Chap5 Creating customer value, satisfaction, and loyalty PDF

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important part Marketing Management. 15th Edition. Authors: Kotler and
Keller. Publisher: Pearson. ISBN: 9781292092621...

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Chapter 5: Creating customer value, satisfaction, and loyalty Customer perceived value (CPV) is The worth that a product or service has in the mind of the consumer. The consumer’s perceived value of a good or service affects the price that he or she is willing to pay for it. It is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the collection of economic, functional, and psychological benefits customers expect from a given market offering. Sources include product value, services value, personnel value, and image value. Total customer cost is the collection of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering. Sources include monetary cost, time cost, energy cost, psychic cost. Customers are focused on maximizing value. For a customer to decide which company delivers the highest perceived customer value, the buyer will evaluate and compare the total customer value (from its sources) to the total customer cost (also from its four sources). In order to know how his or her offer rates in the buyer’s mind, the seller must assess the total customer value and total customer cost associated with each competitors offer. When the seller is at a customer perceived value disadvantage, it can decrease total customer cost or increase total customer value. Customer Satisfaction refers to an individual’s perceived feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations. The link between customer loyalty and customer satisfaction isn’t proportional. To generate customer satisfaction, companies must match the delivering performances with customer expectations. Companies must deliver high customer value in order to generate high customer loyalty. Value proposition: consists of the whole cluster of benefits the company promises to deliver; a statement of resulting experience. Value delivery system: includes all the experiences the buyer will have on the way to obtaining and using the offering, for a company to keep promise they must manage this. Methods to measure customer satisfaction include: complaint and suggestion systems, mystery shopping (hiring people to act as potential buyers and report feedback), customer satisfaction surveys, last customer analysis (through contacting former/ex-customers). High performance businesses are organizations that reach their customer value and satisfaction goals. These companies set strategies to satisfy their key stakeholders, by improving business processes, and align resources and organization. “Build to Last” Commonalities of high performance businesses include:  Distinctive set of values, with no deviation.  Purpose is expressed in enlightened terms (e.g. “Help end Hunger”).  Vision of the future has been developed, company acts to implement it. The value chain is a tool for identifying ways to create more customer value. The value delivery system (supply chain) refers to working with partners to find competitive advantages beyond own operations. (E.g. Levi’s works with Sears to determine demand). Customer Relationship Management (CRM) means building stronger relationships with customers. The CRM goal is to produce high customer equity, which is the total of the discounted lifetime values of all of the firm’s customers. The drivers of CRM include: 1. Value equity (the subdrivers are quality, price, and convenience),

2. Brand equity (the subdrivers are customer brand awareness, customer attitude, customer perception of brand ethics), 3. Relationship equity (the subdrivers are loyalty programs, special recognition and treatment programs, community and knowledge building programs). The different CRM levels of investment are: basic marketing, reactive marketing, accountable marketing, proactive marketing, partnership marketing. To form strong customer bonds companies can:  Add financial benefits, (e.g. with frequency programs, club membership programs).  Add social benefits.  Add structural ties through creating long-term contract, charge a lower price to consumers that buy larger supplies, or turn the product into a long-term service. Customer lifetime value (CLV) refers to the present value of the profit stream that the firm would have accomplished if the customer had not defected prematurely. In order to measure CLV: Subtract from the expected revenues the expected costs of attracting, selling, and servicing that customer. Attracting customers requires a lot of time and resources, and can lead to expanded profits and sales. (Ways of attracting: mail, ad’s, salespeople). Customer churn is high customer defection; the problem of attracting and retaining customers. (Defection: customers that leave, retention: customers that stay).To reduce the defection rate (churn), the company has to define and measure the retention rate, distinguish the causes of customer attrition and identify those that can be managed better, estimate profits lost from losing customers, calculate cost of reducing defection rate, and listen to customers. Companies must also focus on retaining customers. Retaining current customers is cheaper than attracting new customers. Ways to strengthen customer retention include: delivering high customer satisfaction or erecting high switching barriers. 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. Measuring individual customer profitability is important. To deal with unprofitable customers, companies must either reduce service support or raise fees. To analyze profitability, you can use: Customer Profitability Analysis (CPA), which can best be done through Activity Based Costing (ABC). To make company profitability higher, companies should build sustainable competitive advantage or competitive advantages it can leverage. The key to value creation and customer satisfaction is total product and service quality; organizations that wish to remain solvent and profitable implement. Total Quality Management is an organization-wide approach to continuously improving the quality of all the organization’s products, serices, and process. One-to-one marketing four step framework: 1. Identify your prospects and customers (focus, don’t try to reach everyone). 2. Differentiate customers in terms of (1) their value to your company and (2) their needs (Spend proportionately more effort on the most valuable customers (MVC’s). 3. Interact with individual customers to build stronger relationships and to improve your knowledge about their individual needs. 4. Customize services, products, and messages to each customer. Reducing defection (customers leaving) is crucial. Just adding new customer is not enough. To reduce retention rate, a company must: 1. Define and measure its retention rate.

2. Determine the causes of defection. 3. Compare the lost profit equal to the customer’s lifetime value from a lost customer to the costs to reduce the defection rate. Customers can develop from potentials (who haven’t bought the product yet but might purchase it) to partners (customers who enthusiastically recommend the company and its products and services to others) The Customer-Development Process describes this process: potentials > prospects > first-time customers > repeat customers > clients > members > advocates > partners. This process reflects the perfect situation, from the point where customers are first-time customers to the point where they become partners they can always become inactive of ex-customers if they decide not to further purchase the product or service. Companies can create tight connections to customers by increasing their loyalty. This can be done by:  Developing loyalty programs (like Frequency program; FP’s).  Interacting with customers.  Creating institutional ties.  Personalizing marketing. A customer database is an organized collection of comprehensive information about prospects or individual customers that is current, accessible, and actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, or maintenance of customer relationships. Database marketing: The process of building, maintaining, and using customer databases and other databases for the purpose of contacting, transacting, and building relationships. Customer mailing: Lists simple holds the customer contact information, while the customer database holds more information. A data warehouse: Collects, and enables personnel to capture, query and analyze data on contacts between the customer and the organization. Inferences can be drawn about an individual customer’s needs and responses Data mining: Involves the use of sophisticated statistical and mathematical techniques to extract useful information about individuals, trends, and segments from mass data. Ways to use databases include: Identify prospects, decide which customers should receive a particular offer, to deepen customer loyalty, to reactivate customer purchases, to avoid serious customer mistakes The disadvantages of database marketing include: It needs a high investment in computer hardware, database software, analytical programs, communication links, and skilled personnel. It may not always be worthwhile building a customer database: e.g. with once in a-lifetime purchase products (e.g., a grand piano), with brand-loyal customers, small unit sale (e.g., a candy bar), high costs on gathering information. Employees may not want to be customer-oriented or use the available information. Customers may not want to give and allow for the use of personal information, and may not want a relationship with the company....