Creating Customer, Value

Satisfaction and Loyalty

Ch # 3
MARKETING MANAGEMENT
Copyright 2009, Prentice-Hall, Inc. 4-2
Chapter Objectives
Able to understand how companies deliver
customer value, satisfaction, and loyalty
To Understand the important of lifetime
value of a customer towards marketers
Understand How companies able to
cultivate strong customer relationships?
To understand the important of database
marketing in customer relationship
management
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CUSTOMER VALUE
The level of priority the
customer gives to a product.
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CUSTOMER SATISFICATION
When the customer perceive
expected value
from the product is called
customer satisfaction.
Customer Value Analysis Steps
1. Identify the major attributes and benefits that
customers value
2. Assess the quantitative importance of the
different attributes and benefits
3. Assess 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
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Determinants of
Customer
Perceived Value
(CPV)
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The Value Proposition
The whole cluster
of benefits the
company promises
to deliver
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The Value Proposition - Example
Delivering High Customer Value
2. Value delivery system

Total Customer Satisfaction:
Customer satisfaction depends on the offers
performance that meets customer expectation.

1.IF the performance matches the expectations, the
customer is satisfied.
2. IF the performance exceeds the expectations , the
customer is highly satisfied or delighted.

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SATISFICATION
A persons feelings of pleasure
or disappointment
that result from comparing
a products perceived
performance (or outcome)
to expectations.
How do Buyers form their
Expectations
Expectations result from past buying experience;
friends and associates advice and marketers
and competitors information and promises.
1.If marketers raise expectations TOO HIGH, the
buyer is likely to be DISAPPOINTED.
2.If the company sets expectations TOO LOW, it
WONT ATTRACT enough buyers.
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Measuring Satisfaction
Periodic Surveys
Customer Loss Rate
Mystery Shoppers
Monitor competitive
performance
Measurement Techniques
Periodic Surveys is way to measure the customer
satisfaction.
Customer loss rate also tells about the customer
satisfaction.
Questionnaire from customers who have stopped
buying or who have switched to another supplier
to find out Why?
Finally, 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.
Monitoring Satisfaction
Companies should measure systematically that how well
they treat with the customers, identifying the factors
shaping satisfaction, and making changes in their operations
and marketing as a result.
Monitoring satisfaction is very important because one key
to Customer Retention is Customer Satisfaction.
A highly satisfied customer generally stays loyal longer, buys
more as the company introduces new products and
upgrades existing products, talks favorably to others about
the company and its products, pay less attention to
competing brands and is less sensitive to price, offers
products or service ideas to the company, and costs less to
serve than new customers.
High customer satisfaction has also been linked to higher
returns and lower risk in the stock market.

Rated Customer Satisfaction on a Scale From
One To Five
1. At a level one, customers are likely to
abandon the company and even bad-of-
mouth.
2. At level two to four, customers are fairly
satisfied but still find it easy to switch when a
better offer comes along.
3. At level five, the customers is very likely to
repurchase and even spread good word of
mouth about the company

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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.
Quality

CONFORMANCE QUALITY:
If the product is giving its
promise quality then it is called conformance quality.

PERFORMANCE QUALITY:
Quality that is based on the
product features is called performance quality.




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Total Quality Management
TQM is an organization-wide
approach to continuously
improving the quality of
all the organizations processes,
products, and services.
Copyright 2009, Prentice-Hall, Inc. 4-20
Marketers Roles in Delivering
Quality
Correctly identifying customers needs and requirements
Communicate customer expectations properly to product
designers
Be sure orders are filled correctly and on time
Provide customers with proper instructions, training, and
technical assistance
Stay in touch with customers after the sale
Gather customer ideas for improvements and convey
them to the appropriate departments
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Drivers of Customer Equity
Value equity
Brand equity
Relationship equity
Maximizing Customer Life Time Value

CLV is the net present value of the cash flows
attributed to the relationship with a customer.
The well known 20-80 rule says that the top 20 of
customers often generates 80% or more of the
companys profit.
The least profitable 10% to 20% of customers , on
the other hand, can actually reduce profits between
50% and 200% per account, with the middle 60% to
70% breaking even.
Maximizing Customer Life-Time 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
companys cost stream of
attracting, selling, and servicing
that customer.
Customer profitability can be
assessed individually, by market
segment, or by channel.
Most companies fail to
measure individual customer
profitability.
Customer
Profitability
Customer
Equity
Lifetime
Value
MAXIMIZING CUSTOMER LIFETIME VALUE
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 its
profit-making products.
It can encourage
customer 3 to switch to
competitors.

Profitability Analysis
MAXIMIZING CUSTOMER LIFETIME VALUE
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).
Lead customers
(unprofitable and
undesirable).

Profitability Analysis
Copyright 2009, Prentice-Hall, Inc. 4-26
Cultivating Customer Relationships
Customer relationship management (CRM) is
the process of carefully managing detailed information about
individual customers and all customer touch points to
maximize customer loyalty.
Customer relationship management enables companies
to provide excellent real-time customer service through
the effective use of individual account information.

Touch pointany occasion on which a customer
encounters the brand and product.

Cultivating Customer Relationship
One To One Marketing
One-to-one marketing is a customer relationship
management (CRM) strategy emphasizing
personalized interaction with customers.

Four Step framework for one to one marketing
Identify your prospects and customers
Differentiate customers in terms of their needs and their value to
your company
Interact with individual customers to improve your knowledge
about their individual needs and to build stronger relationships
Customize products, service and messages to each customers.

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Framework for CRM ( CRM Steps)
Identify prospects and customers
Differentiate customers by needs
and value to company
Interact to improve knowledge
Customize for each customer
Cultivating Customer Relationship /
CRM Strategies
1. Reducing the rate of customer defection
2. Increasing the longevity of the customer relationship
3. Enhancing the growth potential of each customer
through share-of- wallet, cross-selling and up-
selling
4. Making low profit customers more profitable or
terminating them
5. Focusing disproportionate effort on high-value
customers
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CRM Strategies
Reduce the rate of defection
Increase longevity
Enhance share of wallet
Terminate low-profit
customers
Focus more effort on
high-profit customers
Attracting and Retaining Customers
Five levels of investment in customer relationship
building.
1. Basic Marketing
2. Reactive Marketing
3. Accountable Marketing
4. Proactive Marketing
5. Partnership Marketing
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Building Loyalty
Partnership
Proactive
Accountable
Reactive
Basic
Forming Strong Customer Bonds
The basics
Cross departmental participation
Integrate the voice of the customer into all
business decisions
Create superior offering for the target
market
Organize and make a accessible a data
base of customer information

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Forming Strong Customer Bonds
Add financial
benefits
Add social
benefits
Add structural
ties
Frequency
Programs(FPs))
Create long term contracts
Charge lower price to high volume
customer
Turn product into long term service


Reduce Customer Defection

Define and measure retention rate
Distinguish causes of customer attrition
Estimate profit loss associated with loss of
customer
Assess cost to reduce customer defection
Gather customer feedback
Cultivating Customer Relationship
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Customer-Development Process
Prospects
Suspects
Disqualified
First-time
customers
Repeat
customers
Clients Members
Partners
Ex-customers
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Loyalty
A commitment to re-buy
or re-patronize a product
or service in the future.
Building Loyalty
Create superior products, services and experiences for the
target market.
Get cross departmental participation in planning and
managing the customer satisfaction and retention process.
Integrate the Voice of the Customer to capture their
stated and unstated needs or requirements in all business
decisions.
Organize and make accessible a database of information on
individual customer needs, preferences, contacts, purchase
frequency and satisfaction.



Make it easy for customers to reach appropriate
company personnel and express their needs,
perceptions, and complaints.
Assess the potential of frequency programs and club
marketing programs.
Run award programs recognize outstanding
employees
Building Loyalty
Customer Database:
A customer database is an organized
collection of comprehensive information about individual
customers or prospects that is current, accessible, and
actionable for such marketing purposes as lead generation,
lead qualification, sale of a product or service, or
maintenance of customer relationships.
Database Marketing:
Data base marketing is the process
of building, maintaining and using customer databases and
other data bases to contact, transact, and build customer
relationship.
Data Warehouse:
Where marketers can capture,
query, and analyze it to draw inferences about
an individual customers needs and responses.
Data Mining:
Through data mining marketing
statisticians can extract useful information
about individual trends, and segments
from the mass of data.

Use of Database
1. To identify prospects
2. To decide which customer should receive a
particular offer
3. To deepen customer loyalty
4. To reactive customer purchase
5. To avoid serious customer mistakes

Cases in which Customer Database
would not be Worthwhile
1. When the product is a once-in-a-lifetime purchase.
For example: A Grand Piano.
2. When customer show little loyalty to a brand.
3. When the units sale is very small.
For Example: A Candy Bar.
4. When the cost of gathering information is too high.

Four problem that prevent a firm
effectively using CRM
Large Investment
Difficulty in getting every one customer
oriented
Not all customers want an ongoing
relationship
Assumption behind CRM may not always
hold true
Breaking Down CRM: What CRM Really Comprises
Acquiring the right
customer
Crafting the right
value proposition
Instituting the best
processes
Motivating
employees
Learning to retain
customer
CRM Imperative
You Get It When
Have identified most
valuable customers
Have calculated
share of their wallet for
goods/services
Have studied what
products/services
customers need today,
tomorrow
Have surveyed what
competitors offer
today, tomorrow
Have spotted what
products/services we
should offer
Have researched the
best way to deliver
products/services to
customers
Including alliance
need to strike, tech
need to invest, and
services capabilities
that need to be
developed or acquired
Know what tools our
employees need to
use to foster customer
relationships
Have identified HR
systems needed to
boost employee loyalty
Have learned why
customers defect and
how to win them back
Have analyzed what
competitors do to win
your high value
customers
Senior management
monitors customer
defection metrics
CRM Technology Can Help
Analyze customer
revenue & cost data to
identify current and
future high value
customers
Target direct-
marketing efforts
better
Capture relevant
product/service
behavior data
Create new
distribution channels
Develop new pricing
models
Build communities
Process transaction
faster
Provide better info to
the front line
Manage logistic and
supply chain more
efficiently
Catalyze collaborative
commerce

Align incentives and
metrics
Deploy knowledge
management systems

Track customer
defection and retention
levels
Track customer
service satisfaction
levels
Source: Darrel K., Reichheld F., and Schefter P., Avoid the Four Perils of CRM Harvard Business Review (Feb, 2002) pg. 106
3-46
It is no longer enough
to satisfy customers.
You must delight
them.
Kotler on
Marketing