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Creating Customer Value, Satisfaction,
and Loyalty
Marketing Management, 13th ed
5
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-2
Chapter Questions
• What are customer value, satisfaction, and loyalty, and how can companies deliver them?
• What is the lifetime value of customers?
• How can companies cultivate strong customer relationships?
• How can companies both attract and retain customers?
• What is database marketing?
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-3
Ritz Carlton - Famous for its Exceptional Service
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-4
Figure 5.1 Organizational Charts
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-5
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.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-6
Figure 5.2 Determinants of Customer Perceived Value
Image benefit Psychological cost
Personnel benefit Energy cost
Services benefit Time cost
Product benefit Monetary cost
Total customer benefit Total customer cost
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-7
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
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-8
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-9
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.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-10
Top Brands in Customer Loyalty
• Avis• Google• L.L. Bean• Samsung (mobile
phones)• Yahoo!• Canon (office
copiers)
• Land’s End• Coors• Hyatt• Marriott• Verizon• KeySpan Energy• Miller Genuine Draft• Amazon
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-11
The Value Proposition
The whole cluster of benefits the
company promises to deliver
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Raising Customer Expectations
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-13
Measuring Satisfaction
Periodic SurveysPeriodic Surveys
Customer Loss RateCustomer Loss Rate
Mystery ShoppersMystery Shoppers
Monitor Competitive Performance
Monitor Competitive Performance
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-14
J.D. Power Rates Customer Satisfaction
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-15
Single Key Question of Net Promoter“How likely is it that you would recommend
this product or service to a friend or colleague?”
Use 0-10-point scale 0-6 are Marketers than subtract Detractors
7-8 are deemed Passively satisfied9-10 are Promoter (Net Promoter Score-
NPS)
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-16
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-17
World class companies used NPS
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Customer Satisfaction
Customer Loyalty
Company’s Profit
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-19
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.
Conformance V.S.
Performance
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-21
Maximizing Customer Lifetime Value
Customer Profitability
Customer Equity
LifetimeValue
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-22
Figure 5.3 The 150–20 Rule
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-23
Figure 5.4 Customer-Product Profitability Analysis
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Estimating Lifetime Value
• Annual customer revenue: $500
• Average number of loyal years: 20
• Company profit margin: 10
• Customer lifetime value: $1000
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-25
What is Customer Relationship Management?
CRM is the process of carefully managing detailed information about individual customers and all customer
touchpoints to maximize customer loyalty.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-26
Framework for CRM
Identify prospects and customers
Differentiate customers by needs and value to company
Interact to improve knowledge
Customize for each customer
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-27
Harrah’s targets
hundreds of segments
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-28
CRM Strategies
Reduce the rate of defectionReduce the rate of defection
Increase longevityIncrease longevity
Enhance “share of wallet”Enhance “share of wallet”
Terminate low-profit customers
Terminate low-profit customers
Focus more effort on high-profit customersFocus more effort on high-profit customers
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-29
Focus on
CRM
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-30
Customer Retention
• Acquisition of customers can cost five 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.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-31
Figure 5.5 The Customer Development Process
Prospects
Suspects
Disqualified
First-timecustomers
Repeatcustomers Clients Members
PartnersEx-customers
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Creating Customer Evangelists
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-33
Steps for Creating Customer Evangelists
• Customer plus-delta
• Napsterize your knowledge
• Build the buzz
• Create community
• Make bite-size chunks
• Create a cause
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-34
Database Key Concepts
• Customer database
• Database marketing
• Mailing list
• Business database
• Data warehouse
• Data mining
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-35
Using the Database
To identify prospectsTo identify prospects
To target offersTo target offers
To deepen loyaltyTo deepen loyalty
To reactivate customersTo reactivate customers
To avoid mistakesTo avoid mistakes
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-36
Don’t Build a Database When
• The product is a once-in-a-lifetime purchase
• Customers do not show loyalty
• The unit sale is very small
• The cost of gathering information is too high
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-37
Perils of CRM
• Implementing CRM before creating a customer strategy
• Rolling out CRM before changing the organization to match
• Assuming more CRM technology is better
• Stalking, not wooing, customers
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-38
Marketing Debate Online vs. Offline Privacy?
Take a position:1. Privacy is a bigger issue in the online world than in the offline world.
or
2. Consumers receive more benefit than risk from marketers knowing their personal information.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-39
Marketing Discussion
Choose a business and show howyou would go about developing a quantitative formulation that capturesthe concept of customer lifetime value.