MARKETING MANAGEMENT Adapting marketing for the new economy and Creating Customer Value, Satisfaction, and Loyalty Kotler Keller

Major drivers of the new economy Digitization and connectivity Disintermediation and re-intermediation Online middlemen Customization and customerization Individually differentiated products vs. personalized products and channels Industry convergence Blurring of boundaries Disney, Kodak etc

Old Economy vs. New Old Economy New economy Organize by product units Organize by mkt. segments Focus on profitable transactions Focus on customer lifetime value Focus on shareholders Focus on stakeholders Marketing does the marketing Everyone does the marketing Build brands through advertising Build brands through performance Focus on customer acquisition Focus on customer retention No customer satisfaction measured Measure customer satisfaction and retention rate Over-promise, under-deliver Under-promise, Over-deliver Look at the financial scorecard Look also at the marketing scorecard

E-commerce E-commerce vs. e-business Four major internet domains B2C: Online transactions Four major internet domains B2C: B2B:web procurement Which is greater? Forrester and Gartner C2C: information creation Chat-rooms, blogs, IM,WOM vs. WOW C2B: Email suggestions and complaints

E-commerce business-to-employee (B2E) business-to-government (B2G) government-to-business (G2B) government-to-government (G2G) government-to-citizen (G2C)

Organizational Charts

Customer value and satisfaction Customer perceived value Difference between the prospective customer’s evaluation of all benefits and all the costs of an offering and the perceived alternatives. Total customer value Perceived monetary value of the bundles of economic, functional and psychological benefits customers expect from a given market offering.

Determinants of Customer-Delivered Value Total customer value Product value Personal value Customer- delivered value Total customer cost Monetary cost Energy cost

Customer value and satisfaction The real price of anything is the toil and trouble of acquiring it Satisfaction: Feeling of pleasure or displeasure resulting from comparing a product’s performance with the expectations.

Loyalty 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.

Measuring Satisfaction Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor competitive performance

Countrywide received the #1 customer satisfaction rating from J. D Countrywide received the #1 customer satisfaction rating from J.D. Power and Associates

Product and Service 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.

Customer Life Time Value The present value of the stream of future profits expected over the customer’s lifetime purchases.

Estimating Lifetime Value Annual customer revenue: $5,000 Average number of loyal years: 2 Company profit margin: 10% Customer lifetime value: $1,000

Successful Relationships Customer Value Customer Retention Loyal customers C.V = benefit/costs Customer Satisfaction Performance vs. Expectations

Customer Profitability-Focused Marketing Heavy users, not price sensitive, try new products Tier 1: Platinum Tier 2: Gold Tier 3: Iron Tier 4: Lead Heavy users but price sensitive Spending volume implies no special treatment Cost the company and generate –ve WOM

Framework for CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

CRM Strategies Reduce the rate of defection Terminate low-profit customers Focus more effort on high-profit customers

Mass vs. One-to-One Marketing Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising One-way message Economies of scale One-to-One Individual customer Customer profile Customized market offering Customized production Economies of scope

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 to the customer defection rate can increase profits by 25% to 85%. The customer profit rate increases over the life of a retained customer.

The Customer-Development Process Suspects Prospects Disqualified First-time customers Repeat customers Clients Members Partners Ex-customers

Levels of investment in Customer Relationship Building Partnership: work contin. with large customers Proactive: regular contact with customer about product offerings Accountable: post-sale service and suggestions Reactive: sells and encourages feedback Basic: salesperson simply sells

Reducing Customer Defection Define and measure retention rate. Distinguish causes of customer attrition. Estimate profit loss associated with loss of customers. Assess cost to reduce defection rate. Gather customer feedback.

Cost of Lost Customer A company has 64k accounts It lost 5% of its accounts this year due to poor service. Loss is 3,200 accts (.05* 64k) Avg. lost acct means a $40k loss in revenue. Total loss in revenue is $128 million (3,200*40k) If profit margin of company is 10% the total loss for 2009 is (.10*$128 m)=$12.8 million.

Total Quality Management TQM is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services.