4

Creating Customer Value,

Satisfaction, and Loyalty
 Chapter Questions
 How can companies deliver customer value,
satisfaction, and loyalty?
 What is the lifetime value of a customer, and
why is it important to marketers?
 How can companies cultivate strong customer
relationships?
 What is the role of database marketing in
customer relationship management?

4-2
 Warm-up Quiz (True or False)
1. It is more cost effective and easier to acquire new
customers than to retain existing ones.
False. Acquiring new customers cost companies more in
marketing expenditures and efforts.

2. The value that different customers derive from a

given product or service is usually the same.
False. Every customer is unique; with varying interests
and tastes; hence differing perceptions and evaluations
(value attachment) of a product or service.

3. Customer retention involves relationship marketing.

True. Companies must be proactive in interacting and
understanding their customers in order to enhance the
prospect of retaining them.
4-3
 Warm-up Quiz (True or False)
4. Loyalty programs can help to differentiate an
organisation’s offer permanently.
False. Loyalty programs may help to build customer
preference but they can be imitated by competitors easily.
Hence, relying on loyalty programs alone may not
differentiate the organisation for long from its competitors.

5. Delivering service quality only involves the

marketing department.
False. Service delivery occurs when an organisation's
representatives and customers interact with one another.
To do this well, there must be adequate support within
departments and across the organisation.

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Customer-Orientations

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What is
Customer Perceived Value?
Customer perceived value (CPV) is the
difference between the prospective
customer’s evaluation of all the benefits
and all the costs of an offering and the
perceived alternatives.

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Determinants of
Customer Perceived Value
Total customer Total customer
benefit cost

Product benefit Monetary cost

Services benefit Time cost

Personnel benefit Energy cost

Psychological
Image benefit
cost
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What is Loyalty?

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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What is Satisfaction?

Satisfaction is the person’s feelings that

result from comparing a product’s
performance or outcome to expectations.

Why do companies need satisfied

customers?

4-9
 Measuring Satisfaction

 Periodic surveys

 Customer loss rate

 Mystery shoppers

 Monitor competitive
performance

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 Facts: Customer Complaints

 Customers are dissatisfied with their purchases

25% of the time, but only 5% complain.
 Of those who register a complaint, 54-70% will do
business with the company again, if the complaint
is resolved; 95% if resolved quickly.
 Those with resolved complaints tell on average 5
people about the good treatment they received.
 The average dissatisfied customer gripes to 11
people, then bad word of mouth spreads
exponentially.

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 How to Deal With Complaints?

 Make it easy for the customer to complain.

 Contact the complaining customer as quickly
as possible.
 Accept responsibility for the customer’s
disappointment; don’t blame the customer.
 Use customer service people who are
empathic.
 Resolve the complaint swiftly and to the
customer’s satisfaction.

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What is 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.

Conformance versus Performance Quality

Total Quality Management (TGM)

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The 20-80 Rule

4-14
Top Brands in Customer Loyalty in
U.S.
 Verizon long
 Avis
distance
 Google
 Miller beer
 Samsung mobile
 Amazon
 Yahoo!
 Motorola Mobile
 Canon office copiers phones
 Hyatt Hotels  BlackBerry
 Marriott Hotels  Diet Pepsi

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 Steps in a
Customer Value Analysis
 Identify major attributes and benefits that
customers value
 Assess the qualitative importance of different
attributes and benefits
 Assess the company’s and competitor’s
performances on the different customer values
against rated importance
 Examine ratings of specific segments
 Monitor customer values over time

4-16
Maximizing Customer Lifetime Value:
Who is a profitable customer?

Customer
Profitability

Costs
Lifetime
/
Value
Revenues

4-17
Customer-Product Profitability
Analysis (CPA)

4-18
Estimating
Customer Lifetime Value
Customer Lifetime Value (CLV) describes
the net present value of the stream of future
profits expected over the customer’s lifetime
purchases. Refer to Table 4.2

Annual customer revenue: $500

Average number of loyal years: 20
Company profit margin: 10%
Customer lifetime value: $1000
Discount rate: -
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What is
Customer Relationship Management?

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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CRM Strategies:
Increasing the value of customer base
Reduce
Reduce the
the rate
rate of
of defection
defection

Increase
Increase longevity
longevity

Enhance
Enhance “share
“share of
of wallet”
wallet”

Terminate
Terminate low-profit
low-profit
customers
customers
Focus
Focus more
more effort
effort on
on
high-profit
high-profit customers
customers
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Framework for CRM: One-to-One
Marketing

Identify prospects and customers

Differentiate customers by needs

and value to company

Interact to improve knowledge

Customize for each customer

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 Customer Development Process

Potentials

Prospects Disqualified

First-time Repeat
customers customers Clients Members

Inactive or Partners
Ex-customers
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The Marketing Funnel

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Facts: Customer Retention

 Acquisition of customers can cost 5 times

more than retaining current customers.
 The average company loses 10% of its
customers each year.
 A 5% reduction in the customer defection
rate, can increase profits by 25-85%.
 The customer profit rate increases over the
life of a retained customer.

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Loyalty Programs

Frequency programs
are designed to provide
rewards to customers
who buy frequently and in
substantial amounts.

FPs can help build long-

term loyalty with high
CLV customers, creating
cross-selling
opportunities in the
process.

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 Building Customer Loyalty
• Superior products, services and experiences
• Cross-departmental participation in planning and
managing the customer satisfaction and retention
• Database on individual customer needs,
preferences, contacts, purchase frequency,
satisfaction
• Communication channels for customers to contact
the company’s customer service and express
feedback
• Frequency programs and club marketing programs
• Award programs recognizing outstanding employees

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Database Key Concepts

 Customer database  Business database

 Database marketing  Data warehouse
 Mailing list  Data mining

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Using the Database

To
To identify
identify prospects
prospects

To
To target
target offers
offers

To
To deepen
deepen loyalty
loyalty

To
To reactivate
reactivate customers
customers

To
To avoid
avoid mistakes
mistakes

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 Don’t Build a Database When

 The product is a once-in-a-lifetime purchase

 Customers do not show loyalty
 The unit sale is very small
 The cost of gathering information is too high

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