Summary of Marketing Management, 11Ed. Chapter 5


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Phil Kotler, Kevin Keller and Abraham Koshy

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Summary of Marketing Management, 11Ed. Chapter 5

  1. 1. logo copy.tif Customer Perceived Value: Customer Perceived Value: It is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering, and the perceived alternatives. Creating Customer Value, Satisfaction and Loyalty Chapter 5 Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha SUMMARY by In the face of increasing competition, companies today face their toughest test of survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy, however, may provide a better chance of outperforming competition. And at the cornerstone of this philosophy are strong customer relations. This chapter discusses the importance and various methods of creating customer value and sustaining customer loyalty. As customers have become more informed and educated than ever, organisations have started to adopt business models where the customer is at the top. Total Customer Benefit It is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering because of the products, services, personnel and image involved. Total Customer Cost It is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychological costs. Very often, a customer value analysis is undertaken by managers to better understand the company’s strengths and weaknesses in comparison with competition. It follows the pattern below 1. Identify the major attributes and benefits that customers value. 2. Assess the quantitative importance of the different attributes and benefits.
  2. 2. Total Customer Satisfaction: It is the measure of a customer’s feelings of pleasure or disappointment that results from comparing a product’s perceived performance to their expectations. Satisfaction is usually measured with the help of customer surveys. The two major factors involved in customer satisfaction are complaint handling and product/service quality. Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends 3. Assess the company’s and competitors’ performances on the different customer values on each attribute and benefit. 4. Assess how customers in a specific segment rate the company’s performance against a major competitor on an individual attribute or benefit basis. 5. Monitor customer values over time as the economy, technology, and features change. Customer profitability A profitable customer is one that over time yields a revenue stream that is significantly greater than that company’s cost stream for attracting, selling and servicing that customer. 150-20 Rule The 20% most profitable customers generate as much as 150% of the profits of the company; the 20% least profitable customers lose 100% of the profits. Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV). CLV describes the net present value of the future stream of profits expected over the customer’s lifetime purchases. CLV calculations are generally used by marketers to develop a long-term perspective. Customer Relationship Management (CRM) It is the process of carefully managing detailed information about individual customers and all occasions where a customer encounters a brand/product to maximise customer loyalty. CRM can be conducted using the following 4 steps – 1. Identify your prospects and customers. 2. Differentiate customers in terms of their needs and their value to your company. 3. Interact with individual customers to improve your knowledge about their needs and to build stronger relationships. 4. Customize products, services, and messages to each customer. The value of the customer base can be increased by improved by measures such as reducing the rate of customer defection, increasing the longevity of the customer relationship, making low-profit customers more profitable or terminating them, etc.
  3. 3. Building Customer Loyalty It involves the following procedures – 1. Interacting with customers 2. Developing loyalty programs 3. Personalising marketing 4. Creating institutional ties Database marketing It is the process of building, maintaining and using customer databases and other databases to contact, transact and build customer relationships. Customer Database It contains customers’ past purchases, past volumes, past prices and profits; buyers’ personal details, status of current contacts, the company’s share of the buyer’s business, competitive suppliers, etc. Datamining Through datamining, marketers can extract information about individuals, trends, etc. from the customer database. It uses techniques such as cluster analysis, predictive modelling, etc. Disadvantages of Datamining and CRM 1. Building and maintaining a database requires huge amounts of investment in terms of computer hardware. 2. Convincing employees to be customer oriented than using traditional methods. 3. Customer attitudes about privacy of personal data. Probability of error of CRM methods or assumptions made thereof. Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends