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A FRAMEWORK for MARKETING MANAGEMENT
Chapter 4 Creating Customer Value, Satisfaction, and Loyalty Kotler Keller Cunningham 1
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© Copyright 2008 Pearson Education Canada
Chapter Questions How can companies deliver customer value, satisfaction, and loyalty? What is the lifetime value of a customer? How can companies cultivate strong customer relationships? What is database marketing, and why is it important? © Copyright 2008 Pearson Education Canada
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Profile: Canadian Marketing Excellence CANADIAN TIRE
In 1922, Canadian Tire started out as a single garage Faces extensive competition from Wal-Mart and Home Depot It has, however, been able to stand firm, remaining the leader in the housewares and hardware categories Unique product mix: automotive, housewares, sports and leisure Canadian Tire money – loyalty program 75% of stores are less than 10 years old Employee e-learning program to improve customer service Offers value to customers © Copyright 2008 Pearson Education Canada 3
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Determining Customer Value and Satisfaction
Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and costs of an offering and the perceived alternatives © Copyright 2008 Pearson Education Canada
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Figure 4.1 Determinants of Customer-Delivered Value
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Loyalty Loyalty is 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 behaviour © Copyright 2008 Pearson Education Canada
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Satisfaction Satisfaction is a person’s
feelings of pleasure or disappointment resulting from comparing a product’s perceived performance in relation to his or her expectations © Copyright 2008 Pearson Education Canada
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Raising Customer Expectations
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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 © Copyright 2008 Pearson Education Canada
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Forms of Quality Conformance quality Performance quality © Copyright 2008 Pearson Education Canada
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Total Quality Management
TQM is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services © Copyright 2008 Pearson Education Canada
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Maximizing Customer Lifetime Value
profitability Customer equity Lifetime value © Copyright 2008 Pearson Education Canada
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Figure 4.2 Customer-Product Profitability Analysis
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Estimating Lifetime Value
Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10% Customer lifetime value: $1,000 © Copyright 2008 Pearson Education Canada
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Customer Equity “The ongoing process of identifying and creating new value with individual customers and then sharing the benefits from this over a lifetime association.” Ian Gordon (Canadian Marketing Consultant) © Copyright 2008 Pearson Education Canada
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Drivers of Customer Equity
Value equity Brand equity Relationship equity © Copyright 2008 Pearson Education Canada
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Framework for CRM Identify prospects and customers
Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer © Copyright 2008 Pearson Education Canada
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Improving the Value of Company’s Customer Base
Reduce the rate of defection Increase longevity Enhance customer growth potential Terminate low-profit customers Focus more effort on high-profit customers © Copyright 2008 Pearson Education Canada
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Figure 4.3 The Customer-Development Process
Suspects Prospects Disqualified Repeat customers Clients Members First-time customers Partners Ex-customers © Copyright 2008 Pearson Education Canada
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Building Loyalty Partnership Proactive Accountable Reactive Basic © Copyright 2008 Pearson Education Canada
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Figure 4.4 Levels of Relationship Marketing
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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 © Copyright 2008 Pearson Education Canada
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Forming Strong Customer Bonds
Add financial benefits Add social benefits Add structural ties © Copyright 2008 Pearson Education Canada
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© Copyright 2008 Pearson Education Canada
Database Key Concepts Customer database Database marketing Mailing list Business database Data warehouse Data mining © Copyright 2008 Pearson Education Canada
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Data Warehousing: SHOPPERS DRUG MART
Shoppers Drug Mart Corporation is one of Canada’s largest retailers of health care products/ services Over 974 stores Makes extensive use of data warehousing software Analysis of customer and market trends to support its loyalty program - the “Optimum” card Its competitive advantage is “HealthWatch”, a database that maintains patients’ medical profiles and generates alerts for possible allergies or drug interactions when a prescription is filled The company generated sales exceeding $7 billion (2005) © Copyright 2008 Pearson Education Canada
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Figure 4.5 Increasing Customer Share Requirements
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For Discussion How does the concept of customer lifetime value differ for different types of businesses? Real estate agents Grocery stores Hotels Furniture © Copyright 2008 Pearson Education Canada
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