CREATING CUSTOMER VALUE, SATISFACTION,

AND LOYALTY

MBA 649 : Marketing ManagementM Wahidul Islam

Fall 2014

LECTURE 5

RITZ CARLTON - FAMOUS FOR ITS EXCEPTIONAL SERVICE

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-3FIGURE 5.1 ORGANIZATIONAL CHARTS

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-4WHAT 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.

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-5FIGURE 5.2 DETERMINANTS OF CUSTOMER PERCEIVED VALUE

Image benefit Psychological cost

Personal benefit Energy cost

Services benefit Time cost

Product benefit Monetary cost

Total customer benefit Total customer cost

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-6STEPS IN A CUSTOMER VALUE ANALYSIS

Identify 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 segmentsMonitor customer values over time

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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.

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THE VALUE PROPOSITION

The whole cluster of benefits the

company promises to deliver

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RAISING CUSTOMER EXPECTATIONS

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MEASURING SATISFACTION

Periodic SurveysPeriodic Surveys

Customer Loss RateCustomer Loss Rate

Mystery ShoppersMystery Shoppers

Monitor Competitive Performance

Monitor Competitive Performance

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J.D. POWER RATES CUSTOMER SATISFACTION

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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.

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MAXIMIZING CUSTOMER LIFETIME VALUE

Customer Profitability

Customer Equity

LifetimeValue

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FIGURE 5.4 CUSTOMER-PRODUCT PROFITABILITY ANALYSIS

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ESTIMATING LIFETIME VALUE

Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

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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.

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FRAMEWORK FOR CRM

Identify prospects and customers

Differentiate customers by needs and value to company

Interact to improve knowledge

Customize for each customer

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CUSTOMER RETENTION

Acquisition of customers can cost five times more than retaining current customers.

The average company losses 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.

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CRM STRATEGIESMANAGING 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 customersFocus more effort on high-profit customers

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FOCUS ON CRM

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FIGURE 5.5 THE CUSTOMER DEVELOPMENT PROCESS

Prospects

Suspects

Disqualified

First-timecustomers

Repeatcustomers Clients Members

PartnersEx-customers

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DATABASE KEY CONCEPTS

Customer database

Database marketing

Mailing list

Business database

Data warehouse

Data mining

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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

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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

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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

REFERENCES

Chapter – 4 Creating Customer Value, Satisfaction, and Loyalty Kotler, Philip, Keller, Kevin L., Koshy, Abraham

and Jha, Mithileshwar (2013-14) Marketing Management: A South Asian Perspective (14thEdition) Pearson Education Inc