Chapter Two: Creating Long-term

Loyalty Relationships
Creating Long-term Loyalty Relationships
 Discussion 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?
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2.1 Customer Value, Satisfaction, and Loyalty

Holistic Marketing
• Inform
• Engage
• Energize

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 Traditional Organization vs.
Customer-Oriented Organization

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Customer Perceived Value

Customer-
Economic perceived Value

Evaluating

Functional Obtaining

Using

Psychological Disposing

Total Customer Total Customer

Benefit Cost

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 Customer-
perceived value

Total customer Total customer

benefit cost

Determinants Product Monetary

benefit cost
of Customer
Services Time
Perceived Value benefit cost

Personal Energy
benefit cost

Image Psychological
benefit cost

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Value Concepts
Customer
Profit Price
Value
$6,000 $20,000 -0-
5,000 19,000 $1,000
4,000 18,000 2,000
3,000 17,000 3,000
2,000 16,000 4,000
Worth to Customer:
1,000 15,000 5,000
$20,000
-0- 14,000 6,000

Cost to produce:
$14,000
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Customer value analysis
It reveals a company’s strength and weaknesses
relative to those of various Competitors. The
steps in this analysis are:
1. Identify the major attributes and benefits
customers value.
2. Assess the quantitative importance of the
different attributes and benefits.
3. Assess the company’s and competitors’
performances on the different customer
values against their rated importance.
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Cont....
4. Examine how customers in a specific segment
rate the company’s performance against a
specific major competitor on an individual
attribute or benefit basis.
5. Monitor customer values over time.

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 DELIVERING HIGH CUSTOMER VALUE

Customer Loyalty
“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.”
-- Oliver
Value Proposition
Volvo
Core positioning:
• Safety

Other benefits:
• Good performance
• Design
• Environmentally friendly

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 Customer Satisfaction
A person’s feelings of pleasure or
disappointment that result from
comparing a product’s perceived
performance to (or outcome) to
expectations.
 Customer Satisfaction

Expectations

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Customer Expectations

Previous purchases
Friends advice
Marketers’ / competitors
Expectations

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Monitoring Satisfaction
Influence of
Customer Satisfaction

Measurement
Techniques

Customer
Complaints
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Measurement Techniques
Customer Loss Rate

Surveys

Mystery Shopper
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Influence of Customer Satisfaction

Customer satisfaction

Speed of communication
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 Customer Complaints
54% - 70%
5% Buy again if resolved Tell 5
Complain people
95%
If resolved quickly
25%
Dissatisfied
95% Tell 11
Stop buying people

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 Product and Service Quality
Performance Conformance

Quality is the totality of Quality

features and characteristics
of a product or service that
bear on its ability to satisfy
stated or implied needs.

Satisfaction Profitability

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2.2 Maximizing Customer Lifetime Value

20% of 80% of
Customers Profits

Customers
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 Customer Profitability

Customer Profitability Analysis

Profitable

Customer Lifetime Value

Unprofitable

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 A Profitable Customer

A person, household, or company that

over time yields a revenue stream
exceeding by an acceptable amount the
company’s cost stream for attracting,
selling, and serving that customer.
 Customer-Product
Profitability Analysis

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2.3 Cultivating Customer Relationships

Customer Information
• Differentiate
• Customize
• Personalize
• Share

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Customer Relationship Management (CRM)

CRM is the process of carefully

managing detailed information
Personalizing Marketing
about individual customers
and all customer “touch
Customer Empowerment points” to maximize loyalty.

Customer Reviews & Recommendations

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Personalizing Marketing

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 One-to-One Marketing
Identify prospects Differentiate
and customers customers

Interact with Customize

each customer
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Customer Empowerment

Brand Evangelists
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Customer Reviews/Recommendations
Create Buzz

Negative reviews

Customer ratings
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Customer Retention
Acquiring new customers costs

5x more
than retaining current customers The average company loses

10%
Of its customers yearly

Reducing customer defections by 5% can

increase profits from

25% to 85%
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 Attracting and Retaining Customers
Manage
customer base

Reduce Defections
1. Define and measure
2. Determine causes
3. Compare CLV to costs

Retention Dynamics
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 The Marketing Funnel

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 Building Loyalty
Interact with customers

Create institutional ties

Develop loyalty programs

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 Cont.….
INTERACTING WITH CUSTOMERS
Listening to customers is crucial to customer relationship management. Some companies have created
an ongoing mechanism that keeps their marketers permanently plugged in to frontline customer
feedback. But listening is only part of the story. It is also important to be a customer advocate and, as
much as possible, take the customers’ side and understand their point of view. USAA Insurance’s
legendary quality of service has led to the highest customer satisfaction in the industry. USAA
subscribers will often tell stories about how the company looks out for them, even counseling them not
to take out more insurance than they need. With such levels of trust, USAA enjoys high customer loyalty
and significant cross-selling opportunities.

DEVELOPING LOYALTY PROGRAMS

Frequency programs (FPs) are designed to reward customers who buy frequently and in substantial
amounts. They can help build long-term loyalty with high CLV customers, creating cross-selling
opportunities in the process. Pioneered by the airlines, hotels, and credit card companies, FPs now
exist in many other industries. Most supermarket chains offer price club cards that grant discounts on
certain items. Typically, the first company to introduce an FP in an industry gains the most benefit,
especially if competitors are slow to respond. After competitors react, FPs can become a financial
burden to all the offering companies, but some companies are more efficient and creative in managing
them.

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Cont.….
CREATING INSTITUTIONAL TIES
The company may supply customers with special equipment or computer
links that help them manage orders, payroll, and inventory. Customers
are less inclined to switch to another supplier when it means high capital
costs, high search costs, or the loss of loyal-customer discounts.

Win-Backs
Regardless of how hard companies may try, some customers inevitably
become inactive or drop out. The challenge is to reactivate them through
win-back strategies. It’s often easier to re-attract ex-customers (because
the company knows their names and histories) than to find new ones. Exit
interviews and lost-customer surveys can uncover sources of
dissatisfaction and help win back only those with strong profit potential.

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 2.4 Databases & Database Marketing
Customer databases
• Name, address, telephone #
• Purchase history
• Demographics
• Psychographics
• Mediagraphics
Data mining

Data Warehouses

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 Cont...
• 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.
• Database marketing is the process of building,
maintaining, and using customer databases and other
databases (products, suppliers, resellers) to contact,
transact, and build customer relationships.

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The Downside of Database Marketing and CRM

• Some situations are just not conducive to database

management.
• Building and maintaining a customer database requires a
large, well-placed investment in computer hardware,
database software, analytical programs, communication
links, and skilled staff.
• It may be difficult to get everyone in the company to be
customer oriented and use the available information.
• Not all customers want a relationship with the company.
• The assumptions behind CRM may not always hold true.

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Discussion
Online versus Offline Privacy
• As more firms practice relationship marketing
and develop customer databases, privacy
issues are emerging as an important topic.
• However, some argue that the opportunity to
steal information exists virtually everywhere,
and its up to consumers to protect their
interests.

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