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Published by Enhelion, 2020-12-07 10:02:23

Module 5

Module 5

MODULE 5
CUSTOMER RELATIONSHIP AND LOYALTY 1.0

“Every company needs two marketing departments, one that has mastered the tactics of
getting rid of today’s products and the other that has mastered the strategy of imagining

tomorrow’s products.”
– Philip Kotler

CUSTOMER VALUE
• Benefits – Costs = Value
• CPV = Customer Perceived Value
• CPV → Difference between a prospective customer’s evaluation of all the Benefits
and Costs of an offering
• Total Customer Benefit → perceived monetary value of the bundle of economic,
functional, and psychological benefits customers expect from a specific market
offering because of the product, service, people, and image
• Total Customer Cost → perceived bundle of costs customers expect to incur in
evaluating, obtaining, using, and disposing of a given market offering, including
monetary, time, energy, and psychological costs
• Which Value offering a customer chooses (V1 or V2) evaluating V1:V2
• V1 if V1/V2 >1
• V2 if V1/V2 <1
• Indifferent if V1/V2 = 1

CUSTOMER VALUE ANALYSIS
Often, managers conduct a Customer Value Analysis to reveal the company’s strength and
weaknesses relative to those of various competitors. Steps in CVA are –

• Identify the major attributes and benefits that customers value
• Assess the quantitative importance of the different attributes and benefits
• Assess the company’s and competitors’ performances on the different customer

values against their rated importance
• Examine how customers in a specific segment rate the company’s performance

against a specific major competitor on an individual attribute or benefit basis
• Monitor customer values over time
• Isn't this too rational?? It is. Why? Because of may be the following 3

implications:-
Þ The buyer might be under orders to buy at the lowest price

Þ The buyer may retire before the company realizes the operational cost
of an offering is studied over time

Þ The buyer enjoys a long-term friendship with a particular salesperson
Note: Buyers operate under various constraints and occasionally make choices that give more
weight to their personal benefit than to the company’s benefit

CATERPILLAR v KOMATSU: A VALUE CHOICE
• Buyer for a large construction co. is contemplating a tractor purchase for
residential construction purpose
• Choice between Caterpillar & Komatsu
• Caterpillar → product benefits basis perceptions; differences in accompanying
services – delivery, training, maintenance, provides better service, has more
knowledgeable and responsive staff, and, places higher value on Caterpillar’s
corporate image & reputation
• Does he buy the Caterpillar tractor? Not necessarily.
• He examines his Total Cost of transacting with Caterpillar v Komatsu
• Total Cost → buyer’s time, energy, psychological costs in product acquisition,
usage, maintenance, ownership and disposal. The buyer evaluates these
elements together with the monetary cost
• Then, the buyer considers whether Caterpillar’s total customer cost is too high
compared to total customer benefits; if it is, Komatsu is the choice
• Buyer will choose whichever source delivers the highest perceived value

or

DELIVERING HIGH CUSTOMER VALUE

• Consumers display varying degrees of loyalty to specific brands, stores, and
cos.

• Loyalty → “a deeply held commitment to rebuy or repatronize a preferred
product or service in the future despite situational influences and marketing
efforts having the potential to cause switching behavior”

• As per a 2012 survey of Top 30 Brands for Customer Loyalty, Apple’s Tablet
ranked #1, Amazon’s Tablet ranked #2 and Apple’s smartphone ranked #3

• Value Proposition → ‘the whole cluster of benefits the company promises to
deliver; it is more than the core positioning of the offering. E.g., 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’.

• Value Proposition is more about the Experience customers can expect from a
company’s market offering.

• Value Delivery System → Includes all the experiences the customer will have
on the way to obtaining and using the offering.

CUSTOMER SATISFACTION

• Satisfaction is a person’s feelings of pleasure or disappointment that result from
comparing a product’s or service’s perceived performance (or outcome) to
expectations

• Performance or Experience (Below Expectations) ➔ Dissatisfied Customer

• Performance or Experience (Par Expectations) ➔ Satisfied Customer

• Performance or Experience (Exceed Expectations) ➔ Highly Satisfied or
Delighted customer

• Consumers often form more favorable perceptions of a product with a brand
they already feel positive about

• Research says – “the negative effect on customer satisfaction of failing to meet
expectations is disproportionately stronger than the positive effect of exceeding
expectations”

• Increasing customer satisfaction by lowering price or increasing services may
result in lower profits

• If a co. raises expectations too high, buyer is likely to be disappointed but if it
sets expectations too low, it may not be able to attract enough buyers

• Korean automaker Kia tasted success in the US by launching low-cost, high-
quality cars with enough reliability to offer 10-year, 100k-mile warranties.

MONITORING CUSTOMER SATISFACTION

• Many companies measure how well they treat customers, identifying the
factors that shape satisfaction, and change operations and marketing as a result

• Customer Satisfaction → 1 key to Customer Retention

• A highly satisfied customer generally → stays loyal longer; buys more as the
co introduces new and upgraded products; talks favorably to others about the
co and its products; pays less attention to competing brands; is less price-
sensitive; offers product/service ideas to the co; and costs less to serve than new
customers because transactions become routine…

• Xerox’s senior leadership found its “Completely Satisfied” customers were 6
times more likely to repurchase Xerox products over the following 18 months
than even its “very satisfied” customers

• Periodic Surveys, Mystery Shopping Exercises etc. are some of the ways in
which companies can monitor the satisfaction levels of their customers

• For customer-centered companies, customer satisfaction is both – a Goal and a
Marketing tool; Today, Internet allows consumers to quickly spread the word…

MAXIMIZING CUSTOMER LIFETIME VALUE (CLV)

• CLV describes the NPV (Net Present Value) of the stream of future profits
expected over the customer’s lifetime purchases.**

• Marketing is the art of attracting and keeping profitable customers

• 80-20 Rule – 80% or more of the co’s profits come from the Top 20% of the
customers

• Some cases – The most profitable 20% of customers may contribute as much
as 150% to 300% of profitability

• The least profitable 10% to 20% of the customers may actually reduce profits
between 50% and 200% per account

• The middle 60% to 70% breaking even

• Implication → a co could improve its profits by “firing” its worst customers

• Cos must be concerned with ROC (Return on Customer) and how efficiently
they create value from the customers and prospects available

**The co must subtract from its expected revenues the expected costs of attracting, selling,
and servicing the account of that customer, applying the appropriate discount rate (say,
between 10% and 20%, depending on the cost of capital and risk attitudes).

CUSTOMER PROFITABILITY & CPA

• A profitable customer is – a person, household, or company that over time
yields a revenue stream exceeding by an acceptable amount the company’s cost
stream for attracting, selling, and serving that customer.

• Emphasis is on the lifetime streams of revenues and costs, not specific
transactions

• Customer Profitability Analysis → is a useful type of profitability analysis;
Customers are arrayed along columns and the Products are arrayed along rows

• Each cell contains a symbol representing the profitability of selling that product
to the customer

• Customer 1 → very profitable;
• Customer 2 → yields mixed profitability
• Customer 3 → losing customer
• What can the co. do about Customers 2 & 3?

Þ Raise the price of less profitable products
Þ Try to sell profit-making products to these customers


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