Types of Customers, Customer Segmentation and Value Creation

Emotional Contact with Brands.pdf

Learning Objectives

To reiterate the importance of customersegmentation in CRM.

Customer Segmentation Re-

examined

Customer Segmentation Re-

examined (1/3)

Pareto principle bears testimony to the factthat not all customers are equal andtherefore not all of them should be treatedequal.

Two strong keywords with the concept ofCRM relate to selectivity andpartnership. #

Customer Segmentation Re-

examined (2/3)

Selectivity types of customers typically hinge onthe loyalty attribute and their link to profitability isthrough their length of relationship or theirpurchase intent or whether they recommend toothers. Customer segmentation of this type isbehavioral and is most critical in CRM. Theusual geographic, demographic orpsychographic segmentation come useful at thesecond or third level of sub-segmentation.

Customer Segmentation Re-

examined (3/3)

Behavioral segmentation is usually interms of loyalty, frequency of use etc.

Another important segmentation in thecontext of CRM is the number and choiceof communication channels.

A related segmentation is nature andfrequency of communication expected bythe customer.

Types of Customers and Their

Relationship Styles

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Types of Customers and Their

Relationship Styles (1/2)

According to Jones and Sasser,customers behave in four different ways:

1.Apostles (= one sent to preach the gospel)

2.Terrorists/Defectors (defector = one who leaves acountry or organisation for another one)

3.Mercenaries (= hired for money; actuated by thehope of reward; too strongly influenced by the desireof gain; one who is hired)

4.Hostages (= one kept in the hand of enemy as apledge)

SatisfactionMercenaries:Happy and contendedcustomers who are notloyal To the company andtend to shop around andcompare. On a lookoutfor better opportunity.

Terrorists/Defectors:Customers who are disappointedin their business relationwith the company and telleverybody about their badexperience. Leave the serviceswithout informing, virtually lost.Apostles:Highly contended, loyalcustomers whose contactwith potential customersis more valuable thanany salesman.

Hostages:Disgruntled customers. Due tocertain exit barriers, unable tochange their service providerthough dissatisfiedLoyalty

HighLow

Types of Customers and Their

Relationship Styles (2/2)

HighLow

Types of Relationships With Mercenaries,Apostles, Defectors and Hostages (1/2)

(1/4) Price-centred relationships hinge on thedelivery of the best deal in the marketplace.Mercenaries fall in this type of relationship

(2/4) Need-centred relationships offerpersonalisation of channels, interfaces andservice processes. Need-centred relationship isexpected by an Apostle in favourablecircumstances and by a Defector in case of aservice failure.

Types of Relationships With Mercenaries,Apostles, Defectors and Hostages (2/2)

(3/4) Value-centred relationships depend onintensive and extensive collaboration. Acollaborative value-centred relationship is aseries of dialogue and interaction between anenterprise and a customer over an extendedperiod of time. Value-centred relationship isreserved for Apostles. (4/4) Product-centred relationships focus ondelivery of customised products, services andsolutions. Product-centred relationships areusually appropriate either for Apostles with astrong value proposition or for Hostages.

Loyalty as a Basis for

Segmentation

Linking Profitability and Loyalty

(1/3)

High profitability and short term customers(Butterflies)

Low Profitability and short term customers(Strangers)

Long term customers and low profitability(Barnacles) (= a companion not easily shakenoff)

High profitability and long term customers(True friends)

Linking Profitability and Loyalty

(2/3)

Butterflies:

Good fit between companys offerings andcustomers needs

High profit potential

Strangers

Little fit between companys offering andcustomers needs

Lowest profit potential

Linking Profitability and Loyalty

(3/3)

Barnacles:

Limited fit between companys offerings andcustomers needs. Yet, they dont want toleave. Perhaps, a drag to the firm

Low profit potential

True friends:

Good fit between companys offering andcustomers needs.

Highest profit potential

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Customer Value: Concept and

Characteristics

Learning ObjectivesTo highlight the meaning and types of customer value as relevant for any company practising CRM

To underline the importance of customer-value management and elucidate how simple techniques like customer lifetime value canimprove the profitability of the customer.

Home WorkCoverges: Using Proxy VariablesRoyal Bank of Canada

..\..\A Unified Loyalty Program does not work in india.pdf

..\..\Hope not fear builds bridges.pdf

VALUE AND SATISFACTION

Value is a ratio between what the customer gets & what he gives. Value = What customers get/What he gives= Benefits/Costs= Functional benefits + emotional benefits/ Monetary + time + energy + psychic costs

Value: QSP (Customer Value Triad)

The marketer can increase the value of the customer offering by (1) raising benefits, (2) reducing costs, (3) raising benefits and reducing costs, (4) raising benefits by more than the raise in costs, or (5) lowering benefits by less than the reduction in costs. The extent to -which a product's perceived performance matches a buyers expectations. If the product's performance falls short of expectations, the buyer is disatisfied. If performance matches or exceeds expectations the buyer is satisfied, or delighted.

Customer Value: Concept and

Characteristics (1/5)

An effective CRM strategy starts withsegmentation based on what differentcustomer groups value and what will makethem loyal.

Customer value is the customersperception of what outcome he expects ina specific situation with the help of aproduct or service offering in order toachieve a desired purpose or goal.

Customer Value: Concept and

Characteristics (2/5)

Five new approaches to customer valuehave been identified. These are:

The total value of their relationship with yourcompany

The potential value of their relationship

The profitability of their relationship

The insights they can provide to yourcompany

The influence they can wield over othercustomers

Customer Value: Concept and

Characteristics (3/5)

There are a few fundamental lessons thatmust be remembered in connection withcustomer value:

(1/8) Value is customer-defined

(2/8) Customers differ in who they are, whatoutcomes (value-in-use) they seek, andtherefore, what value they place on differentbenefits of an offering.

(3/8) Value is opaque

Customer Value: Concept and

Characteristics (4/5)

(4/8) Value is contextual. Context has threedimensions:

The end user

The end-use situation, and

the environment.

(5/8) Value is multidimensional

(6/8) Value is a trade-off at the hand of acustomer: Trade-off between total benefits hegets and the cost he incurs

Customer Value: Concept and

Characteristics (5/5)

(7/8) Value is relative - customers evaluatevalue relative to available alternatives,particularly the next-best alternative. (BASE best available substitute or equivalent)

(8/8) Value is a mindset the organisationshould have a mindset that everything it doesshould revolve around its customers, not itsproducts. #

Types of Customer Value (1/2)

Jagdish Sheth and Banwari Mittal havesuggested three roles of a customer, viz.:user, payer and buyer.

Customers as users seek performance, socialand emotional value.

Customers as payers want price value, creditand financing values.

Customers as buyers desire service value,convenience and personalisation value.

*Tools for Creating Customer Value

User ValuesPerformanceSocialEmotionalQuality improvementInnovationsMass customizationWarranties and guaranteesPrice exclusivityLimited availabilitySocial image adsExclusive offeringsEmotional communicationsPayer ValuesPriceCreditFinancingLow price from lower marginsLow price from increased productivity (achieved through economies of scale, modernized plant, automation, business process re-engineering)Acceptance of credit cardsOffering of own credit cardDeferred paymentLeasingCustomized financingBuyer ValuesServiceConveniencePersonalizationProduct display and demonstrationKnowledgeable salespersonResponsivenessUser support and maintenance serviceConvenient point-of-accessAutomated transaction recordingPersonal attention and courtesyInterpersonal relationships

Types of Customer Value (2/2)

Customers derive value from threesources:

Economic

Functional and

Psychological

The relative importance of these threetypes of values varies across products aswell as the life cycle of the same product.

Economic Value (1/2)

Economic value is generally the focus in B2B markets. Afundamental source of value is the economic benefit acustomer derives from using the product over its lifetime.There are four noteworthy points:

First, the company is communicating a tangible measure ofbenefit in terms of savings.

Second, economic benefit, in general, is evaluated by comparingthe total life cycle costs of the products, not just the initialpurchase price

Third, the most convenient time frame on which to compare thethese benefits is the life of the new product.

Fourth, economic benefit is always comparative.

Economic Value (2/2)

However, economic value is not the onlybenefit on which products are purchased.Other factors are:

Compatibility

Complexity

Observability

Risk (financial, social and so on)

Divisibility (can customers try a smallportion?)

Functional Value

It is defined by those aspects of a productthat provide measurable functional orutilitarian benefits to customers. That isvalue is provided by performance featureof a product.

Rupee value of a feature is usually difficultto show, but researchers using conjointanalysis techniques can learn preferencesof customers for various features.

Psychological Value

Psychological value focuses on intangiblebenefits of a product as against the tangiblebenefits of the other two. For example, brandnames, associations, images etc.

As markets mature and tangible differencesamong competing brands become negligible,psychological benefits become the chiefdifferentiator. Even technology intensivecompanies have come to know the importanceof psychological value their customers desire.

Other Various Value Definitions

(1/3)

Customers definition of value:Low priceWhatever I want in a product or serviceThe quality I get for the price I payWhat I get for what I give. Philip Kotler has defined value as:Product valueService valuePersonnel valueImage value

Other Various Value Definitions

(2/3)

Barnes has given the following values:

(1/9) Choice based value: that is, availablechoices to customers in terms of:

How they deal with the company

How they pay

How they want them to be shipped

How they receive information (2/9) Employee based value

(3/9) Information value

Other Various Value Definitions

(3/3)

Barnes has given the following values:

(4/9) Association value

(5/9) Relationship value (as a supplier)

(6/9) Customer unique value

(7/9) Experience value

(8/9) Product-for-price value

(9/9) Access or convenience value #

..\..\Emotional Contact with Brands.pdf

Customer Value Co-Creation

Customer Value can be Co-Created when Company involves customers in design of products Or Services or in the delivery.

Customer Lifetime ValueIs defined as the net present value of the profits stream from a customer relationship

It measures how much business the customer is expected to do with your company during the lifetime of their relationship.

CLTV calculations(Simple)LTV= Total revenues-(Fixed Cost + Variable Costs)

CLTV calculations(Simple)CLV=Average transaction value * Frequency of purchase * customer life expectancye.g. One loyal pizza customer buying on average one pizza per week over a 10 year period would be=Rs. 70 * 52 *10=Rs.36400 to the company

Two Communication Channel StrategiesGraduated account Management StrategyChannel Migrator Strategy

Customer Value ManagementAs per Khalid and Scott , it is systematic approach toUnderstand what causes customer Purchase and repurchase behaviorPredict the future purchase behavior of customer and potential customersMaximize future purchase behavior by managing the predictors

*A Process for Determining Customer Value

Home taskFor ClassMonday:- Customer Value Co-Creation and Case of TartsTutorialG1:- Metro in JapanG2:- Metro in Japan and Touch points at Philips

Without File, Absent will be marked

*