Marketing Management

Module 5
Creating Customer
Value, Satisfaction,
and Loyalty
 What are customer value,
satisfaction, and loyalty,
Building Customer Value, and how can companies
deliver them?
Satisfaction, and Loyalty

Fig. 5.1: Traditional Organization versus

Modern Customer-Oriented Company Organization

Copyright © 2012 Pearson Education 5-1

Customer Perceived Value

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.

Fig. 5.2: Determinants of

Customer-Perceived Value

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Customer Perceived Value
Often managers conduct customer value analysis . (S&W)

Steps in this analysis are:

1. Identify major attributes and benefits that customers value.

2. Assess the qualitative importance of different attributes and
benefits.
3. Assess the company’s and competitor’s performances on the
different customer values against rated importance.
4. Examine ratings of specific segments.
5. Monitor customer values over time.

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Delivering High Customer Value

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.

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 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
Delivering High Customer Value and how can companies
deliver them?

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Delivering High Customer Value

The value proposition is the

whole cluster of benefits the
company promises to deliver.

Volvo’s value proposition is not

just in the safety.

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Total Customer Satisfaction

A customer’s decision to be loyal

or to defect is the sum of many
small encounters with the
company.

Expectation Vs Performance

Joie de Vivre’s boutique hotels

offer personal touches that exceed
customer expectations.

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Monitoring Satisfaction

Measurement techniques include:

• Periodic surveys
• Customer loss rate (Stop to buy)
• Mystery shoppers
• Monitor competitive performance 80/90

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Monitoring Satisfaction

Customer complaints

only about 5 percent from dissatisfied complain. The other 95

they just stop buying.

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 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
Monitoring Satisfaction deliver them?

When things go wrong, how to recover customer goodwill:

1. Set up a 7-day, 24-hour free ‘hotline’ (by phone, fax, or e-mail) to

receive and act on customer complaints.

2. Contact the complaining customer as quickly as possible. Slow

responses cause growing dissatisfaction, and lead to negative word
of mouth.

3. Accept responsibility for the customer’s disappointment; don’t

blame the customer.

4. Use customer-service people who are empathic.

5. Resolve the complaint swiftly and to the customer’s satisfaction.

Copyright © 2012 Pearson Education 5-10

 Chapter Question 2:
What is the lifetime value of
Maximizing Customer customers and how can
marketers maximize it?
Lifetime Value
Fig. 5.3:
The 150/20 Rule:
“The 20% most
profitable
customers
generate as much
as 150% of the
profits of a
company; the
20% least
profitable lose
100% of the
profits.”

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 Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?

Customer Profitability

• A profitable customer is a person, household, or company

that over time yields a revenue stream that exceeds by an
acceptable amount the company’s cost stream of attracting,
selling, and servicing that customer.
• Marketers can assess customer profitability individually, by
market segment, or by channel.

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 Chapter Question 2:
Customer Profitability What is the lifetime value of
customers and how can
marketers maximize it?

Customer profitability analysis (CPA) can be conducted using a

grid, as shown in Fig. 5.4

Fig. 5.4: Customer-Product Profitability Analysis

Activity-based costing ABC

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 Chapter Question 2:
What is the lifetime value of
customers and how can
marketers maximize it?

Measuring Customer Lifetime Value

Customer lifetime value (CLV) is the net present value of

the stream of future profits expected over the customer’s
lifetime purchases.

•Annual customer revenue: $500

•Average number of loyal years: 20
•Company profit margin: 10
•Customer lifetime value: $1000

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 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

CRM is the process of carefully managing detailed information

about individual customers and all customer touch points to
maximize customer loyalty.

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 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

Framework for CRM marketing:

1.Identify prospects and customers.

2.Differentiate customers by their needs and their value to
company.
3.Interact with customers to improve knowledge of their
individual needs and build stronger relationships.
4.Customize products, services and messages to each customer.

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 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

Strategies for increasing the value of the customer base:

•Reducing the rate of customer defection.

•Increasing the longevity of the customer relationship.

•Enhancing the growth potential of each customer through
‘share of wallet’, cross-selling and up-selling.
•Making low-profit customers more profitable or terminating
them.
•Focusing disproportionate effort on high-profit customers.

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 Chapter Question 4:
Attracting and Retaining Customers How can companies both
attract and retain
customers?

Fig. 5.5: The Customer Development Process

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 Chapter Question 4:
How can companies both
attract and retain
customers?

Building Loyalty

Box 5.2: Forming Strong Customer Bonds

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 Chapter Question 4:
How can companies both
attract and retain
Building Loyalty customers?

• Customer plus-delta
• Napsterize your knowledge
• Build the buzz
• Create community
• Make bite-size chunks
• Create a cause

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 Chapter Question 5:
What is database
Customer Databases and marketing?

Database Marketing

A customer database is an organized collection of

comprehensive information about individual customers or
prospects that is current, accessible, and actionable for
marketing purposes.

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 Chapter Question 5:
What is database
marketing?

Customer Databases

Database key concepts

• Customer database • Business database

• Database marketing • Data warehouse
• Mailing list • Data mining

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 Chapter Question 5:
What is database
marketing?

Data Warehouses and Datamining

Companies can use their databases in five key ways:

1. To identify prospects.
2. To target offers.
3. To deepen loyalty.
4. To reactivate customers.
5. To avoid mistakes.

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 Chapter Question 5:
What is database
marketing?

The Downside of Database Marketing and CRM

Don’t build a customer database when:

1. The product is a once-in-a-lifetime purchase.
2. Customers do not show loyalty.
3. The unit sale is very small.
4. The cost of gathering information is too high.

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 Chapter Question 5:
What is database
marketing?

The Downside of Database Marketing and CRM

Perils 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

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 Got Questions?

Always Learning

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