Creating Customer Value, Satisfaction, and Loyalty

LECTURE-5

Chapter Questions

• What are good metrics for measuring marketing productivity?

• How can marketers assess their return on investment of marketing expenditures?

• How can companies more accurately measure and forecast demand?

• What are customer value, satisfaction, and loyalty, and how can companies deliver them?

Chapter Questions…

• 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?

What are Marketing Metrics?

Marketing metrics are the set of measures that helps marketers quantify, compare, and interpret

marketing performance.

Marketing Metrics

External

• Awareness

• Market share

• Relative price

• Number of complaints

• Customer satisfaction

• Distribution

• Total number of customers

• Loyalty

Internal

• Awareness of goals

• Commitment to goals

• Active support

• Resource adequacy

• Staffing levels

• Desire to learn

• Willingness to change

• Freedom to fail

• Autonomy

What is Marketing-Mix Modeling?

Marketing-mix models analyze data from a variety of sources, such as retailer scanner data,

company shipment data, pricing, media, and promotion spending data, to understand more

precisely the effects of specific marketing activities.

Marketing Dashboards

• A customer-performance scorecard records how well the company is doing year after year on customer-based measures.

• A stakeholder-performance scorecard tracks the satisfaction of various constituencies who have a critical interest in and impact on the company’s performance including employees, suppliers, banks, distributors, retailers, and stockholders.

Sample Customer-Performance Scorecard Measures

• Percentage of new customers to average number of customers

• Percentage of lost customers to average number of customers

• Percentage of win-back customers to average number of customers

• Percentage of customers in various levels of satisfaction

• Percentage of customers who would repurchase the product

• Percentage of target market members with brand recall

• Percentage of customers who say brand is most preferred

The Measures of Market Demand

• Potential market• The set of consumers who profess a sufficient level of interest

in a market offer.

• Available market• The set of consumers who have interest, income, and access

to a particular offer.

• Target market• Part of the qualified available market the company decides to

pursue.

• Penetrated market• The set of consumers who are buying the company’s products.

Vocabulary for Demand Measurement

• Market demand• Total volume that would be bought by a defined

customer group.

• Market forecast• The expected market demand corresponding to the

level of industry marketing expenditure.

• Market potential• The upper limit to market demand whereby

increased marketing would not be expected to stimulate further demand.

Vocabulary for Demand Measurement…

• Company demand• Company’s estimated share of market demand.

• Company sales forecast• Expected level of company sales based on chosen

marketing plan & an assumed marketing environment.

• Company sales potential• The absolute limit of company demand is, of course,

the marketing potential.

Estimating Future Demand

• Survey of Buyers’ Intentions• Anticipating what buyers are likely to do under a

given set of conditions.

• Composite of Sales Force Opinions• Company may ask its sales representatives to

estimate their future sales.

• Expert Opinion• Companies can also obtain forecast from experts.

Estimating Future Demand…

• Past-Sales Analysis• Sales forecasts can be developed on the basis of

past sales.

• Market-Test Method• When buyers do not plan their purchases carefully

or experts are not available or reliable, a direct market test is desirable.

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.

Determinants of Customer Perceived Value

Image benefit Psychological cost

Personal benefit Energy cost

Services benefit Time cost

Product benefit Monetary cost

Total customer benefit Total customer cost

Steps in a Customer Value Analysis

• Identify major attributes and benefits that customers value.

• Assess the quantitative 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.

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.

Top Brands in Customer Loyalty

• Avis

• Google

• Samsung (mobile phones)

• Yahoo!

• Canon (office copiers)

• Hyatt Hotels

• Marriott Hotels

• Amazon

• Motorola (mobile phones)

• BlackBerry

• Diet Pepsi

• Ritz-Carlton Hotel

Measuring Satisfaction

• Periodic surveys

• Customer loss rate

• Mystery shoppers

• Monitor competitive performance

What is Quality?

Quality is the totality of features andcharacteristics of a product or

service that bear on its ability to satisfy

stated or implied needs.

Maximizing Customer Lifetime Value (CLV)

• Customer profitability• A profitable customer is a person, household or

company that over time yields a revenue stream that exceeds by an acceptable amount the company’s cost stream for attracting, selling & servicing that customers.

• Customer Lifetime value (CLV)• The net present value of the stream of future profits

expected over the customer’s lifetime purchases.

Estimating Lifetime Value

• Annual customer revenue: Rs.5,000/-

• Company profit margin: 10%

• Average number of loyal years: 20

• Customer lifetime value (CLV): Rs.10,000/-

What is Customer Relationship Management?

CRM is the process of carefully managing detailed information about individual

customers and all customer touch points to maximize customer loyalty.

Framework for CRM

• Identify your prospects and customers.

• Differentiate customers by needs and value to your company.

• Interact with individual customers to improve your knowledge about their individual needs & to build strong relationship.

• Customize products, services and messages to each customer.

CRM Strategies

• Reduce the rate of customer defection.

• Increase the longevity of the customer relationship

• Enhance the growth potential of each customer through “share of wallet” cross selling, & up-selling.

• Making low profit customers move profitable or terminating them.

• Focusing more effort on high-profit customers.

Customer Retention- A tale from real life

• Acquisition of customers can cost 5 times more than retaining current customers.

• The average company 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.

Database Key Concepts

• Customer database

• Database marketing

• Mailing list

• Business database

• Data warehouse

• Data mining

Using the Database

• To identify prospects

• To target offers

• To deepen loyalty

• To reactivate customers

• To avoid mistakes

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

Perils of CRM

• Implementing CRM before creating a customer strategy

• Rolling out CRM before changing the organization to match

• Assuming more CRM technology is better

• Stalking, not wooing, customers

Marketing Management – A South Asian Perspective by Philip Kotler, Kevin Lane Keller, Abraham Koshy & Mithileshwar Jha, 13th Edition, Published by Pearson Education, Inc.

Strategic Marketing Management – Meeting The Global Marketing Challenges by Carol H. Anderson & Julian W. Vincze Published by Houghton Mifflin Company.

Principles of Advertising & IMC by Tom Duncan 2nd Edition, Published by McGraw-Hill Irwin.

Principles of Marketing by Philip Kotler & Gary Armstrong Thirteenth Edition, Published by Prentice Hall

Bibliography

"Remember there's no such thing as a small act of kindness. Every act creates a ripple with

no logical end."Scott Adams

The End