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Customer
Perceived
Value:

Customer
Perceived Value: It
is the difference
between the
prospective
customers
evaluation of all the
benefits and all the
costs of an offering,
and the perceived
alternatives.
Creating Customer Value,
Satisfaction and Loyalty

Chapter
5
Marketing Management
By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha


SUMMARY by
In the face of increasing competition, companies today face their toughest test of
survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy,
however, may provide a better chance of outperforming competition. And at the
cornerstone of this philosophy are strong customer relations.
This chapter discusses the importance and various methods of creating customer value
and sustaining customer loyalty. As customers have become more informed and
educated than ever, organisations have started to adopt business models where the
customer is at the top.


Total Customer Benefit
It is the perceived monetary value of the bundle of economic, functional, and
psychological benefits customers expect from a given market offering because of the
products, services, personnel and image involved.


Total Customer Cost
It is the perceived bundle of costs customers expect to incur in evaluating, obtaining,
using, and disposing of the given market offering, including monetary, time, energy, and
psychological costs.


Very often, a customer value analysis is undertaken by managers to better understand
the companys strengths and weaknesses in comparison with competition. It follows the
pattern below
1. Identify the major attributes and benefits that customers value.
2. Assess the quantitative importance of the different attributes and benefits.
Total
Customer
Satisfaction:
It is the measure of
a customers
feelings of pleasure
or disappointment
that results from
comparing a
products perceived
performance to
their expectations.

Satisfaction is
usually measured
with the help of
customer surveys.
The two major
factors involved in
customer
satisfaction are
complaint handling
and product/service
quality.

Chapter 5 - Creating Customer Value, Satisfaction and Loyalty
Trends
3. Assess the companys and competitors performances on the different customer
values on each attribute and benefit.
4. Assess how customers in a specific segment rate the companys performance
against a major competitor on an individual attribute or benefit basis.
5. Monitor customer values over time as the economy, technology, and features
change.


Customer profitability
A profitable customer is one that over time yields a revenue stream that is significantly
greater than that companys cost stream for attracting, selling and servicing that
customer.

150-20 Rule
The 20% most profitable customers generate as much as 150% of the profits of the
company; the 20% least profitable customers lose 100% of the profits.
Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV).
CLV describes the net present value of the future stream of profits expected over the
customers lifetime purchases. CLV calculations are generally used by marketers to
develop a long-term perspective.


Customer Relationship Management (CRM)
It is the process of carefully managing detailed information about individual customers
and all occasions where a customer encounters a brand/product to maximise customer
loyalty.
CRM can be conducted using the following 4 steps
1. Identify your prospects and customers.
2. Differentiate customers in terms of their needs and their value to your
company.
3. Interact with individual customers to improve your knowledge about their
needs and to build stronger relationships.
4. Customize products, services, and messages to each customer.

The value of the customer base can be increased by improved by measures such as
reducing the rate of customer defection, increasing the longevity of the customer
relationship, making low-profit customers more profitable or terminating them, etc.


Building Customer Loyalty
It involves the following procedures
1. Interacting with customers
2. Developing loyalty programs
3. Personalising marketing
4. Creating institutional ties


Database marketing
It is the process of building, maintaining and using customer databases and other
databases to contact, transact and build customer relationships.


Customer Database
It contains customers past purchases, past volumes, past prices and profits; buyers
personal details, status of current contacts, the companys share of the buyers
business, competitive suppliers, etc.


Datamining
Through datamining, marketers can extract information about individuals, trends, etc.
from the customer database. It uses techniques such as cluster analysis, predictive
modelling, etc.


Disadvantages of Datamining and CRM
1. Building and maintaining a database requires huge amounts of investment in
terms of computer hardware.
2. Convincing employees to be customer oriented than using traditional methods.
3. Customer attitudes about privacy of personal data.
Probability of error of CRM methods or assumptions made thereof.
Chapter 5 - Creating Customer Value, Satisfaction and Loyalty
Trends