Marketing Management: Creating Long-Term Loyalty Relationships

Marketing Management
Fifteenth Edition
Chapter 3
Creating
Long-Term
Loyalty
Relationships
Copyright © 2016, 2012, 2009 Pearson Education, Inc. All Rights Reserved
Learning Objectives
5.1 What are customer value, satisfaction,
and loyalty, and how can companies
deliver them?
5.2 What is the lifetime value of customers,
and how can marketers maximize it?
5.3 How can companies attract and retain
the right customers and cultivate strong
customer relationships and communities?
5.4 How do customers’ new capabilities
affect the way companies conduct their
marketing?
Kotler on Marketing
It is no longer enough to satisfy customers.

You must delight them.
Bashir on Marketing
If you cannot delight the customers at least

don’t dissatisfy them.
Building Customer Value,
Satisfaction, and Loyalty (1 of 6)
Figure 5.1 Traditional Organization versus Modern Customer-Oriented
Company Organization
Building Customer Value, Satisfaction,
and Loyalty (2 of 6)
•Customer-Perceived Value (CPV)
– The difference between the prospective customer’s
evaluation of all the benefits and costs of an offering
[product/service] and the perceived alternatives
[competing brands]
– Total customer benefit vs. total customer cost = [Benefits
–costs]
Figure 5.2 Determinants of CPV
Customer Value Analysis
1. Identify the major attributes and benefits that customers value
2. Assess the quantitative importance of the different attributes
and benefits
3. Assess the company’s and competitors’ performances on the
different customer values against their rated importance
4. Examine how customers in a specific segment rate the
company’s performance against a specific major competitor on
an individual attribute or benefit basis
5. Monitor customer values over time
Importance = 100%, Rating = 1 - 4
Attributes Importance Rating of Rating of Compet Our
(1) (2) (100%) company X our itor X company
(3) company (5) (6)
(4)
Quality .4 3 4 1.2 1.6
Durability .2 1 3 0.2 0.6
Features .1 2 4 0.2 0.4
Warranty .1 1 3 0.1 0.3
Price .2 2 1 0.4 0.2
2.1 3.1
Both the companies are not performing very well in terms of perceived
customer value analysis. However, our company is a bit better. Focus should
be given in the areas of price, durability and warranty to improve the perceived
customer value.
Column 5 = column 2 X column 3; Column 6 = column 2 X column 4
• Customer-Perceived
Value (CPV) is not the
only criteria to make
buying decision.
– Buyer’s choice
processes [buyer
maybe biased to some
company because of
personal interest]
•Total customer satisfaction
– A person’s feelings of pleasure or disappointment that
result from comparing a product or service’s perceived
performance (or outcome) to expectations
• Monitoring satisfaction: many companies are
systematically measuring how well they treat
customers, identifying the factors shaping satisfaction,
and changing operations and marketing as a result
– Periodic surveys [Uber, NSU faculty evaluation]
– customer loss rate [checking how many customers are
making repeat purchase and how many left us]
– mystery shoppers [company may send its personnel in
the disguise of customers to check the satisfaction]
•Product and service 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 quality [both Sony and Walton
Television are performing]
– vs. performance quality [Sony performs better than
Walton]
Maximizing Customer Lifetime
Value (1 of 4)
•Customer profitability analysis
– Activity-Based Costing (ABC)
Figure 5.3 Customer-Product
Profitability Analysis
Maximizing Customer Lifetime
Value (2 of 4)
•Customer Lifetime Value (CLV)
– The net present value of the stream of future profits
expected over the customer’s lifetime purchases
Customer Lifetime Value Calculation
CLV Calculations
Year Year Year Year Year Year Year Year Year Year
Year 0 1 2 3 4 5 6 7 8 9 10
Number of Customers 100 90 80 72 60 48 34 23 12 6 2
Revenue per customer 100 110 120 125 130 135 140 142 143 145
Variable cost per customer 70 72 75 76 78 79 80 81 82 83
Margin per customer 30 38 45 49 52 56 60 61 61 62
Acquisition cost per
customer 40
Total cost or profit -4000 2700 3040 3240 2940 2496 1904 1380 732 366 124
Present value (10%
discount rate) -4000 2455 2512 2434 2008 1550 1075 708 341 155 47.807
9286.51
Margin = Row 2 – Row 3; Total profit/cost = Row 1 X Row 4
Attracting and Retaining
Customers (1 of 3)
• Reducing defection/customer churn [customer quitting]
‒ Define and measure retention rate
‒ Distinguish/identify customer attrition [quit] causes
‒ Compare lost CLV to reducing defection rate
**Keeping existing customer is always benefitting.
Attracting and Retaining Customers (3 of 3)
• Managing the customer base
– Reduce customer defection [find the cause of quitting
and resolve them]
– Focus on high-profit customers [Platinum, Gold, Iron…]
– Increase customer longevity [maintain good CRM to
hold the customer]
– Terminate low-profit customers [slowly reduce the
number of unprofitable customers by giving less
service, making product unavailable; however, this
should be done with caution]
– Share of wallet and cross/upselling [try to sell all or
maximum product lines to the existing customers]
Building Loyalty
• Interact closely with customers [give quality service
and follow-up]
• Develop loyalty programs [membership card/reward
card, GP star, Robi Dhonnobad, lounge facilities in
airport etc.]
• Create institutional ties [Coca Cola, Pepsi Cola, Igloo,
Nestle etc. they offer infrastructural support in terms of
vending machine, fountain machine, refrigerators etc.]
Brand Communities
• A specialized community of consumers and employees
whose identification and activities focus around the brand
Cultivating Customer Relationships
• Customer relationship management (CRM)
– The process of carefully managing detailed information
about individual customers and all customer “touch
points” to maximize loyalty.
CRM
• Customer empowerment
• Customer reviews/
recommendations
• Customer complaints
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Marketing Management

It is no longer enough to satisfy customers.

If you cannot delight the customers at least

Column 5 = column 2 X column 3; Column 6 = column 2 X column 4

Margin = Row 2 – Row 3; Total profit/cost = Row 1 X Row 4

**Keeping existing customer is always benefitting.

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