Customer loyalty programs



customers can be very satisfied and still not be loyal. customer loyalty becomes evident when choices are made and actions taken by customers. Buyers will buy from the firm that they perceive to offer the highest customer-delivered value. Loyalty is demonstrated by the actions of the customer. Note the use of the word "choose" though. The skill requires building a customer database and doing data mining to detect trends. Customers may express high satisfaction levels with a company in a survey. Recognizing that high satisfaction leads to high customer loyalty. Customers are value-maximizers. many companies today are aiming for TCS—total customer satisfaction. SATISFACTION AND LOYALTY 3 . In the packaged goods industry. and individual needs. customers may be described as being "brand loyal" because they tend to choose a certain brand of soap more often than others.WHAT ARE CUSTOMER LOYALTY PROGRAMS? Loyalty programs are structured marketing efforts that reward. and therefore encourage. segments. Customer loyalty describes the tendency of a customer to choose one business or product over another for a particular need. Companies are also becoming skilled in Customer Relationship Management (CRM) that focuses on meeting the individual needs of valued customers. loyal buying behavior — behavior which is potentially of benefit to the firm. A buyer’s satisfaction is a function of the product’s perceived performance and the buyers’ expectations. defined as the difference between total customer value and total customer cost. For such companies. BUILDING CUSTOMER VALUE. They form an expectation of value and act on it. customer satisfaction is both a goal and a marketing tool. but satisfaction does not equal loyalty.

D) Total customer value is the perceived monetary value of the bundle of economic. B) Customers estimate which offer will deliver the most perceived value and act on it. including monetary. and psychological benefits customers expect from a given market offering. and disposing of the given market offering. time. using. giving them encouragement to remain active and choosing to do business with a company. more than satisfy them.Managers who believe the customer is the company’s only true “profit center” consider the traditional organizational chart. energy. With the rise of digital technologies like the Internet. F) Customer perceived value is thus based on the difference between what the customer gets and what he or she gives for different possible choices. Customer loyalty is the result of well-managed customer retention programs. today’s increasingly informed consumers expect companies to do more than connect with them. All customer retention programs rely on communicating with customers. and psychic costs. customers who are targeted by a retention program demonstrate higher loyalty to a business.. E) Total customer cost is the bundle of costs customers expect to incur in evaluating. C)Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. and even more than delight them. 4 . functional. Customer Perceived Value A) Customers tend to be value-maximizers. obtaining. Successful marketing companies invert the chart.

no matter what kind of front-end marketing program you are running or how you "wrap it up" and present it to the customer. These models can be your early warning system. The data will tell you who to promote to. You are watching the erosion of customer loyalty right before your eyes. and will alert you to situations like the "30 day skip" example above in time for you to do something before the customer defects. and discover 20% of them "skip" their 30 day activity. CUSTOMER DATA AND MODELS Customer data and models based on this data can tell you which customers are most likely to respond and become loyal. because they're already gone. In addition. and take action before they leave you. 90% of the 20% who skip never come back. let's say you look at your most loyal customers and find on average they buy or visit at least once every 30 days. especially since you probably paid big money to get them to do business with you the first time. and how to save precious marketing dollars in the process of creating customers who are loyal to you longer. You will waste a tremendous amount of money trying to get them back. you want them to continue doing business with you. ATTRACTING.You want customers to do something. This is accomplished by using the data customers create through their interactions with you to build simple models or rules to follow. to take action. You have to develop a way to identify high loyalty customers who are at risk. You don’t want to pay big money the second time. And once they do it for the first time. sign up for a newsletter. So you begin tracking these customers. RETAINING AND GROWING CUSTOMERS 5 . Behavior models cause the data to speak to you about the loyalty status of the customer before it's too late. For example. You want to create a "loyal" customer who engages in profitable behavior. You want them to visit your website. And it's too late to do anything about it. make a purchase.

2) First-time customers. b.A) B) Customers are becoming harder to please. and opportunity to make a Two main ways to strengthen customer retention: a. 2) 3) The average company loses 10 percent of its customers each year. ability. 4) E) Customer profit rate tends to increase over the life of the retained customer. 2) purchase 3) Customer churn—high customer defection Prospects—customers with the motivation. Acquiring new customers cost five times more than the costs involved in satisfying and retaining current customers. Deliver high customer satisfaction. 1) Prospects. Companies seeking to expand profits and sales have to spend considerable time and resources searching for new customers. 6 . The starting point is everyone who might conceivably buy the product or service (suspects).. 4) Clients—people whom the company treats very specially and knowledgeably. Erect high switching costs. A 5 percent reduction in customer defection rate can increase profits by 25 percent to 85 percent depending on the industry. C) D) 1) Most companies now recognize the importance of satisfying and retaining customers. 1) Suspects are people or organizations that might conceivably have an interest in buying but many not have the means or real intention to buy. Satisfied customers constitute the company’s customer relationship capital. 3) Repeat customers.

Building Loyalty )A Five different levels of investment in customer-relationship building: )1 Basic marketing. Simple retention markets—customers lost after each period. The company needs to figure out how much it would cost to reduce the defection 7 . )3 )4 rate. )2 Reactive marketing. F) Markets can be characterized by long-term buying dynamics and how easily customers can enter and leave. 1) 2) 3) Permanent capture markets—once a customer always a customer.5) Members. )5 Partnership marketing. The company must distinguish the cause of customer attrition and identify those that can be managed better. Customer migration markets—customers can leave and come back. listening to customers. )5 Finally. )4 Proactive marketing. Reducing Customer Defection )A )1 )2 Five main steps a company can take to reduce the defection rate: The company must define and measure its retention rate. 6) Advocates—customers who enthusiastically recommend the company. )3 Accountable marketing. 7) Partners. The company needs to estimate how much profit it loses when it loses customers.

2) Charge a lower price to consumers who buy larger supplies. 8 . And adding structural ties. and inventory. Adding social benefits. Adding Financial Benefits )A )1 Two financial benefits companies can offer are: Frequency programs—designed to provide rewards to customers who buy frequently and in substantial amounts.Forming Strong Customer Bonds )A )1 )2 )3 Berry and Parasuraman have identified three retention-building approaches: Adding financial benefits. payroll. good way to build long-term loyalty with the 20 percent of the customers who contribute 80 percent of the profits. B) The marketer’s aim should be to increase the consumer’s proclivity to repurchase. Adding Structural Ties A) The company may supply customers with special equipment or computer links that help customers manage orders. 1) Create long-term contracts. Adding Social Benefits A) Company personnel work on cementing social bonds with customers by individualizing and personalizing customer relationships. )2 Club marketing programs—limited to an affinity group or to those willing to pay a small fee. Limited membership clubs are more powerful long-term loyalty builders.

informing. The cornerstone of a well-conceived marketing orientation is strong customer relationships. companies face their toughest competition ever. engaging and energizing them in the process. Today. Marketers must connect with customers. 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. 9 .3) Turn the product into a long-term service.

BIBLIOGRAPHY Marketing_Management_12th_edition__12e__by_Kotler_and_Keller 10 . http://www.htm .htm http://en.jimnovo.greatbrook.wikipedia.

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