MARKETING MANAGEMENT12th edition

5 Creating

Customer Value, Satisfaction, and

Loyalty

Kotler Keller

5-2

Objectives

What are customer value, satisfaction, and loyalty, and how can companies deliver them?

What is the lifetime value of customers?

How can companies both attract and retain customers?

How can companies deliver total quality?

What is database marketing?

5-3

Determinants of Customer Delivered ValueCustomer Perceived ValueCustomer Perceived Value

(CPV): (CPV): Difference between the total customer value derived and Difference between the total customer value derived and

the total customer cost incurred in making an investment the total customer cost incurred in making an investment

Total customer valueTotal customer value ( (actual and estimated monetaryactual and estimated monetary

value of all benefits derived from making an investment)value of all benefits derived from making an investment)

Total customer costTotal customer cost (actual and estimated monetary(actual and estimated monetary

value of all expenditures incurred in making an investment:value of all expenditures incurred in making an investment:

“ “total cost of ownership” & “life cycle costing” concepts)total cost of ownership” & “life cycle costing” concepts)

Total Customer SatisfactionTotal Customer Satisfaction ---- ---- LOYALTYLOYALTY--------

Performance relative to expectationsPerformance relative to expectations

Customer ExpectationsCustomer Expectations

Anticipated satisfaction of needs & wants Anticipated satisfaction of needs & wants

Delivering High Customer ValueDelivering High Customer Value ---- ----LOYALTYLOYALTY--------

Totality of superior benefits delivered Totality of superior benefits delivered

at all levels of customer contact by focusat all levels of customer contact by focus

market segment = Value-Delivery System market segment = Value-Delivery System

Measuring SatisfactionMeasuring Satisfaction

Surveys, Ghost Buying, Complaints / Suggestions,Surveys, Ghost Buying, Complaints / Suggestions,

Customer Wins & Losses Analysis Customer Wins & Losses Analysis Why do people invest in lesser-value alternatives?

EXPENDITURES IN DOLLARS

BENEFITS INDOLLARS

Estimated

Estimated Estimated

A DeeplyHeld Com-mitment Re-sistet to Forces ofChange

Quality: The Totality of Benefits That SatisfySpecific Needs

Building Customer Value, Satisfaction and Loyalty

= Value Proposition

5-4

Maximizing Customer Lifetime Value

CustomerProfitability

Management

CustomerLifetime

Value

CustomerEquity

Marketing Investment AllocationCustomer-Product Profitability Analysis

Measure Customer Profitability (Activity Based Costing = net of all actual & estimated revenues & expenses) Group Customers into Profit Categories / Tiers Allocate Marketing Resources to Maintain High Tier and Increase Low Tier Placement Drop Low Tier Customers or Increase Profits from Price Increases and Expense Reduction

CUSTOMER MANAGEMENT = PROFITABILITY MANAGEMENT

Measure Customer Lifetime Value (CLV) – Measure Customer Lifetime Value (CLV) – Present Value of All Lifetime ProfitsPresent Value of All Lifetime Profits

Customer Relationship Management (CRM) = Customer Satisfaction =Customer Relationship Management (CRM) = Customer Satisfaction =

Customer Equity – Customer Equity – Enterprise’s Total of All Customers’ Lifetime ValueEnterprise’s Total of All Customers’ Lifetime Value

Three Drivers of Customer EquityThree Drivers of Customer Equity

Value equity Value equity (buyer benefits to cost from product price, performance, quality)(buyer benefits to cost from product price, performance, quality)

Brand equity Brand equity (buyer perceptions of intangible value from offerings)(buyer perceptions of intangible value from offerings)

Relationship equity Relationship equity (buyer loyalty created from specialized treatment)(buyer loyalty created from specialized treatment)

5-5

Cultivating Customer Relationships – Loyalty (1)

CONCEPTS, PERSPECTIVES AND METHODOLOGIESCONCEPTS, PERSPECTIVES AND METHODOLOGIES

CustomerRelationshipManagement

Definition: Information and Touch Point Management to Maximize Customer Loyalty

Process: Identify prospects and customersDifferentiate customers by needs and value to companyInteract to improve knowledgeCustomize for each customer

Strategy: Reduce the rate of defectionIncrease longevityEnhance “share of wallet”Terminate low-profit customersMore focus on high-profit customers

AttractingRetainingGrowing

> 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.

Prospects

Suspects

Disqualified

First-timecustomers

Repeatcustomers Clients Members

PartnersEx-customers

Create Switching BarriersSolicit Input & Take Action

See Table 5.2

BuildingLoyalty

Process of Attracting & Keeping CustomersProcess of Attracting & Keeping Customers

Five levels of investment in customer relationship building - Loyalty Basic marketing (Simple sales process)) Reactive marketing (Sales process w/ customer encouragement to call) Accountable marketing (Sales follow up to check satisfaction & feedback) Proactive marketing (Periodic sales contact to convey new product info) Partnership marketing (Company works continuously to help customer)

Many customers withsmall profit margins

Few customers withhigh profit margins

5-6

Cultivating Customer Relationships – Loyalty (2)

ReducingCustomerDefections

Define and measure retention rate. Distinguish causes of customer attrition. Estimate profit loss associated with loss of customers. Assess cost to reduce defection rate. Gather customer feedback.

FormingStrong Customer

Bonds

> > Forming Strong Customer Bonds: The BasicsForming Strong Customer Bonds: The Basics Cross-departmental participationCross-departmental participation Integrate the Voice of the Customer into Integrate the Voice of the Customer into

all business decisionsall business decisions Create superior offering for the target Create superior offering for the target

market - customizemarket - customize

Organize and make accessible a Organize and make accessible a database of customer informationdatabase of customer information

Make it easy for customers to reach the Make it easy for customers to reach the appropriate personnelappropriate personnel

Reward outstanding employeesReward outstanding employees

>> Adding Financial BenefitsAdding Financial Benefits

Frequency programs (FPs)Frequency programs (FPs)

Honored Guests (Rebates),Honored Guests (Rebates),

Price Clubs and MembershipsPrice Clubs and Memberships

>> Adding Social BenefitsAdding Social Benefits

- personalized attention - personalized attention

- lunch meetings, event guest- lunch meetings, event guest

> > Adding Structural TiesAdding Structural Ties

- Loaner equipment, EDI, - Loaner equipment, EDI,

TrainingTraining

- Increased cost to change - Increased cost to change

partnerspartners Create long-term contractsCreate long-term contracts Charge lower price to high Charge lower price to high

volume customersvolume customers Turn product into long-Turn product into long-

term serviceterm service

5-7

Customer Databases and Database Marketing Concepts

Customer Data Base ConceptsCustomer Data Base Concepts

An organized collection of comprehensive information about customers that is current, accessible and actionable for marketing purposes.

Customer Data Base

Lead generationLead qualificationSales initiativesCustomer relationship maintenance

Data Base MarketingThe process of building, maintaining and using customer databases for the purpose of contacting, transacting and building customer relationships.

Data WarehouseCentrally controlled database(s) where company employees can capture, query and analyze customer data for marketing purposes.

Data MiningThe extraction of customer data base information through sophisticated qualification techniques for analytical and marketing initiative purposes.

Data Base Uses & DisadvantagesData Base Uses & Disadvantages To Identify Prospects

Eases Grouping Customers for Contact

To Deepen Customer Loyalty

To Reactivate Customer Purchases

To Avoid Serious Customer Mistakes

Building a Database is Expensive

Difficult to Motivate Significant Usage

Potential Resentment w/ Data Collection

Difficult to Prove Value to CRM

5-8

Using the Database

To identify prospectsTo identify prospects

To target offersTo target offers

To deepen loyaltyTo deepen loyalty

To reactivate customersTo reactivate customers

To avoid mistakesTo avoid mistakes