In-SIDE group

Presented by : Lee Soon Yau Lee Yoke Chin M.Dzul Azzwan Marzieh Khodavandloo Meor Shahiful Annuar B. Mior GM04241 GM04240 GM04174 GM04103 GM04116

Chapter

5

Creating Customer Value, Satisfaction, and Loyalty

Marketing Management
by Philip Kotler
&

13th edition

Kevin Lane Keller

Learning Objectives
After studying this chapter, you should able to:

1.Define the customer value, satisfaction, and loyalty, and explain how can companies deliver them 2.Define the lifetime value of customers 3.Explain how can companies cultivate strong customer relationships 4.Explain how can companies both attract and retain customers 5.Define the database marketing

Traditional Versus Modern Customer Oriented Company Organization .

and Loyalty Customer perceived value ‡ difference between total customer benefit and total customer cost . Satisfaction.Building Customer Value.

Satisfaction. . and Loyalty (Cont·d) 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.Building Customer Value.

Satisfaction. . and disposing of the given market offering. functional. obtaining. and psychological benefits. and Loyalty (Cont·d) Total customer benefit ‡ is the perceived monetary value of the bundle of economic. Total customer cost ‡ is the perceived bundle of costs customers in evaluating.Building Customer Value. using.

Determinants of Customer Perceived Value Total customer benefit Total customer cost Product benefit Monetary cost Services benefit Time cost Personal benefit Energy cost Image benefit Psychological cost .

Customer Value Analysis Process 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 .

Total Customer Satisfaction
Satisfaction ‡ person¶s feeling of pleasure or disappointment that result from comparing a product¶s perceived performance to their expectation.

Total Customer Satisfaction (cont·d)
Expectation ‡ past buying experience, friends, and associates' and marketers, competitors¶ information and promises. ‡ Customer Satisfied : Performance = Expectation ‡ Customer Dissatisfied : Expectation > Performance

Measuring Satisfaction
‡ Customer retention is customer satisfaction.
‡ Numerous methods exist to measure satisfaction:

1.Periodic surveys 2.Monitor the customer loss rate and find out why 3.Mystery shoppers 4.It is important to ask the right questions and it is also important to monitor the customer satisfaction of competitors.

Choices and implications ‡ The buyer may be under orders to buy at the lowest price ‡ The buyer will retire before the company realises that the product is more expensive to run ‡ The buyer enjoys a long-term friendship with one of the sales people .

.Product and Service Quality ‡ Satisfaction also depends on 1.product 2.service quality ‡ Quality = the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

. ‡ Conformance quality = all the units deliver their respective promised quality ‡ Total quality is the key to value creation and customer satisfaction.Product and Service Quality(Cont·d) ‡ A company that satisfies most of its customers¶ needs most of the time is called a quality company.

Delivering High Customer Value Loyalty ‡ deeply held commitment to re-buy or repatronize a preferred product or service in the future Value proposition ‡ the benefits that company promise to deliver. .

Customer Profitability
Profitable customer ‡ person, household, or company that over time yields a revenue stream exceeds cost stream for attracting, selling, and servicing that customer. ‡ maximizing long term customer profitability

Customer profitability analysis
‡ is best conducted with the tools of an accounting technique called activity based costing. ‡ There are only 2 solutions to handling unprofitable customers: 1.raise fees or 2.reduce service support. ‡ unprofitable customers who defect should not concern the company.

Competitive advantage
‡ a company¶s ability to perform in one or more ways that competitors cannot or will not match. ‡ Few competitive advantages are sustainable. ‡ A leverage able advantage is one that a company can use as a springboard to new advantages. ‡ Any competitive advantage must be seen by customers as a customer advantage.

Maximizing Customer Lifetime Value Customer lifetime value (CLV) ‡ net present value of the stream of future profits expected over the customer¶s lifetime purchases ‡ Emphasis on customer service and long-term customer satisfaction rather than on maximizing short-term sales .

Customer Equity ‡ Is the total of the discounted lifetime values of all the firm¶s customers. . Clearly the more loyal the customers. the higher the customer equity.

Brand equity ‡ the customer¶s subjective and intangible assessment of the brand. The sub-drivers of brand equity are: . above and beyond its objectively perceived value.3 drivers support customer equity Value equity ‡ the customer¶s objective assessment of the utility of an offering based on perceptions of its benefits relative to its costs.

. above and beyond objective and subjective assessments of its worth.3 drivers support customer equity (Cont·d) ‡ Relationship equity ‡ the customer¶s tendency to stick with the brand.

.Cultivating Customer Relationships Customer Relationship Management (CRM) ‡ managing customer detailed information to maximize customer loyalty. Customer touch point ‡ everytime your customer come into contact with. or touch your brand and anything and everything associated with it.

One-to-One Marketing ‡ customer relationship management strategy emphasizing personalized interactions with customers ‡ Try to make a unique product offering for each customer ‡ Eg: Customer detail form .

Eg: Customer detail form .

Steps of One-to-One Marketing Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer .

and mine a rich customer database with information derived from all the channel and customer touch points .1. maintain.Identify prospects and customers ‡ Build.

margin levels.Differentiate customers by needs and value to company ‡ Apply activity-based costing and calculate customer lifetime value ‡ Estimate net present all the future profits coming from purchase. . and referrals. less customer specific servicing costs.2.

.3.Interact to improve knowledge ‡ Interact with customer ‡ Improve knowledge about customer latest information ‡ Formulate customized offerings that you can communicate in a personalized way.

4. ‡ Facilitate customer-company interaction through the company contact center and website .Customize for each customer ‡ Customize products. and message to each customer. services.

CRM Strategies ‡ ‡ ‡ ‡ ‡ Reduce the rate of customer defection Increase relationship with customer Enhance the growth potential of customer Making low profit customer more profitable Focus more effort on high-profit customers .

Reduce the rate of customer defection ‡ Selecting and training employees to be knowledgeable and friendly increases the likelihood that the inevitable shopping questions from customers. .

Increase relationship with customer ‡ Treat customers as partners ‡ Soliciting their help in the design of new products or improving customer services .

Enhance the growth potential of customer ‡ Increasing sales from existing customers with new offerings and opportunity .

or pay higher amounts or fees .Making low profit customer more profitable ‡ Encourage unprofitable customer buy more or in large quantity. forgo certain features or services.

Focus more effort on high-profit customers ‡ The most valuable customer can be treated in special way ‡ Send a strong positive signal to your customers ‡ Thoughtful gesture : birthday greeting. invitation for special sports and so on . small gift.

Process of Attracting and Retaining Customers Potentials Suspects Prospects Disqualified Prospects Repeat customers First-time customers Clients Members Advocates Ex-customers Partners .

‡ Prospects = people with the motivation.Process of Attracting and Retaining Customers (Cont·d) ‡ Potentials = people who might have an interest in buying the company¶s product or service but may not have real intention to do so. ability and opportunity to make a purchase ‡ First time customer = customer first-time buy company¶s products and services .

Process of Attracting and Retaining Customers (Cont·d) ‡ Repeat customer = customer come back with the products and services again ‡ Clients = customers want special treatment and knowledge from products and services ‡ Members = customers become member for particular company .

Process of Attracting and Retaining Customers (Cont·d) ‡ Advocates = customers intend to recommend others to buy and use products and services once customer satisfied ‡ Partners = customers being trusted by company. successfully retain customers .

Improve loyalty and retention Interacting with customers ‡ Listening to customers ‡ Understanding customer¶s point of view ‡ Give suggestions and solution to customer Developing loyalty programs ‡ Provide rewards to customers Personalizing Marketing ‡ Serve as clients .

Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining .

Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ Collection of comprehensive information about individual customers or prospects .

transaction and build customer relationship. maintaining. and using customer databases and other databases to contact.Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ Process of building. .

address. . and telephone numbers.Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ a set of names.

past volumes. prices. and profits.Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ Contain business customers¶ past purchase. buyer team member names .

Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ Capture. and analyze it to draw inferences about an individual customer¶s needs and responses. . query.

trends. . and segment from mass of data.Database Key Concepts ‡ ‡ ‡ ‡ ‡ ‡ Customer database Database marketing Mailing list Business database Data warehouse Data mining ‡ Extract useful information about individuals.

Databases can be used in five ways ‡ To identify prospects ‡ To decide which customers should receive a particular offer ‡ To deepen customer loyalty ‡ To reactivate customer purchases ‡ To avoid serious customer mistakes .

Chapter 6 Analyzing Consumer Markets Marketing Management by Philip Kotler & 13th edition Kevin Lane Keller .

you should able to: ‡ Explain how consumer characteristics will influence buying behavior ‡ List the major psychological processes influence consumer responses to the marketing program ‡ List the buying decision process ‡ Explain how marketers analyze consumer decision making .Learning Objectives After studying this chapter.

What Influences Consumer Behavior? Cultural Factors Social Factors Personal Factors .

nationalities. ‡ Subculture -provide more specific identification and socialization for their member.Cultural Factor ‡ Culture -is the fundamental determinant of a person¶s wants and behaviors acquired through socialization processes with family and other key institutions. -including religions. racial group and geographic region. .

Fast Facts About American Culture ‡ The average American: chews 300 sticks of gum a year goes to the movies 9 times a year takes 4 trips per year attends a sporting event 7 times each year .

Social Classes ‡ ‡ ‡ ‡ ‡ ‡ ‡ Upper uppers Lower uppers Upper middles Middle Working Upper lowers Lower lowers .

income. wealth) ‡ Class designation is mobile over time . people tend to behave alike ‡ Social class conveys perceptions of inferior or superior position ‡ Class may be indicated by a cluster of variables (occupation.Characteristics of Social Classes ‡ Within a class.

Social Factor ‡ ‡ ‡ ‡ Reference groups Family Social roles Statuses .

 e. professional .Reference groups ‡ Membership groups ‡ Primary groups.g.religious. friends.person interacts more formally and require less continuously .person interacts fairly continuously and informally. family. neighbors ‡ Secondary groups. e.g.

Reference groups ‡ Aspirational groups group are those a person hopes to join ‡ Dissociative groups  groups are those whose values or behavior an individual reject .

requests and demand .consists of parents and siblings ‡ family of procreation.consists of one¶s spouse and children ‡ that can be direct or indirect influence describes children¶s hints.Family ‡ is the most influential primary reference group ‡ family of orientation.

Roles and status ‡ define a person¶s position ‡ e. vice president position is higher than a manager or clerk ‡ people choose products that reflect and communicate their role and actual or desired status in society .g.

Personal Factors Age Selfconcept Lifestyle Values Personality Life cycle stage Occupation Wealth .

furniture is often related to our age ‡ Stage in The Life Cycle -cycle of the life can be marriage. childbirth. divorce.Personal Factors ‡ Age -our taste in food. widowhood. clothes. relocation. as giving rise to new needs . illness. career change.

or lunchboxes -economic circumstances influence product choices like spendable income.Personal Factors ‡ Occupation and Wealth -influences consumption patterns -e. high heel. attitudes toward spending and saving . Office lady will buy work clothes.g. debts.

Brand Personality ‡ ‡ ‡ ‡ ‡ Sincerity (honest. successful. daring) Competence (reliable. intelligent) Sophistication (charming and upper class) Ruggedness (outdoorsy and tough) . cheerful) Excitement (up to date. down-to-earth. imaginative.

Lifestyle Influences ‡ Multi-tasking consumer will doing two or more things at the same time ‡ Time constrained  consumer prefer convenient product like fast food service ‡ Money constrained consumer more prefer to lower-cost products or service .

Table 6.2 LOHAS (Lifestyles of Health and Sustainability) Market Segments ‡ ‡ ‡ ‡ ‡ Sustainable Economy Healthy Lifestyles Ecological Lifestyles Alternative Health Care Personal Development .

Model of Consumer Behavior .

Key Psychological Processes ‡ ‡ ‡ ‡ Motivation Perception Learning Memory .

Motivation ‡ Freud¶s Theory ‡ Maslow¶s Theory ‡ Herzberg¶s Theory .

size. less conscious to shape. material.Freud·s Theory ‡ behavior is guided by subconscious motivations ‡ person cant fully understand his or her own motivations ‡ e.g. color and brand name .

unmet need Physiological needs Safety needs Social needs Esteem needs Self-actualization needs .Maslow·s Theory ‡ behavior is driven by lowest.

Maslow·s Hierarchy of Needs .

.Herzberg·s Theory ‡ two factor theory that distinguishes dissatisfies from satisfiers dissatisfiers  factors that cause dissatifation satisfiers factors that cause satisfaction ‡ absence of dissatisfiers is not enough. satisfiers must be present to motivate a purchase.

‡ 2) Sellers should identify the major satisfiers or motivators of purchase in the market and supply them.Herzberg·s Theory 2 implications: ‡ 1) Sellers should do their best to avoid dissatisfiers. . These satisfiers will make the major difference as to which brand the customer buys.

Herzberg·s Two-Factor Theory .

Perception ‡ ‡ ‡ ‡ Selective Attention Selective Distortion Selective Retention Subliminal Perception .

Selective Attention ‡ Voluntary attention is something purposeful ‡ Some finding:People are more likely to notice stimuli that relate to a current need People are more likely to notice stimuli they anticipate People are more likely to notice stimuli whose deviations are large in relationship to the normal size of the stimuli .

Perception cont· Selective Attention .

Selective Distortion -is the tendency to interpret information in a way that fits our preconceptions -often distort information to be consistent with prior brand and product belief and expectations .

Selective Retention ‡ to retain information that supports our attitudes and beliefs ‡ Likely remember good point about a favor brand .

Subliminal Perception ‡ is a selective perception ‡ subliminal refer to information that is perceived below level of conscious awareness .

Perception cont· Perception cont· Subliminal Perception .

stimuli.Learning ‡ Change in behavior arising from experience ‡ Through drives. and reinforcement . cues. responses.

retain.Short term memory (a tempory and limited repository of information) II.Memory ‡ Is an organism¶s ability to store. essentially unlimited repository) . and recall information and experiences I.Long term memory ( a more permanent.

Buying Decision Process Problem recognition Information search Evaluation Purchase decision Postpurchase behavior .

hunger. External stimuli a stimulus that comes from outside an organism .g. Internal stimuli a normal need e. thirst i.Stage 1: Problem Recognition ‡ Recognizes a problem or need triggered by:i.

Stage 2: Information Search ‡ Consumer often search for limited amounts of information ‡ Two level of involvement with search Heightened attention Active information search .

examining. friends. using the product . Web sites. neighbors. displays ‡ Public mass media ‡ Experiential handling. acquaintances ‡ Commercial advertising.Sources of Information ‡ Personal family. salesperson.

Consumer sees each product as bundle of attributes with varying abilities for delivering the benefits sough to satisfy this need . Consumer is looking for certain benefits from the product solution 3.Stage 3: Evaluation of Alternatives ‡ measure products¶ ability to solve problems ‡ some basic concept:1. Consumer is trying to satisfy a need 2.

Beliefs and Attitudes belief descriptive thought that a person holds about something attitudes a person¶s enduring favorable or unfavorable evaluations. emotional feelings. and action tendencies toward some object or idea .

Expectancy-Value Model ‡ a model of attitude formation posits that consumers evaluate products and services by combining their brand beliefs .

4 A Consumer·s Evaluation of Brand Beliefs About Laptops .Table 6.

Stage 4: Purchase Decision ‡ Consumer forms preferences among the brand in the choice set Noncompensatory Model of Consumer Choice Intervening Factors .

g. she would choose product B ‡ Lexicographic Choose the best brand on the basis of its perceived most important attribute . If Linda decided all attributes had to rate at least a 5.Noncompensatory Model of Consumer Choice ‡ Conjunctive Sets a minimum acceptable cutoff level for each attribute and chooses E.

Noncompensatory Model of Consumer Choice ‡ Elimination-by-aspects Compares brands on an attribute selected probabilistically Eliminates brands that do not meet minimum acceptable cutoffs .

Intervening Factors ‡ Two general factors can intervene between the purchase intention and the purchase decision I. Unanticipated situational factors . Attitudes of other II.

Perceived Risk ‡ ‡ ‡ ‡ ‡ ‡ Functional Physical Financial Social Psychological Time .

dissatisfaction (performance < expectations) . satisfaction (performance = expectations) 3.Stage 5 : Postpurchase Behavior ‡ involves all the consumers' activities and the experiences that follow the purchase 1. delight (performance > expectations) 2.

thought and result of brand association .Other Theories of Consumer Decision Making Involvement ‡ Elaboration Likelihood Model central route -much thought and rational consideration peripheral route . celebrity endorsement .e.g.

Low-involvement marketing strategies ‡ Many products are bought under conditions of low involvement and the absence of significant brand differences E.g salt .

g cookies .Variety-seeking buying behavior ‡ Low involvement but significant brand differences ‡ Consumers often do a lot of brand switching E.

cont· Decision Heuristics ‡ Availability base their predictions on the quickness and ease with which a particular example of an outcome comes to mind .Other Theories of Consumer Decision Making.

cont· ‡ Representativeness base their predictions on how representativeness or similar the outcome is to other examples ‡ Anchoring and adjustment initial judgment then adjust it based on additional information .Other Theories of Consumer Decision Making.

Other Theories of Consumer Decision Making. cont· ‡ Mental Accounting -refers to the way consumers code. categorize and evaluate financial outcomes of choices .

each dimension evaluated separately Integrate losses .to view additional expenditure favorably Integrate smaller losses with larger gains -more likely to be absorbed by the larger pay amount Segregate small gains from large losses -the popularity of rebates on big-ticket purchases .Mental accounting is based on a set of key core principles:Segregate gains .

Profiling the customer BuyingDecision Process ‡ think about how they themselves would act ‡ interview small number of recent purchases Introspective method Retrospective method Prescriptive method ‡ ask consumers to describe the ideal way to buy the product Prospective method ‡ locate consumers who plan to buy ‡ think out going through the buying process .