Download ch 5 CREATING CUSTOMER VALUE

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Creating Long-Term
Loyalty Relationships
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?
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Figure 5.1 Customer-Orientations
Customer Perceived Value (CPV)
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CPV = the difference between the
prospective customer’s evaluation of all
benefits and all the costs of an offering
and the perceived alternatives.

CPV = Total Customer Value – Total
Customer Cost
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Figure 5.2
Determinants of Customer Perceived Value
Total customer benefit
Total customer cost
Product benefit
Monetary cost
Services benefit
Time cost
Personal benefit
Energy cost
Image benefit
Psychological cost
Delivering High Customer Value to build 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.
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A Tale of A Loyal Consumer
Morgan Spurlock @ 2004
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The Value Proposition
The whole cluster
of benefits the
company promises
to deliver
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Total Customer Satisfaction
Satisfaction :
a person’s feelings of pleasure or
disappointment resulting from comparing
a product’s perceived performance (or
outcome) in relation to his or her
expectations.
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Measuring Satisfaction
Periodic surveys
 Customer loss rate
 Mystery shoppers
 Monitor competitive performance
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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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Quality
Conformance (delivering promised quality)
 Performance (the grade of the 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
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Customer profitability
Customer lifetime value
(the NPV of the stream of future profits expected
over the customer’s lifetime purchases)
Customer equity
(the total of the discounted lifetime values of ALL
of the firm’s customers)
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Estimating Lifetime Value
Annual customer revenue: $500
 Average number of loyal years: 20
 Company profit margin: 10
 Customer lifetime value: $1000
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Loyalty
Will satisfaction lead to loyalty? (e.g.,
Moderating variable of variety-seeking
behavior)
 Two levels of loyalty: attitudinal loyalty and
behavioral loyalty
 Four levels of loyalty:
- Contractual loyalty
- Transactional loyalty
- Functional loyalty
- Emotional loyalty
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Drivers of Customer Equity
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Value equity
customer’s objective assessment of the utility of
an offering based on perceptions of its benefits
relative to its costs.
Brand equity
customer’s subjective and intangible
assessment of the brand, above and beyond its
objectively perceived value.
Relationship equity
customer’s tendency to stick with the brand,
above and beyond objective and subjective
assessment of its worth.
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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 (mass
customization).
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CRM Strategies
Reduce rate of defection
 Increase longevity
 Enhance share of wallet
 Terminate low-profit customers
 Focus more effort on high-profit customers
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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
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Customer Retention
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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.
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Describing Market Dynamics
Permanent capture markets
(once a customer, always a customer)
 Simple retention markets
(customers can permanently lost after
each period)
 Customer migration markets
(customer can leave and come back)
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Building Loyalty
Basic marketing
 Reactive marketing
 Accountable marketing
 Proactive marketing
 Partnership 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
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Add financial benefits
(e.g., Frequent flyer
program)
Add social benefits
(e.g., Karimun Club)
Add structural ties
(via contracts, lower
price to large buyers,
long term service)
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Creating Customer Evangelists
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Database Key Concepts
Customer database
 Database marketing
 Mailing list
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Business database
 Data warehouse
 Data mining
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Using the Database
To identify prospects
 To target offers
 To deepen loyalty
 To reactivate customers
 To avoid mistakes
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The Downside of Database
Marketing and CRM
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Database marketing is useful when:
product is a once-in-a-lifetime purchase,
customers show little loyalty to the company,
and the cost of gathering information is too high.
Difficulty of getting everyone in the company to
be customer oriented.
Not all customers want a relationship with the
company
It may not cost less to serve loyal customers.
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