Chapter 

BUILDING CUSTOMER
SATISFACTION, VALUE, AND
RETENTION
 Defining Customer Value and Satisfaction
Customer perceived value (CPV) : The difference between
the prospective customer‘s evaluation of all benefits and
all the cost of an offering and the perceived alternatives.
Customer perceived value (CPV) =
Total Customer Value ( TCV)-Total Customer Cost (TCC)
Total Customer Value : the perceived monetary value of
the bundle of economic, functional and psychological
benefits customer expect from a given market offering.
Total Customer Cost : the bundle of costs customers
expect to incur in evaluating, obtaining, using and
disposing of the given market offering.
Customer Perceived Value

Customer-
Economic perceived
Value
Evaluating

Functional Obtaining

Using

Psychological Disposing
Total Customer Total Customer
Benefit Cost
Traditional Organization vs. Customer-Oriented
Organization
Determinants of Customer Delivered Value
Image
Image value
value

Personnel
Personnel value
value Total
Total
customer
customer
Services value
value
Services value
value

Product
Product value
value

Customer
Customer
delivered
delivered
Monetary
Monetary cost
cost value
value

Time
Time cost
cost
Total
Total
customer
customer
Energy
Energy cost
cost cost
cost

Psychic
Psychic cost
cost
The Value Delivery Approach: Successful marketers
must focus on delivering value to customers. This is
accomplished by;
Providing
the value

Choosing Communicatin
the value g the value

Valu
e
Does the customer will always buy the product
which delivering the greater customer value?

Not Necessarily.
Why?
Because the customer also examines his total
cost of transacting with the product and the
alternative, which consists of more than the
money before making the buying decision.
Based on this decision making theory,
there are three (3) ways to making
success in selling to the buyer :
1. Increasing total customer value by
improving product, services, personnel,
and/or image benefits.
2. Reducing the buyer’s non monetary cost by
reducing the time, energy, and psychic cost.
3. Reducing it’s product monetary cost to the
buyer.
 Total Customer Satisfaction
The customer satisfaction is depend on the
offer’s performance in relation to the
customer’s expectation.
Satisfaction : a person’s feelings of pleasure
or disappointment resulting from comparing
a product’s perceived performance
(outcome) in relation to his or her
expectations.
 Customer Satisfaction Formula :

If P < E Dissatisfied

If P = E Satisfied
If P > E Highly Satisfied/Delighted

P=Performance
E=Expectation
 Customer Satisfaction

Expectations
High Performance Business

Set strategies to satisfy

key... Stake-
holders

By improving
Processes
critical business...

and
aligning... Resources Organization
 Customer Expectations
How do customer form their expectations?
From past buying experience, friend’s and associates'
advice, and marketer’s and competitor's information and
promises.
 If marketers raise expectations too high, the buyer is
likely to be disappointed.
 If marketers set expectations too low, the buyer won’t
attracted by the company’s offering.
However, some of today’s most successful companies are
raising expectations and delivering performances to
match.
Customer Expectations

Previous purchases
Friends advice
Marketers’ / competitors
Expectations
 Delivering High Customer value
The important key to generating high
customer loyalty is delivering high
customer value.
A company must design a competitively
superior value proposition aimed at a
specific market segment.
The value proposition: Consists of whole
cluster of benefits the company promises to
deliver; it is more than the core positioning
of the offering.
Value Proposition
Volvo
Core positioning:
• Safety

Other benefits:
• Good performance
• Reliability
• Design
VOLVO • Environmentally
friendly
In a hypercompetitive economy, a company can
only win the competition by creating and
delivering superior values.
This involves 5 capabilities :
1. Understanding customer value
2. Creating customer value
3. Delivering customer value
4. Capturing customer value
5. Sustaining customer value
 To succeed, a company needs to use the
concepts of a value chain and a value delivery
network.
 Value Chain
Value chain: a tool for identifying how to create more
customer value (Porter,M).
Every firm is a synthesis of activities that are performed
to design, produce, market, delivery and support its
products.
The value chains identifies nine strategically relevant
activities that create value and cost in a specific
business.
These nine value creating activities consists of five
primary activities and four support activities.
The primary activities represent the sequence of
bringing materials into the business (inbound logistics),
converting them into final products (operations),
The support activities: procurement, technology, HRM,
and firm infrastructure are handled in certain specialized
departments, but not only there.
For example: several departments may do some
procurements and hiring of people.
The firm task is to examine its cost and performance in
each value creating activity and to look for ways to
improve it.
The firm should estimate its competitors cost and
performance as benchmarks against which to compare
its owns cost and performances.
Furthermore, the firm’s success also depends on how
well the various departmental activities are coordinated.
 Value Chain
Firm Infrastucture
S Human Resources Management
A

Ma
V Technology Development

rg
in
Procurement

In bound Operation Out bound Marketing ic e

rv
logistics logistics & Sales Se

n
rgi
Ma
Primary Activities
Core Business Processes
CRM
Order Fulfillment
management
Customer
acquisition

New-offering
realization

Market-
sensing
 The value delivery network
To be successful a firm also needs to look for competitive
advantages beyond its own operations, into value chains
of its suppliers, distributors and customers.

Many companies today have partnered with specific

suppliers and distributors to create a superior value
delivery network (supply chain)

In this system, the goods are pulled by demand rather

than pushed by supply.
Example : Levi Strauss’ Value-Delivery Network

Order Order Order Order

Du
Du Pont
Pont Milliken
Milliken Levi’s
Levi’s Sears
Sears Customer
Customer
(Fibers)
(Fibers) (Fabric)
(Fabric) (Apparel)
(Apparel) (Retail)
(Retail)

Delivery Delivery Delivery Delivery

Competition is between networks, not companies.

The winner is the company with the better network.
In this system, the goods are pulled by demand rather than pushed by
supply.
Holistic Marketing Holistic Marketing
Holistic marketers addresses • Inform
three key management questions: • Engage
• Energize

Value
Value Creation
Exploration

Value
Delivery
• The response for these three key management
questions by the holistic marketers, could help
to have a satisfied customers.

Satisfied Customers:
Are loyal longer
Buy more (new products & upgrades)
Spread favorable word-of-mouth
Are more brand loyal (less price sensitive)
Pays less attention to competing brands
Offer feedback (offers product or service ideas to the
company)
Reduce transaction costs (costs less to serve than new customers)
Monitoring Satisfaction
Influence of
Customer Satisfaction

Measurement
Techniques

Customer
Complaints
 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
 Product and Service Quality
Satisfaction will also depend on product and service
quality.
Performance Conformance
 Maximizing Customer Lifetime Value
Ultimately, marketing is the art of attracting and keeping profitable
customers.

20% of 80% of
Customers Profits

Customers
 e d
if n
e
D 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.
Customer-Product Profitability Analysis
 Attracting and Retaining Customers
Customer Relationship Management (CRM)

The process of managing detailed information

about individual customers and carefully
managing all the customer “touch points” with
the aim of maximizing customer
loyalty.
The aim of CRM : is to produce high
customer equity ( value equity, brand equity
 Cultivating Customer Relationships

Customer Information is
easy to;
• Differentiate
• Customize
• Personalize
• Share
Customer Relationship Management (CRM)

Personalizing Marketing

Customer Empowerment
Customer Reviews & Recommendations
 Personalizing Marketing
 It is about making sure the brand and its marketing are as relevant
as possible to as many customers as possible.
 One-to-One Marketing
There are four-step framework for one-to-one
marketing that can be adapted to CRM

1. Identify
prospects 2. Differentiate
and customers customers

3. Interact with 4. Customize

each customer
Customer Empowerment

Brand Evangelists: helps

the consumers to demonstrate
their passion
 Customer Reviews/Recommendations
Create Buzz

Negative reviews

Customer ratings
 Customer Retention
Why is retaining existing customers so important? Consider
these facts.
Acquiring new customers costs

5x more The average company

than retaining current customers loses

10%
Of its customers yearly
Reducing customer defections by 5% can
increase profits from

25% to 85%
 Attracting and Retaining Customers
Manage
customer base

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

Retention Dynamics
 The Marketing Funnel
Figure below shows the main steps in attracting and retaining
customers in terms of a funnel.
 Forming Strong Customer Bonds
1. Get cross-departmental participation in planning and
managing the customer satisfaction and retention process.
2. Integrate the voice of customers in all business decisions.
3. Organize and make accessible a database of information
on individual customer needs, preferences, contacts,
purchase frequency and satisfaction.
4. Make it easy for customers to reach appropriate company
personnel and express their needs, perceptions, and
complaints.
5. Run award programs recognizing outstanding employees.
 e d
if n
e
D 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
 Building Loyalty
Interact with customers

Create institutional ties

Develop loyalty programs

 Databases & Database Marketing
Customer databases
• Name, address, telephone #
• Purchase history
• Demographics
• Psychographics
• Mediagraphics
Data mining

Data Warehouses
 t er !
hap
h e c
of t
E n d