This document summarizes key concepts from Chapter 5 of the marketing textbook. It discusses customer value, satisfaction, and loyalty. Companies can deliver these through understanding customer perceived value and delivering a strong value proposition. Monitoring customer satisfaction through surveys and complaints handling is also discussed. The chapter covers maximizing customer lifetime value through customer relationship management and database marketing techniques.

2. Marketing Management
Arab World Edition
Kotler, Keller, Hassan, Baalbaki and Shamma
Chapter 5
Creating Customer
Value, Satisfaction,
and Loyalty

3. Copyright © 2012 Pearson Education 5-2
Chapter Questions
1. What are customer value, satisfaction, and loyalty, and
how can companies deliver them?
2. What is the lifetime value of customers and how can
marketers maximize it?
3. How can companies cultivate strong customer
relationships?

4. Building Customer Value,
Satisfaction, and Loyalty
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-3
Fig. 5.1: Traditional Organization versus
Modern Customer-Oriented Company Organization

5. Customer Perceived Value
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-4
Fig. 5.2: Determinants of
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.

6. Customer Perceived Value
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-5
Often managers conduct customer value analysis . (S&W)
Steps in this analysis are:
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.

7. Delivering High Customer Value
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-6
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.

8. Delivering High Customer Value
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-7

9. Delivering High Customer Value
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-8
The value proposition is the
whole cluster of benefits the
company promises to deliver.
P VS VP
Volvo’s value proposition is not
just in the safety.

10. Total Customer Satisfaction
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-9
A customer’s decision to be loyal
or to defect is the sum of many
small encounters with the
company.
Expectation Vs Performance
Joie de Vivre’s boutique hotels
offer personal touches that exceed
customer expectations.

11. Monitoring Satisfaction
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-10
Measurement techniques include:
• Periodic surveys
• Customer loss rate (Stop to buy)
• Mystery shoppers
• Monitor competitive performance 80/90

12. Monitoring Satisfaction
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-11
Customer complaints
only about 5 percent from dissatisfied complain. The other 95
they just stop buying.

13. Monitoring Satisfaction
Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Copyright © 2012 Pearson Education 5-12
When things go wrong, how to recover customer goodwill:
1. Set up a 7-day, 24-hour free ‘hotline’ (by phone, fax, or e-mail) to
receive and act on customer complaints.
2. Contact the complaining customer as quickly as possible. Slow
responses cause growing dissatisfaction, and lead to negative word
of mouth.
3. Accept responsibility for the customer’s disappointment; don’t
blame the customer.
4. Use customer-service people who are empathic.
5. Resolve the complaint swiftly and to the customer’s satisfaction.

14. Maximizing Customer
Lifetime Value
Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?
Copyright © 2012 Pearson Education 5-13
Fig. 5.3:
The 150/20 Rule:
“The 20% most
profitable
customers
generate as much
as 150% of the
profits of a
company; the
20% least
profitable lose
100% of the
profits.”

15. Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?
Copyright © 2012 Pearson Education 5-14
• A profitable customer is a person, household, or company
that over time yields a revenue stream that exceeds by an
acceptable amount the company’s cost stream of attracting,
selling, and servicing that customer.
• Marketers can assess customer profitability individually, by
market segment, or by channel.
Customer Profitability

16. Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?
Copyright © 2012 Pearson Education 5-15
Customer profitability analysis (CPA) can be conducted using a
grid, as shown in Fig. 5.4
Customer Profitability
Fig. 5.4: Customer-Product Profitability Analysis
Activity-based costing ABC

17. Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?
Copyright © 2012 Pearson Education 5-16
Measuring Customer Lifetime Value
Customer lifetime value (CLV) is the net present value of
the stream of future profits expected over the customer’s
lifetime purchases.
• Annual customer revenue: $500
• Average number of loyal years: 20
• Company profit margin: 10
• Customer lifetime value: $1000

18. Chapter Question 3:
How can companies
cultivate strong customer
relationships?
Copyright © 2012 Pearson Education 5-17
video
https://www.youtube.com/watch?v=779KwjAYTeQ

19. Chapter Question 3:
How can companies
cultivate strong customer
relationships?
Copyright © 2012 Pearson Education 5-18
CRM is the process of carefully managing detailed information
about individual customers and all customer touch points to
maximize customer loyalty.
Customer Relationship Management

20. Chapter Question 3:
How can companies
cultivate strong customer
relationships?
Copyright © 2012 Pearson Education 5-19
Framework for CRM marketing:
1.Identify prospects and customers.
2.Differentiate customers by their needs and their value to
company.
3.Interact with customers to improve knowledge of their
individual needs and build stronger relationships.
4.Customize products, services and messages to each
customer.
Customer Relationship Management

21. Chapter Question 3:
How can companies
cultivate strong customer
relationships?
Copyright © 2012 Pearson Education 5-20
Strategies for increasing the value of the customer base:
• Reducing the rate of customer defection.
• Increasing the longevity of the customer relationship.
• Enhancing the growth potential of each customer through
‘share of wallet’, cross-selling and up-selling.
• Making low-profit customers more profitable or terminating
them.
• Focusing disproportionate effort on high-profit customers.
Customer Relationship Management

22. Attracting and Retaining Customers
Chapter Question 4:
How can companies both
attract and retain
customers?
Copyright © 2012 Pearson Education 5-21
Attracting new customers can be expensive.
Table 5.3: Customer Acquisition Costs by Marketing Activity

23. Attracting and Retaining Customers
Chapter Question 4:
How can companies both
attract and retain
customers?
Copyright © 2012 Pearson Education 5-22
Retention dynamics:
• The average company 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.

24. Attracting and Retaining Customers
Chapter Question 4:
How can companies both
attract and retain
customers?
Copyright © 2012 Pearson Education 5-23
Fig. 5.5: The Customer Development Process

25. Chapter Question 4:
How can companies both
attract and retain
customers?
Copyright © 2012 Pearson Education 5-24
Building Loyalty
Box 5.2: Forming Strong Customer Bonds

26. Chapter Question 4:
How can companies both
attract and retain
customers?
Copyright © 2012 Pearson Education 5-25
Building Loyalty
• Customer plus-delta
• Napsterize your knowledge
• Build the buzz
• Create community
• Make bite-size chunks
• Create a cause

27. Customer Databases and
Database Marketing
Chapter Question 5:
What is database
marketing?
Copyright © 2012 Pearson Education 5-26
A customer database is an organized collection of
comprehensive information about individual customers or
prospects that is current, accessible, and actionable for
marketing purposes.

28. Chapter Question 5:
What is database
marketing?
Copyright © 2012 Pearson Education 5-27
Database key concepts
Customer Databases
• Customer database
• Database marketing
• Mailing list
• Business database
• Data warehouse
• Data mining

29. Chapter Question 5:
What is database
marketing?
Copyright © 2012 Pearson Education 5-28
Data Warehouses and Datamining
Companies can use their databases in five key ways:
1. To identify prospects.
2. To target offers.
3. To deepen loyalty.
4. To reactivate customers.
5. To avoid mistakes.

30. Chapter Question 5:
What is database
marketing?
Copyright © 2012 Pearson Education 5-29
The Downside of Database Marketing and CRM
Don’t build a customer database when:
1. The product is a once-in-a-lifetime purchase.
2. Customers do not show loyalty.
3. The unit sale is very small.
4. The cost of gathering information is too high.

31. Chapter Question 5:
What is database
marketing?
Copyright © 2012 Pearson Education 5-30
The Downside of Database Marketing and CRM
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

32. Credits
• Slide 1 Alamy Images: B. O’Kane
• Slide 7 Image courtesy of The Advertising Archives
• Slide 8 ‘2010 Brand Keys Customer Loyalty Leaders List’,
http://www.brandkeys.com/awards/leaders.cfm. Reproduced with
permission
• Slide 9 Joie De Vivre Hotels
• Slide 14 Larry Selden and Yoko S. Seldon, “Profitable Customer: The Key
to Great Brands,” Point, July–August 2006
• Slide 25 Customer Loyalty: How to Earn It, How to Keep It, John Wiley
and Sons (Griffin, J., 2002), p.36, copyright © 2002, John Wiley and Sons
• Slide 27 Ben McConnell and Jackie Huba, “Learning to Leverage the
Lunatic Fringe,” Point, July–August 2006, pp. 14–15; Michael Krauss,
“Work to Convert Customers into Evangelists,” Marketing News, December
15, 2006, p. 6; Ben McConnell and Jackie Huba, Creating Customer
Evangelists: How Loyal Customers Become a Loyal Sales Force (New York:
Kaplan Business, 2003); Lauren Indvik, “Google Launches Voice-to-Twitter
Service to Help Protesters in Egypt,” Mashable Social Media, January 31,
2011, http://mashable.com/2011/01/31/google-twitter-egypt-call-service/