Unit-1 Lecture-5

Creating Long-term Loyalty and Relationships

A-Building Customer Value, Satisfaction, and

Loyalty
B-Maximizing Customer Lifetime Value
C-Cultivating Customer Relationships
 Learning Outcome
Students will be able
• To know and apply customer value, satisfaction, and
loyalty, and how can companies deliver.

• To work out and apply the lifetime value of

customers and how can marketers maximize it.

• To learn as to how can companies attract and retain

the right customers and cultivate strong customer
relationships
Creating Long-term Loyalty Relationships
A-Building Customer Value, Satisfaction, and
Loyalty
A-Building Customer Value, Satisfaction, and
Loyalty
i) Customer-Perceived Value (CPV)

The difference between the prospective

customer’s evaluation of all the benefits and
costs of an offering and the perceived
alternatives
Total customer benefit vs. total customer
cost
Determinants of CPV
A-Building Customer Value, Satisfaction, and
Loyalty
ii) Customer Value Analysis-reveals the company’s strengths
and weaknesses relative to those of various competitors. The
steps are:
1. Identify the major attributes and benefits that customers value
2. Assess the quantitative importance of the different attributes and
benefits
3. Assess the company’s and competitors’ performances on the
different customer values against their rated importance
4. Examine how customers in a specific segment rate the company’s
performance against a specific major competitor on an individual
attribute or benefit basis
5. Monitor customer values over time
A-Building Customer Value, Satisfaction, and
Loyalty
iii)Total customer satisfaction
– A person’s feelings of pleasure or disappointment
that result from comparing a product or service’s
perceived performance (or outcome) to
expectations
A-Building Customer Value, Satisfaction, and
Loyalty
iii)Total Customer Satisfaction
• Monitoring Satisfaction: many companies are
systematically measuring how well they treat
customers, identifying the factors shaping
satisfaction, and changing operations and
marketing as a result
– Periodic surveys, customer loss rate, mystery
shoppers, J. D. Power’s satisfaction ratings
A-Building Customer Value, Satisfaction, and
Loyalty
iii)Total Customer Satisfaction
• Product and service 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
– Conformance quality vs. performance quality
– Impact of quality
B-Maximizing Customer Lifetime Value
i)Customer Profitability Analysis
B-Maximizing Customer Lifetime Value
ii) Measuring Customer Lifetime Value (CLV)
-The 80-20 rule

-Return on Customer (ROC)

-Lifetime value should be greater than the cost

of acquiring a customer. Some also call it a
break-even point.
.
B-Maximizing Customer Lifetime Value
ii) Measuring Customer Lifetime Value (CLV)
The basic formula for calculating CLTV is the following
: (Average Order Value) x (Number of Repeat Sales) x (Average
Retention Time)
For example, let’s say you run a Health Club where customers
pay Rs 1000 per month and the average time that a person
remains a customer in your club is 3 years. Then the lifetime
value of each customer is (according to the formula above):
Rs 1,000 per month x 12 months x 3 years = Rs 36,000. This
means each customer is worth a lifetime value of Rs 36,000.
Once we calculate CLTV we know how much the company can
spend on paid advertising such as Facebook ads, YouTube ads,
Google Adwords etc. in order to acquire a new customer.
Customer Lifetime Value-Starbucks
 Customer Lifetime Value-Starbucks

• Average Customer Lifespan (t) = 20 Years

• Customer Retention Rate (r) = 75%
• Profit Margin per customer (P) = 21.3%
• Rate of Discount (i) =10% (it is the interest
rate used in discounted cash flow analysis
to determine the present value of future
cash flows.
• Average Customer Spend (52 weeks) =
$25272
• Average Gross Margin per customer (m) =
5382.94
Maximize Customer Lifetime Value-Starbucks

Increase profit margin, m

mxr
CLV = Increase customer retention rate, r
(1 + i – r)

Reduce discount rate, d

Customer Satisfaction Index-Starbucks

Customer
Relationship

Five percent increase in customer retention can increase

profits by 25% to 95%

It cost 6 to 7 times more to acquire a new customer than to

keep the existing one.
B-Maximizing Customer Lifetime Value
iii) Attracting and Retaining Customers
a) Reducing defection/customer churn

✓ Define and measure retention rate

✓ Distinguish/identify customer attrition causes
✓ Compare lost CLV to reducing defection rate
B-Maximizing Customer Lifetime Value
iii) Attracting and Retaining Customers
b) Retention dynamics/marketing funnel
B-Maximizing Customer Lifetime Value
iii) Attracting and Retaining Customers
c) Managing the customer base
Reduce
customer
defection
Focus on Increase
high-profit customer
customers longevity

Terminate low- Share of wallet &

profit cross/upselling
customers
B-Maximizing Customer Lifetime Value
iv) Building loyalty

Interact closely with customers

Develop loyalty programs

Create institutional ties

B-Maximizing Customer Lifetime Value
v) Brand Communities

A specialized community of consumers and

employees whose identification and activities focus
around the brand.
B-Maximizing Customer Lifetime Value
Value Creation Practices
• Social networking • Community
– Welcoming, engagement
empathizing,
– Staking, milestoning,
governing
badging, documenting
• Impression
• Brand use
management
– Grooming,
– Evangelizing, justifying customizing,
commoditizing

vi) Win-backs
C-Cultivating Customer Relationships
Customer relationship management (CRM)
-The process of carefully managing detailed
information about individual customers and
all customer “touch points” to maximize
loyalty
-Customer value management (CVM).
 CRM
• Personalizing/permission
marketing
• Customer empowerment
• Customer reviews/
recommendations
• Customer complaints
Customer complaints
 Mcq’s
•1) ________ is the difference between the
prospective customer's evaluation of all benefits
and all costs of an offering and the perceived
alternatives.
•A) Perceived usefulness
•B) Failure avoidance rate
•C) Total customer benefit
•D) Customer-perceived value
 Mcq’s
•2) ________ is the perceived monetary value of
the bundle of economic, functional, and
psychological benefits customers expect from a
given market offering.
•A) Total customer cost
•B) Total customer benefit
•C) Total benefits of ownership
•D) Value proposition
 Mcq’s
•3) Which of the following is the first step in
customer value analysis?
•A) Examine how customers in a specific segment
rate the company's performance.
•B) Assess the company's and competitors'
performances on the different customer values
against their rated importance.
•C) Identify the major attributes and benefits that
customers value.
•D) Monitor customer values over time.
 Mcq’s
•4) A company's ________ includes all the
experiences the customer will have on the way to
obtaining and using the offering.
•A) value proposition
•B) value delivery system
•C) customer-value analysis
•D) total customer benefit
.
 Mcq’s
•5) Another term for high customer ________ is
customer churn.
•A) retention
•B) defection
•C) value
•D) perception.
 Mcq’s
•6) Which of the following is a policy a store can
adopt to make low-profit customers more
profitable?
•A) 2Wheels sends birthday greetings to its best
customers and gives them discounts on merchandise.
•B) 2Wheels has a club for its regular customers,
organizing cycling events and parties for them.
•C) Though 2Wheels previously offered free delivery, it
now charges for deliveries made outside the city.
•D) 2Wheels allows existing customers to upgrade to a
newer model at less than the sticker price by trading in
their older model.