1. Creating Customer Value,
Satisfaction,
and Loyalty
Marketing Management, 13th ed
5

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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
customer’s 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
Image benefit Psychological cost
Personnel benefit Energy cost
Services benefit Time cost
Product benefit Monetary cost
Total customer benefit Total customer 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 company’s and competitor’s
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)
• Land’s 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 Surveys
Customer Loss Rate
Mystery Shoppers
Monitor Competitive
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 Score-
NPS)

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World class companies used NPS

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Customer Satisfaction
Customer Loyalty
Company’s 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.

20. Conformance
V.S.
Performance

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Maximizing Customer Lifetime Value
Customer
Profitability
Customer
Equity
Lifetime
Value

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Figure 5.3 The 150–20 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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Harrah’s
targets
hundreds of
segments

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CRM Strategies
Reduce the rate of defection
Increase longevity
Enhance “share of wallet”
Terminate low-profit
customers
Focus more effort on
high-profit 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
Prospects
Suspects
Disqualified
First-time
customers
Repeat
customers Clients Members
Partners
Ex-customers

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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 identify prospects
To target offers
To deepen loyalty
To reactivate customers
To avoid 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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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.