchases,
demographics, psychographics, mediagraphics, and other useful information.
2) A business database contains business customers past purchases, past volumes,
prices, and profits, buyer team member names, and other useful information.
Data Warehouses and Data mining
A) Savvy companies capture information every time a customer comes into contact with
any of their departments.
1) These data are collected by the companys contact center and organized into a data
warehouse.
2) Through data mining, marketing statisticians can extract from the mass of data
useful information about individuals, trends, and segments.
In general, companies can use their databases in five ways:
1. To identify prospects.
2. To decide which customers should receive a particular offer.
3. To deepen customer loyalty.
4. To reactivate customer purchases.
5. To avoid serious customer mistakes.
The Downside of Database Marketing and CRM
A) Five main problems can prevent a firm from effectively using CRM.
1) Some situations are just not conducive to database management.
2) Building and maintaining a customer database requires a large, well-placed
investment in computer hardware, database software, analytical programs,
communication links, and skilled staff.
3) It may be difficult to get everyone in the company to be customer-oriented and use
the available information.
4) Not all customers want a relationship with the company.
5) The assumptions behind CRM may not always hold true (i.e., it might not be the
case that it costs less to serve the more loyal customers).

Copyright 2012 Pearson Education