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CHAPTER 5
CREATING CUSTOMER
VALUE, SATISFACTION &
LOYALTY
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PEPPERS AND ROGERS ON ―CREATING
CUSTOMER LOYALTY‖
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The only value your company will ever create is the
value that comes from customers—the ones you
have now and the ones you will have in the future.
Businesses succeed by getting, keeping, and
growing customers. Customers are the only reason
you build factories, hire employees, schedule
meetings, lay fiber-optic lines, or engage in any
business activity.
Without customers, you don’t have a business
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BUILDING CUSTOMER VALUE,
SATISFACTION & LOYALTY
Customers are:
value-maximizers
Form value expectation & act on it
Buy from firm perceived to offer highest customer delivered
value, defined as
customer perceived value = total customer benefits -
total customer cost
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FIGURE 5.1 CUSTOMER-ORIENTATIONS
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CUSTOMER-ORIENTATION
Managers who believe the customer is the company’s only true
―profit center‖ consider the traditional organization chart—a
pyramid with the president at the top, management in the middle,
and frontline people and customers at the bottom—obsolete.
Successful marketing companies invert the chart. At the top are
customers; next in importance are frontline people who meet, serve,
and satisfy customers; under them are the middle managers, whose
job is to support the frontline people so they can serve customers
well; and at the base is top management, whose job is to hire and
support good middle managers.
We have added customers along the sides of to indicate that
managers at every level must be personally involved in knowing,
meeting, and serving customers.
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BUILDING CUSTOMER VALUE, SATISFACTION &
LOYALTY - CUSTOMER PERCEIVED VALUE
Customer perceived value (CPV)
difference between prospective customers evaluation
of all benefits & costs of an offering & perceived
alternatives
Total customer value
perceived monetary value of economic, functional &
psychological benefits expected from a market offering
because of product, service, service, people and image
Total customer cost
Perceived costs to obtain, use, maintain, own &
dispose an offering, including monetary, time, energy
& psychological costs
How can CPV be improved? 4-6
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Figure 5.2: Determinants Of
Customer Delivered Value
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DELIVERING HIGH CUSTOMER
VALUE
The value proposition consists of the whole
cluster of benefits the company promises to
deliver, it is more than the core positioning
of the offering.
The value-delivery system includes all the
experiences the customer will have on the
way to obtaining and using the offering.
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CUSTOMER SATISFACTION
1. Satisfaction is a person’s feeling of pleasure or
disappointment resulting from comparing a
product’s perceived performance (or outcome) in
relation to his or her expectations.
2. A customer’s decision to be loyal or to defect is the
sum or many small encounters with the company.
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TRACKING CUSTOMER
SATISFACTION
Companies can monitor the customer loss rate and contact customers who have stopped buying and learn why this happened.
Companies can hire mystery shoppers to pose a potential buyers and report on strong and weak points experienced in buying the company’s and competitor’s products.
In addition to tracking customer value expectations and satisfaction, companies need to monitor their competitor’s performance in these areas as well.
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MAXIMIZING CUSTOMER LIFE TIME
VALUE
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Marketing is the art of attracting and keeping
profitable customers.
The 80/20 rule states that the top 20 percent of the
customers may generate as much as 80 percent
of the company’s profits.
Customer Profitability
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.
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CUSTOMER PORTFOLIOS
Marketers are recognizing the need to manage
customer portfolios, made up of different groups
of customers. These customers are defined in
terms of loyalty, profitability, and other factors.
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CUSTOMER PROFITABILITY ANALYSIS
Customer profitability analysis (CPA) is best
conducted with the tools of an accounting
technique called Activity-Based Costing
(ABC). Platinum customers (most profitable).
Gold customers (profitable).
Iron customers (low profitability but desirable).
Lead customers (unprofitable and undesirable).
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ONE-TO-ONE MARKETING
Don Pepper and Martha Rogers outline a four step
framework:
Identify your prospects and customers
Differentiate customers in terms of [1] their need
and [2] their value to your company
Interact with customers to improve your knowledge
about their individual needs and to build stronger
relationships
Customize products, services and messages to each
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COMPETITIVE ADVANTAGE
It is a Company’s ability to perform in ways that
competitors cannot match up to
Be seen by customers as customer
advantage
Customer - sees value & remain satisfied -
repeat purchases - company profits
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MEASURING CUSTOMER LIFETIME VALUES
Customer Lifetime Value (CLV) describes
the net present value of the stream of
future profits expected over the customer’s
lifetime purchases.
CLV calculations provide a formal quantitative
framework for planning customer investment and
helps marketers to adopt a long-term perspective.
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CUSTOMER RELATIONSHIP MANAGEMENT
Customer relationship management (CRM) is the
process of managing detailed information about
individual customers and carefully managing all
customer ―touch points‖ to maximize customer
loyalty.
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REDUCING DEFECTION
The company must define and
measure its retention rate.
The company must distinguish the
cause of customer attrition and
identify those that can be managed
better.
The company needs to estimate how
much profit it loses when it loses
customers.
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IMPORTANCE OF CUSTOMER RETENTION:
1. Acquiring new customers can cost five times more
than the costs involved in satisfying and retaining
current customers. It requires a great deal of effort
to induce satisfied customers to switch away from
their current suppliers.
2. The average company loses 10 percent of its
customers each year.
3. A 5 percent reduction in the customer defection rate
can increase profits by 25 percent to 85 percent,
depending on the industry.
4. The customer profit rate tends to increase over the
life of the retained customer.
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BUILDING LOYALTY
Four important types of marketing
activities that build customer loyalty and
retention:
1. Interacting with customers
2. Developing loyalty programs
3. Personalizing marketing
4. Creating institutional ties
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DEVELOPING LOYALTY BENEFITS
Two customer loyalty programs that
companies can offer are frequency
programs and club marketing programs.
Frequency programs (FPs)
FPs – reward for frequent &
substantial buys
Club membership programs
Club membership - open to everyone,
group or those who pay a fee
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