Creating Customer Value and Customer Relationships

CREATING CUSTOMER VALUE & CUSTOMER RELATIONSHIPS

1. Building Customer Value, Satisfaction and Loyalty2. Maximizing Customer Lifetime Value3. Cultivating Customer Relationships4. Customer Databases and Database Marketing

Ch 04

1. Building Customer Value, Satisfaction and LoyaltyFig. 4.1 Traditional versus Modern organizationT

op Management

Middle Management

Frontline People

Customer

Customers

Frontline People

Middle Management

Top Management

1. Building Customer Value, Satisfaction and Loyalty

Perception:• Translation of “raw data” into “meaning”.• Process by which we receive and interpret information from

the world

1. Building Customer Value, Satisfaction and Loyalty

Customer Perceived Value (P-124):

• The worth that a product or service has in the mind of the consumer.

• Affects the price that customer is willing to pay.

Customer Perceived Value

Total customer benefit

Product benefit

Service benefit

Personnel benefit

Image benefit

Total customer cost

Monetary cost

Time cost

Energy cost

Psychological cost

Fig 5.2 Determinants of Customer – Perceived Value

• 1. Product benefit:• Attributes of the product, • Might entice a potential consumer to decide to choose this product over others. • In case of Red bull, it will be the taste of the drink which has been especially designed to suit the

tastes of westerners.

• 2. Services benefit:• Attributes of the services offered along with the product. • Any kind of help, instructions or assistance offered with the product would fall under this. • In case of Red bull, the nutritional content, ingredients, customer helpline numbers etc. will make

up this benefit.• 3. Personnel benefits:

• The customer’s perception of the utility value of the personnel in the system of the product to him/her.

• Better, knowledgeable and well trained personnel assisting a customer would be a great help. • In case of red bull, distribution of free red bull drinks during events by the ‘red bull girls’, will entice

their target customer to buy the product and in a way add value to the product in terms of utility and satisfaction.

• 4. Image benefit: • The image that a brand/product holds in the market. • In case of Red bull, it dominates the energy drink market with its image among the customers.

People associate red bull with something that gives them an instant burst of energy (the tagline – ‘red bull gives you wings’ helps too)

“The real price of anything is the toil and trouble of acquiring it.”

Adam Smith

• 5. Monetary cost:• The literal cost incurred by a customer in order to obtain the product. • The cost (in terms of money) that a customer incurs in travelling to the nearest

store that sells red bull and the cost per can multiplied by the number of cans purchased is the total monetary cost in the case of red bull.

• 6. Time cost: • The total amount of time that has been invested by a customer during his buying

process. • The time taken for the customer to reach a store and to buy the can of red bull is

the time cost here.

• 7. Energy cost: • The energy spent by the buyer during the entire process of buying the product. • It is a little complicated to calculate this in definable terms.

• 8. Psychological cost: • The total mental effort made during acquiring and using the product from the

moment it was bought to the moment it was consumed. • It is also very difficult to measure this as it would take lots of data to biologically

decide what goes where.

Applying value concepts (P-125)• PRODUCT BENEFIT: Reliability, Durability, Performance, Resale value• SERVICE BENEFIT: Delivery, training, maintenance• PERSONNEL BENEFIT: Knowledgeable and responsive staff• IMAGE BENEFIT: Caterpillar’s corporate image and reputation

• Buyers time, energy, monetary and psychological costs expended in product acquisition, usage, maintenance, ownership and disposal.

• Comparison of total customer cost to total customer benefit

1. Building Customer Value, Satisfaction and Loyalty

Total customer satisfaction (P-128):• A person’s feeling of pleasure or disappointment hat result from comparing a product’s perceived performance to expectation.

• Actual product < promised product = Dissatisfied customers• Actual product = promised product = Satisfied customers• Actual product > promised product = Delighted customers

1. Building Customer Value, Satisfaction and Loyalty

Measuring Satisfaction:

1. Periodic surveys2. Customer loss rate3. Mystery shoppers4. Monitor competitive performance

1. Building Customer Value, Satisfaction and Loyalty

Influence of Customer Satisfaction:•Dissatisfied customers spread negative WOM to

eleven acquaintances,.•Satisfied customers may spread positive WOM to only

three.

Customer Complaints:While customers are dissatisfied with their

purchase about 25% of the time, only about 5% complain.

1. Building Customer Value, Satisfaction and Loyalty

Loyalty:• Likelihood of previous customers to continue to buy from a specific organization.

• whether due to• Satisfaction with the product , • Its convenience or performance, or • Simply familiarity and comfort with the brand.

1. Building Customer Value, Satisfaction and Loyalty

Establishing Value:

1. Building Customer Value, Satisfaction and Loyalty

Product and Service Quality:The collection of features and characteristics of a productPerceived Quality:• Consumer opinion of a product’s (or a brand’s) ability to fulfill his or her expectations. • It may have little or nothing to do with the actual excellence of the product.• It is based on the brand‘s current public image, consumer's experience with the firm's other products, and the influence of the opinion leaders, consumer's group, and others.

2. Maximizing Customer Lifetime ValueProfitable Customer:• A person, household, or company • that over time • yields a revenue stream • exceeding by an acceptable amount the

company’s cost stream for attracting, selling, and serving that customer.

The emphasis is on the lifetime stream of revenue and cost, not a profit from a particular transaction.

2. Maximizing Customer Lifetime Value

Customer Lifetime Value:The net present value of the stream of future

profits expected over the customer’s lifetime purchases.

Estimating Lifetime Value:Annual customer revenue: Rs. 40,000Average number of loyal years: 30Customer lifetime value: Rs. 120,000

3. Cultivating Customer Relationships (P-134)

Customer Relationship Management (CRM) P-135:

The process of carefully managing detailed information about individual customers and all customer touch points to maximize customer loyalty.

1. Personalizing marketing2. Customer empowerment3. Customer review and recommendations

3. Cultivating Customer Relationships

1. Personalizing marketing framework (P-127)

1. Identify prospects and customers2. Differentiate customers by needs and value to

company3. Interact to improve knowledge and build strong

relationships4. Customize for each customer

3. Cultivating Customer Relationships

2. Customer empowerment

3. Cultivating Customer Relationships

3. Customer review and recommendations

3. Cultivating Customer Relationships

Attracting and Retaining Customers (P-139)Reducing defection: Customer churn

Retention dynamics: 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.

3. Cultivating Customer Relationships

Attracting and Retaining Customers:Retention dynamics

3. Cultivating Customer Relationships

Attracting and Retaining Customers:Managing the customer base:

1. Reduce the rate of defection2. Increase longevity of the customer relationship3. Enhance share of wallet, cross selling and up-selling4. Terminate low-profit customers5. Focus more effort on high-profit customers

3. Cultivating Customer Relationships

Building loyalty (P-141)Loyalty Programs:

4. Customer Databases and Database Marketing

Database Key Concepts:

1. Customer database2. Database marketing

4. Customer Databases and Database Marketing

Using The Database:

1. To identify prospects2. To target offers3. To deepen loyalty4. To reactivate customer purchases5. To avoid mistakes

4. Customer Databases and Database Marketing

Don’t Build a Database when:

1. The product is a once-in-a-lifetime purchase2. Customers do not show loyalty3. The unit sale is very small4. The cost of gathering information is too high