5-1

MARKETING MANAGEMENT

Creating Customer Value, Satisfaction, and

Loyalty

5-2

Chapter Questions

• What is customer, satisfaction, and loyalty?

• How can companies deliver value,

satisfaction, and loyalty?

• What is the lifetime value of customers?

• How can companies both attract and retain

customers?

5-3

A Customer-Oriented Model?

5-4

The Value Proposition

The cluster of benefits thecompany promises to deliver

5-5

Measuring Satisfaction

Periodic SurveysPeriodic Surveys

Customer Loss RateCustomer Loss Rate

Mystery ShoppersMystery Shoppers

Monitor competitive performance

Monitor competitive performance

5-6

Loyalty

A commitment to re-buy

or re-patronize a product

or service in the future.

5-7

Building Loyalty

Partnership

Proactive

Accountable

Reactive

Basic

5-8

Maximizing Customer Lifetime Value

Customer Profitability

Customer Equity

LifetimeValue

5-9

Customer-Product Profitability Analysis

5-10

Estimating Lifetime Value

• Annual customer revenue: $500

• Average number of loyal years: 20

• Company profit margin: 10

• Customer lifetime value: $1000

5-11

Framework for CRM

Identify prospects and customers

Differentiate customers by needs and value to company

Interact to improve knowledge

Customize for each customer

5-12

CRM Strategies

Reduce the rate of defectionReduce the rate of defection

Increase longevityIncrease longevity

Enhance “share of wallet”Enhance “share of wallet”

Terminate low-profit customers

Terminate low-profit customers

Focus more effort on high-profit customersFocus more effort on high-profit customers

5-13

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.

5-14

Customer-Development Process

Prospects

Suspects

Disqualified

First-timecustomers

Repeatcustomers Clients Members

PartnersEx-customers

5-15

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.

5-16

Forming Strong Customer Bonds

Add financialbenefits

Add socialbenefits

Add structuralties