Ch

04
CREATING CUSTOMER VALUE &
CUSTOMER RELATIONSHIPS
1.
2.
3.
4.

Building Customer Value, Satisfaction and Loyalty

Maximizing Customer Lifetime Value
Cultivating Customer Relationships
Customer Databases and Database Marketing

1.

Building Customer Value, Satisfaction and

Loyalty

Fig. 4.1 Traditional versus Modern

organization
Top
Management
Middle
Management
Frontline
Customer
People

Top
Management
Middle
Management
Frontline
Customers
People

1.

Building Customer Value, Satisfaction and

Loyalty

Perception:

Translation of raw data into meaning.

Process by which we receive and interpret

information from the world

1.

Building Customer Value, Satisfaction and

Loyalty
Customer Perceived Value (P124):

The worth that a product or

service has in the mind of the
consumer.

Affects the price that

customer is willing to pay.

Fig 5.2
Determinants of
Customer Perceived
Value
Customer
Total customer
Perceivedbenefit
Value

 1. Product benefit:
Attributes of the product,
Might entice a potential consumer to decide to choose this product over others.
In case of Red bull, it will be the taste of the drink which has been especially designed to
suit the tastes of westerners.

2.Services benefit:
Attributes of the services offered along with the product.
Any kind of help, instructions or assistance offered with the product would fall under this.
In case of Red bull, the nutritional content, ingredients, customer helpline numbers etc. will
make up this benefit.

3.Personnel benefits:
The customers perception of the utility value of the personnel in the system of the product
to him/her.
Better, knowledgeable and well trained personnel assisting a customer would be a great
help.
In case of red bull, distribution of free red bull drinks during events by the red bull girls, will
entice their target customer to buy the product and in a way add value to the product in
terms of utility and satisfaction.

4.Image benefit:
The image that a brand/product holds in the market.
In case of Red bull, it dominates the energy drink market with its image among the
customers. People associate red bull with something that gives them an instant burst of
energy (the tagline red bull gives you wings helps too)

The real price of anything is the toil

and trouble of acquiring it.
Adam Smith

 5.Monetary cost:
The literal cost incurred by a customer in order to obtain the product.
The cost (in terms of money) that a customer incurs in travelling to the
nearest store that sells red bull and the cost per can multiplied by the
number of cans purchased is the total monetary cost in the case of red bull.

6.Time cost:
The total amount of time that has been invested by a customer during his
buying process.
The time taken for the customer to reach a store and to buy the can of red
bull is the time cost here.

7.Energy cost:
The energy spent by the buyer during the entire process of buying the
product.
It is a little complicated to calculate this in definable terms.

8.Psychological cost:
The total mental effort made during acquiring and using the product from
the moment it was bought to the moment it was consumed.
It is also very difficult to measure this as it would take lots of data to
biologically decide what goes where.

Applying value concepts (P-125)

PRODUCT BENEFIT: Reliability, Durability, Performance, Resale value
SERVICE BENEFIT: Delivery, training, maintenance
PERSONNEL BENEFIT: Knowledgeable and responsive staff
IMAGE BENEFIT: Caterpillars corporate image and reputation
Buyers time, energy, monetary and psychological costs expended
in product acquisition, usage, maintenance, ownership and
disposal.
Comparison of total customer cost to total customer benefit

1.

Building Customer Value, Satisfaction and

Loyalty
Total customer satisfaction (P-128):
A persons feeling of pleasure or disappointment hat
result from comparing a products perceived performance
to expectation.
Actual product < promised product = Dissatisfied
customers
Actual product = promised product = Satisfied customers
Actual product > promised product = Delighted
customers

1.

Building Customer Value, Satisfaction and

Loyalty

Measuring Satisfaction:
1.
2.
3.
4.

Periodic surveys
Customer loss rate
Mystery shoppers
Monitor competitive performance

1.

Building Customer Value, Satisfaction and

Loyalty

Influence of Customer Satisfaction:

Dissatisfied customers spread negative
WOM to eleven acquaintances,.
Satisfied customers may spread positive
WOM to only three.
Customer Complaints:
While customers are dissatisfied with
their purchase about 25% of the time, only
about 5% complain.

1.

Building Customer Value, Satisfaction and

Loyalty
Loyalty:
Likelihood of previous customers to continue to buy from
a specific organization.
whether due to
Satisfaction with the product ,
Its convenience or performance, or
Simply familiarity and comfort with the brand.

1.

Building Customer Value, Satisfaction and

Loyalty

Establishing Value:

1.

Building Customer Value, Satisfaction and

Loyalty

Product and Service Quality:

The collection of features and characteristics of a
product

Perceived Quality:
Consumer opinion of a products (or a brands)
ability to fulfill his or her expectations.
It may have little or nothing to do with the actual
excellence of the product.
It is based on the brands current public image,
consumer's experience with the firm's other
products, and the influence of the opinion leaders,
consumer's group, and others.

2.

Maximizing Customer Lifetime Value

Profitable Customer:
A person, household, or company
that over time
yields a revenue stream
exceeding by an acceptable amount the
companys cost stream for attracting,
selling, and serving that customer.
The emphasis is on the lifetime stream of
revenue and cost, not a profit from a
particular transaction.

2.

Maximizing Customer Lifetime

Value
Customer Lifetime Value:
The net present value of the stream of
future profits expected over the customers
lifetime purchases.
Estimating Lifetime Value:
Annual customer revenue:
Rs.
40,000
Average number of loyal years: 30
Customer lifetime value:
Rs. 120,000

3.

Cultivating Customer Relationships (P134)

Customer Relationship Management
(CRM) P-135:
The process of carefully managing detailed
information about individual customers
and all customer touch points to maximize
customer loyalty.
1. Personalizing marketing
2. Customer empowerment
3. Customer review and recommendations

3.

Cultivating Customer
Relationships
1. Personalizing marketing framework
(P-127)
1. Identify prospects and customers
2. Differentiate customers by needs and
value to company
3. Interact to improve knowledge and build
strong relationships
4. Customize for each customer

3.

Cultivating Customer
Relationships
2. Customer empowerment

3.

Cultivating Customer
Relationships
3. Customer review and
recommendations

3.

Cultivating Customer
Relationships

Attracting and Retaining Customers (P-139)

Reducing defection:
Customer churn
Retention dynamics:
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 to the customer defection rate can
increase profits by 25% to 85%.
The customer profit rate increases over the life of a
retained customer.

3.

Cultivating Customer
Relationships
Attracting and Retaining Customers:
Retention dynamics

3.

Cultivating Customer
Relationships

Attracting and Retaining Customers:

Managing the customer base:
1. Reduce the rate of defection
2. Increase longevity of the customer
relationship
3. Enhance share of wallet, cross selling and upselling
4. Terminate low-profit customers
5. Focus more effort on high-profit customers

3.

Cultivating Customer
Relationships
Building loyalty (P-141)
Loyalty Programs:

4.

Customer Databases and Database

Marketing

Database Key Concepts:

1. Customer database
2. Database marketing

4.

Customer Databases and Database

Marketing

Using The Database:

1.
2.
3.
4.
5.

To
To
To
To
To

identify prospects
target offers
deepen loyalty
reactivate customer purchases
avoid mistakes

4.

Customer Databases and Database

Marketing

Dont Build a 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