Marketing Management2.2

Peppers and Rogers on “creating customer loyalty”

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The only value your company will ever create is the value that comes from customers—the ones you have now and the ones you will have in the future.

Businesses succeed by getting, keeping, and growing customers. Customers are the only reason you build factories, hire employees, schedule meetings, lay fiber-optic lines, or engage in any business activity.

Without customers, you don’t have a business

Building Customer Value, Satisfaction & Loyalty

• Customers are value-maximizers• Form value expectation & act on it • Buy from firm perceived to offer highest

customer delivered value, defined as

total customer value - total customer cost

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Traditional Organization versusModern Customer-Oriented Company Organization

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Pre-purchase Stage

Need Arousal

• Decision to buy or use a service is triggered by need arousal

• Triggers of need:• Unconscious minds (e.g., personal identity and aspirations)• Physical conditions (e.g., hunger )• External sources (e.g., a service firm’s marketing activities)

Courtesy of Masterfile Corporation

Information Search

• Evoked set • a set of products and brands that a consumer considers during the

decision-making process – that is derived from past experiences or external sources

• Evaluation• Alternatives then need to be evaluated before a final decision is

made

Evaluating Alternatives – Service Attributes

• Search attributes help customers evaluate a product before purchase

• Experience attributes cannot be evaluated before purchase• Credence attributes are those that customers find impossible to

evaluate confidently even after purchase and consumption

Perceived Risks of Purchasing / Using Services

Functionalunsatisfactory performance

outcomesFinancial

monetary loss, unexpected extra costs

Temporal wasted time, delays leading to

problemsPhysical

personal injury, damage to possessions

Psychological fears and negative emotions

Social how others may think and react

Sensory unwanted impact on any of five

senses

Components of Customer Expectations

• wished-for level of service quality that customer believes can and should be delivered

Desired Service Level

• minimum acceptable level of service

Adequate Service Level

• service level that customer believes firm will actually deliver

Predicted Service Level

• Acceptable range of variations in service delivery

Zone of Tolerance

Service Encounter Stage

Service Encounter Stage

• Service encounter – a period of time during which a customer interacts directly with the service provider• Might be brief or extend over a period of time (e.g., a phone call or

visit to the hospital)

Service Encounter Stage

• Models and frameworks:1.“Moments of Truth” – importance of managing touchpoints

2.High/low contact model – extent and nature of contact points

3.Servuction model – variations of interactions

4.Theater metaphor – “staging” service performances

Moments of Truth

“[W]e could say that the perceived quality is realized at the

moment of truth, when the service provider and the service

customer confront one another in the arena. At that moment

they are very much on their own… It is the skill, the

motivation, and the tools employed by the firm’s

representative and the expectations and behavior of the

client which together will create the service delivery

process.”

Richard Normann

Service Encounters Range from High-Contact to Low-Contact

Distinctions between High-Contact and Low-Contact Services

• High-Contact Services• Customers visit service

facility and remain throughout service delivery

• Active contact• Includes most people-

processing services

• Low-Contact Services• Little or no physical

contact• Contact usually at arm’s

length through electronic or physical distribution channels

• Facilitated by new technologies

Post-Encounter Stage

Post-purchaseStage - Overview

Pre-purchase Stage

Service Encounter Stage

Post-encounter Stage

●Evaluation of service performance

●Future intentions

Customer Satisfaction with Service Experience

• Satisfaction: attitude-like judgment following a service purchase or series of service interactions• Whereby customers have expectations prior to consumption,

observe service performance, compare it to expectations

• Satisfaction judgments are based on this comparison• Positive disconfirmation (better) • Confirmation (same) • Negative disconfirmation (worse)

Conducting Value Analysis• Managers conduct a customer value analysis to

reveal the company’s strengths and weaknesses relative to those of competitors. These steps are to help:

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Conducting Value Analysis• Identify the major attributes and benefits that

customers value.• Assess the quantitative importance of the different

attributes and benefits. • Asses the company’s and competitor’s performances

on the different customer values against their rated importance.

• Examine how customers rate the company against major competitors on individual attributes or benefits.

• Monitor customer values over time

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Customer Satisfaction1. Satisfaction is a person’s feeling of pleasure or

disappointment 2. A customer’s decision to be loyal or to defect is

the sum or many small encounters with the company.

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Tracking Customer Satisfaction• Companies can monitor the customer loss

rate and contact customers who have stopped buying and learn why this happened.

• Companies can hire mystery shoppers to pose a potential buyers and report on strong and weak points experienced in buying the company’s and competitor’s products.

• In addition to tracking customer value expectations and satisfaction, companies need to monitor their competitor’s performance in these areas as well.

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Recovering Customer Goodwill

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1. Set up a 7-day, 24-hour toll-free “hotline” (by phone, fax, or email) to receive and act on customer complaints.

2. Contact the complaining customer as quickly as possible. The slower the company is to respond, the more dissatisfaction may grow and lead to negative word of mouth.

3. Accept responsibility for the customer’s disappointment. Never ever blame the customer.

4. Use customer-service people who are empathetic.

5. Resolve the complaint swiftly and to the customer’s satisfaction. Some complaining customers are not looking for compensation so much as a sign that the company cares.

Maximizing Customer Life Time Value

Copyright © 2009 Pearson Education South Asia Pte Ltd

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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.

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.

Customer Portfolios• Marketers are recognizing the need to manage

customer portfolios, made up of different groups of customers. These customers are defined in terms of loyalty, profitability, and other factors.

 

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Measuring Customer Lifetime Values

• 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 customer investment and helps marketers to adopt a long-term perspective.

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See Marketing Memo on Measuring CLV

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The Marketing Memo – calculating CLV

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Cultivating Customer Relationships

• Maximizing customer value means cultivating long-term customer relationships. • Companies are moving to more precision marketing

designed to build strong customer relationships.• Mass customization is the ability of a company to meet

each customer’s requirements—to prepare on a mass basis individually designed products, services, programs, and communications.

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Customer Relationship Management

• 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.

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Attracting and Retaining Customers

• Companies seeking to expand profits and sales have to spend considerable time and resources searching for new customers.

• Suspects are people or organizations that might conceivably have an interest in buying but many not have the means or real intention to buy.

• Prospects—customers with the motivation, ability, and opportunity to make a purchase.

• Customer churn—high customer defection.

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Reducing Defection

• The company must define and measure its retention rate.

• The company must distinguish the cause of customer attrition and identify those that can be managed better.

• The company needs to estimate how much profit it loses when it loses customers.

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The Customer Development Process

Building Loyalty• Four important types of marketing activities that

build customer loyalty and retention:1. Interacting with customers2. Developing loyalty programs3. Personalizing marketing4. Creating institutional ties

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Developing loyalty benefits

• Two customer loyalty programs that companies can offer are frequency programs and club marketing programs.

•Frequency programs (FPs)• FPs – reward for frequent & substantial

buys

•Club membership programs• Club membership - open to everyone,

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Creating Institutional Ties• Providing software, special computer links or

hardware to customers to help them manage key functions adds to retaining customers. Example Nestlé in Asia

• Support retailers

• Help in inventory management

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Creating structural ties

1. Create long-term contracts

2. Charge lower price to consumers who buy larger supplies

3. Turn product into long-term service

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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.

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