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

5-2 Chapter Questions 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 Washington Mutual differentiates with human contact

5-4 Figure 5.1 Organizational Charts

5-5 eBay epitomizes the Customer-Oriented Model

5-6 Figure 5.2 Determinants of Customer-Delivered Value Customer- delivered value Total customer value Total customer cost Product value Monetary cost Personal value Energy cost

5-7 Caterpillar Offers Value

5-8 Loyalty 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.

5-9 The Value Proposition The whole cluster of benefits the company promises to deliver

5-10 Raising Customer Expectations

5-11 Saturn Advantages

5-12 Measuring Satisfaction Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor competitive performance

5-13 Countrywide received the #1 customer satisfaction rating from J.D. Power and Associates

5-14 Product and Service 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.

5-15 Quality Conformance quality Performance quality

5-16 Total Quality Management TQM is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services.

5-17 Maximizing Customer Lifetime Value Customer Profitability Customer Equity Lifetime Value

5-18 Figure 5.3 Customer-Product Profitability Analysis

5-19 Estimating Lifetime Value Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

5-20 Drivers of Customer Equity Value Equity Relationship Equity Brand Equity

5-21 Customer Relationship Management

5-22 Framework for CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

5-23 Harrah’s targets hundreds of segments

5-24 CRM Strategies Reduce the rate of defection Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high-profit customers

5-25 Table 5.1 Mass vs. One-to-One Marketing Mass Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising One-way message Economies of scale One-to-One Individual customer Customer profile Customized market offering Customized production Economies of scope Share of customer

5-26 Customer Retention 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.

5-27 Describing Market Dynamics Permanent Capture Markets Simple Retention Markets Customer Migration Markets

5-28 Figure 5.4 The Customer- Development Process Prospects Suspects Disqualified First-time customers Repeat customers ClientsMembers Partners Ex-customers

5-29 Building Loyalty Partnership Proactive Accountable Reactive Basic

5-30 Ameritrade Builds Loyalty

5-31 Figure 5.5 Levels of Relationship Marketing

5-32 Reducing Customer Defection 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.

5-33 Forming Strong Customer Bonds Add financial benefits Add social benefits Add structural ties

5-34 Financial Benefits

5-35 Social Benefits

5-36 Database Key Concepts Customer database Database marketing Mailing list Business database Data warehouse Data mining

5-37 Figure 5.6 Increasing Customer Share Requirements

5-38 Using the Database To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes

5-39 Focus on CRM

5-40 Marketing Debate Online Versus Offline Privacy? Take a position: 1.Privacy is a bigger issue in the online world than in the offline world. 2. Consumers receive more benefit than risk from marketers knowing their personal information.

5-41 Marketing Debate Choose a business and show how you would go about developing a quantitative formulation that captures the concept of customer lifetime value.