1. 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

2. 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

3. 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

4. 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. 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

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
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

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
The value proposition is the whole cluster of benefits the company promises to deliver.
Volvo’s value proposition is not just in the safety.
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8. 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
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9. 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

10. 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

11. 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

12. 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 ) 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

13. 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

14. 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

15. 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

16. 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

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
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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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
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26. 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
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27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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’, 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,