Customer Value, Satisfaction & Loyalty

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MARKETING MANAGEMENTCreating Customer Value, Satisfaction, and Loyalty Presented By Jalaj Mathur

Figure 5.1 Organizational Charts

Customer Perceived Value

CPV is the difference between the prospective customers evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the bundle of economic, functional & psychological benefits customers expect from a given market offering. Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, disposing of the given

Figure 5.2 Determinants of Customer Perceived ValueTotal customer benefit Total customer cost

Product benefit

Monetary cost

Services benefit

Time cost

Personal benefit

Energy cost

Image benefit

Psychological cost

A Customer-Oriented Model?


The Value PropositionThe cluster of benefits the company promises to deliver


Customer Value & Satisfaction

Value delivery system includes all the experiences the customer will have on the way to obtaining & using the offering. Satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance in relation to his or hers expectations.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTYPeriodic Surveys Periodic Surveys Customer Loss Rate Customer Loss Rate Mystery Shoppers Mystery Shoppers Monitor competitive Monitor competitive performance performanceCustomer perceived value is a useful framework that applies to many situations and yields rich insights. Its implications are: First, the seller must assess the total customer value and total customer cost associated with each competitors offer. Second, the seller who is at a customer perceived value disadvantage has two alternatives:To increase total customer value (by strengthening or augmenting the offers product, services, personnel, and image benefits). To decrease total customer cost (by reducing price, simplifying the ordering, and delivery process, or absorbing some buyer risk by offering a warranty.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTYDelivering High Customer Value Loyalty is defined as a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior. The key to generating high customer loyalty is to deliver 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. Whether the promise is kept depends on the companys ability to manage its value-delivery system.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTYCustomer Expectations How do buyers form their expectations? From past buying experiences. Friends and associates advice. Marketers and competitors information and promises. A customers decision to be loyal or to defect is the sum of many small encounters with the company. Companies need to create a branded customer experience. We can say that a seller has delivered quality whenever the sellers product or service meets or exceeds the customers expectations.

What is Quality?

Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

TQM is an organization-wide approach to continuously improving the quality of all the organizations processes, products, and services.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTY Total Quality ManagementTotal quality management (TQM) is an organizationwide approach to continuously improve the quality of all the organizations processes, products, and services. TQM ran into implementation problems as firms became overly focused on how they were doing business and not the why they were in business. Companies lost sight of consumer needs and wants.

BUILDING CUSTOMER VALUE, SATISFACTION, AND LOYALTYROQ advocates improving quality only on those dimensions that produce tangible customer benefits, lower costs, or increased sales. Companies define and deliver high-quality goods and services to target customers. Marketers play several roles in helping their They bear the major responsibility for correctly identifying the customers needs and requirements. They must communicate customer expectations properly to product designers.


They must make sure that customers have received proper instructions, training, and technical assistance in the use of the product. They must stay in touch with customers after the sale to ensure that they are satisfied and remain satisfied. They must gather customer ideas for product and service

MAXIMIZING CUSTOMER LIFETIME VALUEMarketing 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 companys profits. Suggests amending the rule to read 20-80-30, to reflect the idea that the top 20 percent of customers generate 80 percent of the companys profits, half of which are lost serving the bottom 30 percent of unprofitable customers. The implication is that a

MAXIMIZING CUSTOMER LIFETIME VALUECustomer Profitability A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the companys cost stream of attracting, selling, and servicing that customer. Customer profitability can be assessed individually, by market segment, or by channel. Most companies fail to measure individual customer profitability.

Customer Profitability

Customer Equity

Lifetime Value


Customer Profitability Analysis Customer 1 is very profitable. Customer 2 is mixed profitability. Customer 3 is a losing customer. What can the company do about customers 2 and 3? It can raise the price of its less profitable products or eliminate them. It can try to sell them


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).

MAXIMIZING CUSTOMER LIFETIME VALUECompetitive Advantage Competitive advantage is a companys ability to perform in one or more ways that competitors cannot or will not match. Michael Porter urged companies to build a sustainable competitive advantage. Few competitive advantages are sustainable, at best they may be leverageable. A leverageable advantage is one that a company can use as a spring-board to new advantages. Any competitive advantage

MAXIMIZING CUSTOMER LIFETIME VALUE Measuring Customer Lifetime ValueCustomer Lifetime Value (CLV) describes the net present value of the stream of future profits expected over the customers lifetime purchases. CLV calculations provide a formal quantitative framework for planning

MAXIMIZING CUSTOMER LIFETIME VALUESimple Example Customer acquisition cost: Cost of average sales call (including salary, commission, benefits, and expenses) :$300/call Average number of sales calls to convert an average prospect into a customer: 4 times Cost of attracting a new customer: $1,200 (perhaps other costs e.g., ads, promotion, probability of failure case that may probably end up become a cost of success case, etc) Estimate Average Customer Lifetime Value Annual customer revenue: $500 Average number of loyal years: 20 years Company profit margin: .10 Customer Lifetime value = $1,000 This mean co. is spending more to attract new customers than they are worth. Unless the co. can sign up customers with fewer sales calls, spend less per sales call, stimulate higher new-customer annual spending, retain customers longer, or sell them higher-product products, it is headed for bankruptcy.

CULTIVATING CUSTOMER RELATIONSHIPSCustomer Relationship Management (CRM) 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. A customer touch point is any occasion on which a customer encounters the brand and productfrom actual experience to personal or mass communications to casual observation.


Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

Peppers and Rogers outlined a fourstep framework for one-to-one marketing that can be adapted to CRM marketing: Identify your prospects and customers. Differentiate customers in terms of: (1) their needs and (2) their value to your company. Interact with individual customers to improve your knowledge about individual needs and to build stronger relationships. Customize products, services, and messages to each customer.


Reduce the rate of defection Reduce the rate of defection Increase longevity Increase longevity Enhance share of wallet Enhance share of wallet Terminate low-profit Terminate low-profit customers customers Focus more effort on highFocus more effort on highprofit customers profit customers

A key driver of shareholder value is the aggregate value of the customer base. Winning companies improve the value of their customer base by excelling at strategies such as: Reducing the rate of customer defection. Increasing the longevity of the cus