Creating customer value, satisfaction, and loyalty

Customer perceived value (CPV) is The worth that a product or service has in the mind of the
consumer. The consumer’s perceived value of a good or service affects the price that he or she is
willing to pay for it. It is the difference between the prospective customer’s evaluation of all the
benefits and all the costs of an offering and the perceived alternatives.
Total customer value is the perceived monetary value of the collection of economic, functional,
and psychological benefits customers expect from a given market offering. Sources include
product value, services value, personnel value, and image value.
Total customer cost is the collection of costs customers expect to incur in evaluating, obtaining,
using, and disposing of the given market offering. Sources include monetary cost, time cost,
energy cost, psychic cost.
Customers are focused on maximizing value. For a customer to decide which company delivers
the highest perceived customer value, the buyer will evaluate and compare the total customer
value (from its sources) to the total customer cost (also from its four sources).
In order to know how his or her offer rates in the buyer’s mind, the seller must assess the total
customer value and total customer cost associated with each competitors offer. When the
seller is at a customer perceived value disadvantage, it can decrease total customer cost or
increase total customer value.
Customer Satisfaction refers to an individual’s perceived feelings of pleasure or
disappointment resulting from comparing a product’s perceived performance (or outcome) in
relation to his or her expectations. The link between customer loyalty and customer
satisfaction isn’t proportional. To generate customer satisfaction, companies must match the
delivering performances with customer expectations. Companies must deliver high customer
value in order to generate high customer loyalty.
Value proposition: consists of the whole cluster of benefits the company promises to deliver; a
statement of resulting experience.
Value delivery system: includes all the experiences the buyer will have on the way to obtaining
and using the offering, for a company to keep promise they must manage this.
Methods to measure customer satisfaction include: complaint and suggestion systems, mystery
shopping (hiring people to act as potential buyers and report feedback), customer satisfaction
surveys, last customer analysis (through contacting former/ex-customers).
High performance businesses are organizations that reach their customer value and satisfaction
goals. These companies set strategies to satisfy their key stakeholders, by improving business
processes, and align resources and organization. “Build to Last” Commonalities of high
performance businesses include:
• Distinctive set of values, with no deviation.

• Purpose is expressed in enlightened terms (e.g. “Help end Hunger”).

• Vision of the future has been developed, company acts to implement it.

The value chain is a tool for identifying ways to create more customer value. The value delivery
system (supply chain) refers to working with partners to find competitive advantages beyond
own operations. (E.g. Levi’s works with Sears to determine demand).
Customer Relationship Management (CRM) means building stronger relationships with
customers. The CRM goal is to produce high customer equity, which is the total of the
discounted lifetime values of all of the firm’s customers.
The drivers of CRM include:
1. Value equity (the subdrivers are quality, price, and convenience),
 2. Brand equity (the subdrivers are customer brand awareness, customer attitude,
customer perception of brand ethics),
3. Relationship equity (the subdrivers are loyalty programs, special recognition
and treatment programs, community and knowledge building programs).
The different CRM levels of investment are: basic marketing, reactive marketing, accountable
marketing, proactive marketing, partnership marketing.
To form strong customer bonds companies can:
• Add financial benefits, (e.g. with frequency programs, club membership programs).

• Add social benefits.

• Add structural ties through creating long-term contract, charge a lower price

to consumers that buy larger supplies, or turn the product into a long-term
service.
Customer lifetime value (CLV) refers to the present value of the profit stream that the firm
would have accomplished if the customer had not defected prematurely. In order to measure
CLV: Subtract from the expected revenues the expected costs of attracting, selling, and
servicing that customer.
Attracting customers requires a lot of time and resources, and can lead to expanded profits and
sales. (Ways of attracting: mail, ad’s, salespeople).
Customer churn is high customer defection; the problem of attracting and retaining customers.
(Defection: customers that leave, retention: customers that stay).To reduce the defection rate
(churn), the company has to define and measure the retention rate, distinguish the causes of
customer attrition and identify those that can be managed better, estimate profits lost from
losing customers, calculate cost of reducing defection rate, and listen to customers.
Companies must also focus on retaining customers. Retaining current customers is cheaper
than attracting new customers. Ways to strengthen customer retention include: delivering high
customer satisfaction or erecting high switching barriers.
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 of attracting, selling, and
servicing that customer. Measuring individual customer profitability is important. To deal with
unprofitable customers, companies must either reduce service support or raise fees.
To analyze profitability, you can use: Customer Profitability Analysis (CPA), which can best be
done through Activity Based Costing (ABC). To make company profitability higher, companies
should build sustainable competitive advantage or competitive advantages it can leverage. The
key to value creation and customer satisfaction is total product and service quality;
organizations that wish to remain solvent and profitable implement.
Total Quality Management is an organization-wide approach to continuously improving the
quality of all the organization’s products, serices, and process.
One-to-one marketing four step framework:
1. Identify your prospects and customers (focus, don’t try to reach everyone).
2. Differentiate customers in terms of (1) their value to your company and (2) their
needs (Spend proportionately more effort on the most valuable customers (MVC’s).
3. Interact with individual customers to build stronger relationships and to improve
your knowledge about their individual needs.
4. Customize services, products, and messages to each customer.
Reducing defection (customers leaving) is crucial. Just adding new customer is not enough. To
reduce retention rate, a company must:
1. Define and measure its retention rate.
 2. Determine the causes of defection.
3. Compare the lost profit equal to the customer’s lifetime value from a lost customer
to the costs to reduce the defection rate.
Customers can develop from potentials (who haven’t bought the product yet but might
purchase it) to partners (customers who enthusiastically recommend the company and its
products and services to others)
The Customer-Development Process describes this process:
potentials > prospects > first-time customers > repeat customers > clients > members >
advocates > partners. This process reflects the perfect situation, from the point where
customers are first-time customers to the point where they become partners they can
always become inactive of ex-customers if they decide not to further purchase the product
or service.
Companies can create tight connections to customers by increasing their loyalty. This can be
done by:
• Developing loyalty programs (like Frequency program; FP’s).

• Interacting with customers.

• Creating institutional ties.

• Personalizing marketing.

A customer database is an organized collection of comprehensive information about

prospects
or individual customers that is current, accessible, and actionable for such marketing purposes
as lead generation, lead qualification, sale of a product or service, or maintenance of customer
relationships.
Database marketing: The process of building, maintaining, and using customer databases
and other databases for the purpose of contacting, transacting, and building relationships.
Customer mailing: Lists simple holds the customer contact information, while the customer
database holds more information.
A data warehouse: Collects, and enables personnel to capture, query and analyze data on
contacts between the customer and the organization. Inferences can be drawn about an
individual customer’s needs and responses
Data mining: Involves the use of sophisticated statistical and mathematical techniques to
extract useful information about individuals, trends, and segments from mass data.
Ways to use databases include: Identify prospects, decide which customers should receive a
particular offer, to deepen customer loyalty, to reactivate customer purchases, to avoid
serious customer mistakes
The disadvantages of database marketing include:
It needs a high investment in computer hardware, database software, analytical programs,
communication links, and skilled personnel.
It may not always be worthwhile building a customer database: e.g. with once in a-lifetime
purchase products (e.g., a grand piano), with brand-loyal customers, small unit sale (e.g., a
candy bar), high costs on gathering information.
Employees may not want to be customer-oriented or use the available information.
Customers may not want to give and allow for the use of personal information, and may not
want a relationship with the company.