Marketing Management

Arab World Edition

Kotler, Keller, Hassan, Baalbaki and Shamma

Chapter 5
Creating Customer
Value, Satisfaction,
and Loyalty
Chapter Questions

1. What are customer value, satisfaction, and loyalty, and

how can companies deliver them?
2. What is the lifetime value of customers and how can
marketers maximize it?
3. How can companies cultivate strong customer
relationships?

Copyright © 2012 Pearson Education 5-3

 Chapter Question 1:
What are customer value,
Building Customer Value, satisfaction, and loyalty,
and how can companies
Satisfaction, and Loyalty deliver them?

Fig. 5.1: Traditional Organization versus

Modern Customer-Oriented Company Organization

Copyright © 2012 Pearson Education 5-4

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
Customer Perceived Value deliver them?

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.

Fig. 5.2: Determinants of

Customer-Perceived Value

Copyright © 2012 Pearson Education 5-5

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
Customer Perceived Value deliver them?

Often managers conduct customer value analysis . (S&W)

Steps in this analysis are:

1. Identify major attributes and benefits that customers value.

2. Assess the qualitative importance of different attributes and
benefits.
3. Assess the company’s and competitor’s performances on the
different customer values against rated importance.
4. Examine ratings of specific segments.
5. Monitor customer values over time.

Copyright © 2012 Pearson Education 5-6

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Delivering High Customer Value

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.

Copyright © 2012 Pearson Education 5-7

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
Delivering High Customer Value and how can companies
deliver them?

Copyright © 2012 Pearson Education 5-8

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Delivering High Customer Value

The value proposition is the

whole cluster of benefits the
company promises to deliver.

P VS VP

Volvo’s value proposition is not

just in the safety.

Copyright © 2012 Pearson Education 5-9

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Total Customer Satisfaction

A customer’s decision to be
loyal or to defect is the sum of
many small encounters with the
company.

Expectation Vs Performance
Joie de Vivre’s boutique hotels
offer personal touches that exceed
customer expectations.

Copyright © 2012 Pearson Education 5-10

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Monitoring Satisfaction

Measurement techniques include:

• Periodic surveys
• Customer loss rate (Stop to buy)
• Mystery shoppers
• Monitor competitive performance 80/90

Copyright © 2012 Pearson Education 5-11

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
deliver them?
Monitoring Satisfaction

Customer complaints

only about 5 percent from dissatisfied complain. The other 95

they just stop buying.

Copyright © 2012 Pearson Education 5-12

 Chapter Question 1:
What are customer value,
satisfaction, and loyalty,
and how can companies
Monitoring Satisfaction deliver them?

When things go wrong, how to recover customer goodwill:

1. Set up a 7-day, 24-hour free ‘hotline’ (by phone, fax, or e-mail) to
receive and act on customer complaints.

2. Contact the complaining customer as quickly as possible. Slow

responses cause growing dissatisfaction, and lead to negative word
of mouth.

3. Accept responsibility for the customer’s disappointment; don’t

blame the customer.

4. Use customer-service people who are empathic.

5. Resolve the complaint swiftly and to the customer’s satisfaction.

Copyright © 2012 Pearson Education 5-13

 Chapter Question 2:
What is the lifetime value
Maximizing Customer of customers and how can
marketers maximize it?
Lifetime Value
Fig. 5.3:
The 150/20 Rule:
“The 20% most
profitable
customers
generate as much
as 150% of the
profits of a
company; the
20% least
profitable lose
100% of the
profits.”

Copyright © 2012 Pearson Education 5-14

 Chapter Question 2:
What is the lifetime value
of customers and how can
marketers maximize it?

Customer Profitability

• A profitable customer is a person, household, or company

that over time yields a revenue stream that exceeds by an
acceptable amount the company’s cost stream of attracting,
selling, and servicing that customer.
• Marketers can assess customer profitability individually, by
market segment, or by channel.

Copyright © 2012 Pearson Education 5-15

 Chapter Question 2:
Customer Profitability What is the lifetime value
of customers and how can
marketers maximize it?

Customer profitability analysis (CPA) can be conducted using a

grid, as shown in Fig. 5.4

Fig. 5.4: Customer-Product Profitability Analysis

Activity-based costing ABC

Copyright © 2012 Pearson Education 5-16

 Chapter Question 2:
What is the lifetime value
of customers and how can
marketers maximize it?

Measuring Customer Lifetime Value

Customer lifetime value (CLV) is the net present value of

the stream of future profits expected over the customer’s
lifetime purchases.

•Annual customer revenue: $500

•Average number of loyal years: 20
•Company profit margin: 10
•Customer lifetime value: $1000

Copyright © 2012 Pearson Education 5-17

 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

video

https://www.youtube.com/watch?v=779KwjAYTeQ

Copyright © 2012 Pearson Education 5-18

 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

CRM is the process of carefully managing detailed information

about individual customers and all customer touch points to
maximize customer loyalty.

Copyright © 2012 Pearson Education 5-19

 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

Framework for CRM marketing:

1.Identify prospects and customers.
2.Differentiate customers by their needs and their value to
company.
3.Interact with customers to improve knowledge of their
individual needs and build stronger relationships.
4.Customize products, services and messages to each
customer.

Copyright © 2012 Pearson Education 5-20

 Chapter Question 3:
How can companies
cultivate strong customer
relationships?

Customer Relationship Management

Strategies for increasing the value of the customer base:

•Reducing the rate of customer defection.

•Increasing the longevity of the customer relationship.
•Enhancing the growth potential of each customer through
‘share of wallet’, cross-selling and up-selling.
•Making low-profit customers more profitable or terminating
them.
•Focusing disproportionate effort on high-profit customers.

Copyright © 2012 Pearson Education 5-21

 Chapter Question 4:
How can companies both
attract and retain
customers?

Attracting and Retaining Customers

Attracting new customers can be expensive.

Table 5.3: Customer Acquisition Costs by Marketing Activity

Copyright © 2012 Pearson Education 5-22

 Chapter Question 4:
How can companies both
attract and retain
customers?

Attracting and Retaining Customers

Retention dynamics:
• 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.

Copyright © 2012 Pearson Education 5-23

 Chapter Question 4:
Attracting and Retaining Customers How can companies both
attract and retain
customers?

Fig. 5.5: The Customer Development Process

Copyright © 2012 Pearson Education 5-24

 Chapter Question 4:
How can companies both
attract and retain
customers?

Building Loyalty

Box 5.2: Forming Strong Customer Bonds

Copyright © 2012 Pearson Education 5-25

 Chapter Question 4:
How can companies both
attract and retain
Building Loyalty customers?

• Customer plus-delta
• Napsterize your knowledge
• Build the buzz
• Create community
• Make bite-size chunks
• Create a cause

Copyright © 2012 Pearson Education 5-26

 Chapter Question 5:
What is database
Customer Databases and marketing?

Database Marketing

A customer database is an organized collection of

comprehensive information about individual customers or
prospects that is current, accessible, and actionable for
marketing purposes.

Copyright © 2012 Pearson Education 5-27

 Chapter Question 5:
What is database
marketing?

Customer Databases

Database key concepts

• Customer database • Business database

• Database marketing • Data warehouse
• Mailing list • Data mining

Copyright © 2012 Pearson Education 5-28

 Chapter Question 5:
What is database
marketing?

Data Warehouses and Datamining

Companies can use their databases in five key ways:

1. To identify prospects.
2. To target offers.
3. To deepen loyalty.
4. To reactivate customers.
5. To avoid mistakes.

Copyright © 2012 Pearson Education 5-29

 Chapter Question 5:
What is database
marketing?

The Downside of Database Marketing and CRM

Don’t build a customer database when:

1. The product is a once-in-a-lifetime purchase.
2. Customers do not show loyalty.
3. The unit sale is very small.
4. The cost of gathering information is too high.

Copyright © 2012 Pearson Education 5-30

 Chapter Question 5:
What is database
marketing?

The Downside of Database Marketing and CRM

Perils of CRM:
• Implementing CRM before creating a customer strategy
• Rolling out CRM before changing the organization to match
• Assuming more CRM technology is better
• Stalking, not wooing, customers

Copyright © 2012 Pearson Education 5-31

 Credits

• Slide 1 Alamy Images: B. O’Kane

• Slide 7 Image courtesy of The Advertising Archives
• Slide 8 ‘2010 Brand Keys Customer Loyalty Leaders List’,
http://www.brandkeys.com/awards/leaders.cfm. Reproduced with
permission
• Slide 9 Joie De Vivre Hotels
• Slide 14 Larry Selden and Yoko S. Seldon, “Profitable Customer: The Key
to Great Brands,” Point, July–August 2006
• Slide 25 Customer Loyalty: How to Earn It, How to Keep It, John Wiley and
Sons (Griffin, J., 2002), p.36, copyright © 2002, John Wiley and Sons
• Slide 27 Ben McConnell and Jackie Huba, “Learning to Leverage the
Lunatic Fringe,” Point, July–August 2006, pp. 14–15; Michael Krauss, “Work
to Convert Customers into Evangelists,” Marketing News, December 15,
2006, p. 6; Ben McConnell and Jackie Huba, Creating Customer
Evangelists: How Loyal Customers Become a Loyal Sales Force (New York:
Kaplan Business, 2003); Lauren Indvik, “Google Launches Voice-to-Twitter
Service to Help Protesters in Egypt,” Mashable Social Media, January 31,
2011, http://mashable.com/2011/01/31/google-twitter-egypt-call-service/