Visual Model: Creating Customer Value,

Satisfaction and LoyaltyChapter 5

Raymund C. Piñon

Marketing Management V57

April 27, 2010

Rationale

The 3rd important task of Modern Marketing:

ObjectivesAt the end of the presentation, the participants should be able to understand concepts related to the 3rd marketing task of CONNECTING WITH CUSTOMERS

1. Customer Value, Customer Satisfaction, Customer Loyalty and how we deliver them?

2. What is the lifetime value of customers?3. How can companies cultivate strong customer

relationships?4. How can companies both attract and retain

customers?5. What is database marketing?

To Win Customers and ….Beat Competition!!!

Traditional

Customer-centered

X

To Win Customers and ….Beat Competition!!!

Create and Deliver Superior Customer Value

Total Customer

Satisfaction

Build Customer

Loyalty

Customers’ Perceived ValueCustomers are value maximizers

Total Costs

Money

Time

Effort

Psychological

Total Benefits

Product

Service

Personnel

Image

DeliveredValue

Steps in Customer Value Analysis

Identify features & benefits that customers value Assess qualitative importance

of attributes & benefits

Assess company’s and competitors’ performance on different values against ratedperformance

Examine ratings of specific segments Monitor customer values over time

Delivering High Customer Value

Value Proposition Value Delivery System

To Win Customers and ….Beat Competition!!!

Create and Deliver Superior Customer Value

Total Customer

Satisfaction

Build Customer

Loyalty

Total Customer Satisfaction

_ =

Perceived Performance

Buyer’sExpectation Satisfaction

Total Customer SatisfactionSatisfaction Depends on Quality

Totality of features and characteristics of products or services that satisfy stated or implied needs

What is Quality?

= or >

Product or Service

Meets or exceeds

Expectations

Total Customer SatisfactionInfluence of Customer Satisfaction

Total Customer SatisfactionMonitoring Customer Satisfaction

Periodic SurveysCustomer Loss Rate

Mystery ShopperCompetitors’ Performance

Total Customer SatisfactionSatisfaction is Related to Loyalty

To Win Customers and ….Beat Competition!!!

Create and Deliver Superior Customer Value

Total Customer

Satisfaction

Build Customer

Loyalty

Customer Lifetime ValueArt of attracting and keeping profitable customers

Maximizing Customer Lifetime Value

Customer Profitability

Customer Equity Lifetime Value

Maximizing Customer Lifetime ValueCustomer Profitability Analysis

C1 C2 C3

P1 + + +Highly profitable product

P2 + Profitable product

P3 - - Unprofitable product

P4 -Highly unprofitable product

High-profit customer

Mixed-bag customer

Losing customer

Maximizing Customer Lifetime ValueCustomer Profitability Analysis

Activity-Based Costing

Customer Portfolios• acquaintances• friends• partnersOr• Diversify portfolio to manage risk

Maximizing Customer Lifetime ValueMeasuring Customer Lifetime Value

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Number of Customers

Revenue per Customer

Variable Cost per Customer

Margin per Customer

Acquisition Cost per Customer

Total Cost or Profit

Present Value

Cultivating Customer Relationships

Customer Relationship Management Focuses on attracting and keeping right customers, and satisfying their needs

Process of carefully managing detailed information about individual customers and all customer “touch points” to maximize customer loyalty

Customer Relationship ManagementKey to retaining customers is relationship marketing

1. Identify prospects and customers

2. Differentiate customers in terms of: a. Their needs b. Their value to your company

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

4. Customize products, services and messages to each customer

Customer Relationship ManagementIncreasing Value of Customer Base

1. Reduce customer defection

2. Increase longevity of relationship

3. Enhance growth potential of each customer

4. Make low-profit customers profitable or weed out

5. Focus on high-value customers

Customer Relationship ManagementAttracting and Retaining Customers

Reducing Defections Retention Dynamics

Disqualified ProspectsPotentials

Prospects

1st-TimeCustomer

RepeatCustomer

Clients

Members

Advocates

Partners

Inactive or Ex-Customers

Customer Relationship ManagementBuilding Customer Loyalty

Interacting with Customers Creating Loyalty Programs

Personalizing Marketing Creating Institutional Ties

Customer Database and Database Management

Customer Database

Data Warehousing

Data Mining

Customer Database and Database Management

Identify prospectsChoose which customers receive a particular offer Deepen loyalty

Reactivate customer purchases Avoid mistakes

SummaryThe 3rd important marketing task of CONNECTING WITH CUSTOMERS

1. Customer Value, Customer Satisfaction, Customer Loyalty and how we deliver them

2. Lifetime value of customers3. How companies cultivate strong customer

relationships4. How companies attract and retain customers5. Database marketing

Customer Value

Satisfaction

Loyalty

=

Customer Lifetime Value

EquityProfitability

Win Customers, Beat Competition

Lifetime Value+

Customer Relationship Management

Value Proposition Value Delivery

System

Attract and Retain Customers

PerceivedBenefits

ExpectExpectationation

Customer Database & Database Mgt

B-C=

DV