1 ENT4310 Business Economics and Marketing Needs, Value, Satisfaction and Loyalty Arild Aspelund IØT, NTNU

2 Outline Concepts of ”Customer Value” Loyalty Quality and satisfaction Customer Relation Management (CRM) Customer Loyalty Programs and Lock-ins

3 Marketing and Customer Value Marketing is centered on creating, communicating and delivering value to customers

4 Concepts of Customer Value Customer Delivered Value –The sum of benefits the market offering promises to deliver and its associated costs Customer perceived value –Difference between customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives

5 Concepts of Customer Value Total customer value –Perceived monetary value of all economical, functional and psychological benefits of an offering Total customer costs –All monetary costs associated with evaluating, obtaining, using, and disposing of an offering

6 Buying Orientations and Customer Value Buying orientation –Best buy in terms of price, quality and quantity Purchasing/procurement orientation –Best buy in terms of total customer costs Value-based orientation –Best buy in terms customer-perceived value

7 Customer Loyalty ’It cost up to five times more to gain a new customer than to retain an existing customer’ K&K (2005) The average firm loses 10% of its customers each year. A 5% reduction to the customer defection rate can increase profits by 25% to 85%. For offerings with either –relatively frequent rebuys –sales of complementary products or services –significant associated services … it is therefore wise to ensure –Quality (customer satisfaction) –Active customer relation management –Customer loyalty programs or lock-ins

8 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.

9 Measuring Loyalty Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor competitive performance

10 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.

11 Total Quality Management “Total quality management is an organization-wide approach to continuously improve the quality of all organizational processes, products and services” K&K TQM is the ultimate tool for customer loyalty, namely assuring that all needs are met and full satisfaction obtained When your company is associated with quality, it represents a good platform for continuous growth and a solid defense against competition

12 Quality Conformance quality Performance quality

13 Customer Relation Management (CRM) Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer

14 Customer Relation Management (CRM)

15 Customer Relation Management (CRM) Reduce the rate of defection Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high-profit customers

16 Customer Loyalty Programs (lock-ins) Benefit sharing –If loyalty is highly profitable for you, you might consider sharing your benefits with your customer to ensure loyalty –Ex: Frequent flyer programs, ”kaffeavtalen” Habitual –Specialized or complex user patterns –Ex: Microsoft, cell phones, Latex Technological –Reduced compability, specialized accessories and pheriphericals –Ex: Itunes, printers

17 Summary and Continuation Summary –We have defined some fundamental concepts of value and how they can be put to use –Regaining customers are often far cheaper than getting acquiring new ones –Therefore, marketeers put a lot of emphasis on: Quality and total customer satisfaction Customer relation management Customer loyalty programs and lock-ins Continuation –Customer behavior