Loyalty

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.

5-1

The Value Proposition

The whole cluster of benefits the company promises to deliver

5-2

Maximizing Customer Lifetime Value

Customer profitability Customer equity Lifetime value

5-3

Estimating Lifetime Value

Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

5-4

Drivers of Customer Equity

Value equity Brand equity Relationship equity

5-5

Framework for CRM

Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

5-6

CRM Strategies
Reduce rate of defection Increase longevity Enhance share of wallet Terminate low-profit customers Focus more effort on high-profit customers

5-7

Table 5.1 Mass vs. One-to-One Marketing

Mass Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising One-way message Economies of scale One-to-One Individual customer Customer profile Customized market offering Customized production Economies of scope Share of customer

5-8

Customer Retention

Acquisition of customers can cost 5 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.
5-9

Reducing Customer Defection

Define and measure retention rate Distinguish causes of customer attrition Estimate profit loss associated with loss of customers Assess cost to reduce defection rate Gather customer feedback

5-10

Forming Strong Customer Bonds

Add financial benefits Add social benefits Add structural ties

5-11

Strong Customer Bonds

Keys to Success

Adding Financial Benefits Adding Social Benefits Adding Structural Ties

Frequency programs Club memberships

To accompany A Framework for Marketing Management, 2nd Edition

Slide 12 of 18

Strong Customer Bonds

Keys to Success

Adding Financial Benefits Adding Social Benefits Adding Structural Ties

Personalize customer relationships

To accompany A Framework for Marketing Management, 2nd Edition

Slide 13 of 18

Strong Customer Bonds

Keys to Success

Adding Financial Benefits Adding Social Benefits Adding Structural Tie

Create long-term contracts Charge less for ongoing purchases Link product to long-term service

To accompany A Framework for Marketing Management, 2nd Edition

Slide 14 of 18

Database Key Concepts

Customer database Database marketing Mailing list

Business database Data warehouse Data mining

5-15

Using the Database

To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes

5-16