Kotler Keller PhillipKevin Lane Marketing Management 14e

Creating Long-term Loyalty Relationships Chapter 5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 3 of 34 Discussion Questions 1.What are customer value, satisfaction, and loyalty, and how can companies deliver them? 2.What is the lifetime value of customers, and how can marketers maximize it? 3.How can companies attract and retain the right customers and cultivate strong customer relationships? 4.What are the pros and cons of database marketing?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 4 of 34 Customer Value, Satisfaction, and Loyalty Holistic Marketing Inform Engage Energize

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 5 of 34 Figure 5.1 Traditional Organization vs. Customer-Oriented Organization

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 6 of 34 Customer Perceived Value Total Customer Cost Total Customer Benefit Customer- perceived Value Functional Economic Psychological Evaluating Obtaining Using Disposing

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 7 of 34 Figure 5.2 Customer- perceived value Total customer benefit Total customer cost Product benefit Monetary cost Services benefit Time cost Personal benefit Energy cost Image benefit Psychological cost Determinants of Customer Perceived Value

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 8 of 34 Customer Value Analysis Identify major attributes and benefits customers value Asses the quantitative importance Assess the company’s and competitors’ performance Examine how customer in a specific segment rate the company’s performance w.r.t. a major competitor on an individual benefit/ attribute Monitor customer value over time

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 9 of 34 Value Concepts - Caterpillar Worth to farmer: $20,000 Cost to produce: $14,000 ProfitPrice Customer Value $6,000$20, ,00019,000$1,000 4,00018,0002,000 3,00017,0003,000 2,00016,0004,000 1,00015,0005, ,0006,000

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 10 of 34 Choice Processes and Implications Lowest purchase price wins. Friends with salesperson

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 11 of 34 Buyer under order to buy at the lowest price The buyer will retire so wants to look good in the short run Buyer enjoys long term friendship with the sales person. Choice process and implications

Defined “A deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior.” -- Oliver Customer Loyalty

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 13 of 34 Value Proposition Core positioning: Safety Volvo Other benefits: Good performance Design Environmentally friendly

Defined A person’s feelings of pleasure or disappointment that result from comparing a product’s perceived performance to (or outcome) to expectations. Satisfaction

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 15 of 34 Customer Satisfaction Expectations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 16 of 34 Customer Expectations Expectations Previous purchases Friends advice Marketers’ / competitors

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 17 of 34 Monitoring Satisfaction Customer Complaints Measurement Techniques Influence of Customer Satisfaction

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 18 of 34 Measurement Techniques Customer Loss Rate Mystery Shopper Surveys

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 19 of 34 Influence of Customer Satisfaction Customer satisfaction Speed of communication

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 20 of 34 Customer Complaints 25% Dissatisfied 5% Complain 95% Stop buying 54% - 70% Buy again if resolved 95% If resolved quickly Tell 5 people Tell 11 people

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 21 of 34 Product and Service Quality QualityProfitabilitySatisfaction PerformanceConformance

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 22 of 34 Maximizing Customer Lifetime Value 20% of Customers 80% of Profits Customers

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 23 of 34 Customer Profitability Customer Lifetime Value Customer Profitability Analysis Profitable Unprofitable

Defined A person, household, or company that over time yields a revenue stream exceeding by an acceptable amount the company’s cost stream for attracting, selling, and serving that customer. A Profitable Customer

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 25 of 34 Figure 5.3 Customer-Product Profitability Analysis

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 26 of 34 Cultivating Customer Relationships Customer Information Differentiate Customize Personalize Share

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 27 of 34 Customer Relationship Management (CRM) Personalizing Marketing Customer Empowerment Customer Reviews & Recommendations

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 28 of 34 Personalizing Marketing

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 29 of 34 One-to-One Marketing Differentiate customers Interact with each customer Customize Identify prospects and customers

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 30 of 34 1.Identify your prospects and customers. Don’t go after everyone. Build, maintain, and mine a rich customer database with information from all the channels and customer touch points. 2.Differentiate customers in terms of (1) their needs and (2) their value to your company. Spend proportionately more effort on the most valuable customers (MVCs). Apply activity-based costing and calculate customer lifetime value. Estimate net present value of all future profits from purchases, margin levels, and referrals, less customer-specific servicing costs. 3.Interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships. Formulate customized offerings you can communicate in a personalized way. 4.Customize products, services, and messages to each customer. Facilitate customer interaction through the company contact center and Web site. Don Peppers & Martha Rogers four-step framework

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 31 of 34 Customer Empowerment Brand Evangelists

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 32 of 34 Customer Reviews/Recommendations Customer ratings Negative reviews Create Buzz

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 33 of 34 Customer Retention Acquiring new customers costs 5x more than retaining current customers The average company loses 10% Of its customers yearly Reducing customer defections by 5% can increase profits from 25% to 85%

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 34 of 34 Attracting and Retaining Customers Reduce Defections 1.Define and measure 2.Determine causes 3.Compare CLV to costs Retention Dynamics Manage customer base

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 35 of 34 Figure 5.4 The Marketing Funnel

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 36 of 34 Building Loyalty Develop loyalty programs Interact with customers Create institutional ties

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice HallSlide 37 of 34 Databases & Database Marketing Customer databases Name, address, telephone # Purchase history Demographics Psychographics Mediagraphics Data Warehouses Data mining