Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha logo copy.tif SUMMARY by Chapter 5 Creating Customer Value, Satisfaction and Loyalty In the face of increasing competition, companies today face their toughest test of survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy, however, may provide a better chance of outperforming competition. And at the cornerstone of this philosophy are strong customer relations. Customer This chapter discusses the importance and various methods of creating customer value and sustaining customer loyalty. As customers have become more informed and Perceived educated than ever, organisations have started to adopt business models where the customer is at the top. Value: Total Customer Benefit Customer It is the perceived monetary value of the bundle of economic, functional, and Perceived Value: It psychological benefits customers expect from a given market offering because of the products, services, personnel and image involved. is the difference between the prospective Total Customer Cost It is the perceived bundle of costs customers expect to incur in evaluating, obtaining, customer’s using, and disposing of the given market offering, including monetary, time, energy, and evaluation of all the psychological costs. benefits and all the costs of an offering, Very often, a customer value analysis is undertaken by managers to better understand and the perceived the company’s strengths and weaknesses in comparison with competition. It follows the alternatives. pattern below 1. Identify the major attributes and benefits that customers value. 2. Assess the quantitative importance of the different attributes and benefits. Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends 3. Assess the company’s and competitors’ performances on the different customer values on each attribute and benefit. 4. Assess how customers in a specific segment rate the company’s performance against a major competitor on an individual attribute or benefit basis. 5. Monitor customer values over time as the economy, technology, and features change. Total Customer Customer profitability A profitable customer is one that over time yields a revenue stream that is significantly Satisfaction: greater than that company’s cost stream for attracting, selling and servicing that customer. It is the measure of a customer’s feelings of pleasure 150-20 Rule The 20% most profitable customers generate as much as 150% of the profits of the or disappointment company; the 20% least profitable customers lose 100% of the profits. that results from Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV). comparing a CLV describes the net present value of the future stream of profits expected over the product’s perceived customer’s lifetime purchases. CLV calculations are generally used by marketers to develop a long-term perspective. performance to their expectations. Customer Relationship Management (CRM) Satisfaction is It is the process of carefully managing detailed information about individual customers usually measured and all occasions where a customer encounters a brand/product to maximise customer with the help of loyalty. customer surveys. CRM can be conducted using the following 4 steps – The two major 1. Identify your prospects and customers. 2. Differentiate customers in terms of their needs and their value to your factors involved in company. customer 3. Interact with individual customers to improve your knowledge about their satisfaction are needs and to build stronger relationships. complaint handling 4. Customize products, services, and messages to each customer. and product/service The value of the customer base can be increased by improved by measures such as quality. reducing the rate of customer defection, increasing the longevity of the customer relationship, making low-profit customers more profitable or terminating them, etc. Chapter 5 - Creating Customer Value, Satisfaction and Loyalty Trends Building Customer Loyalty It involves the following procedures – 1. Interacting with customers 2. Developing loyalty programs 3. Personalising marketing 4. Creating institutional ties Database marketing It is the process of building, maintaining and using customer databases and other databases to contact, transact and build customer relationships. Customer Database It contains customers’ past purchases, past volumes, past prices and profits; buyers’ personal details, status of current contacts, the company’s share of the buyer’s business, competitive suppliers, etc. Datamining Through datamining, marketers can extract information about individuals, trends, etc. from the customer database. It uses techniques such as cluster analysis, predictive modelling, etc. Disadvantages of Datamining and CRM 1. Building and maintaining a database requires huge amounts of investment in terms of computer hardware. 2. Convincing employees to be customer oriented than using traditional methods. 3. Customer attitudes about privacy of personal data. Probability of error of CRM methods or assumptions made thereof.