Lecture 5 Creating Customer Value, Satisfaction and Loyalty By: Dr Shahinaz Abdellatif

1. Lecture 5 Creating Customer Value, Satisfaction and Loyalty By: Dr Shahinaz Abdellatif

2. 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 cultivate strong customer relationships? • How can companies both attract and retain customers? • What is database marketing?

3. What is Customer Perceived Value? Customer perceived value is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

4. Figure 5.2 Determinants of Customer Perceived Value Total customer benefit Total customer cost Product benefit Monetary cost Services benefit Time cost Personal benefit Energy cost Image benefit Psychological cost

5. Steps in a Customer Value Analysis • Identify major attributes and benefits that customers value • Assess the qualitative importance of different attributes and benefits • Assess the company’s and competitor’s performances on the different customer values against rated importance • Examine ratings of specific segments • Monitor customer values over time

6. What is Loyalty? Loyalty is 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.

7. Avis Google L.L. Bean Samsung (mobile phones) Yahoo! Canon (office copiers) Land’s End Coors Hyatt Marriott Verizon KeySpan Energy Miller Genuine Draft Amazon Top Brands in Customer Loyalty

8. Measuring Satisfaction • Periodic surveys • Customer loss rate • Mystery shoppers • Monitor competitive performance

9. What is 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.

10. Customer Profitability • A profitable customer is a person, or company that over time yields a lifetime revenue stream that exceeds by an acceptable amount the company’s cost stream of attracting, selling and servicing that customer. • The 150-20 Rule: the 20% most profitable customers generate as much as 150% of the profits of a company; the 20% least profitable lose 100% of the profits.

11. Customer Profit Tiers Customers C1 C2 C3 P1 + + + Highly profitable product P2 + profitable product Products P3 _ _ unprofitable product P4 _ Highly unprofitable product High profit customer Mixed bag customer Losing customer

12. Customer Profit Tiers • Platinum customers (most profitable) • Gold customers (profitable) • Iron customers (low profitability but desirable for volume). • Lead customers (unprofitable and undesirable).

13. Maximizing Customer Lifetime Value Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customer’s lifetime purchases.

14. What is Customer Relationship Management? CRM is the process of carefully managing detailed information about individual customers and all customer touchpoints to maximize customer loyalty.

15. Framework for CRM • Identify prospects and customers • Differentiate MVCs by needs and value to company • Interact to improve knowledge and build relationships • Customize products, services and messages to each customer

16. CRM Strategies • Reduce the rate of defection • Increase longevity • Enhance growth potential of customers (share of wallet, cross-selling, etc…) • Make low-profit customers more profitable or else terminate it. • Focus more effort on high-profit customers

17. 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.

18. Database Marketing It is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) to contact, transact, and build customer relationships.

19. Customer Database • It is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable. • It is used for marketing purposes as lead generation, lead qualification, sale of a product or service or maintenance of customer relationships.

20. Customer Database • Customer Mailing List • Business database

21. Data Warehouse • It involves extracting useful information about individuals, trends, and segments from the mass of data. • Data mining uses sophisticated statistical mathematical techniques, such as cluster analysis.

22. Using the Database • To identify prospects • To target offers • To deepen loyalty • To reactivate customers • To avoid mistakes

23. Don’t Build a Database When • The product is a once-in-a-lifetime purchase • Customers do not show loyalty • The unit sale is very small • The cost of gathering information is too high