chapter 5 english

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Connecting with customers

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Creating customer value, satisfaction , and

loyalty

Created by Huda M. Abu Shanab

Supervised by Dr. Laith Alrubaiee

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Building customer value, satisfaction, and loyalty .

Maximizing customer lifetime value.

Cultivating customer relationships.

Customer databases and database marketing .

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Building customer value, satisfaction , and loyalty

As marketing experts Don Peppers and Martha Rogers says: “Companies create its own value from the value of their own customers , the ones they have now and the ones they will have in the future” .

Businesses

Succeed by

Growingkeeping

Getting

customers

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Managers who believe the customer is the company’s only true “profit center”, consider the traditional organization chart as below :

Topmanagement

Middle

management

Frontline people

customers

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Successful marketing companies invert the modern customer-oriented organization chart as below :

Customers

Frontline people

Middle management

Top management

C

U

S

T

O

M

E

R

S

C

U

S

T

O

M

E

R

S

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customer perceived value ( CPU )

Customer perceived value is the difference between the prospective customer’s evaluation of all the benefits and all the coast of an offering and the perceived alternatives.

customer-perceived value

Total customer benefit

Total customercost

Product benefit

Services benefit

Personnel benefit

Image benefit

Monetary cost

Time cost

Energy cost

Psychological cost

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total customer benefit is the perceived monetary value of the bundle of economic , functional , and psychological benefits customers expect from a given market offering because of the products, services, personnel, and image involved.

Total customer cost is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary , time, energy, and psychological costs .

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Applying value concepts

Customer value analysis The steps in analysis are :

1) Identify the major attributes and benefits that customer value.

2) assess the quantitative importance of the different attribute and benefits.

3) assess the company’s and competitor’s performance on the different customer values against their rated importance.

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.

5) monitor customer values over time .

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Choices and implications

The buyers operate under various constraints and occasionally make choices that give more weight to their personal benefits than to the company’s benefit.

Such as:- The buyer might be under orders to buy at lowest price.- The buyer will retire before the deal is done.- The buyer enjoys a long-term friendship with the salesperson .

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Delivering high customer value

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.

The value proposition is a statement about the experience customers will gain from the company’s market offering and from their relationship with the supplier.

The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering .

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total customer satisfaction

Satisfaction is a person’s feelings of pleasure or disappointment that result from comparing a product’s perceived performance (or outcome) to their expectations .

performance < expectation customer dissatisfied performance = expectation customer satisfied Performance > expectation customer highly satisfied

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The company might be able to increase it’s profitability by means other than increased satisfaction , such as by improving manufacturing processes or investing more in R&D.

beside satisfying customers, the company has many stakeholders, including employees, dealers, suppliers, and stockholders which must also deliver them acceptable levels of satisfaction.

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Monitoring satisfaction

Many companies are systematically measuring how well they treat their customers, identifying the factors shaping satisfaction and making changes in their operations and marketing as a result .

Because one key to customer retention Is customer satisfaction .

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measurement techniques

many methods exists to measure customer satisfaction :

1) Periodic method can track customer satisfaction directly and also ask additional , questions to measure repurchase intention and the respondent’s likelihood or willingness to recommend the company and brand to others.

2) customer loss rate companies can monitor their customer loss rate and contact customers who have stopped buying or who have switched to another supplier to find out why.

3) Mystery shoppers companies hire them to pose as potential buyers and report on strong and weak points

experienced in buying the company’s and competitor’s products.

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Influence of customer satisfaction

For customer-centered companies ,customer satisfaction is both a goal and a marketing tool.

Companies need to be especially concerned today with their customer satisfaction level because the internet provides a tool for consumers to quickly spread bad word of mouth-as well as good word of mouth-to the rest of the world.

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Customer complaints

Studies of customer dissatisfaction ,shows that customers are dissatisfied with their products about 25% of the time but that only 5% complain.

Other 95% either :- Feel complaining is not worth the effort .- They do not know how or to whom to complain

and they just stop buying.

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The following procedures can help to recover customer goodwill:

1) Set up a 7day ,24hours toll-free “hotline” to receive and act on customer complaints.

2) Contact the complaining customer as quickly as possible.

3) Accept responsibility for the customer’s disappointment ,don’t blame the customer.

4) Use customer-service people who are empathic.

5) Resolve the complaint swiftly and to the customer’s satisfaction .

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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 .

Impact of quality :

Product &Servicequality

Companyprofitability

Customersatisfaction

Quality is the key to value creation

and customer satisfaction.

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Total quality Marketers play several roles in helping their companies define and

deliver high-quality goods and services to target customers.1) They bear the major responsibility for correctly identifying the

customer needs and requirement.2) They must communicate customer expectation properly to product

designers.3) They must make sure that customer’s orders are filled correctly

and on time.4) They must check that customer have received proper

instruction ,training, and technical assistance in the use of the product.

5) They must stay in touch with customers after the sale to ensure that they satisfied and remain satisfied.

6) They must gather customer ideas for product & service improvement & convey them to the appropriate departments.

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Maximizing customer lifetime value

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 , and servicing that customer.

$10,000- 8,000 - 6,000 - 4,000 - 2,000 - 0 -2,000 - -4,000 - -6,000 -

1 2 3 4 5 6 7 8 9 10

+150%

-100%

the 150-20 rule says the 20% most profitable customers generate as much as 150% of the profits of a company , the 20% least profitable lose 100% of the profits .

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Customer profitability analysis CPA

Is best conducted with the tools of an accounting technique called activity-based coasting (ABC), the company estimates all revenue coming from customer, less all costs .

customers

products

c 1 c 2 c 3

P 1 + + + Highly profitable product

P 2 + Profitable product

P 3 - - unprofitable product

P 4 - Highly unprofitable product

Highly-profit customer

Mixed-bag customer

losing customer

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Customer portfolios

There are two perspective :

1) That a firm’s portfolios consists of a combination of a “acquaintances” , “friends” , and “parents” that are constantly changing .

2) By comparing the individuals who make up the firm’s customer portfolio to the stocks that make up an investment portfolio.

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Measuring customer lifetime value

Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customers lifetime purchases .

Calculating CLV is a method that can measure CLV which provide a formal quantitative framework for planning customer investments & help marketers adopt along-term perspective.

t (pt – ct) rt

CLV = ∑ ( 1+i) - AC t=0

Example in the book Pages 172-173

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cultivating customer relationship

Customer relationship management (CRM)is the process of carefully managing detailed

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

Customer touch point is any occasion an which a customer encounters the brand and the product –from actual experience to personal or mass communications to casual observation.

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One-to-one marketing

1) Identify your prospects and customers.

2) Differentiate customers in terms of (1) their needs and (2) their value to your company.

3) Interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships.

4) Customize products, services, and messages to each customer.

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Increasing value of the customers base

Reducing the rate of customer defection. Increasing the longevity of the customer relationship. Enhancing the growth potential of each customer

through “share-of wallet “ , cross-selling , and up-selling.

Making low-profit customers more profitable or terminating them.

Focusing disproportionate effort on high-value customers.

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attracting and retaining customers

Companies seeking to expand their profit and sales must spend considerable time and resources searching for new customers.

To generate leads ads and place them in media

send direct mail and make phone calls

They develop send their salespeople to participate in trade

purchases names from list brokers

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Reducing defection

To reduce the defection rate, the company must:

1- define and measure it’s retention rate.

2- distinguish the cause of customer attrition and identify those that can be managed better.

3- compare the lost profit equal to the customer’s lifetime value from a lost customer to the costs to reduce the defection rate.

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Retention dynamics

This chart shows the main steps in the process of attracting and retaining customers :

Disqualifiedprospects

Inactive orEx-customers

prospects

First-timecustomers

Repeatcustomers

clients

members

partners

potentials

advocates

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Some interesting facts that bear on customer retention:

1) Acquiring new customers can cost five times more than satisfying and retaining current customers.

2) The average company loss 10% of it’s customers each year.

3) A 5% reduction in the customer defection rate can increase profit by 25% to 85% depending on the industry.

4) The customer profit rate tends to increase over the life of the retained customer due to increased purchases , referral , and price premiums and reduced operating costs to services.

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Building loyalty Create superior products , services, and experiences for the target

market. Get cross-departmental participation in planning and managing the

customer satisfaction and retention process. Integrate the “voice of the customer” to capture their stated and

unstated needs or requirements in all business decisions. Organize and make accessible a database of information on

individual customer needs, preferences, contacts, purchases frequency, and satisfaction .

Make it easy for customers to reach appropriate company personnel and express their needs, perceptions, and complaints.

Assess the potential of frequency programs and club marketing programs.

Run award programs recognizing outstanding employees.

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Interacting with customers

It could be by:

1) Listening to customers.

2) To be a customer advocate.

3) As much as possible, take the customer’s side on issues.

4) Understanding their point of view.

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Developing loyalty programs

1) Frequency programs ( FPs ) :

They are designed to provide rewards to customers who by frequently and in substantial amounts.

2) Club membership programs :

Can be open to everyone who purchases a product or service ,or it can be limited to an affinity group or to those willing to pay a small fee.

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Personalizing marketing

customers clients

1) May be nameless to the institution.

2) Are served as part of the mass or as part of larger segments.

3) Are served by anyone who happens to be available .

1) Cannot be nameless to the institution.

2) Are served on an individual basis.

3) Are served by the professional assigned to them.

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Win-backs

Its often easier to re attract ex-customers than to find new ones.

The key is to analyze the causes of customer defection through exit interviews and lost-customer surveys and win back only those who have strong profit potential.

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Customer database and database marketing A customer database is an organized collection of

comprehensive information about individual customers or prospects that is current , accessible, and actionable for such marketing purposes as lead graduation, lead qualification, sale of a product or service or maintenance of customer relationships.

Database marketing is the process of building, maintaining and using customer databases and other databases ( products, suppliers, resellers) to contact , transact, and build customer relationships.

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Customer database

The difference between a customer mailing list and customer database:

customer mailing list :

Is simply a set of names, addresses, and telephone numbers.

customer database:

Contains much more information accumulated through customer transactions, registration information , telephone queries, cookies, and every customer contact.

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A customer database contains :

1) Consumer’s past purchases

2) Demographics (age, income, family members, birthdays)

3) Psychographics (activities, interests, and opinions)

4) Media graphics (preferred media)

5) Other useful information.

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A business database contains :

Business customer’s past purchases. Past volumes, prices, and profits. Buyer team member names ,ages , birthdays, hobbies,

and favorite foods. Statues of current contracts. An estimate of the supplier’s share of the customer’s

business . Competitive suppliers. Assessment of competitive strengths and weaknesses

in selling and servicing the account . Relevant buying practices ,patterns, and policies .

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Data warehouse and data mining

A data warehouse: is where marketers can capture, query, and analyze it to draw inferences about an individual customer’s needs and responses.

Through data mining, marketing satisfaction can extract useful information about individual’s, trends, and segments from the mass of data.

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Ways of uses the database :

1) To identify prospects.

2) To decide which customers should receive a particular offer.

3) To deepen customer loyalty.

4) To reactivate customer purchases.

5) To avoid serious customer mistakes .

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The downside of database marketing and CRM

Four problems can prevent a firm from using CRM:1) Is that building and maintaining a customer database

requires a large investment in computer hardware database software, analytical programs, communication links, and skilled personnel.

Building a customer database would not be worthwhile in the following cases:

(a) When the product is a once-in-a-lifetime purchase.(b) When customers show little loyalty to a brand.(c) When the unit sale is very small.(d) When the cost of gathering information is too high.

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2) Is the difficulty of getting everyone in the company to be customer oriented and to use the available information.

3) Is that not all customers want a relationship with the company, and they may resent knowing that the company has collected that much personal information about them.

4) Is that the assumptions behind CRM may not always hold true.

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four main perils of CRM:

1) Implementing CRM before creating customer strategy.

2) Rolling out CRM before changing the organization to match.

3) Assuming more CRM technology is better.

4) Stalking not wooing, customers.

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The end