Customer Value, Satisfaction and Loyalty

The New “Managerial Paradigm”

Amazon epitomizes the“Customer-Oriented” Model

So does Jones Soda…

So does Threadless…

Value Perceptions

• Customer-perceived value (CPV)

– The difference between the customer’s evaluation of all the benefits and all the costs of an offering

Determinants of CPV

The Value Proposition

The whole cluster of benefits thecompany promises to deliver less the associated total cost.

Loyalty

A deeply held commitment to re-buyor re-patronize a preferred product

or service in the future despite exposure to situational influences and marketing efforts that have the potential to cause

switching behavior.

The Customer-Development Process

Prospects

Suspects

Disqualified

First-timecustomers

Repeatcustomers Clients Members

PartnersEx-customers

Attracting and Retaining Customers

• Retention dynamics/marketing funnel

JetBlue has loyal customers

Question du Jour

Is it better to reward your most or least loyal customers?

Customer Satisfaction

• Total customer satisfaction– A person’s feelings of pleasure or

disappointment that result from comparing a product or service’s perceived performance (or outcome) to expectations

Customer Satisfaction

• Two components– Cognitive (thinking, reasoning, logic)– Affective (emotional)

• Expectancy Confirmations vs. Disconfirmations

• Articulation Issues– Consumers can almost always articulate the reasons for their

dissatisfaction– Sometimes harder for consumers to articulate reasons for their

satisfaction– Great movie vs. bad meal example

Measuring Satisfaction

Periodic SurveysPeriodic Surveys

Customer Churn & ReturnsCustomer Churn & Returns

Mystery ShoppersMystery Shoppers

Social Media / Word of Mouth Social Media / Word of Mouth

Product and Service Quality

Quality is the totality of features andcharacteristics of a product or

service that bear on its ability to satisfy

stated or implied needs.

Quality

Conformancequality

Performancequality

Customer Acquisition & Retention

• Acquisition of new customers is almost always far more expensive than retaining current customers.

• Consumers aren’t as brand loyal as they used to be.

• Small reductions in customer churn can increase profitability significantly.

• Customer profitability tends to increase over the life of a retained customer.

Customer Lifetime Value

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

profits expected over the customer’s lifetime purchases

CLV Formula – Finite Time Horizon

CLV = [GCt * rt] / (1 + i)t – AC

CLV = Customer Lifetime ValueGCt = Gross Contribution from customer at time t

(revenues – servicing costs)rt = Retention Rate of customer at time t

i = interest or “discount rate”AC = Acquisition Cost

CLV Formula – Infinite Time Horizon

CLV = [GC * r] / [1 + i - r) – AC

CLV = Customer Lifetime ValueGC = Average Gross Contribution from customer

(revenues – servicing costs)r = Average Retention Rate of Customer

i = interest or “discount rate”AC = Acquisition Cost

Customer Lifetime Value

Customer Lifetime Value - Multiples

Value Creation Practices

• Social networking– Welcoming, empathizing,

governing

• Impression management– Evangelizing, justifying

• Community engagement– Staking, milestoning,

badging, documenting

• Brand use– Grooming, customizing,

commoditizing

Cultivating CustomerRelationships

• Customer relationship management (CRM)– The process of carefully managing detailed

information about individual customers and all customer “touch points” to maximize loyalty

Quality/Satisfaction Exercise• How do consumers typically define QUALITY for the following

products?– Flights– Eating Out– Cars– Smartphones– Medical Services– Artwork– Hotel Stays

• Develop a brief 5-question survey that measures consumer satisfaction in each of the product categories