A FRAMEWORK for MARKETING MANAGEMENT

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A FRAMEWORK for MARKETING MANAGEMENT
Chapter 4 Creating Customer Value,
Satisfaction, and Loyalty
Kotler Keller
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Chapter Questions

• How can companies deliver customer value,
  satisfaction, and loyalty?
• What is the lifetime value of a customer?
• How can companies cultivate strong customer
  relationships?
• What is database marketing and why is it
  important?

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Marketing Challenges 21st Century

• Growth of Non-Profit Marketing
• Rapid Globalization
• Information Technology and Marketing
• The Changing World Economy
• The Call for Ethical Behaviour and Social
  Responsibility
• The New Marketing Landscape

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Determining Customer Value and Satisfaction
Customer perceived value (CPV) is the difference
between the prospective customers evaluation of
all the benefits and costs of an offering and
the perceived alternatives
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Determinants of Customer-Delivered Value

• Total customer cost
• Monetary cost
• Time cost
• Energy cost
• Psychic cost

• Total customer value
• Product value
• Services value
• Personnel value
• Image value

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Loyalty
Loyalty is a deeply held commitment to rebuy or
repatronize a preferred product or service in
the future despite situational influences and
marketing efforts having the potential to cause
switching behavior
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Building Loyalty

• Basic
• Reactive
• Accountable
• Proactive
• Partnership

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Forming Strong Customer Bonds

• Add financial benefits
• Add social benefits
• Add structural ties

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Satisfaction
Satisfaction is a persons feelings of pleasure
or disappointment resulting from comparing a
products perceived performance in relation to
his or her expectations
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Product and Service Quality

• Quality is the totality of features and
• characteristics of a good or service that bear on
  its ability to satisfy
• stated or implied needs
• Conformance quality
• Performance quality

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Total Quality Management
TQM is an organization-wide approach to
continuously improving the quality of all the
organizations processes, goods, and services
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Stages in Marketing Orientation
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Maximizing Customer Lifetime Value

• Customer profitability
• Customer equity
• Lifetime value
• Annual customer revenue 500
• Average number of loyal years 20
• Company profit margin 10
• Customer lifetime value 1,000

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Customer Equity
Value Equity Customer assessment of objective
benefits
Customer Equity Total customer lifetime value
Brand Equity Customer assessment of subjective
intangible benefits
Retention Equity Tendency to stick with the brand
above and beyond objective and subjective benefits
Source Rust, Roland T., Katherine N. Lemon, and
Valarie A. Zeithaml (2004), "Return on Marketing
Using Customer Equity to Focus Marketing
Strategy," Journal of Marketing, 68 (1), 109-27
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Where To Invest Marketing Dollars?

• Packaged goods producers can increase CE by
  investing in Brand Equity
• B2B firms can increase CE by investing in
  Retention Equity
• Delta invested 60m in Service Quality, which
  increased their Value Equity by 2.68 which in
  turn led to a 15 (91m) increase in CE

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Service Quality as a Component to Loyalty
Perceived Value
Service Quality

• Reliable promise keeping
• Prompt willingness to help
• Confidence inspiring knowledge and courtesy
• Empathy and individual attention
• Appearances

• Benefits minus the cost
• Pleasure of a good deal
• Utility from use of the product/service
• Residual benefit at termination of use

Customer Loyalty
Source Parasuraman, A. and Dhruv Grewal (2000),
"The Impact of Technology on the
Quality-Value-Loyalty Chain A Research Agenda,"
Journal of the Academy of Marketing Science, 28
(1), 168-74.
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The cost of customer defections

• At an average churn of 30, if it costs 300 to
  win a customer, a company with one million
  customers is paying 90 million each year to
  replace the subscribers its losing
• A Telecoms Company

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Customer retention is vital for increased
profitability

• A 5 increase in customer retention increases
  NPR by 20 - 120.
• Harvard research
• A 5 growth in customer retention can increase a
  companys profitability by 25 - 85.
• Bain Co.
• Raising customer retention rates by 5 increases
  the value of an average customer by 25 - 100.
• Anon.

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CRM Scope

• B2B
• B2C
• C2C
• G2C?

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Relationships vs. Transactions

• Long lasting mutually beneficial win-win
  relationships between supplier and buyer
• Integration of all marketing activities toward
  establishing, developing and maintaining
  successful relational exchanges

loyalty
retention
profitability
Retention Is Cheaper than Acquisition
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Improving the Value of Companys Customer Base

• Define, measure and reduce the defection rate
• Enhance customer growth potential
• Distinguish causes of customer attrition
• Estimate profit/loss associated with loss of
  customers
• Assess cost to reduce defection rate
• Terminate low-profit customers
• Focus on high-profit customers
• Gather customer feedback

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CRM Definitions

• CRM is a comprehensive approach that provides
  seamless integration of every area of business
  that touches the customer - namely marketing,
  sales, customer service and field support -
  through the integration of people, processes and
  technology.
• CRM is the discipline to do with the generation,
  the retention and the growth of business by the
  management of accounts that are most likely to do
  that for you.
• Peppers Rogers Group

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Framework for CRM

• Identify prospects and customers
• Differentiate customers by needs and value to
  company
• Interact to improve knowledge
• Customize for each customer

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The Customer-Development Process

• Suspects
• Prospects
• First-time customers
• Repeat customers
• Clients
• Member
• Partners

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How does CRM relate to marketing?

• Using CRM, organizations can focus interactions
  on preferred customers.
• By better knowing customers, the organization can
  increase customer satisfaction.
• Integrates the customer needs and wants into your
  CRM program
• Customers are segmented into different categories
  (geography, sales, consumption)
• Reduces costs in call center/Increasing customer
  value ROI

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Key Benefits of CRM in Marketing

• Improve the success of CRM efforts
• Make well-informed decisions about customers
• Customize the solution to fit your processes

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Database Concepts

• Data Warehouse storage and retrieval of two way
  communications
• Data Mining automated post hoc search for
  patterns
• Enterprise Reporting reports on data from all
  customer touch point

• Customer database customer information may be
  more important than the sales. It is fundamental
  to relationship marketing.
• Database marketing
• Mailing list

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Customer Information to Capture

• Transaction information
• Contact history
• Marketing exposure history
• Product usage
• Profitability

• Customer preferences
• Customer importance weights
• Consideration sets
• Cognitive style
• Customer characteristics
• Demographic
• Psychographic

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Database Marketing Leverages All Customer Touch
Points

• A financial services company might have

• Call center
• Web site
• ATM
• Automated voice response system
• Cashiers and customer service reps
• Mobile devices
• POS card swipe

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E-marketing and CRM

• E-marketing versus digital marketing
• Digital tools
• Internet marketing
• Whats next?

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Digital Tools

• Internet
• iPod
• RFID
• iTV
• ipTV
• Mobile technology
• Convergence

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Internet Marketing

• Who runs the Internet (ICANN, ITU, W3, IETF)
• Importance of domain names
• Website marketing
• Search Engine Optimisation (SEO)
• Email marketing

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Whats Next

• Mashing
• Online communities (Friendster, Bebo, MySpace)
• Semantic Web
• iPods
• RFID
• Other?

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Stages of an Online Relationship

• Opening site easy to find, good navigation
  principles
• Developing Interactivity, feedback, response
  time, affective tone of the response,
  encouragement of further communications, mutual
  learning
• Cementing interesting and fresh content, opt-in
  newsletter, personalization and customization

The section on RM inspired by Long, George,
Margaret K. Hogg, Daniel Davidson and Julie
Nuttal (1998), 'Marketing relationships and the
Internet towards a framework', Journal of
Database Marketing, 6 (2), pp 105-26.
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Email Etiquette

• Keep sentences short
• Reflect upon office organization culture
• Avoid flaming
• Avoid send bad news
• Avoid all capital letters
• Unless necessary, avoid HTML email
• Prompt, polite, personal, professional and
  promotional

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Mass Customisation and Personalisation

• Computers make mass customization feasible
• Personalization
• Check box User picks options
• Profile based Computer makes inferences based on
  profile
• Automated Recommendation Systems

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Recommendation Systems

• Collaborative filtering electronic word of mouth
• Content filtering consumers express attribute
  trade-offs and importance weights
• Previous items chosen
• Individual characteristics
• Expert judgment

Ansari, Asim, Skander Essegaier and Rajeev Kohli
(2000), Internet Recommendation Systems, Journal
of Marketing Research, 37 (Aug), 363-75.
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One-to-One Marketing

• One-to-one marketing promises to increase the
  value of your customer base by establishing a
  learning relationship with each customer.
• The four key steps are
• Identifying your customers.
• Differentiating between them.
• Interacting with them.
• Customising your product or service to meet each
  customers needs.

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One-to-One Philosophy(Peppers Rogers)
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Comparing 1-to-1 Techniques
Source Lauden Traver (2003) E-Commerce
Business, Technology and Society. Prentice-Hall.