1 Creating Customer Value, Satisfaction, and Loyalty5 Creating Customer Value, Satisfaction, and Loyalty Marketing Management, 13th ed

2 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

3 What is Customer Perceived Value?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. Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

4 Figure 5.2 Determinants of Customer Perceived ValueTotal customer benefit Total customer cost Product benefit Monetary cost Services benefit Time cost Personal benefit Energy cost Image benefit Psychological cost Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

5 Steps in a Customer Value AnalysisIdentify 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

6 What is Loyalty? Loyalty is 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. Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

7 Top Brands in Customer LoyaltyAvis Google L.L. Bean Samsung (mobile phones) Yahoo! Canon (office copiers) Land’s End Coors Hyatt Marriott Verizon KeySpan Energy Miller Genuine Draft Amazon Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

8 Measuring SatisfactionPeriodic surveys Customer loss rate Mystery shoppers Monitor competitive performance Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

9 What is Quality? Quality is the totality of features andcharacteristics 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

10 Maximizing Customer Lifetime ValueCustomer profitability Customer equity Lifetime value Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

11 Estimating Lifetime ValueAnnual 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

12 What is Customer Relationship Management?CRM is the process of carefully managing detailed information about individual customers and all customer touchpoints to maximize customer loyalty. Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

13 Framework for CRM Identify prospects and customersDifferentiate customers by needs and value to company Interact to improve knowledge Customize for each customer Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

14 CRM Strategies Reduce the rate of defection Increase longevityEnhance share of wallet Terminate low-profit customers Focus more effort on high-profit customers Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

15 Customer Retention Acquisition of customers can cost 5 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

16 Steps for Creating Customer EvangelistsCustomer 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

17 Database Key Concepts Customer database Database marketingMailing list Business database Data warehouse Data mining Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

18 Using the Database To identify prospects To target offersTo deepen loyalty To reactivate customers To avoid mistakes Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall

19 Don’t Build a Database WhenThe 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

20 Perils of CRM Implementing CRM before creating a customer strategyRolling out CRM before changing the organization to match Assuming more CRM technology is better Stalking, not wooing, customers Copyright © 2009 Pearson Education, Inc.  Publishing as Prentice Hall