5

Creating Customer Value,

Satisfaction,
and Loyalty

Marketing Management, 13th ed

 Chapter Questions
• 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?
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-2
 Figure 5.1 Organizational Charts

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-3

 Defining Customer Value and
Satisfaction
• Customer Perceived Value (CPV): the
prospective consumer’s evaluation of all
benefits and the perceived alternatives.
• Total customer value: the perceived monetary
value of the benefit of economic, functional and
psychological benefits.
• Total customer cost: the bundle of costs
customers expect to incur in evaluating, using
and
Copyright © 2009 disposing
Pearson Education, Inc. Publishing as Prentice Hall 5-4
 Determinants of
Customer
Delivered Value

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-5

 Defining Customer Value and
Satisfaction
• Total Customer Satisfaction
• Satisfaction: feelings of pleasure or disappointment
• Customer Expectations : 12/ 24 hrs guarantee
• Delivering High Customer Value
• Value proposition: benefits the company promise
such as Volvo -> gaining from customer experience
• Value-delivery system -> all experiences the
customer obtaining and using
• Measuring Satisfaction
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-6
 Steps in a Customer Value Analysis

• 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

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-7

 Tools for Tracking and Measuring Customer Satisfaction

Complaint and A customer-centered organization makes it easy for

suggestion customers to register suggestions and complaints. Some
systems: customer-centered companies-P&G, General Electric,
Whirlpool—establish hot lines with toll-free numbers.
Companies are also using Web sites and
e-mail for quick, two-way communication.

Customer Studies show that although customers are dissatisfied with

satisfaction one out of every four purchases, less than 5 percent will
complain. Most customers will buy less or switch suppliers.
surveys:
Responsive companies measure customer satisfaction
directly by conducting periodic surveys. While collecting
customer satisfaction data, it is also useful to ask
additional questions to measure repurchase intention and
to measure the likelihood or willingness to recommend the
company and brand to others.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-8

 Delivering Customer Value and
Satisfaction

• Value Chain: a tool for identifying

ways to create more customer value.
• Value chain
• The Value Delivery Network (Supply
Chain) : need to look for competitive
advantages beyond its own operation

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-9

 The Generic Value Chain

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-10

 Levi Strauss’s Value-
Delivery Network

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-11

 The Customer
Development
Process

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-12

 Measuring Satisfaction

• Periodic surveys
• Customer loss rate
• Mystery shoppers
• Monitor competitive performance

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-13

 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.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-14

 Top Brands in Customer Loyalty

• Avis • Land’s End

• Google • Coors
• L.L. Bean • Hyatt
• Samsung (mobile • Marriott
phones) • Verizon
• Yahoo! • KeySpan Energy
• Canon (office • Miller Genuine Draft
copiers) • Amazon

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-15

 Measuring Satisfaction

Periodic Surveys

Customer Loss Rate

Mystery Shoppers

Monitor competitive
performance

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-16

 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.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-17

 Maximizing Customer Lifetime Value

Customer
Profitability

Customer Lifetime
Equity Value

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-18

 Figure 5.3 The 150-20 Rule

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-19

 Figure 5.4 Customer-Product
Profitability Analysis

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-20

 Framework for CRM

Identify prospects and customers

Differentiate customers by needs

and value to company

Interact to improve knowledge

Customize for each customer

See table 4.5 for what CRM comprises

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-21
 CRM Strategies
To Increase The Value Of Customer Base

Reduce the rate of defection

Increase longevity

Enhance “share of wallet”

Terminate low-profit
customers

Focus more effort on

high-profit customers
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-22
 Customer Retention

• 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.

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-23

 Figure 5.5 The Customer
Development Process
Suspects

Prospects Disqualified

First-time Repeat
customers customers Clients Members

Partners
Ex-customers

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-24

 Using the Database

To identify prospects

To target offers

To deepen loyalty

To reactivate customers

To avoid mistakes

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-25

 Estimating Lifetime Value

• Annual customer revenue: $500

• Average number of loyal years: 20
• Company profit margin: 10
• Customer lifetime value: $1000

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-26

 Steps for Creating
Customer Evangelists
• Customer plus-delta
• Napsterize your knowledge
• Build the buzz
• Create community
• Make bite-size chunks
• Create a cause

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-27

 Database Key Concepts

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

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-28

 Don’t Build a Database When

• 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

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-29