4 Creating Customer Value, Satisfaction, and Loyalty

Chapter Questions

How can companies deliver customer value, satisfaction, and loyalty? What is the lifetime value of a customer, and why is it important to marketers? How can companies cultivate strong customer relationships? What is the role of database marketing in customer relationship management?

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Warm-up Quiz (True or False)
1. It is more cost effective and easier to acquire new customers than to retain existing ones. False. Acquiring new customers cost companies more in marketing expenditures and efforts. 2. The value that different customers derive from a given product or service is usually the same. False. Every customer is unique; with varying interests and tastes; hence differing perceptions and evaluations (value attachment) of a product or service. 3. Customer retention involves relationship marketing. True. Companies must be proactive in interacting and understanding their customers in order to enhance the prospect of retaining them.
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Warm-up Quiz (True or False)
4. Loyalty programs can help to differentiate an organisation’s offer permanently. False. Loyalty programs may help to build customer preference but they can be imitated by competitors easily. Hence, relying on loyalty programs alone may not differentiate the organisation for long from its competitors. 5. Delivering service quality only involves the marketing department. False. Service delivery occurs when an organisation's representatives and customers interact with one another. To do this well, there must be adequate support within departments and across the organisation.

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Customer-Orientations

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What is Customer Perceived Value?
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.

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Determinants of Customer Perceived Value
Total customer benefit Product benefit Services benefit Personnel benefit Image benefit Total customer cost Monetary cost Time cost Energy cost Psychological cost
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What is Loyalty?
Loyalty is a deeply held commitment to rebuy or re-patronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.

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What is Satisfaction?
Satisfaction is the person’s feelings that result from comparing a product’s performance or outcome to expectations. Why do companies need satisfied customers?

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Measuring Satisfaction

Periodic surveys Customer loss rate Mystery shoppers Monitor competitive performance

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Facts: Customer Complaints

Customers are dissatisfied with their purchases 25% of the time, but only 5% complain. Of those who register a complaint, 54-70% will do business with the company again, if the complaint is resolved; 95% if resolved quickly. Those with resolved complaints tell on average 5 people about the good treatment they received. The average dissatisfied customer gripes to 11 people, then bad word of mouth spreads exponentially.
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How to Deal With Complaints?
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Make it easy for the customer to complain. Contact the complaining customer as quickly as possible. Accept responsibility for the customer’s disappointment; don’t blame the customer. Use customer service people who are empathic. Resolve the complaint swiftly and to the customer’s satisfaction.
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What is Quality?
Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

Conformance versus Performance Quality Total Quality Management (TGM)
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The 20-80 Rule

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Top Brands in Customer Loyalty in U.S.
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Avis Google Samsung mobile Yahoo! Canon office copiers Hyatt Hotels Marriott Hotels

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Verizon long distance Miller beer Amazon Motorola Mobile phones BlackBerry Diet Pepsi

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Steps in a Customer Value Analysis

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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
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Maximizing Customer Lifetime Value:
Who is a profitable customer?

Customer Profitability

Costs / Revenues

Lifetime Value

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Customer-Product Profitability Analysis (CPA)

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Estimating Customer Lifetime Value
Customer Lifetime Value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases. Refer to Table 4.2 Annual customer revenue: Average number of loyal years: Company profit margin: Customer lifetime value: Discount rate: $500 20 10% $1000 4-19

What is Customer Relationship Management?
Customer Relationship Management (CRM) is the process of carefully managing detailed information about individual customers and all customer touch points to maximize customer loyalty.

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CRM Strategies:
Increasing the value of customer base
Reduce the rate of defection Reduce the rate of defection Increase longevity Increase longevity Enhance “share of wallet” Enhance “share of wallet” Terminate low-profit Terminate low-profit customers customers Focus more effort on Focus more effort on high-profit customers high-profit customers
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Framework for CRM: One-to-One Marketing
Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer
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Customer Development Process
Potentials

Prospects First-time customers

Disqualified Repeat customers

Clients

Members

Inactive or Ex-customers

Partners

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The Marketing Funnel

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Facts: Customer Retention

Acquisition of customers can cost 5 times more than retaining current customers. The average company loses 10% of its customers each year. A 5% reduction in the customer defection rate, can increase profits by 25-85%. The customer profit rate increases over the life of a retained customer.

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Loyalty Programs
Frequency programs are designed to provide rewards to customers who buy frequently and in substantial amounts. FPs can help build longterm loyalty with high CLV customers, creating cross-selling opportunities in the process.
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Building Customer Loyalty
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Superior products, services and experiences Cross-departmental participation in planning and managing the customer satisfaction and retention Database on individual customer needs, preferences, contacts, purchase frequency, satisfaction Communication channels for customers to contact the company’s customer service and express feedback Frequency programs and club marketing programs Award programs recognizing outstanding employees
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Database Key Concepts

Customer database Database marketing Mailing list

Business database Data warehouse Data mining

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Using the Database
To identify prospects To identify prospects To target offers To target offers To deepen loyalty To deepen loyalty To reactivate customers To reactivate customers To avoid mistakes To avoid mistakes
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Don’t Build a Database When
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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

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