Connecting: With Customers

PART
3
CONNECTING
WITH CUSTOMERS
© Kotler, Keller, Ang, Leong & Tan Marketing Management - An Asian Perspective
4th Edition
5-1
Chapter
5
CREATING
Customer Value, Satisfaction &

Loyalty
4th Edition
5-2
In this chapter, we
address the following
questions:
1. What are customer value, satisfaction & loyalty &

how can companies deliver them?
2. What is the lifetime value of customers?
3. How can companies both attract & retain
customers?
4. How can companies cultivate strong customer
relationships?
5. How can companies deliver total quality?
6. What is database marketing?
Asian
© Kotler, Keller, Ang, Leong & Tan Marketing Management - An Perspective
5-3
4th Edition
Building Customer Value, Satisfaction & Loyalty
Hyundai incorporates consumer input & feedback

into car design process as part of building strong
customer relationships
4th Edition
5-4
Building Customer Value, Satisfaction &
Loyalty
 Customers are value-maximizers

 Form value expectation & act on it
 Buy from firm perceived to offer highest
customer delivered value, defined as
total customer value - total customer cost
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5-5
Figure 5.1 Traditional Organization versus
Modern Customer-Oriented Company Organization
4th Edition
5-6
Loyalty - Customer Perceived Value
 Customer perceived value (CPV)
– difference of benefits & costs of offering &
perceived alternatives
 Total customer value
– perceived monetary value of economic,
functional & psychological benefits
expected from offering
 Total customer cost
– costs to obtain & use offering, including
monetary, time, energy & psychic costs
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5-7
Figure 5.2
Determinants
Of
Customer-
Delivered
Value
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5-8
Choices & Implications
Customer perceived value

Its implications:
1.Seller find total value & cost of
competitor’s offer in buyer’s mind
2.Seller, at customer perceived value
disadvantage, can increase value or
decrease cost
4th Edition
5-9
Delivering High Customer Value
Value proposition
Benefits > core positioning
promised of offering
– eg Volvo core positioning –SAFETY

– But buyer promised more
– Long-lasting car, good service, long
warranty period
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5-10
Delivering High Customer Value
 How promise is kept?

 Depends how value-delivery system managed
Value-delivery system
Experiences customer have while
obtaining & using offering
 Which depends on marketer’s ability to
influence various core business processes
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5-11
Loyalty - Total Customer Satisfaction
Overview
Buyer satisfaction - product perceived

performance & buyer expectations
High satisfaction - high customer loyalty
Customer satisfaction - goal & marketing
tool
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5-12
Building Customer Value, Satisfaction & Loyalty
- Total Customer Satisfaction
Berjaya Times Square: Malaysia’s largest shopping mall

 Biggest regional indoor theme park
 1st IMAX 3-D theater
 Each month > 3 million visitors
Asian
5-13
4th Edition
Loyalty- Measuring Satisfaction
 Customer retention key - customer satisfaction
Methods To Measure Customer Satisfaction:

Periodic surveys - customer satisfaction
Customer loss rate - learn why they stop
Mystery shoppers - pose as buyer & report
 Monitor competitors’ performance - same areas
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Loyalty- Product & Service Quality
Quality
Totality of product/service features & its ability
to satisfy stated/implied needs
 Conformance quality & performance quality
– Eg: Lexus higher performance quality than Hyundai
– Same conformance quality if deliver promised
quality
 Total quality key to value & customer
satisfaction
4th Edition
5-15
Loyalty - Total Quality Management
Total Quality
Management (TQM)
organization-wide
approach
to improve quality of
all processes, products
& services
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5-16
Loyalty- Total Quality Management
Marketers’ Roles In TQM, Customer
Satisfaction & Company Profitability
1. Identify needs & requirements
2. Share expectations to product designers
3. Ensure orders – correct & on time
4. Ensure customers get help in product use
5. Ensure customer are & remain satisfied
6. Customer ideas & convey to departments
4th Edition
5-17
Maximizing Customer Lifetime Value
- Customer Profitability
Profitable customer
 Revenue stream > cost stream to attract,
sell & service her
 Customer profitability can be assessed by
individual, market segment or channel
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5-18
Figure 5.3 Customer-Product Profitability Analysis
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5-19
Customer Profitability Analysis
Customer Profitability Analysis (CPA)

 Use Activity-Based Costing (ABC)
 Estimates all customer revenue less costs
 Must segment customers – more attention
paid to those worth pursuing
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5-20
COMPETITIVE ADVANTAGE
Competitive advantage
Company’s ability to perform in ways that
competitors cannot
 Be seen by customers as customer advantage

 Customer - sees value & satisfied - repeat
purchases - company profits
4th Edition
5-21
-Measuring Customer Lifetime Value
Customer Lifetime Value (CLV)

Net present value of stream of future
profits expected over customer’s lifetime
purchases
 Quantitative framework
– plan customer investment over long-term
 Challenge: reliable cost, revenue estimate
 Short-term activity - increase loyalty
4th Edition
5-22
-Customer Equity
Customer equity
Total discounted lifetime values of all firm’s
customers
Blattberg, Getz, & Thomas Rust, Zeithaml, & Lemon
3 drivers: 3 drivers:
1. Value equity 1. Acquisition
2. Brand equity 2. Retention
3. Relationship equity 3. Add-on-selling
4th Edition
5-23
Progress & Priorities in
Customer Equity Management
Implement customer equity management
HOW?
1) Get individual & industry consumer data
2) Track marketing’s effect on balance sheet
3) Model future revenues appropriately
4) Maximize (don’t just measure) CLV
5) Align firm - customer management activities
6) Respect sensitivity of customer information
7) Develop CRM - service improvement tool
4th Edition
5-24
-Cultivating Customer Relationships
 Maximize customer value

 Cultivate long term customer relationships
Mass customization
 Ability of company to
meet each customer’s requirements
– eg Levi’s
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5-25
- Customer Relationship Management (CRM)
CRM
Process of managing detailed
individual customer information
& all “touch points” to maximize loyalty
 Customer touch point

– Any occasion - customer encounters brand
 CRM important - major driver of profit is value
of customer base
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-Customer Relationship Management (CRM)
4 step framework to CRM marketing:

1. Identify prospects & customers
2. Differentiate customers in terms of
– Needs & value to company
3. Know individual needs & build relationships
4. Customize products, messages to each
customer
4th Edition
5-27
-Customer Relationship Management (CRM)
Key driver of shareholder value

Aggregate value of customer base
Strategies to Improve Value of Customer Base:
1. Reduce defection rate
2. Increase relationship length
3. Enhance growth potential
4. Make low-profit ones profitable or
terminate them
5. Focus on high-value customers
4th Edition
5-28
Table 5.1 Mass Marketing versus One-to-One Marketing
4th Edition
5-29
-Attracting, Retaining & Growing Customers
Overview
 Losing profitable customers affect profits

 Attract new customer ≈ 5x cost to keep
current customer happy
 Key to retain customer- relationship
marketing
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5-30
Strengthen customer retention HOW?

1. Erect high switching barriers
2. Deliver high customer satisfaction
3. Quick constructive response to
complaints
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5-31
Figure 5.4
The Customer-
Development
Process
Main steps in
process to
attract & keep
customers
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5-32
 Markets - long-term buying dynamics &

customer movement
3 types
1. Permanent capture markets
2. Simple retention markets
3. Customer migration markets
 Customers - inactive/drop out

 Analyze cause of customer defection
 Reactivate those with strong profit potential
4th Edition
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-Building Loyalty
5 investment levels in
customer relationship building:
 Basic marketing
 Reactive marketing
 Accountable marketing
 Proactive marketing
 Partnership marketing
4th Edition
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Figure 5.5 Levels of Relationship Marketing
Depends on number of customers

Asian
& profit margin
4th Edition
5-35
Table 5.2 Breaking Down Customer Relationship Management:
What Customer Relationship Management Really Comprises
4th Edition
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-Building Loyalty
5 prerequisites
Marketing & customer management excellence:
1. Develop & deliver “branded” experience

2. Create & shape demand
3. Harness talent & technology
4. Foresight & insight - marketing productivity
5. Marketing to meet performance objectives
4th Edition
5-37
-Reducing Customer Defection
5 steps to reduce defection rate:

1. Define & measure retention rate
2. Distinguish cause of customer attrition
3. Estimate profit lost when lose customers
4. Determine cost to reduce defection rate
5. Listen to customers
4th Edition
5-38
Asking Questions When Customers Leave
Effective retention - customer defection patterns
Key questions:
 Customers defect at different rates during year?
 Retention vary by office, region, sales rep?
 Relationship - retention rates & changes in prices?
 Lost customers - where do they go?
 Retention norms for your industry?
 Company in industry retains customers longest?
4th Edition
5-39
-Forming Strong Customer Bonds
 3 retention-building approaches:
1. Adding financial benefits
2. Adding social benefits
3. Adding structural ties
4th Edition
5-40
Forming Strong Customer Bonds
1) Plan, manage customer satisfaction &

retention process across departments
2) Use “Voice of the Customer” in business
decisions
3) Create superior products for target market
4) Database on each customer information
5) Allow customers to reach right people easily
to express needs, perceptions, complaints
6) Award outstanding employees
4th Edition
5-41
ADDING FINANCIAL BENEFITS
2 financial benefits companies offer:

1. Frequency programs (FPs)
2. Club marketing programs
 FPs – reward for frequent & substantial buys

 Club membership - open to everyone, group
or those who pay a fee
4th Edition
5-42
ADDING SOCIAL BENEFITS
 Company personnel cement social bonds

with customers – individualize &
personalize relationships
 In essence, thoughtful companies turn
customers into clients
4th Edition
5-43
ADDING STRUCTURAL TIES
 Company supply customers with

equipment/computer links
 Help them manage orders, payroll etc
– Eg Nestlé in Asia
– Support retailers
– Help in inventory management
4th Edition
5-44
ADDING STRUCTURAL TIES
How to create structural ties with

customer?
1. Create long-term contracts
2. Charge lower price to consumers who
buy larger supplies
3. Turn product into
long-term service
4th Edition
5-45
Customer Databases & Database Marketing
Customer database
organized information on every customer:
 current,
 accessible &
 actionable for
 lead generation,
 lead qualification,
 sale of product
 or maintenance of relationships
4th Edition
5-46
Database marketing
process
to build, maintain & use
databases
to contact, transact & build
customer relationships
4th Edition
5-47
Figure 5.6 Increasing Customer Share of Requirements
4th Edition
5-48
- Data Warehouses & Datamining
Data warehouse: Organized collected data

Datamining:
 Extract information on individuals &
trends
 Statistical & mathematical techniques
– cluster analysis & neural networking
4th Edition
5-49
- Data Warehouses & Datamining
USING THE DATABASE
Database used in 5 ways:

1. Identify prospects
2. Decide customers to receive offer
3. Deepen customer loyalty
4. Reactivate customer purchases
5. Avoid serious customer mistakes
4th Edition
5-50
- The Downside of Database Marketing & CRM
4 problems in using CRM:

FIRST PROBLEM:
 Build & maintain database
 Large technology investment & skilled staff
 Difficult to collect right data
 Problem worse in Asia
– At least 4 major differences in nature of customer
relationships compared to the West
4th Edition
5-51
4 differences in Asia compared to the West

1. Language preference- complex but important
2. Identify by name– challenge - racially diverse
3. Some jurisdictions allow > 1 marriage
 Wealthy males >1 address - intricate
arrangements
4. Bias against flaunting wealth
 Reluctance to declare to strangers,
government
4th Edition
5-52
SECOND PROBLEM:
 Difficult to get all to be customer-oriented
THIRD PROBLEM:
 Not all want relationship with company
 May resent company has personal information
FOURTH PROBLEM:
 Assumptions behind CRM - not always true
4th Edition
5-53
4 main perils of CRM:

1. Implement CRM before customer
strategy
2. Roll out CRM before changing
organization
3. Assume more CRM technology is better
4. Stalking, not wooing customers
4th Edition
5-54
Each company needs to determine

how much to invest in
building and using database marketing
to conduct
its customer relationships
4th Edition
5-55
Final discussion
Marketing Debate What is the Best Type of Marketing Research?
Many market researchers have their favorite research approaches or
techniques, although different researchers often have different
preferences. Some researchers maintain that the only way to really
learn about consumers or brands is through in-depth, qualitative
research. Others contend that the only legitimate & defensible form
of marketing research involves quantitative measures.
Take a position:
Marketing research should be quantitative versus Marketing research
should be qualitative.
Marketing Discussion
When was the last time you participated in a survey?
How helpful do you think was the information you provided?
How could the research have been done differently to make it more
effective?
4th Edition
5-56
Video Links
Primary Videos to watch:
 iWon.com (10:45 min)
 Federated Direct (7:58 min)
Click here to watch the video clips from

the US Website.
4th Edition
5-57

Connecting: With Customers

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PART

Customer Value, Satisfaction &

1. What are customer value, satisfaction & loyalty &

Hyundai incorporates consumer input & feedback

 Customers are value-maximizers

total customer value - total customer cost

Customer perceived value

– eg Volvo core positioning –SAFETY

 How promise is kept?

Buyer satisfaction - product perceived

Berjaya Times Square: Malaysia’s largest shopping mall

Methods To Measure Customer Satisfaction:

 Monitor competitors’ performance - same areas

Customer Profitability Analysis (CPA)

 Be seen by customers as customer advantage

Customer Lifetime Value (CLV)

 Maximize customer value

 Customer touch point

4 step framework to CRM marketing:

Key driver of shareholder value

 Losing profitable customers affect profits

Strengthen customer retention HOW?

 Markets - long-term buying dynamics &

 Customers - inactive/drop out

Depends on number of customers

1. Develop & deliver “branded” experience

5 steps to reduce defection rate:

Effective retention - customer defection patterns

1) Plan, manage customer satisfaction &

2 financial benefits companies offer:

 FPs – reward for frequent & substantial buys

 Company personnel cement social bonds

 Company supply customers with

How to create structural ties with

Data warehouse: Organized collected data

Database used in 5 ways:

4 problems in using CRM:

4 differences in Asia compared to the West

4 main perils of CRM:

Each company needs to determine

Click here to watch the video clips from

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