Chapter Two: Creating Long-term
Loyalty Relationships
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Creating Long-term Loyalty Relationships
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?
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2.1 Customer Value, Satisfaction, and Loyalty
Holistic Marketing
• Inform
• Engage
• Energize
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Cont’d
• Businesses succeed by getting, keeping, and
growing customers.
• Customers are the only reason you build
factories, hire employees, schedule
meetings, lay fiber-optic lines, or engage in
any business activity.
• Without customers, you don’t have a
business.
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F .1 Traditional Organization vs.
2
Customer-Oriented Organization
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Customer Perceived Value
Customer-
Economic perceived Value
Evaluating
Functional Obtaining
Using
Psychological Disposing
Total Customer Total Customer
Benefit Cost
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F .2 value
2
Total customer Total customer
benefit cost
Determinants Product Monetary
of Customer benefit cost
Services Time
Perceived Value benefit cost
Personal Energy
benefit cost
Image Psychological
benefit cost
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Value Concepts
Customer
Profit Price
Value
$6,000 $20,000 -0-
5,000 19,000 $1,000
4,000 18,000 2,000
3,000 17,000 3,000
2,000 16,000 4,000
Worth to Customer:
1,000 15,000 5,000
$20,000
-0- 14,000 6,000
Cost to produce:
$14,000
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Customer value analysis
It reveals a company’s strength and weaknesses
relative to those of various Competitors. The
steps in this analysis are:
[Link] the major attributes and benefits
customers value.
[Link] the quantitative importance of the
different attributes and benefits.
[Link] the company’s and competitors’
performances on the different customer values
against their rated importance.
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Cont....
4. Examine how customers in a specific segment
rate the company’s performance against a
specific major competitor on an individual
attribute or benefit basis.
5. Monitor customer values over time.
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De DELIVERING HIGH CUSTOMER VALUE
Customer Loyalty
“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
Value Proposition
Volvo
Core positioning:
• Safety
Other benefits:
• Good performance
• Design
• Environmentally friendly
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De Customer Satisfaction
A person’s feelings of pleasure or
disappointment that result from
comparing a product’s perceived
performance to (or outcome) to
expectations.
Customer Satisfaction
Expectations
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Customer Expectations
Previous purchases
Friends advice
Marketers’ / competitors
Expectations
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Monitoring Satisfaction
Influence of
Customer Satisfaction
Measurement
Techniques
Customer
Complaints
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Measurement Techniques
Customer Loss Rate
Surveys
Mystery Shopper
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Influence of Customer Satisfaction
Customer satisfaction
Speed of communication
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Customer Complaints
54% - 70%
5% Buy again if resolved Tell 5
people
Complain
95%
25%
If resolved quickly
Dissatisfied
95% Tell 11
Stop buying people
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Product and Service Quality
Performance Conformance
Quality is the totality of
features and characteristics
of a product or service that
bear on its ability to satisfy
stated or implied needs.
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2.2 Maximizing Customer Lifetime Value
20% of 80% of
Customers Profits
Customers
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Customer Profitability
Customer Profitability Analysis
Profitable
Customer Lifetime Value
Unprofitabl
e
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De A Profitable Customer
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.
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F .3
2 Profitability Analysis
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2.3 Cultivating Customer Relationships
Customer Information
• Differentiate
• Customize
• Personalize
• Share
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Customer Relationship Management (CRM)
CRM is the process of carefully
managing detailed information
Personalizing Marketing about individual customers
and all customer “touch
Customer Empowerment points” to maximize loyalty.
Customer Reviews & Recommendations
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Personalizing Marketing
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One-to-One Marketing
Identify prospects Differentiate
and customers customers
Interact with Customize
each customer
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Customer Empowerment
Brand Evangelists
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Customer Reviews/Recommendations
Create Buzz
Negative reviews
Customer ratings
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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%
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Attracting and Retaining Customers
Manage
customer base
Reduce Defections
[Link] and measure
[Link] causes
[Link] CLV to costs
Retention Dynamics
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F .4
2 The Marketing Funnel
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Building Loyalty
Interact with customers
Create institutional ties
Develop loyalty programs
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2.4 Databases & Database Marketing
Customer databases
• Name, address, telephone #
• Purchase history
• Demographics
• Psychographics
• Mediagraphics
Data mining
Data Warehouses
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Cont...
• A customer database is an organized collection of
comprehensive information about individual
customers or prospects that is current, accessible, and
actionable for lead generation, lead qualification, sale
of a product or service, or maintenance of customer
relationships.
• Database marketing is the process of building,
maintaining, and using customer databases and other
databases (products, suppliers, resellers) to contact,
transact, and build customer relationships.
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The Downside of Database Marketing and CRM
• Some situations are just not conducive to database
management.
• Building and maintaining a customer database requires a
large, well-placed investment in computer hardware,
database software, analytical programs, communication
links, and skilled staff.
• It may be difficult to get everyone in the company to be
customer oriented and use the available information.
• Not all customers want a relationship with the company.
• The assumptions behind CRM may not always hold true.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 38 of 34
Discussion
Online versus Offline Privacy
• As more firms practice relationship marketing
and develop customer databases, privacy
issues are emerging as an important topic.
• However, some argue that the opportunity to
steal information exists virtually everywhere,
and its up to consumers to protect their
interests.
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 39 of 34