3 - Customer segmentation

Creating Customer Value, Satisfaction, and Loyalty

CUSTOMER VALUE

• Customer Value : Difference between what a customer gets from a product, and what he or she has to give in order to get it.

• Customer delivered value : Difference between total customer value and total customer cost

• Total Customer Value : Bundle of benefits customers expect from a given product or service

• Total customer cost : Bundle of costs customers expect to incur in evaluating, obtaining and using the product and service

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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Figure 5.1 Organizational Charts


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What 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.

Important factors Applying Value ConceptsChoices and ImplicationsDelivering High Customer Value

DETERMINANTS OF CUSTOMER DELIVERED VALUE

PRODUCT VALUE

SERVICES VALUE

PERSONNEL VALUE

IMAGE VALUE

TOTAL CUST. VALUE

TOTAL CUST. COST

MONETARY COST

TIME COST

ENERGY COST

PSYCHIC COST

CUSTOMER DELIVERED VALUE

CUSTOMER SATISFACTION

• Customer Satisfaction : Person’s feeling of pleasure or disappointment resulting from comparing a product’s perceived performance (outcome) in relation to his or her expectation

• Satisfaction is a function of perceived performance and expectation


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Steps 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 segments• Monitor 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

http://www.volvo.com/

VALUE CHAIN

FIRM INFRASTRUCTURE

HUMAN RESOURCE MANAGEMENT

TECHNOLOGY DEVELOPMENT

PROCUREMENT

INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS AND SALES

MARGIN

PRIMARY ACTIVITIES

SECO

NDA

RY

ACTI

VITI

VITI

ES

Monitoring Satisfaction

• Measurement Techniques• Influence of Customer satisfaction• Customer complaints


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Measuring Satisfaction

Periodic Surveys

Customer Loss Rate

Mystery Shoppers

Monitor Competitive Performance

ATTRACTING AND RETAINING CUSTOMERS

• Customer defection rate : rate at which they loose customers• Steps to increase customer retention :1. Define and measure retention rate2. Distinguish the causes of customer attrition and identify

those which can be managed better3. Estimate profit it loses when it loses customers4. Find out methods to reduce defection rateCustomer Lifetime Value : Present value of profit stream that

the company would have realised on a customer if customer would not have defected ( CLV)


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Maximizing Customer Lifetime Value ( CLV)

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 touch points to maximize customer loyalty.

ONE TO ONE MARKETING

• Identify your prospects and customers• Differentiate your customers in terms of needs

and their value to your company• Interact with individual customers to improve

your knowledge about their individual needs and to build stronger relationships

• Customise products, services, and messages to each customer

INCREASING VALUE OF CUSTOMER BASE

• Reducing the rate of customer defection• Increasing the longevity of customer relationships• Enhancing the growth potential of each customer

through “share of wallet”, cross selling and up selling

• Make low profit customers more profitable or terminate them

• Focusing disproportionate effort on high value customers

NEED FOR CUSTOMER RETENTION

• Cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy

• Two ways for customer retention :1. Strengthen customer retention – erect high

switching barriers2. Deliver high customer satisfaction

KEY TO RELATIONSHIP MARKETING

• Adding Financial Benefit : Frequency marketing programs ( FMPs) and club marketing programs

• Adding Social Benefits : Increase social bonds by individualising and personalising their customer relationship

• Adding structural ties : Supply customers with tools and linkages to help manage customer better


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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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CRM Strategies

Reduce the rate of defection

Increase longevity

Enhance “share of wallet”

Terminate low-profit customers

Focus more effort on high-profit 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 prospects

To target offers

To deepen loyalty

To reactivate customers

To 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


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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.

CUSTOMER DEVELOPMENT PROCESS

SUSPECTS

PROSPECT

DISQUALIFIED PROSPECTS

FIRST TIME CUST.

REPEAT CUST. CLIENT ADVOCATE

PART

NER

S

INACTIVE OR EX-CUSTOMER

FIVE LEVELS OF COMPANY INVESTMENT IN CUSTOMER-RELATIONSHIP BUIDING

• Basic Marketing : Simple selling• Reactive Marketing : Sell and encourage questions on

products• Accountable Marketing : After sales, check to see whether

product meets customer’s expectations – improvements• Proactive marketing – Contacts customers from time to

time with suggestions for improved products uses or new products

• Partnership Marketing : Company works continuously with customers for better performance and savings


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Steps for Creating Customer Evangelists

• Customer plus-delta• Napsterize your knowledge• Build the buzz• Create community• Make bite-size chunks• Create a cause

Documents

3 - Customer segmentation