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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?

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 1 5
Building Discussion
customer
value,
2 4
satisfaction,
Maximizing
3 Customer
and loyalty
customer databases
Cultivating
lifetime and database
customer
value marketing
relationships

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(Page 159-160) 5 of 41
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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.

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 Total
Image Personal Services Product
customer
benefit benefit benefit benefit
benefit

Customer
perceived
value

Psycho- Total
Energy Time Monetar
logical customer
cost cost y cost
cost cost

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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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Consumers have varying degrees of loyalty
to specific brands, stores, and companies.
What is loyalty? Oliver defines Loyalty as
“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”

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 Avis Land’s End
Google Coors
L.L. Bean Hyatt
Samsung (mobile Marriott
phones) Verizon
Yahoo! KeySpan Energy
Canon (office copiers) Miller Genuine Draft
Amazon
Source: 2006 Brand Keys Customer Loyalty Leader List, as summarized in
Kenneth Hein, “brand Loyalty shows there’s no place like home,” Brandweek,
October 23, 2006, p.11 11 of 41
The value proposition:
consist of the whole
cluster of benefits the
company promises to
deliver.
It is more than the
core positioning of the
offering.
The value delivery
system includes all the
experiences the
customer will have on
the way to obtaining Safety is a leading, but not the
only, benefit promised in Volvo’s
and using the offer. value proposition
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Satisfaction is a person’s feelings of
pleasure or disappointment that result
from comparing a product’s perceived
performance to their expectations
Expectations > Performance: dissatisfied
Expectations = Performance: Satisfied
Expectations < Performance: Delighted

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Joie de Vivre’s boutique hotels offer personal touches
that exceed customer expectations
(Page 165) 14 of 41
 Periodic Surveys

Customer Loss Rate

Mystery Shoppers

Monitor Competitive
Performance

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Customer satisfaction
level needs to be
especially concerned
because the Internet
provides a tool for
consumers to quickly
spread bad as well as
good word-of-mouth to
the rest of the world.
Companies that do
achieve high customer
satisfaction ratings make
sure their target market
knows it.
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Quality is the totality of features and
characteristics of a product or service that
bear on its ability to satisfy stated or
implied needs (defined by American
Society for Quality Control).
Impact of quality: Product/service quality,
customer satisfaction, and company
profitability are intimately connected.

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Every company loses money on some of its
customers.
The well-known 20-80 rule: the top 20% of
the customers often generates 80% or more of
the company’s profits.
In some cases, the profit distribution may be
more extreme:
The most profitable 20% of customers (on a per
capita basis) may contribute as much as 150% to
300% of profitability.
The least profitable 10%-20% of customers can
actually reduce profits between 50% to 200% per
account.
The middle 60-70% of customers breaks even.

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The 150-20 rule: “the 20% most profitable customer s generate
as much as 150% of the profits of a company; the 20% least
profitable lose 100% of the profits.”
Source: Larry Selden and Yoko S. Selden, “profitable customer :the key to great
brands,” Point (July-August 2006); p9) 20 of 41
A profitable customer is a person,
household, or company that over time
yields a revenue stream that exceeds by an
acceptable amount the company’s cost
stream for attracting, selling, and servicing
that customer.

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Figure 5.4: Customer-Product Profitability Analysis
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Annual customer revenue: $500
Average number of loyal years: 20
Company profit margin: 10%
Customer lifetime value:
$500 x 20 years x 10% = $1000

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Impact of information technology:
Companies are able to design precision
marketing to build strong customer
relationships.
Customers are able to compare prices, share
information about their experiences with
various products and services
=> Customer empowerment has become a way
of life for many companies that have had to
adjust to a shift in the power with their
customer relationships.

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Customer relationship Management (CRM)
is the process of carefully managing
detailed information about individual
customers and all customer “touch points”
to maximize customer loyalty
A customer touch point is any occasion on
which a customer encounters the brand
and product- from actual experience to
personal or mass communications to casual
observations.
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Identify prospects and customers

Differentiate customers by needs

and value to company

Interact to improve knowledge

Customize for each customer

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Harrah’s
targets
hundreds of
segments
(Page 175)

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Reduce the rate of defection

Increase longevity

Enhance “share of wallet”

Terminate low-profit customers

Focus more effort on high-

profit customers

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 suspects

prospects Disqualified

First-time
customers

Repeat
customers

clients Inactive or
Ex-
customers
Member

Advocate
Figure 5.5 The Customer
Development Process Partners
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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.

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Customer plus-delta
Napsterize your knowledge
Build the buzz
Create community
Make bite-size chunks
Create a cause

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Customer database Business database
Database Data warehouse
marketing Data mining
Mailing list

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To identify prospects

To target offers

To deepen loyalty

To reactivate customers

To avoid mistakes

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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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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

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ü 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.

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ü Choose a business and show how
you would go about developing a
quantitative formulation that captures
the concept of customer lifetime value.

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