5

Creating Customer Value,

Satisfaction,
and Loyalty

Marketing Management, 13th ed

Chapter Questions
What are customer value, satisfaction, and
loyalty, and how can companies deliver
them?
What is the lifetime value of customers?
How can companies cultivate strong
customer relationships?
How can companies both attract and retain
customers?
What is database marketing?
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Ritz Carlton - Famous for its

Exceptional Service

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Figure 5.1 Organizational Charts

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What is Customer Perceived Value?

Customer perceived value is the
difference between the prospective
customers evaluation of all the benefits
and all the costs of an offering and the
perceived alternatives.

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Figure 5.2 Determinants of

Customer Perceived Value
Total customer benefit

Total customer cost

Product benefit

Monetary cost

Services benefit

Time cost

Personnel benefit

Energy cost

Image benefit

Psychological cost

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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 companys and competitors
performances on the different customer
values against rated importance
Examine ratings of specific segments
Monitor customer values over time
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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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Top Brands in Customer Loyalty

Avis
Google
L.L. Bean
Samsung (mobile
phones)
Yahoo!
Canon (office
copiers)

Lands End
Coors
Hyatt
Marriott
Verizon
KeySpan Energy
Miller Genuine Draft
Amazon

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The Value Proposition

The whole cluster of

benefits the
company promises
to deliver

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Raising Customer Expectations

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Measuring Satisfaction
Periodic
Periodic Surveys
Surveys
Customer
Customer Loss
Loss Rate
Rate

Mystery
Mystery Shoppers
Shoppers
Monitor
Monitor Competitive
Competitive
Performance
Performance

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J.D. Power Rates

Customer Satisfaction

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Single Key Question of Net Promoter

How likely is it that you would recommend
this product or service to a friend or
colleague?
Use 0-10-point scale
0-6 are Marketers than subtract Detractors
7-8 are deemed Passively satisfied
9-10 are Promoter (Net Promoter ScoreNPS)

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World class companies used NPS

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Customer Satisfaction

Customer Loyalty

Companys Profit
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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.

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Conformance
V.S.
Performance

Maximizing Customer Lifetime Value

Customer
Profitability

Customer
Equity

Lifetime
Value

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Figure 5.3 The 15020 Rule

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Figure 5.4 Customer-Product

Profitability Analysis

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Estimating Lifetime Value

Annual customer revenue: $500

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

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What is Customer Relationship

Management?
CRM is the process of carefully
managing detailed information about
individual customers and all customer
touchpoints to maximize
customer loyalty.

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Framework for CRM

Identify prospects and customers
Differentiate customers by needs
and value to company
Interact to improve knowledge
Customize for each customer
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Harrahs
targets
hundreds of
segments

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CRM Strategies
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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Focus
on
CRM

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Customer Retention
Acquisition of customers can cost five times
more than retaining current customers.
The average customer 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.

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Figure 5.5 The Customer

Development Process
Suspects

Prospects
First-time
customers

Disqualified
Repeat
customers

Clients

Ex-customers
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Members

Partners

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Creating Customer Evangelists

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Steps for Creating

Customer Evangelists

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

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Database Key Concepts

Customer
database
Database
marketing
Mailing list

Business
database
Data warehouse
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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Dont 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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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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Marketing Debate
Online vs. Offline Privacy?
Take a position:
1. Privacy is a bigger issue in the
online world than in the offline world.
or
2. Consumers receive more benefit
than risk from marketers knowing
their personal information.
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Marketing Discussion

Choose a business and show how

you would go about developing a
quantitative formulation that captures
the concept of customer lifetime value.

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