MARKETING MANAGEMENT 12 th edition 5 Creating Customer Value, Satisfaction, and Loyalty KotlerKeller

5-2 Objectives  What are customer value, satisfaction, and loyalty, and how can companies deliver them?  What is the lifetime value of customers?  How can companies both attract and retain customers?  How can companies deliver total quality?  What is database marketing?

5-3 Determinants of Customer Delivered Value  Customer Perceived Value (CPV): Difference between the total customer value derived and (CPV): Difference between the total customer value derived and the total customer cost incurred in making an investment the total customer cost incurred in making an investment  Total customer value ( actual and estimated monetary value of all benefits derived from making an investment) value of all benefits derived from making an investment)  Total customer cost (actual and estimated monetary value of all expenditures incurred in making an investment: value of all expenditures incurred in making an investment: “total cost of ownership” & “life cycle costing” concepts) “total cost of ownership” & “life cycle costing” concepts)  Total Customer Satisfaction ---- LOYALTY----  Performance relative to expectations  Customer Expectations  Anticipated satisfaction of needs & wants  Delivering High Customer Value ----LOYALTY----  Totality of superior benefits delivered at all levels of customer contact by focus at all levels of customer contact by focus market segment = Value-Delivery System market segment = Value-Delivery System  Measuring Satisfaction  Surveys, Ghost Buying, Complaints / Suggestions, Customer Wins & Losses Analysis Customer Wins & Losses Analysis Why do people invest in lesser-value alternatives? EXPENDITURES IN DOLLARS BENEFITS IN DOLLARS Estimated A Deeply Held Com- mitment Re- sistet to Forces of Change Quality: The Totality of Benefits That Satisfy Specific Needs Building Customer Value, Satisfaction and Loyalty = Value Proposition

5-4 Maximizing Customer Lifetime Value Customer Profitability Management Customer Lifetime Value Customer Equity Marketing Investment AllocationCustomer-Product Profitability Analysis  Measure Customer Profitability (Activity Based Costing = net of all actual & estimated revenues & expenses)  Group Customers into Profit Categories / Tiers  Allocate Marketing Resources to Maintain High Tier and Increase Low Tier Placement  Drop Low Tier Customers or Increase Profits from Price Increases and Expense Reduction CUSTOMER MANAGEMENT = PROFITABILITY MANAGEMENT  Measure Customer Lifetime Value (CLV) – Present Value of All Lifetime Profits  Customer Relationship Management (CRM) = Customer Satisfaction =  Customer Equity – Enterprise’s Total of All Customers’ Lifetime Value  Three Drivers of Customer Equity  Value equity (buyer benefits to cost from product price, performance, quality)  Brand equity (buyer perceptions of intangible value from offerings)  Relationship equity (buyer loyalty created from specialized treatment)

5-5 Cultivating Customer Relationships – Loyalty (1) CONCEPTS, PERSPECTIVES AND METHODOLOGIES Customer Relationship Management Definition: Information and Touch Point Management to Maximize Customer Loyalty Process :  Identify prospects and customers  Differentiate customers by needs and value to company  Interact to improve knowledge  Customize for each customer Strategy:  Reduce the rate of defection  Increase longevity  Enhance “share of wallet”  Terminate low-profit customers  More focus on high-profit customers Attracting Retaining Growing > Acquisition of customers can cost 5 times more than retaining current customers. > The average customer 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. Prospects Suspects Disqualified First-time customers Repeat customers ClientsMembers Partners Ex-customers  Create Switching Barriers  Solicit Input & Take Action See Table 5.2 Building Loyalty Process of Attracting & Keeping Customers Five levels of investment in customer relationship building - Loyalty  Basic marketing (Simple sales process))  Reactive marketing (Sales process w/ customer encouragement to call)  Accountable marketing (Sales follow up to check satisfaction & feedback)  Proactive marketing (Periodic sales contact to convey new product info)  Partnership marketing (Company works continuously to help customer) Many customers with small profit margins Few customers with high profit margins

5-6 Cultivating Customer Relationships – Loyalty (2) Reducing Customer Defections  Define and measure retention rate.  Distinguish causes of customer attrition.  Estimate profit loss associated with loss of customers.  Assess cost to reduce defection rate.  Gather customer feedback. Forming Strong Customer Bonds > Forming Strong Customer Bonds: The Basics > Forming Strong Customer Bonds: The Basics  Cross-departmental participation  Integrate the Voice of the Customer into all business decisions  Create superior offering for the target market - customize  Organize and make accessible a database of customer information  Make it easy for customers to reach the appropriate personnel  Reward outstanding employees > Adding Financial Benefits > Adding Financial Benefits  Frequency programs (FPs)  Honored Guests (Rebates),  Price Clubs and Memberships > Adding Social Benefits - personalized attention - personalized attention - lunch meetings, event guest - lunch meetings, event guest > Adding Structural Ties > Adding Structural Ties - Loaner equipment, EDI, - Loaner equipment, EDI, Training Training - Increased cost to change - Increased cost to change partners partners  Create long-term contracts  Charge lower price to high volume customers  Turn product into long- term service

5-7 Customer Databases and Database Marketing Concepts Customer Data Base Concepts  An organized collection of comprehensive information about customers that is current, accessible and actionable for marketing purposes.  Customer Data Base  Lead generation  Lead qualification  Sales initiatives  Customer relationship maintenance  Data Base Marketing  The process of building, maintaining and using customer databases for the purpose of contacting, transacting and building customer relationships.  Data Warehouse  Centrally controlled database(s) where company employees can capture, query and analyze customer data for marketing purposes.  Data Mining  The extraction of customer data base information through sophisticated qualification techniques for analytical and marketing initiative purposes. Data Base Uses & Disadvantages Data Base Uses & Disadvantages  To Identify Prospects  Eases Grouping Customers for Contact  To Deepen Customer Loyalty  To Reactivate Customer Purchases  To Avoid Serious Customer Mistakes  Building a Database is Expensive  Difficult to Motivate Significant Usage  Potential Resentment w/ Data Collection  Difficult to Prove Value to CRM

5-8 Using the Database To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes