Marketing management Chapter5 loyalty.pptx

Creating long-term loyalty

1. 5 Creating Long-Term Loyalty Relationships 1

2. Chapter 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 customers and cultivate strong customer relationships? What are the pros and cons of database marketing? Copyright © 2012 Pearson Education 5- 2

3. Copyright © 2012 Pearson Education 5- 3 Today, companies face their toughest competition ever. Moving from a product-and-sales philosophy to a holistic marketing philosophy, however, gives them a better chance of outperforming the competition. The cornerstone of a well conceived holistic marketing orientation is strong customer relationships .

4. Copyright © 2012 Pearson Education 5- 4 Marketers must connect with customers—informing, engaging, and maybe even energizing them in the process. Customer centered companies are skillful at building customer relationships, not just products ; they are skilled in market engineering , not just product engineering. A pioneer in customer relationship management techniques is Harrah’s Entertainment.

5. Harrah’s Builds Relationships As Harrah’s experience shows, successful marketers are those who carefully manage their customer base

6. Managers who believe the customer is the company’s only true “profit center” consider the traditional organization chart in Figure 5.1 (a)—a pyramid with the president at the top, management in the middle, and frontline people and customers at the bottom— obsolete .

7. Customer-Orientations Copyright © 2012 Pearson Education 5- 7 Figure 5.1

8. Successful marketing companies invert the chart as in Figure 5.1 (b). At the top are customers; next in importance are frontline people who meet, serve, and satisfy customers; under them are the middle managers, whose job is to support the frontline people so they can serve customers well;

9. and at the base is top management, whose job is to hire and support good middle managers. Customers have been added along the sides of Figure 5.1 (b) to indicate that managers at every level must be personally involved in knowing, meeting, and serving customers.

10. Dell Reestablished Its Commitment to Value

11. Copyright © 2012 Pearson Education 5- 11 Dell rode to success by offering low-priced computers, logistical efficiency, and after-sales service. The firm’s excessive focus on low costs has been a key ingredient in its success. When the company shifted its customer service call centers to India and the Philippines to cut costs, however, understaffing frequently led to 30-minute waits for customers . Almost half the calls required at least one transfer.

12. Copyright © 2012 Pearson Education 5- 12 To discourage customer calls, Dell even removed its toll-free service number from its Web site. With customer satisfaction slipping , and competitors matching its product quality and prices and offering improved service, Dell’s market share and stock price both declined sharply. Dell ended up hiring more North American call center employees.

13. What is Customer Perceived Value? Customer perceived value is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Copyright © 2012 Pearson Education 5- 13

14. Copyright © 2012 Pearson Education 5- 14

15. What is Customer Perceived Value? Total customer benefit is the perceived monetary value of the bundle of Economic, Functional, and Psychological benefits customers expect from a given market offering because of the product, service, people, & image involved.

16. Total customer cost is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering , including monetary, time, energy, and psychological costs.

17. Customer-perceived value is thus based on the difference between benefits the customer gets and costs he or she assumes for different choices. The marketer can increase the value of the customer offering by raising economic, functional, or emotional benefits and/or reducing one or more costs .

18. Determinants of Customer Perceived Value

19. Caterpillar Maximizes Customer Value Copyright © 2012 Pearson Education 5- 19

20. Caterpillar has become a leading firm by maximizing total customer value in the construction-equipment industry, despite challenges from a number of able competitors such as Komatsu. Caterpillar produces high-performance equipment known for Reliability and Durability, Performance, and Resale value. The firm also makes it easy for customers to find the right product by providing a full line of construction equipment and a wide range of financial terms.

21. Caterpillar maintains the largest number of independent construction-equipment dealers in the industry. These dealers all carry a complete line of Caterpillar products and are typically better trained and perform more reliably than competitors’ dealers.

22. Steps in a Customer Value Analysis CVA Identify major attributes and benefits that customers value Assess the quantitative importance of different attributes & benefits (rate importance of different attributes & benefits) Assess the company’s and competitor’s performances on the different customer values against rated importance (customers describe where they see the company’s and competitor’s performances) Managers conduct CVA to reveal company’s strengths& weaknesses relative to those of various competitors

23. Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an individual attribute or benefit basis. (if company offer exceeds competitors, charge more or stay with the same price and increase market share) Monitor customer values over time. The company must periodically redo its studies of customer values and competitors’ standings as the economy, technology, and features change.

24. Copyright © 2012 Pearson Education 5- 24 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.

25. Copyright © 2012 Pearson Education 5- 25 Top Brands in Customer Loyalty

26. Copyright © 2012 Pearson Education 5- 26

27. Establishing Value Copyright © 2012 Pearson Education 5- 29

28. 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 .

29. The value proposition is thus a promise about the experience customers can expect from the company’s market offering and their relationship with the supplier.

30. Volvo ad focusing on how the Advanced Compatibility Engineering body structure is an innovative safety feature

31. Value proposition Value proposition is the full mix of benefits upon which a brand is positioned

32. Whether the promise is kept depends on the company’s ability to manage its value delivery system. Which includes all the experiences the customer will have on the way to obtaining and using the offering. At the heart of a good value delivery system is a set of core business processes that help deliver distinctive consumer value.

33. How do buyers form their expectations? Past experience Friends’ advice Marketers Competitors’ information Promises If expectations are too high, buyer is likely to be disappointed. If its too low, it won’t attract enough buyers . (Kia and its success in the US market) Copyright © 2012 Pearson Education 5- 35

34. Measuring Satisfaction How likely is it that you would recommend this product or service to a friend or colleague? Periodic surveys (ask if customer will repurchase and will he or she recommend to others) Customer loss rate Mystery shoppers Monitor competitive performance

35. Copyright © 2012 Pearson Education 5- 37 Many companies are systematically measuring how well they treat customers, identifying the factors shaping satisfaction, and changing operations and marketing as a result. Wise firms measure customer satisfaction regularly, because it is one key to customer retention

36. Copyright © 2012 Pearson Education 5- 38

37. Copyright © 2012 Pearson Education 5- 39 Developed by University of Michigan

38. 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 & its products, Pays less attention to competing brands and Is less sensitive to price, Offers product or service ideas to the company, and Costs less to serve than new customers because transactions can become routine.

39. Managing Customers Customers are dissatisfied about 25% of the time but only 5% complain. The other 95% either feel complaining is not worth the effort, or don not know how or to whom to complain, and they just stop buying.

40. Copyright © 2012 Pearson Education 5- 43 Given the potential downside of having an unhappy customer, it’s critical that marketers deal with negative experiences properly. Beyond that, the following procedures can help to recover customer goodwill:

41. Copyright © 2012 Pearson Education 5- 44 Set up a 7-day, 24-hour toll-free hotline (by phone, fax, or e-mail) to receive and act on customer complaints. Contact the complaining customer as quickly as possible. The slower the company is to respond, the more dissatisfaction may grow and lead to negative word of mouth.

42. Copyright © 2012 Pearson Education 5- 45 3. Accept responsibility for the customer’s disappointment; DO NOT BLAME THE CUSTOMER. 4. Use customer service people who are empathic. 5. Resolve the complaint swiftly and to the customer’s satisfaction. Some complaining customers are not looking for compensation so much as a sign that the company cares.

43. Copyright © 2012 Pearson Education 5- 46 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.

44. Satisfaction will also depend on product and service quality. What exactly is quality? Various experts have defined it as: “fitness for use,” “conformance to requirements,” and “freedom from variation.”

45. This is clearly a customer-centered definition. We can say the seller has delivered quality whenever its product or service meets or exceeds the customers’ expectations. A company that satisfies most of its customers’ needs most of the time is called a quality company.

46. In 1816 stores Home depot replaced many full time employees with part-time who soon made up 40% of store staff. The store’s ACSI index of customer satisfaction dropped to the bottom among major US retailers.

47. Copyright © 2012 Pearson Education 5- 50 Maximizing Customer Lifetime Value Customer Profitability Customer Equity Lifetime Value

48. Maximizing Customer Lifetime Value Marketing is the art of attracting and keeping profitable customers, however every company loses money on some of its customers. 20-80 rule Most profitable 10-20 % Least profitable Mid size customers (breaking even) Copyright © 2012 Pearson Education 5- 51

49. Total Quality Quality is Cleary the key to value creation &customer satisfaction Marketers play several roles in helping their companies define and deliver high quality goods and services to target customers. They bear the major responsibility for correctly identifying the customer’s needs and requirements. Communicate customer expectations properly to product designers.

50. Total Quality Make sure customers orders are filled correctly and on time. Check that the customer received proper instruction and training and technical assistance. Stay in touch with customer after sale to ensure that they are satisfied Gather customer ideas for product improvements.

51. Customer-Product Profitability Analysis Copyright © 2012 Pearson Education 5- 54 Figure 5.3.

52. A useful type of profitability analysis is shown in Figure 5.3. Customers are arrayed along the columns and products along the rows. Each cell contains a symbol representing the profitability of selling that product to that customer. Customer 1 is very profitable; he buys two profit-making products (P1 and P2). Customer 2 yields mixed profitability; he buys one profitable product (P1) and one unprofitable product (P3).

53. Customer 3 is a losing customer because he buys one profitable product (P1) and two unprofitable products (P3 & P4). What can the company do about customers 2 and 3? It can raise the price of its less profitable products or eliminate them, or It can try to sell customers 2 and 3 its profit-making products. Unprofitable customers who defect should not concern the company. In fact, the company should encourage them to switch to competitors.

54. Copyright © 2012 Pearson Education 5- 57 Estimating Lifetime Value Annual customer revenue: $500 Average number of loyal years: 20 Company profit margin: 10 Customer lifetime value: $1000

55. Copyright © 2012 Pearson Education 5- 58 The case for maximizing long-term customer profitability is captured in the concept of 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.

56. Copyright © 2012 Pearson Education 5- 59 Lifetime value calculations for a product or service can add up to tens of thousands of dollars or even into six figures. Many methods exist to measure CLV.

57. Illustrating CLV calculations The present value of the profits from this group of customers over 10 years is $13,286, the net CLV (after deducting acquisition costs) is $9,286 or $92.8 per customer

58. Copyright © 2012 Pearson Education 5- 61 What is Customer Relationship Management? CRM is the process of carefully managing detailed information about individual customers and all customer touch points to maximize customer loyalty. A customer touch point is any occasion on which a customer encounters the brand and product— from actual experience to personal or mass communications to casual observation. For a hotel, the touch points include:……..

59. Company response to customer empowerment Burger king “Have it Your Way”. Nike: part of its Joga Bonito “Play Beautiful”, world cup sponsorship, Nike spent $100 million on a multi-yard campaign. Nike CEO Mark Parker sums up the marketing equation well “ A strong relationship is created when someone joins a Nike community or invites Nike into their community. Copyright © 2012 Pearson Education 5- 62

60. A four-step framework for One-to-One Marketing that can be adapted to CRM marketing as follows: Identify your prospects and customers. Don’t go after everyone . Build, maintain, and mine a rich customer database with information from all the channels and customer touch points. 2. Differentiate customers in terms of (1) their needs and (2) their value to your company. Spend proportionality more effort on the most valuable customers (MVCs).

61. Copyright © 2012 Pearson Education 5- 64 3. Interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships. Formulate customized offerings you can communicate in a personalized way. 4. Customize products, services, and messages to each customer. Facilitate customer interaction through the company contact center and Web site.

62. Attracting & Retaining Customers Reduce the rate of defection (Whole foods, wows customers with a commitment to marketing the best foods) Increase longevity (Treat customers like partners specially in B2B) Enhance share of wallet (Cross selling and up-selling-Harley Davidson) Terminate low-profit customers (Encourage to buy more or in large quantities) Focus more effort on high-profit customers (Treat most valuable in a very special way)

63. Copyright © 2012 Pearson Education 5- 66 Whole foods, wows customers with a commitment to marketing the best foods

64. Attracting & Retaining Customers Retaining customers is critical. Consider these facts: 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.

65. The Marketing Funnel Figure 5.4

66. The Marketing Funnel Figure 5.4

67. Copyright © 2012 Pearson Education 5- 70 Figure 5.4 shows the main steps in attracting and retaining customers in terms of a funnel. The marketing funnel identifies the percentage of the potential target market at each stage in the decision process, from merely aware to highly loyal.

68. Copyright © 2012 Pearson Education 5- 71 Consumers must move through each stage before becoming loyal customers. Some marketers extend the funnel to include loyal customers who are brand believers or even partners with the firm.

69. Loyalty Programs Copyright © 2012 Pearson Education 5- 72

70. Loyalty Status

71. Building Strong Customer Bonds Create superior products and services Integrate the “VOICE OF CUSTOMER” to capture their stated needs Organize a database of information on individual customer needs, preferences, purchase frequency, and satisfaction Make it easy to reach appropriate company personnel and express their needs, and complaints Run outstanding programs recognizing outstanding employees

72. Harley Davidson HOG now has more than 1 million members First time buyer gets: Free one year HOG membership Touring handbook Emergency road service Special insurance program Theft service Discounted hotel rates and more Copyright © 2012 Pearson Education 5- 75

73. Frequency programs ( FPs ) are designed to reward customers who buy frequently and in substantial amounts. They can help build long-term loyalty with high CLV customers, creating cross-selling opportunities in the process.

74. Pioneered by the airlines, hotels, and credit card companies, FPs now exist in many other industries. Most supermarket chains offer price club cards that grant discounts on certain items. Club membership programs can be open to everyone who purchases a product or service, or limited to an affinity group or those willing to pay a small fee.

75. Copyright © 2012 Pearson Education 5- 78

76. Upgrading stores and product selection in 1983 Needed to reverse the public perception of its stores to gain share against Sainsbury’s Between 1990 and 1992 they launched 114 separate initiatives to improve quality of its stores (adding baby changing rooms, stock specialty items, & introducing value prices line of products) Between 1990 and 1995 they attracted 1.3 million new customers which pushed revenue and market share that surpassed Sainsbury’s

77. Tesco introduced what made it a WORLD CLASS example of how to build a lasting relationship with customers: The Tesco Clubcard frequent shopper program. Essentially a loyalty card that offered discounts and special offers tailored to individual shoppers.

78. The company installed kiosks in its stores where clubcard shoppers could get customized coupons By 2005, Tesco had a 35% share of supermarket spending in the UK (almost twice its nearest competitor) In 2006, it was UK’s largest company and sixth largest retailer in the world

79. Copyright © 2012 Pearson Education 5- 82

80. Database Key Concepts Customer database Database marketing Mailing list Business database Data warehouse Data mining Copyright © 2012 Pearson Education 5- 83

81. Copyright © 2012 Pearson Education 5- 84 Marketers must know their customers. And in order to know the customer, the company must collect information and store it in a database from which to conduct database marketing.

82. Copyright © 2012 Pearson Education 5- 85 A customer database is an organized collection of comprehensive information about individual customers or prospects that is current , accessible , and actionable for a sale of a product or service, or maintenance of customer relationships.

83. Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) to contact, transact, and build customer relationships. A customer mailing list is simply a set of names, addresses, and telephone numbers.

84. A business database contains business customers’ past purchases; past volumes, prices, and profits; buyer team member names (and ages, birthdays, hobbies, and favorite foods); status of current contracts; an estimate of the supplier’s share of the customer’s business;

85. competitive suppliers; assessment of competitive strengths and weaknesses in selling and servicing the account; and relevant customer buying practices, patterns, and policies.

86. These data are collected by the company’s contact center and organized into a Data warehouse where marketers can capture, query, and analyze them to draw presumptions about an individual customer’s needs and responses. Through Data mining , marketing statisticians can extract from the mass of data useful information about individuals, trends, and segments.

87. Using the Database To identify prospects (identify best prospects and contact them by either mail or phone) To target offers (decide who should receive a particular offer) To deepen loyalty (sending appropriate gifts, and discount coupons) To reactivate customers (automatic mailing programs -automatic marketing- Christmas shopping reminders and off seasons promotions) To avoid mistakes

88. Copyright © 2012 Pearson Education 5- 91 Don’t Build a Database When Customers do not show loyalty The unit sale is very small The cost of gathering information is too high The product is a once-in-a-lifetime purchase

89. For Review 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 customers and cultivate strong customer relationships? What are the pros and cons of database marketing? Copyright © 2012 Pearson Education 5- 92