Part 2: Connecting With Customers
Chapter 4 – Creating Long-term Loyalty Relationships
I………………………………. Chapter Overview/Objectives/Outline
A. Overview
performance that has fulfilled expectations. Customers are satisfied when their expectations are
met and delighted when their expectations are exceeded. Satisfied customers remain loyal
longer, buy more, are less price sensitive, and talk favorably about the company.
A major challenge for high performance companies is that of building and maintaining viable
advantages. This, along with a corporate culture of shared experiences, stories, beliefs, and
norms unique to the organization, are the keys to their success.
To create customer satisfaction, companies must manage their value chain as well as the whole
value delivery system in a customer-centered way. The company’s goal is not only to get
Total quality marketing is seen today as a major approach to providing customer satisfaction
and company profitability. Companies must understand how their customers perceive quality
and how much quality they expect. Companies must then strive to offer relatively higher
quality than their competitors. This involves total management and employee commitment as
company’s drive toward higher quality.
B. Learning Objectives
Understand what constitutes customer value and satisfaction.
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satisfaction.
Understand how companies can retain customers as well as attract customers.
Know how companies can determine customer profitability.
Understand how companies can practice total quality marketing strategy.
C. Chapter Outline
I. Introduction
II. Building Customer Value and Satisfaction
A. Customer perceived value
1. Customer perceived value
cost, or “profit” to the customer
b) Total customer benefit is perceived monetary value of benefits
3. Loyalty as defined by Oliver, is “a deeply held commitment to rebuy or
behavior”.
promises to deliver.
5. Company must manage its value delivery system, i.e. all the experiences
the customer will have on the way to obtaining and using the offering.
B. Total customer satisfaction
1. Perceived performance and expectations contribute to overall
satisfaction or dissatisfaction
expectations requires increase in value delivered.
4. Companies may not want to increase customer satisfaction to a level that
shareholders and other partners.
C. Monitoring satisfaction
1. Satisfaction breeds loyalty but the relationship between the two is not
very satisfied customers)
2. Note discussion under “Marketing Skills: Gauging Customer
Satisfaction”
D. Product and service quality
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2. Conformance quality is a delivery of need fulfillment whereas
Hyundai both deliver transportation but Lexus is highly regarded as
delivering a more superior transportation experience)
3. Total quality management (TQM) is an organization-wide approach to
products, and services
4. Marketers play six roles in helping their organizations define and deliver
high-quality goods and services to target customers:
a) Correctly identify customer needs and requirements
b) Properly communicate customer expectations to product
designers
c) Ensure proper product and service fulfillment
d) Verify that customers received proper instructions, training, and
technical assistance in use of product or service
e) Maintain post sale contact with customer to sustain satisfaction
f) Gather customer ideas for product or service improvements and
convey to respective internal organizational resources for
potential development
III. Maximizing Customer Lifetime Value (20 percent of customers generate as much as 80
percent of profits). Extreme cases show 150% – 300% of profits. Least profitable 10% –
20% can reduce profits by 50% – 200%. Fire worst customers.
A. Customer profitability
1. Profitable customers over time yield revenue streams that exceed the
costs of serving them. Emphasis here is on the lifetime stream of
revenue and cost and not profit from a specific transaction.
2. Customer profitability analysis (CPA) (refer to Figure 4.2) classifies
customers into different profit tiers by subtracting all costs associated
with serving the customer from all revenues generated from the
customer. Use of activity-based costing (ABC) greatly enhances this
type of analysis
B. Measuring Customer Lifetime Value (refer to Table 4.1 for a CLTV calculation
example)
1. Measuring customer lifetime value – the net present value of the stream
of future profits expected over the customer’s lifetime purchases
2. Subtract acquisition costs and “cost-to-serve”
IV. Cultivating Customer Relationships
Customer relationship management (CRM) is the process of managing detailed
information about individual customers and carefully managing all customer “touch
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points” to maximize customer loyalty. A touch point is any occasion on which a
customer encounters the brand or product. Peppers and Rogers’s four-step framework
for one-to-one marketing, which can be adapted for CRM, is as follows: 1) identify
your prospects and customers, 2) differentiate customers in terms of needs and their
value to the organization, 3) interact with individual customers to acquire more
information as well as sustain the relationship, 4) customize the offerings and
communication to each customer
A. Attracting, retaining, and growing customers – becoming harder to please,
smarter, more demanding, and less forgiving
1. Suspects – individuals or organizations who may have an interest in
purchasing but may not have the means or real intention to buy
2. Customer churn (turnover) reduction strategies include:
a) Erection of higher switching costs (not optimal in some cases as
it may breed resentment)
b) Optimal method is to breed high customer satisfaction
3. Customer development process – potentials into first-time customers into
repeat customers into clients (specially treated customers) into members
(programs) into advocates (become recommenders) and finally into
partners. This is illustrated by the concept called “The Marketing
Funnel” in figure 4.3
B. Building loyalty – five levels of investing in customer relationship building
1. Interacting with customers – listen to customer and pay attention to
customer evangelists who are a referral source to other potential
customers
2. Develop Loyalty Programs
frequently and in substantial amounts
b) Club membership programs – open to anyone who wants to
purchase or may involve a nominal fee for the privilege of
purchasing, Long term loyalty builders.
3. Creating Institutional Ties – Creating structural ties raises customer
switching costs……………………………………………………………………………….-
V. Customer Databases and Database Marketing
A. Introduction:
up-selling)
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2. Database marketing is the process of building, maintaining, and using ..
customer databases along with other databases (e.g. products, suppliers,
customer relationships
3. Customer and prospect databases are used for both consumers and
businesses
B. Data Warehouses and Datamining
1. A data warehouse contains all (including historical) relevant customer
and prospect information, marketing mix information, macro
information, and competitor information
2. Datamining is the process of analyzing data. The data can be resident
in a sophisticated repository such as a data warehouse or it may be a
simple set of data present on a report or in a spreadsheet. There is a
variety of software products and statistical methods that perform
3. Organizations use databases to:
a) Identify the best prospects
b) Match a specific offer with a specific customer to up-sell &
cross-sell to the customer
c) Deepen customer loyalty by using personalization techniques
d) Reactivate customers
e) Avoid mistakes by controlling customer communication
4. The Downside of Database Marketing and CRM
repair.
…..b) Large investment required for construction and maintenance of
computer hardware, software, communication capabilities
c) Difficulty of getting all employees to be customer centric and
breaking the paradigm in organizations to move from
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traditional transaction marketing to customer-orientated
marketing
Controversy”)
e) CRM assumptions may not always be valid (organization fails at
CRM execution; CRM cost exceeds benefits – either financial,
strategic, or both.
VI. Executive Summary
II. Lecture(s)
A. “Creating Customer Relationships that Last”
Teaching Objectives
To explain the concepts of product and service quality as they contribute to perceived value
for the customer.
Help students to better understand the changing role of the customer in today’s
marketplace.
Discussion
INTRODUCTION
In the contemporary marketplace it is hard to believe there was ever a time when customers
were not treated as an integral part of the exchange process. Prior chapters of the text consider
some of the many shifts taking place in today’s marketing environment. Competition in the
answering to this new trend. Product development will be discussed in a later chapter; for now,
we will focus on building satisfaction through customer relationship development activities.
The concept of perceived value is based on Kotler’s explanation of customer delivered value.
Customers, like marketers, seek to profit from an exchange. Perceived value is aptly named
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far above their expectations that it is perceived to be legendary.
Marketers, with both large and small organizations, can engage in activities that exceed
expectations and lead to customer delivered value. Marketers with large organizations have the
ability to tap into a sophisticated database, utilizing past purchase data to customize marketing
sales in desired market areas.
Small business marketers, however, also have many opportunities to create strong customer
relationships. By placing extra focus on what might generally be considered a commodity
product, these marketers can stimulate demand and compete with large rivals in the same
industry. If a company is small enough, its top executives can serve as the communication link
direction for relationship marketing.
RELATIONSHIP MARKETING EXPANDED
Even though it is becoming increasingly possible, why would any rational customer actually
want a “relationship” with the company that makes his or her razor blades, or dishwasher soap,
or toilet paper? The answer is that the consumer probably would not necessarily desire a
etc., automated.
What if you could turn on your personal computer or your interactive television set, call up a
list of last week’s grocery purchases, make a few changes, and then simply order them
delivered to your door? And what if, when you did this, the computer reminded you to order
certain items such as toothpaste and paper towels, since you might be running low on those
The elapsed time for all this shopping was just seven minutes.
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Now, from the marketer’s side of the equation, consider the immense business opportunity in
delivery, because they don’t want to consider this, for various internal reasons. They want
customers to need to come into the store (or into the “virtual store”) because they like to have
customers walking up and down the aisles (or virtual aisles), making last-minute impulse
purchases. For a large part of their business, today’s retailers depend on inconveniencing
shopping.
However, consider that marketers today jam twice as many products in the average
supermarket as there were just over a decade ago (30,000 products now, compared with 15,000
in 1985). Furthermore, commercial messages abound for these products, the overwhelming
majority of which do not now appeal to any particular consumer. Instead, we must all fight our
Internet.
Having an ability to buy these products more conveniently doesn’t mean people will
completely stop going into stores, nor does it mean advertising will cease to exist. But if
getting your regularly consumed products could be made nearly as convenient as “pushing a
button,” wouldn’t you go into the store less frequently? Wouldn’t you, for the most part, prefer
individually, and then using that feedback to customize an offering to each individual customer,
one at a time. This is the essence of one-to-one marketing.
B. “Consumer Concerns”
Teaching Objectives
behind the consumer perception of value.
Understand specific methods whereby marketers can engage in value-creating activities.
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Discussion
Customer satisfaction is the outcome felt by buyers who have experienced a company
performance that has fulfilled expectations. Customers are satisfied when their expectations are
met and delighted when their expectations are exceeded. Satisfied customers remain loyal
longer, buy more, are less price sensitive, and talk favorably about the company.
core capabilities that become core competencies, distinctive abilities, and competitive
advantages. This, along with a corporate culture of shared experiences, stories, beliefs, and
norms unique to the organization, are the keys to their success.
To create customer satisfaction, companies must manage their value chain as well as the whole
customer lifetime value against the cost stream required to attract and retain these customers.
Total quality marketing is seen today as a major approach to providing customer satisfaction
and company profitability. Companies must understand how their customers perceive quality
and how much quality they expect. Companies must then strive to offer relatively higher
company’s drive toward higher quality.
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