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Chapter 4 Creating Customer Value, Satisfaction, and Loyalty


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Creating Customer Value, Satisfaction, and Loyalty
Organizational Charts
What is Customer Perceived Value?
Determinants of Customer Perceived Value
Steps in a Customer Value Analysis
Measuring Satisfaction
What is Quality?

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Chapter 4 Creating Customer Value, Satisfaction, and Loyalty

  1. 1. Creating Customer Value, Satisfaction, and Loyalty Prepared By, Mr. Nishant Agrawal
  2. 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?
  3. 3. Ritz Carlton - Famous for its Exceptional Service
  4. 4. Figure 5.1 Organizational Charts
  5. 5. What is Customer Perceived Value? •Consumers are better educated and informed than ever •Customer perceived value is the difference between the prospective / future customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.
  6. 6. Determinants of Customer Perceived Value Image benefit Psychological cost Personnel benefit Energy cost Services benefit Time cost Product benefit Monetary cost Total customer benefit Total customer cost • TCB is perceived value of economic, functional and psychological benefits customer expect from market offering. • TCC is perceived bundle of costs customers expect to incur in evaluating , obtaining, using given market offering , energy and psychological costs.
  7. 7. Steps in a Customer Value Analysis 1. Identify major attributes and benefits that customers value 2. Assess the qualitative importance of different attributes and benefits 3. Assess the company’s and competitor’s performances on the different customer values against rated importance 4. Examine ratings of specific segments 5. Monitor customer values over time
  8. 8. What is Loyalty? Loyalty is a deeply held commitment to re-buy a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.
  9. 9. The Value Proposition The whole cluster of benefits the company promises to deliver
  10. 10. Total Customer Satisfaction • Satisfaction is person’s feeling of pleasure or disappointment that result from comparing product’s perceived performance to expectation. • Performance falls short of expectation customer is dissatisfied. • If it matches expectation customer is satisfied.
  11. 11. Measuring Satisfaction Periodic SurveysPeriodic Surveys Customer Loss RateCustomer Loss Rate Monitor Competitive Performance Monitor Competitive Performance
  12. 12. Single Key Question of Net Promoter “How likely is it that you would recommend this product or service to a friend or colleague?” Use 0-10-point scale 0-6 are Marketers than subtract Detractors 7-8 are deemed Passively satisfied 9-10 are Promoter (Net Promoter Score- NPS)
  13. 13. World class companies used NPS
  14. 14. Customer Satisfaction Customer Loyalty Company’s Profit
  15. 15. 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.
  16. 16. Marketing and Total Quality
  17. 17. Maximizing Customer Lifetime Value Customer Profitability Customer Equity Lifetime Value
  18. 18. Customer-Product Profitability Analysis What can company do for customer 2 & 3 ? •It can raise the price of less profitable product or eliminate them •It can try to sell customer 2 & 3 its profit making products.
  19. 19. Customer Lifetime Value (Formula Page No: 116) • CLV described net present value of stream of future profits expected over customer’s lifetime purchase.
  20. 20. 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. • CRM enables companies to provide excellent real time customer service through effective use of individual account information.
  21. 21. Personalizing Marketing • It is about making sure the brand and its marketing are relevant as possible to as many customer as possible – a challenge , given that no two customers are identical. • E commerce companies looking to attract and retain customers are discovering that personalization goes beyong creating customized information.
  22. 22. Framework for CRM Identify prospects and customers (maintain your customer database) Differentiate customers by needs & value to company Interact to improve knowledge Customize for each customer
  23. 23. Harrah’s targets hundreds of segments
  24. 24. Reducing Defection • It is not enough to attract new customer; company must also keep them and increase business. • Too many companies suffer from high customer churn or defection. • Ex. Telecom MNP introduce in India • To Reduce defection rate companies must • Define and measure defection rate • Differentiate causes of customer attrition and identify those that can be managed better • Compare lost customer’s lifetime value to cost of reducing defection rate
  25. 25. Retention Dynamics (page No 122) • Main steps in attracting and retaining customers in terms of funnel and some questions to measure progress through the funnel. • The marketing funnel identifies the % of potential target market at each stage in decision process, from merely aware to high loyal. • Customer must move through each stage to become loyal.
  26. 26. Managing the customer base Reduce the rate of defectionReduce the rate of defection Increase longevityIncrease longevity Enhance “share of wallet”Enhance “share of wallet” Terminate low-profit customers Terminate low-profit customers Focus more effort on high-profit customers Focus more effort on high-profit customers
  27. 27. Building Loyalty • Creating a strong , tight connection to customer is dream of any marketer and often the key to long term marketing success. • Following sections explain 3 types of marketing activities companies are using to improve loyalty and retention. 1. Interacting with customers 2. Developing Loyalty Programs 3. Creating institutional Ties
  28. 28. 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.
  29. 29. Figure 5.5 The Customer Development Process Prospects Suspects Disqualified First-time customers Repeat customers Clients Members Partners Ex-customers
  30. 30. Creating Customer Evangelists
  31. 31. Steps for Creating Customer Evangelists • Customer plus-delta • Napsterize your knowledge • Build the buzz • Create community • Make bite-size chunks • Create a cause
  32. 32. Database Key Concepts • Customer database • Database marketing • Mailing list • Business database • Data warehouse • Data mining
  33. 33. 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
  34. 34. 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
  35. 35. Perils of CRM • Implementing CRM before creating a customer strategy • Rolling out CRM before changing the organization to match • Assuming more CRM technology is better • Stalking, not wooing, customers
  36. 36. Marketing Debate  Online vs. Offline Privacy? Take a position: 1. Privacy is a bigger issue in the online world than in the offline world. or 2. Consumers receive more benefit than risk from marketers knowing their personal information.
  37. 37. Marketing Discussion  Choose a business and show how you would go about developing a quantitative formulation that captures the concept of customer lifetime value.
  38. 38. Assignments 1. What are the techniques used for monitoring customer satisfaction?