Arab World Edition Kotler, Keller, Hassan, Baalbaki and Shamma Marketing Management Arab World Edition Kotler, Keller, Hassan, Baalbaki and Shamma Chapter 5 Creating Customer Value, Satisfaction, and Loyalty

Chapter Questions What are customer value, satisfaction, and loyalty, and how can companies deliver them? What is the lifetime value of customers and how can marketers maximize it? How can companies cultivate strong customer relationships? How can companies both attract and retain customers? What is database marketing? Copyright © 2012 Pearson Education 5-2

Building Customer Value, Satisfaction, and Loyalty Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Building Customer Value, Satisfaction, and Loyalty Fig. 5.1: Traditional Organization versus Modern Customer-Oriented Company Organization Copyright © 2012 Pearson Education 5-3

Customer Perceived Value Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? 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. Fig. 5.2: Determinants of Customer-Perceived Value Copyright © 2012 Pearson Education 5-4

Customer Perceived Value Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Customer Perceived Value Often managers conduct customer value analysis. Steps in this analysis are: 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. Copyright © 2012 Pearson Education 5-5

Delivering High Customer Value Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Delivering High Customer Value 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. Copyright © 2012 Pearson Education 5-6

Delivering High Customer Value Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Delivering High Customer Value The value proposition is the whole cluster of benefits the company promises to deliver. Volvo’s value proposition is not just in the safety. Copyright © 2012 Pearson Education 5-7

Delivering High Customer Value Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Delivering High Customer Value Box 5.1: Top 20 Brands in Customer Loyalty Copyright © 2012 Pearson Education 5-8

Total Customer Satisfaction Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Total Customer Satisfaction A customer’s decision to be loyal or to defect is the sum of many small encounters with the company. Many companies now strive to create a ‘branded customer experience.’ Joie de Vivre’s boutique hotels offer personal touches that exceed customer expectations. Copyright © 2012 Pearson Education 5-9

Monitoring Satisfaction Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Monitoring Satisfaction Measurement techniques include: Periodic surveys Customer loss rate Mystery shoppers Monitor competitive performance Copyright © 2012 Pearson Education 5-10

Monitoring Satisfaction Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Monitoring Satisfaction Customer complaints… …. studies of customer dissatisfaction show that customers are dissatisfied with their purchases about 25 percent of the time but that only about 5 percent complain. The other 95 percent either feel complaining is not worth the effort, or they do not know how or to whom to complain, and they just stop buying. Copyright © 2012 Pearson Education 5-11

Monitoring Satisfaction Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Monitoring Satisfaction When things go wrong, how to recover customer goodwill: 1. Set up a 7-day, 24-hour free ‘hotline’ (by phone, fax, or e-mail) to receive and act on customer complaints. 2. Contact the complaining customer as quickly as possible. Slow responses cause growing dissatisfaction, and lead to negative word of mouth. 3. Accept responsibility for the customer’s disappointment; don’t blame the customer. 4. Use customer-service people who are empathic. 5. Resolve the complaint swiftly and to the customer’s satisfaction. Copyright © 2012 Pearson Education 5-12

Product and Service Quality Chapter Question 1: What are customer value, satisfaction, and loyalty, and how can companies deliver them? Product and Service Quality What is quality? Quality is the key to value creation and customer satisfaction. Total Quality Management (TQM) is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services. Copyright © 2012 Pearson Education 5-13

Maximizing Customer Lifetime Value Chapter Question 2: What is the lifetime value of customers and how can marketers maximize it? Maximizing Customer Lifetime Value Fig. 5.3: The 150/20 Rule: “The 20% most profitable customers generate as much as 150% of the profits of a company; the 20% least profitable lose 100% of the profits.” Copyright © 2012 Pearson Education 5-14

Customer Profitability Chapter Question 2: What is the lifetime value of customers and how can marketers maximize it? Customer Profitability A profitable customer is a person, household, or company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling, and servicing that customer. Marketers can assess customer profitability individually, by market segment, or by channel. Copyright © 2012 Pearson Education 5-15

Fig. 5.4: Customer-Product Profitability Analysis Chapter Question 2: What is the lifetime value of customers and how can marketers maximize it? Customer Profitability Customer profitability analysis (CPA) can be conducted using a grid, as shown in Fig. 5.4 Fig. 5.4: Customer-Product Profitability Analysis Copyright © 2012 Pearson Education 5-16

Measuring Customer Lifetime Value Chapter Question 2: What is the lifetime value of customers and how can marketers maximize it? Measuring Customer Lifetime Value Customer lifetime value (CLV) is the net present value of the stream of future profits expected over the customer’s lifetime purchases. Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000 Copyright © 2012 Pearson Education 5-17

Measuring Customer Lifetime Value Chapter Question 2: What is the lifetime value of customers and how can marketers maximize it? Measuring Customer Lifetime Value Many methods exist to measure customer lifetime value. The Marketing Memo on Calculating Customer Lifetime Value illustrates one. Copyright © 2012 Pearson Education 5-18

Cultivating Customer Relationships Chapter Question 3: How can companies cultivate strong customer relationships? Cultivating Customer Relationships Maximizing customer value means cultivating long-term customer relationships. Copyright © 2012 Pearson Education 5-19

How can companies cultivate strong customer relationships? Chapter Question 3: How can companies cultivate strong customer relationships? Customer Relationship Management CRM is the process of carefully managing detailed information about individual customers and all customer touch points to maximize customer loyalty. Copyright © 2012 Pearson Education 5-20

How can companies cultivate strong customer relationships? Chapter Question 3: How can companies cultivate strong customer relationships? Customer Relationship Management Framework for CRM marketing: Identify prospects and customers. Differentiate customers by their needs and their value to company. Interact with customers to improve knowledge of their individual needs and build stronger relationships. Customize products, services and messages to each customer. Copyright © 2012 Pearson Education 5-21

How can companies cultivate strong customer relationships? Chapter Question 3: How can companies cultivate strong customer relationships? Customer Relationship Management Strategies for increasing the value of the customer base: Reducing the rate of customer defection. Increasing the longevity of the customer relationship. Enhancing the growth potential of each customer through ‘share of wallet’, cross-selling and up-selling. Making low-profit customers more profitable or terminating them. Focusing disproportionate effort on high-profit customers. Copyright © 2012 Pearson Education 5-22

Attracting and Retaining Customers Chapter Question 4: How can companies both attract and retain customers? Attracting and Retaining Customers Attracting new customers can be expensive. Table 5.3: Customer Acquisition Costs by Marketing Activity Copyright © 2012 Pearson Education 5-23

Attracting and Retaining Customers Chapter Question 4: How can companies both attract and retain customers? Attracting and Retaining Customers Retention dynamics: 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. Copyright © 2012 Pearson Education 5-24

Attracting and Retaining Customers Chapter Question 4: How can companies both attract and retain customers? Attracting and Retaining Customers Fig. 5.5: The Customer Development Process Copyright © 2012 Pearson Education 5-25

Box 5.2: Forming Strong Customer Bonds Chapter Question 4: How can companies both attract and retain customers? Building Loyalty Box 5.2: Forming Strong Customer Bonds Copyright © 2012 Pearson Education 5-26

How can companies both attract and retain customers? Chapter Question 4: How can companies both attract and retain customers? Building Loyalty Customer plus-delta Napsterize your knowledge Build the buzz Create community Make bite-size chunks Create a cause Copyright © 2012 Pearson Education 5-27

Customer Databases and Database Marketing Chapter Question 5: What is database marketing? Customer Databases and Database Marketing A customer database is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for marketing purposes. Copyright © 2012 Pearson Education 5-28

What is database marketing? Chapter Question 5: What is database marketing? Customer Databases Database key concepts Customer database Database marketing Mailing list Business database Data warehouse Data mining Copyright © 2012 Pearson Education 5-29

Data Warehouses and Datamining Chapter Question 5: What is database marketing? Data Warehouses and Datamining Companies can use their databases in five key ways: To identify prospects. To target offers. To deepen loyalty. To reactivate customers. To avoid mistakes. Copyright © 2012 Pearson Education 5-30

The Downside of Database Marketing and CRM Chapter Question 5: What is database marketing? The Downside of Database Marketing and CRM Don’t build a customer 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. Copyright © 2012 Pearson Education 5-31

The Downside of Database Marketing and CRM Chapter Question 5: What is database marketing? The Downside of Database Marketing and CRM 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 Copyright © 2012 Pearson Education 5-32

Credits Slide 1 Alamy Images: B. O’Kane Slide 7 Image courtesy of The Advertising Archives Slide 8 ‘2010 Brand Keys Customer Loyalty Leaders List’, http://www.brandkeys.com/awards/leaders.cfm. Reproduced with permission Slide 9 Joie De Vivre Hotels Slide 14 Larry Selden and Yoko S. Seldon, “Profitable Customer: The Key to Great Brands,” Point, July–August 2006 Slide 25 Customer Loyalty: How to Earn It, How to Keep It, John Wiley and Sons (Griffin, J., 2002), p.36, copyright © 2002, John Wiley and Sons Slide 27 Ben McConnell and Jackie Huba, “Learning to Leverage the Lunatic Fringe,” Point, July–August 2006, pp. 14–15; Michael Krauss, “Work to Convert Customers into Evangelists,” Marketing News, December 15, 2006, p. 6; Ben McConnell and Jackie Huba, Creating Customer Evangelists: How Loyal Customers Become a Loyal Sales Force (New York: Kaplan Business, 2003); Lauren Indvik, “Google Launches Voice-to-Twitter Service to Help Protesters in Egypt,” Mashable Social Media, January 31, 2011, http://mashable.com/2011/01/31/google-twitter-egypt-call-service/