Chapter Two: Creating Long-term

Loyalty Relationships
 r 2
te
ap
Ch

Creating Long-term Loyalty Relationships

 Discussion Questions
1. What are customer value, satisfaction, and
loyalty, and how can companies deliver them?
2. What is the lifetime value of customers, and
how can marketers maximize it?
3. How can companies attract and retain the
right customers and cultivate strong customer
relationships?
4. What are the pros and cons of database
marketing?
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 3 of 34
2.1 Customer Value, Satisfaction, and Loyalty

Holistic Marketing
• Inform
• Engage
• Energize

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 4 of 34

 Cont’d
• Businesses succeed by getting, keeping, and
growing customers.
• Customers are the only reason you build
factories, hire employees, schedule
meetings, lay fiber-optic lines, or engage in
any business activity.
• Without customers, you don’t have a
business.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 5 of 34

 r e
ug
i
F .1 Traditional Organization vs.
2
Customer-Oriented Organization

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 6 of 34

Customer Perceived Value

Customer-
Economic perceived Value

Evaluating

Functional Obtaining

Using

Psychological Disposing
Total Customer Total Customer
Benefit Cost

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 7 of 34

 r e Customer-
ug perceived
i
F .2 value
2
Total customer Total customer
benefit cost

Determinants Product Monetary

of Customer benefit cost

Services Time
Perceived Value benefit cost

Personal Energy
benefit cost

Image Psychological
benefit cost

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 8 of 34

Value Concepts
Customer
Profit Price
Value
$6,000 $20,000 -0-
5,000 19,000 $1,000
4,000 18,000 2,000
3,000 17,000 3,000
2,000 16,000 4,000
Worth to Customer:
1,000 15,000 5,000
$20,000
-0- 14,000 6,000

Cost to produce:
$14,000
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 9 of 34
Customer value analysis
It reveals a company’s strength and weaknesses
relative to those of various Competitors. The
steps in this analysis are:
1.Identify the major attributes and benefits
customers value.
2.Assess the quantitative importance of the
different attributes and benefits.
3.Assess the company’s and competitors’
performances on the different customer values
against their rated importance.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 10 of 34
Cont....
4. Examine how customers in a specific segment
rate the company’s performance against a
specific major competitor on an individual
attribute or benefit basis.
5. Monitor customer values over time.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 11 of 34

 e d
fi n
De DELIVERING HIGH CUSTOMER VALUE

Customer Loyalty
“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.”
-- Oliver
Value Proposition
Volvo
Core positioning:
• Safety

Other benefits:
• Good performance
• Design
• Environmentally friendly

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 13 of 34

 e d
fin
De Customer Satisfaction
A person’s feelings of pleasure or
disappointment that result from
comparing a product’s perceived
performance to (or outcome) to
expectations.
 Customer Satisfaction

Expectations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 15 of 34

Customer Expectations

Previous purchases
Friends advice
Marketers’ / competitors
Expectations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 16 of 34

Monitoring Satisfaction
Influence of
Customer Satisfaction

Measurement
Techniques

Customer
Complaints
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 17 of 34
Measurement Techniques
Customer Loss Rate

Surveys

Mystery Shopper
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 18 of 34
Influence of Customer Satisfaction

Customer satisfaction

Speed of communication
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 19 of 34
 Customer Complaints
54% - 70%
5% Buy again if resolved Tell 5
people
Complain
95%
25%
If resolved quickly

Dissatisfied
95% Tell 11
Stop buying people

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 20 of 34

 Product and Service Quality
Performance Conformance

Quality is the totality of

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

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 21 of 34

2.2 Maximizing Customer Lifetime Value

20% of 80% of
Customers Profits

Customers
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 22 of 34
 Customer Profitability

Customer Profitability Analysis

Profitable

Customer Lifetime Value

Unprofitabl
e
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 23 of 34
 e d
fin
De A Profitable Customer

A person, household, or company that

over time yields a revenue stream
exceeding by an acceptable amount the
company’s cost stream for attracting,
selling, and serving that customer.
 r e
ug Customer-Product
i
F .3
2 Profitability Analysis

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 25 of 34

2.3 Cultivating Customer Relationships

Customer Information
• Differentiate
• Customize
• Personalize
• Share

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 26 of 34

Customer Relationship Management (CRM)

CRM is the process of carefully

managing detailed information
Personalizing Marketing about individual customers
and all customer “touch
Customer Empowerment points” to maximize loyalty.

Customer Reviews & Recommendations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 27 of 34
Personalizing Marketing

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 28 of 34

 One-to-One Marketing
Identify prospects Differentiate
and customers customers

Interact with Customize

each customer
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 29 of 34
Customer Empowerment

Brand Evangelists
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 30 of 34
Customer Reviews/Recommendations
Create Buzz

Negative reviews

Customer ratings
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 31 of 34
Customer Retention
Acquiring new customers costs

5x more
than retaining current customers The average company loses

10%
Of its customers yearly

Reducing customer defections by 5% can

increase profits from

25% to 85%
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 32 of 34
 Attracting and Retaining Customers
Manage
customer base

Reduce Defections
1.Define and measure
2.Determine causes
3.Compare CLV to costs

Retention Dynamics
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 33 of 34
 r e
ug
i
F .4
2 The Marketing Funnel

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 34 of 34

 Building Loyalty
Interact with customers

Create institutional ties

Develop loyalty programs

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 35 of 34
 2.4 Databases & Database Marketing
Customer databases
• Name, address, telephone #
• Purchase history
• Demographics
• Psychographics
• Mediagraphics
Data mining

Data Warehouses

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 36 of 34

 Cont...
• A customer database is an organized collection of
comprehensive information about individual
customers or prospects that is current, accessible, and
actionable for lead generation, lead qualification, sale
of a product or service, or maintenance of customer
relationships.
• Database marketing is the process of building,
maintaining, and using customer databases and other
databases (products, suppliers, resellers) to contact,
transact, and build customer relationships.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 37 of 34

The Downside of Database Marketing and CRM

• Some situations are just not conducive to database

management.
• Building and maintaining a customer database requires a
large, well-placed investment in computer hardware,
database software, analytical programs, communication
links, and skilled staff.
• It may be difficult to get everyone in the company to be
customer oriented and use the available information.
• Not all customers want a relationship with the company.
• The assumptions behind CRM may not always hold true.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 38 of 34

Discussion
Online versus Offline Privacy
• As more firms practice relationship marketing
and develop customer databases, privacy
issues are emerging as an important topic.
• However, some argue that the opportunity to
steal information exists virtually everywhere,
and its up to consumers to protect their
interests.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 39 of 34