1. C REATING C USTOMER V ALUE, S ATISFACTION, AND L OYALTY MBA 649 : Marketing Management M Wahidul Islam Fall 2014 LECTURE 5

2. R ITZ C ARLTON - F AMOUS FOR ITS E XCEPTIONAL S ERVICE Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-2

3. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-3 F IGURE 5.1 O RGANIZATIONAL C HARTS

4. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-4 W HAT IS C USTOMER P ERCEIVED V ALUE ? 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.

5. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-5 F IGURE 5.2 D ETERMINANTS OF C USTOMER P ERCEIVED V ALUE Image benefitPsychological cost Personal benefitEnergy cost Services benefitTime cost Product benefitMonetary cost Total customer benefitTotal customer cost

6. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-6 S TEPS IN A C USTOMER V ALUE A NALYSIS 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

7. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-7 W HAT IS L OYALTY ? 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.

8. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-8

9. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-9 T HE V ALUE P ROPOSITION The whole cluster of benefits the company promises to deliver

10. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-10 R AISING C USTOMER E XPECTATIONS

11. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-11 M EASURING S ATISFACTION Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor Competitive Performance

12. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-12 J.D. P OWER R ATES C USTOMER S ATISFACTION

13. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-13 W HAT IS Q UALITY ? Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs.

14. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-14 M AXIMIZING C USTOMER L IFETIME V ALUE Customer Profitability Customer Equity Lifetime Value

15. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-15 F IGURE 5.4 C USTOMER -P RODUCT P ROFITABILITY A NALYSIS

16. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-16 E STIMATING L IFETIME V ALUE Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

17. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-17 W HAT IS C USTOMER R ELATIONSHIP M ANAGEMENT ? CRM is the process of carefully managing detailed information about individual customers and all customer touchpoints to maximize customer loyalty.

18. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-18 F RAMEWORK FOR CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

19. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-19 C USTOMER R ETENTION Acquisition of customers can cost five times more than retaining current customers. The average company losses 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.

20. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-20 CRM S TRATEGIES M ANAGING THE C USTOMER B ASE Reduce the rate of defection Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high-profit customers

21. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-21 F OCUS ON CRM

22. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-22 F IGURE 5.5 T HE C USTOMER D EVELOPMENT P ROCESS Prospects Suspects Disqualified First-time customers Repeat customers ClientsMembers Partners Ex-customers

23. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-23 D ATABASE K EY C ONCEPTS Customer database Database marketing Mailing list Business database Data warehouse Data mining

24. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-24 U SING THE D ATABASE To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes

25. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-25 D ON ’ T B UILD A D ATABASE W HEN 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

26. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5-26 P ERILS 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

27. R EFERENCES Chapter – 4 Creating Customer Value, Satisfaction, and Loyalty Kotler, Philip, Keller, Kevin L., Koshy, Abraham and Jha, Mithileshwar (2013-14) Marketing Management: A South Asian Perspective (14 th Edition) Pearson Education Inc