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A FRAMEWORK for
MARKETING MANAGEMENT
Chapter 4
Creating
Customer Value,
Satisfaction,
and Loyalty
Kotler
Keller
Cunningham
Chapter Questions
• How can companies deliver customer
value, satisfaction, and loyalty?
• What is the lifetime value of a customer?
• How can companies cultivate strong
customer relationships?
• What is database marketing, and why is it
important?
© Copyright 2008 Pearson Education Canada
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Profile: Canadian Marketing Excellence
CANADIAN TIRE
• In 1922, Canadian Tire started out as a
single garage
• Faces extensive competition from Wal-Mart
and Home Depot
• It has, however, been able to stand firm,
remaining the leader in the housewares
and hardware categories
• Unique product mix: automotive,
housewares, sports and leisure
• Canadian Tire money – loyalty program
• 75% of stores are less than 10 years old
• Employee e-learning program to improve
customer service
• Offers value to customers
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© Copyright 2008 Pearson Education Canada
Determining Customer
Value and Satisfaction
Customer perceived value (CPV)
is the difference between the
prospective customer’s evaluation
of all the benefits and costs
of an offering and the perceived
alternatives
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Figure 4.1 Determinants of
Customer-Delivered Value
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Loyalty
Loyalty is 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 behaviour
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Satisfaction
Satisfaction is a person’s
feelings of pleasure or disappointment
resulting from comparing
a product’s perceived performance
in relation to his or her expectations
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Raising Customer Expectations
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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
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Forms of Quality
Conformance
quality
Performance
quality
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Total Quality Management
TQM is an organization-wide
approach to continuously
improving the quality of
all the organization’s processes,
products, and services
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Maximizing Customer Lifetime Value
Customer
profitability
Customer
equity
Lifetime
value
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Figure 4.2 Customer-Product
Profitability Analysis
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Estimating Lifetime Value
•
•
•
•
Annual customer revenue: $500
Average number of loyal years: 20
Company profit margin: 10%
Customer lifetime value: $1,000
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Customer Equity
“The ongoing process of identifying and
creating new value with individual
customers and then sharing the benefits
from this over a lifetime association.”
Ian Gordon
(Canadian Marketing Consultant)
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Drivers of Customer Equity
Value
equity
Brand
equity
Relationship
equity
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Framework for CRM
Identify prospects and customers
Differentiate customers by needs
and value to company
Interact to improve knowledge
Customize for each customer
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Improving the Value of
Company’s Customer Base
Reduce the rate of defection
Increase longevity
Enhance customer growth potential
Terminate low-profit customers
Focus more effort on high-profit
customers
© Copyright 2008 Pearson Education Canada
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Figure 4.3 The Customer-Development Process
Suspects
Prospects
First-time
customers
Disqualified
Repeat
customers
Clients
Members
Partners
Ex-customers
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Building Loyalty
Partnership
Proactive
Accountable
Reactive
Basic
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Figure 4.4 Levels of Relationship Marketing
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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
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Forming Strong Customer Bonds
Add financial
benefits
Add social
benefits
Add structural
ties
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Database Key Concepts
• Customer
database
• Database
marketing
• Mailing list
• Business
database
• Data warehouse
• Data mining
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Data Warehousing:
SHOPPERS DRUG MART
• Shoppers Drug Mart
• Its competitive advantage
Corporation is one of
is “HealthWatch”, a
Canada’s largest retailers
database that maintains
of health care products/
patients’ medical profiles
services
and generates alerts for
possible allergies or drug
• Over 974 stores
interactions when a
• Makes extensive use of
prescription is filled
data warehousing
• The company generated
software
sales exceeding
• Analysis of customer and
$7 billion (2005)
market trends to support
its loyalty program - the
“Optimum” card
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Figure 4.5 Increasing Customer
Share Requirements
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For Discussion
How does the concept of customer
lifetime value differ for different types
of businesses?
• Real estate agents
• Grocery stores
• Hotels
• Furniture
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