1.

Understanding Marketing
Management
 Defining Marketing for the New Realities
 Developing Marketing Strategies and Plans
 Creating Long-Term Loyalty Relationships
3

Creating Long-Term
Loyalty Relationships
Questions
 What are customer value, satisfaction, and loyalty,
and how can companies deliver them?
 What is the lifetime value of customers, and how can
marketers maximize it?
 How can companies attract and retain the right
customers and cultivate strong customer relationships
and communities?
 How do customers’ new capabilities affect the way
companies conduct their marketing?
Building Customer Value,
Satisfaction, and Loyalty.
“DRINK PURE, BREATHE PURE
EAT PURE and LIVE PURE”
Customer-Orientations

With rise in digital technologies, informed customers increasingly expect

companies to do more than connect, satisfy or even delight them. They expect
companies to listen and respond to them.
Customer Perceived Value

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.
Determinants of Customer Perceived
Value
Total customer benefit Total customer cost

Product benefit Monetary cost

Services benefit Time cost

Personnel benefit Energy cost

Image benefit Psychological cost

Applying Value Concepts

A firm can improve its offers in three ways:

1. By improving the economic, functional, and
psychological benefits of its product, services,
people, and/or image.
2. By reducing the buyer’s nonmonetary costs by
lesser time, energy, and psychological
investment.
3. By reducing the product’s monetary cost to
the buyer.
Steps in a Customer Value Analysis
 Identify major attributes and benefits that customers
value
 Assess the qualitative importance of different
attributes and benefits
 Assess the company’s and competitor’s
performances on the different customer values
against rated importance
 Examine ratings in specific segments against a major
competitor.
 Monitor customer values over time
Customer Value Map
Customer Loyalty Map
Delivering High Customer Value
What Is Loyalty?

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
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.

For example, Volvo’s core positioning has

Been “safety,” but the buyer is promised
more than just a safe car; other benefits
include good performance, design, and
safety for the environment.
The Value Proposition
A statement about the experience customers
will gain from the company’s market offering
and from their relationship with the supplier

Brand
Represents a promise about the total experience
customers can expect

Whether the promise is kept depends on the

company’s ability to manage its value delivery system
The Value Delivering System
 All experiences the customer have in
obtaining and using the offering.

 Set of core business processes that help

to deliver distinctive consumer value
Establishing Value
Customer Satisfaction
 Satisfaction is a person’s feeling of pleasure or
disappointment that result from comparing a
product’s perceived performance (or outcome) to
their expectations.
 Expectations results from past buying behavior,
friend’s advice, public information and discourse, and
marketers’ and competitors’ information and
promises.
 “Negativity bias” The negative effect on satisfaction of
failure to meet expectations is stronger than the
positive effect of exceeding them.
Monitoring Satisfaction
A highly satisfied customer generally
stays loyal longer

buys more as the company introduces new and

upgraded products
talks favorably to others about the company and its

products
pays less attention to competing brands

Is less price sensitive

Costs less to serve

Offers product or service ideas to the company

Measuring Satisfaction

Periodic
Periodic Surveys
Surveys

Customer
Customer Loss
Loss Rate
Rate

Mystery
Mystery Shoppers
Shoppers

Monitor
Monitor Competitive
Competitive
Performance
Performance
Influence of Customer Satisfaction
• Companies need to be especially concerned with
their customer satisfaction level today because
the Internet allows customers to quickly spread
both good and bad word of mouth to the rest of
the world.
• Some customers set up their own Web sites to air
grievances and galvanize protest, targeting high-
profile brands.
Satisfaction also depends on
Product and Service Quality
What is 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.
There is a need to distinguish between
conformance quality and performance quality
(or grade).

A Lexus provides higher performance quality

than a Hyundai: The Lexus rides smoother,
goes faster, and lasts longer.
Yet both a Lexus and a Hyundai deliver the
same conformance quality if all the units
deliver their respective promised quality.
Maximizing Customer Lifetime Value
 80% or more of the company’s profits come from
the top 20% of its customers.

 Companies need to concern themselves with

Return on Customer (ROC) and how efficiently
they create value from the customers and
prospects available.
Maximizing Customer Lifetime Value

Customer Profitability

Customer Equity

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.
Customer-Product Profitability
Analysis
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.

 The company must subtract from its expected

revenues the expected costs of attracting, selling,
and servicing the account of that customer,
applying the appropriate discount rate.
Estimating Lifetime Value

 Annual customer revenue: $500

 Average number of loyal years: 20
 Company profit margin: 10
 Customer lifetime value: $1000
Attracting and Retaining Customers
 Different acquisition methods yield customers with
varying CLVs.
 According to a study, customers acquired through
the offer of 35% discount had about one-half the
long-term value of customers acquired without any
discount.
 Promotional campaigns that reinforce the value of
the brand, even if targeted to the already loyal,
may be more likely to attract higher-value new
customers.
Retaining Customers
To reduce the defection rate, the company must:

1. Define and measure retention rate

2. Distinguish the causes and identify those that can be
managed better
3. Compare the lost profit equal to CLV from a lost
customer to the costs to reduce the defection rate.
The Marketing Funnel
Retention Dynamics
 The marketing funnel identifies the percentage of
the potential target market at each stage in the
decision process, from merely aware to highly
loyal.
 By calculating conversion rates-the percentage of
customers at one stage who move to the next- the
funnel allows marketers to identify any bottleneck
stage or barrier to building a loyal customer
franchise.
Retention Dynamics
 Acquisition of customers can cost five times more
than retaining current customers.
 The average customer 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.
Managing The Customer Base

 Reduce the rate of customer defection

 Increase longevity of the customer relationship
 Enhance share of wallet
 Terminate low-profit customers
 Focus more effort on high-profit customers
Building Loyalty

 Interact closely with customers

 Develop Loyalty Programs
 Creating Institutional ties
Loyalty Programs
Loyalty Programs
Develop Loyalty Programs

Frequency Programs (FPs) are designed to reward

customers who buy frequently and in substantial
amounts.

Club membership programs attract and keep those

customers responsible for the largest portion of
business.
Brand Communities

 A brand community is a specialized community of

consumers and employees whose identification and
activities focus around the brand.
Characteristics of Brand
Communities
A “consciousness of kind,” or sense of felt connection
to the brand, company, product, or other community
members;
Shared rituals, stories, and traditions that help convey

the meaning of the community; and

A shared moral responsibility or duty to both the

community as a whole and individual community

members.
Types of Brand Communities
 By the brand users
 Company-sponsored

Harley-Davidson has built an active

brand community through its Harley
Owner’s Group which boasts more
than one million members.
The Benefits of Brand Communities

 More loyal and committed customer base

 Constant source of inspiration and feedback for
product improvements or innovations.
Value Creation Practices in Brand
Communities
 Social Networking
 Impression management
 Community Engagement
 Brand Use
How To Make Brand Community
More Effective?
 Enhance the timeliness of information exchanged.
 Enhance the relevance of information posted.
 Extend the conversation.
 Increase the frequency of information exchanged.
Transaction Vs Relationship
A transaction is an event during which an
exchange of value takes place between two
parties.
One transaction or even a series of transactions
don’t necessarily constitute a relationship, which
requires mutual recognition and knowledge
between the parties.
Cultivating Customer Relationships

 Companies are using information about customers to

enact precision marketing designed to build strong
long-term relationships.

 Company empowerment has been matched by

customer empowerment, and companies have to
adjust to shifts in the nature and strength of their
customer relationships.
Cultivating Customer Relationships
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 Value Management (CVM), describes the
company’s optimization of the value of its customer
base. CVM focuses on the analysis of individual data
on prospects and customers to develop marketing
strategies to acquire and retain customers and drive
customer behavior.
Perils of CRM

 Implementing CRM before creating a customer

strategy
 Rolling out CRM before changing the organization to
match
 Assuming more CRM technology is better
 Stalking, not wooing, customers
Framework for CRM

 Identify prospects and customers

 Differentiate customers by needs and value to
company
 Interact to improve knowledge
 Customize for each customer
Personalizing Marketing

 Personalizing marketing is about making sure the

brand and its marketing are as personally relevant as
possible to as many customers as possible-a
challenge, given that no two customers are identical.

Coca-Cola has introduced Freestyle

dispensing machines that allow users
to customize their soft drink choices.
Permission Marketing

 Permission marketing is the practice of marketing

to consumers only after gaining their expressed
permission.
 It is based on the premise that marketers can no
longer use “interruption marketing” via mass
media campaigns.
Customer Empowerment

 Marketers are helping consumers become

evangelists for brands by providing them resources
and opportunities to demonstrate their passion.

 Only some consumers want to get involved with

some of the brands they use and, even then, only
some of the time.
Customer Reviews and
Recommendations
• The strongest influence on consumer choice
remains “recommended by relative/friend”.
• With increasing mistrust of some companies and
their advertising, online customer ratings and
reviews and recommendations from consumers are
playing an important role.
• Bloggers who review products or services, online
retailers who add their own recommendations have
also become important.
Customer Complaints
 No matter how perfectly designed and implemented
a marketing program is, mistakes will happen.
 While customers are dissatisfied with their
purchases about 25% of the time, only about 5%
complain.
 Customers whose complaints are satisfactorily
resolved, tell an average of five people about the
good treatment they received.
 The average dissatisfied customer, however, gripes
to 11 people.
Customer Complaints
The best thing a company can do is make it easy for
customers to complain through

Suggestion forms
Toll-free numbers
Websites
E-mail addresses
Practices to Recover Customer
Goodwill
 Set up a seven-day, 24-hour toll-free hotline.
 Respond quickly to the complaining customer.
 Accept responsibility.
 Use friendly and empathic customer service people.