MARKETING MANAGEMENT 12 th edition 5 Creating Customer

MARKETING MANAGEMENT 12 th edition 5 Creating Customer Value, Satisfaction, and Loyalty Kotler Keller

Chapter Questions • What are customer value, satisfaction, and loyalty, and how can companies deliver them? • What is the lifetime value of customers? • How can companies both attract and retain customers? • How can companies deliver total quality? • What is database marketing? 2

Washington Mutual differentiates with human contact 3

Figure 5. 1 Organizational Charts 4

e. Bay epitomizes the Customer-Oriented Model 5

Figure 5. 2 Determinants of Customer -Delivered Value Total customer value Customerdelivered value Product value Total customer cost Monetary cost Personal value Energy cost 6

Caterpillar Offers Value 7

Loyalty 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. 8

The Value Proposition The whole cluster of benefits the company promises to deliver 9

Raising Customer Expectations 10

Saturn Advantages 11

Measuring Satisfaction Periodic Surveys Customer Loss Rate Mystery Shoppers Monitor competitive performance 12

Countrywide received the #1 customer satisfaction rating from J. D. Power and Associates 13

Product and Service Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. 14

Quality Conformance quality Performance quality 15

Total Quality Management TQM is an organization-wide approach to continuously improving the quality of all the organization’s processes, products, and services. 16

Maximizing Customer Lifetime Value Customer Profitability Customer Equity Lifetime Value 17

Figure 5. 3 Customer-Product Profitability Analysis 18

Estimating Lifetime Value • • Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000 19

Drivers of Customer Equity Value Equity Brand Equity Relationship Equity 20

Customer Relationship Management 21

Framework for CRM Identify prospects and customers Differentiate customers by needs and value to company Interact to improve knowledge Customize for each customer 22

Harrah’s targets hundreds of segments 23

CRM Strategies Reduce the rate of defection Increase longevity Enhance “share of wallet” Terminate low-profit customers Focus more effort on high -profit customers 24

Table 5. 1 Mass vs. One-to-One Marketing Mass • Average customer • Customer anonymity • Standard product • Mass production • Mass distribution • Mass advertising • One-way message • Economies of scale One-to-One • Individual customer • Customer profile • Customized market offering • Customized production • Economies of scope • Share of customer 25

Customer Retention • Acquisition of customers can cost 5 times more than retaining current customers. • The average customer 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. 26

Describing Market Dynamics Permanent Capture Markets Simple Retention Markets Customer Migration Markets 27

Figure 5. 4 The Customer. Development Process Suspects Prospects First-time customers Disqualified Repeat customers Ex-customers Clients Members Partners 28

Building Loyalty Partnership Proactive Accountable Reactive Basic 29

Ameritrade Builds Loyalty 30

Figure 5. 5 Levels of Relationship Marketing 31

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. 32

Forming Strong Customer Bonds Add financial benefits Add social benefits Add structural ties 33

Financial Benefits 34

Social Benefits 35

Database Key Concepts • Customer database • Business database • Database marketing • Data warehouse • Mailing list • Data mining 36

Figure 5. 6 Increasing Customer Share Requirements 37

Using the Database To identify prospects To target offers To deepen loyalty To reactivate customers To avoid mistakes 38

Focus on CRM 39

Marketing Debate ü Online Versus Offline Privacy? Take a position: 1. Privacy is a bigger issue in the 2. online world than in the offline world. 3. 2. Consumers receive more benefit 4. than risk from marketers knowing 5. their personal information. 40

Marketing Debate Choose a business and show you would go about developing a quantitative formulation that captures the concept of customer lifetime value. 41