Creating Customer Value, Satisfaction,

and Loyalty
 Creating Customer Value, Satisfaction,
and Loyalty
• Creating loyal customers is at the heart of every
business. As marketing experts Don Peppers and
Martha Rogers say: “The only value your company
will ever create is the value that comes from
customers—the ones you have now and the ones you
will have in the future.”
• Businesses succeed by getting, keeping, and growing
customers. Customers are the only reason you build
factories, hire employees, schedule meetings, lay
fiber-optic lines, or engage in any business activity.
Without customers, you don’t have a business.
 Customer Perceived Value
• Consumers are better educated and informed
than ever, and they have the tools to verify
companies’ claims and seek out superior
alternatives.
• 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-delivered Value.

A. Customer perceived value (CPV) is the

difference between the prospective customer’s
evaluation of all the benefits and all the costs of
an offering and the perceived alternatives.
B. Total customer benefit is the perceived
monetary value of the bundle of economic,
functional, and psychological benefits
customers expect from a given market offering .
Determinants of Customer-delivered Value.

C. Total customer cost is the bundle of costs

customers expect to incur in evaluating,
obtaining, using, and disposing of the given
market offering, including monetary, time,
energy, and psychic costs.
D. Customer perceived value is thus based on
the difference between what the customer
gets and what he or she gives for different
possible choices.
 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

 Customer Perceived Value
• A) Customers tend to be value-maximizers.
• B) Customers estimate which offer will deliver
the most perceived value and act on it.
 Steps in a Customer Value Analysis
• Very often, managers conduct a customer value
analysis to reveal the company’s strengths and
weaknesses relative to those of various competitors.
The steps in this analysis are:
1. Identify the major attributes and benefits
customers value. Customers are asked what
attributes, benefits, and performance levels they
look for in choosing a product and vendors.
Attributes and benefits should be defined broadly
to encompass all the inputs to customers’
decisions.
Steps in a Customer Value Analysis
2. Assess the quantitative importance of the
different attributes and benefits. Customers
are asked to rate the importance of different
attributes and benefits. If their ratings
diverge too much, the marketer should
cluster them into different segments.
Steps in a Customer Value Analysis
3. Assess the company’s and competitors’
performances on the different customer
values against their rated importance.
Customers describe where they see the
company’s and competitors’ performances
on each attribute and benefit.
Steps in a Customer Value Analysis
4. Examine how customers in a specific segment
rate the company’s performance against a
specific major competitor on an individual
attribute or benefit basis. If the company’s
offer exceeds the competitor’s offer on all
important attributes and benefits, the
company can charge a higher price (thereby
earning higher profits), or it can charge the
same price and gain more market share.
Steps in a Customer Value Analysis
5. Monitor customer values over time. The
company must periodically redo its studies of
customer values and competitors’ standings
as the economy, technology, and features
change.
 Delivering High Customer Value
• Loyalty is defined as “a deeply held
commitment to rebuy or patronize a preferred
product or service in the future despite
situational influences and marketing efforts
having the potential to cause switching
behavior.”
 Delivering High Customer Value
• The value proposition consists of the whole
cluster of benefits the company promises to
deliver, it is more than the core positioning of
the offering.
• The value-delivery system includes all the
experiences the customer will have on the
way to obtaining and using the offering.
 Total Customer Satisfaction
• Whether the buyer is satisfied after the
purchase depends on the offer’s performance
in relation to the buyer’s expectations.
• A) Satisfaction is a person’s feeling of pleasure
or disappointment resulting from comparing a
product’s perceived performance (or
outcome) in relation to his or her
expectations.
 Total Customer Satisfaction
• B) A customer’s decision to be loyal or to
defect is the sum or many small encounters
with the company. Many companies now
strive to create a “branded customer
experience”.
 Measurement Techniques
A. A number of methods exist to measure
customer satisfaction. Periodic surveys can
track customer satisfaction directly.
B. Companies can monitor the customer loss
rate and contact customers who have
stopped buying and learn why this happened.
 Measurement Techniques
C. Companies can hire mystery shoppers to
pose a potential buyers and report on strong
and weak points experienced in buying the
company’s and competitor’s products.
D. In addition to tracking customer value
expectations and satisfaction, companies
need to monitor their competitor’s
performance in these areas as well.
 Product and Service Quality
• Satisfaction will also depend on product and
service 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.
• Product and service quality, customer
satisfaction, and company profitability are
intimately connected.
 Total Quality
• Marketers bear the responsibility for:
• Correctly identifying the customers’ need and
requirements
• Communicating customer expectations
• Filling customers orders on time and complete
• Ensure that customers receive proper training on
the product
• Stay in touch with the customer after the sales
• Gather ideas for new products or service
improvements
MAXIMIZING CUSTOMER LIFETIME VALUE

• Marketing is the art of attracting and keeping

profitable customers.
• The 80/20 rule states that the top 20 percent
of the customers may generate as much as 80
percent of the company’s profits.
 Customer Profitability
• A) 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 of
attracting, selling, and servicing that customer.
 Customer Profitability Analysis
I. Customer profitability analysis (CPA) is best
conducted with the tools of an accounting
technique called Activity-Based Costing (ABC).
II. Platinum customers (most profitable).
III. Gold customers (profitable).
IV. Iron customers (low profitability but desirable).
V. Lead customers (unprofitable and undesirable).
 Customer Portfolios
• Marketers are recognizing the need to manage
customer portfolios, made up of different
groups of customers, defined in terms of
loyalty, profitability, and other factors.

• Measuring 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.
CULTIVATING CUSTOMER RELATIONSHIPS

• Maximizing customer value means cultivating

long-term customer relationships.
A. Companies are moving to more precision
marketing designed to build strong customer
relationships.
B. Mass customization is the ability of a
company to meet each customer’s
requirements—to prepare on a mass basis
individually designed products, services,
programs, and communications.
 Customer Relationship Management (CRM)

• Customer relationship management (CRM) is the

process of managing detailed information about
individual customers and carefully managing all
customer “touch points” to maximize customer
loyalty.
• CRM enables companies to provide excellent real-
time customer service through the effective use of
individual account information. Based on what they
know about each valued customer, companies can
customize market offerings, services, programs,
messages, and media.
 One-To-One Marketing
• A four-step approach to one-to-one marketing
– Identify your prospect and customers
– Differentiate customers in terms of their needs
and their value to your company
– Interact with individual customers to improve your
knowledge about their individual needs and to
build strong relationships.
– Customize products, service, and messages to
each customer.
 Increasing Value of the Customer Base
• A key driver of shareholder value is the
aggregate value of the customer base.
Winning companies improve the value of their
customer base by excelling at strategies such
as:
I. Reducing the rate of customer defection.
II. Increasing the longevity of the customer
relationship.
 Increasing Value of the Customer Base

iii. Enhancing the growth potential of each

customer through “share-of-wallet, cross-
selling, and up-selling.”
iv. Making low-profit customers more profitable
or terminating them.
v. Focusing disproportionate effort on high-
value customers
 Attracting, Retaining, and Growing
Customers
• Companies seeking to expand profits and sales
have to spend considerable time and resources
searching for new customers.
• Suspects are people or organizations that might
conceivably have an interest in buying but many
not have the means or real intention to buy.
• Prospects—customers with the motivation,
ability, and opportunity to make a purchase
• Customer churn—high customer defection
 Reducing Defection
• Five main steps a company can take to reduce
the defection rate:
1. The company must define and measure its
retention rate.
2. The company must distinguish the cause of
customer attrition and identify those that
can be managed better.
 Reducing Defection
3. The company needs to estimate how much
profit it loses when it loses customers.
4. The company needs to figure out how much
it would cost to reduce the defection rate.
5. Finally, listening to customers.
 Delivered customer base
• Acquiring new customers cost five times more than
the costs involved in satisfying and retaining current
customers.
• The average company loses 10 percent of its
customers each year.
• A 5 percent reduction in customer defection rate
can increase profits by 25 percent to 85 percent
depending on the industry.
• Customer profit rate tends to increase over the life
of the retained customer.
 Building Loyalty
• Two customer loyalty programs that
companies can offer are frequency programs
and club marketing programs.
• Frequency programs (FPs)
• Club membership programs
DEVELOPING LOYALTY PROGRAMS
• Frequency programs (FPs) are designed to
reward customers who buy frequently and in
substantial amounts.
• They can help build long-term loyalty with high
CLV customers, creating cross-selling
opportunities in the process.
• Pioneered by the airlines, hotels, and credit
card companies, FPs now exist in many other
industries. Most supermarket chains offer price
club cards that grant discounts on certain items.
 DEVELOPING LOYALTY PROGRAMS
• Club membership programs can be open to everyone who
purchases a product or service, or limited to an affinity
group or those willing to pay a small fee.
• Although open clubs are good for building a database or
snagging customers from competitors, limited-
membership clubs are more powerful long-term loyalty
builders.
• Fees and membership conditions prevent those with only a
fleeting interest in a company’s products from joining.
These clubs attract and keep those customers responsible
for the largest portion of business. Apple has a highly
successful club.