6 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-1 Value for Customers

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-2 C HAPTER O BJECTIVES 1. What is customer value? How do consumers use it to make decisions? 2. When are customers satisfied? What are the benefits of having satisfied customers? 3. How do companies establish, develop, and enhance mutually beneficial relationships with customers? 4. What activities establish, develop, and maintain customer sales?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-3 O BJECTIVE 1 What is customer value? How do consumers use it to make decisions?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-4 Customer Value is the difference between the benefits a customer receives and the total cost incurred from acquiring, using, and disposing of a product.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-5 Customer Value Perceived Benefits Perceived Costs Perceived Benefits

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-6 P RODUCT B ENEFITS Benefits

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-7 P RODUCT C OSTS Costs Maintenance

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-8 C USTOMER V ALUE Service Benefits Brand Benefits Product Benefits Price & Other Costs Customer Value

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-9 O BJECTIVE 2 When are customers satisfied? What are the benefits of having satisfied customers?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-10 Customer Satisfaction is the degree to which a product meets or exceeds customer expectations.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-11 Customer Satisfaction Negative Dissatisfied Defect Neutral Satisfied Switchable Positive Delighted Loyal

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-12 Customer Satisfaction – A negative experience will result in the person being dissatisfied, and given the opportunity, they will defect to another product/service. – With a neutral experience, the person can be satisfied because the product met expectations (barely); if another option presents itself, however, they will likely switch to a competing product. – A positive experience will result in the person being delighted by the experience and product loyalty will be created.

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-13 C USTOMER S ATISFACTION Loyalty: As they will continue to purchase the same brands Product Champion: Who share their positive experiences with anyone who listens. Lower Costs: Have lower costs in terms of warranty expenses (fewer problems), fewer phone calls to company, etc. Larger Share of Wallet: Spend more money (larger share of wallet) with the company through more frequent purchases, or by purchasing other products the company offers.

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-14 M EASURING C USTOMER S ATISFACTION Customer Satisfaction Internal External JD Power ACSI

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-15 C USTOMER L OYALTY Degrees of Loyalty No Loyalty

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-16 C USTOMER L OYALTY Consumers exhibit different degrees of loyalty. Some hold no loyalty to brands, instead, selecting the lowest price each time. Others exhibit loyalty to 2-3 different brands, choosing one based on varying criteria (“what am I in the mood for this time?”). But there are some buyers who exhibit high degrees of loyalty to specific brands and will only purchase that brand. Companies attempt to ensure that highly loyal customers remain that way, while at the same time encouraging those who exhibit loyalty some of the time, to become highly loyal. Loyal customers are considered profitable customers, but they may not be the most profitable – nor are a company’s largest customers (those who purchase the most products) the most profitable. Large customers usually require additional resources and expect deals and promotions in order to remain a customer.

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-17 C USTOMER L IFETIME V ALUE The present value of all profits expected to be earned in the future from a customer. Customer Lifetime Value = Average Purchases per Year X Profit Margin - Cost to Service the Customer

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-18 C USTOMER R ETENTION Current Customers New Customers Former Customers

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-19 C USTOMER R ETENTION Companies seek to attract new customers in the hopes of growing their customer base and replacing customers who have defected. This is especially the case for those with low customer satisfaction ratings. While recruiting new customers will always be important, taking care of current customers (to minimize defections) can be more profitable. Old adage: It costs less to keep an existing customer than it does to recruit a new customer.

THINK ABOUTITTHINK ABOUTIT Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-20 S ERVICE R ECOVERY P ARADOX Highly effective service recovery can result in higher levels of customer satisfaction than in cases where a service failure did not exist.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-21 O BJECTIVE 3 How do companies establish, develop, and enhance mutually beneficial relationships with customers?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-22 Relationship Marketing is the organizational commitment to developing and enhancing long-term, mutually beneficial relationships with profitable or potentially profitable customers.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-23 R ELATIONSHIP M ARKETING Customer Relationships Loyalty Retention

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-24 R ELATIONSHIP M ARKETING Added Value Reduced Anxiety Sense of Belonging

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-25 O BJECTIVE 4 What activities establish, develop, and maintain customer sales?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-26 Customer Relationship Management is comprised of the activities that are used to establish, develop, and maintain customer sales.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-27 Customer Relationship Management External Processes Internal Processes Gather Information Use Information

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-28 Customer Relationship Management Customer relationship management (CRM) includes the external and internal actions that an organization takes to develop relationships with customers. External processes are those efforts designed to develop and maintain the relationship with the customer, including the collection of pertinent information from customers. Internal processes are the management of information regarding customers through the use of specialized information processing systems. This process includes using the information collected from customers, as well as information on customers that the company already possess (such as sales volume, etc.)

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-29 D EVELOPING A RELATIONSHIP WITH CUSTOMERS INVOLVES A 4- STEP PROCESS 1. Identify customers – Includes collecting information about customers. This step has the company collecting standard information (demographics) and also seeking to determine purchase amounts. With this information, a company can often tailor additional product offerings to fit the customer’s needs. 2. Differentiate customers – The key element in this step is to separate profitable (or potentially profitable) customers from those who create a loss. The company is trying to determine which customers are the most valuable. 3. Establish dialogue – Here the company is establishing some type of interaction in order to improve customer relationships. These efforts can be undertaken on a personal level or via automated processes (such as websites requesting members to join). 4. Customize products – After learning as much as possible about the customer, companies are then able to develop customized offerings. This provides customers with more valuable solutions and also builds goodwill.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall6-30 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.