Marketing Management by Kotler and Keller (12Th Ed.)

MARKETING MANAGEMENT BY KOTLER AND KELLER (12TH ED.)

LECTURE NOTES

Chapter 5: Creating Customer Value, Satisfaction And Loyalty

Building Customer Value, Satisfaction, and Loyalty: Managers at every level must be personally involved in knowing, meeting, and serving customers.

Customer Perceived Value: Customer perceived value (CPV) is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering. Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given market offering, including monetary, time, energy, and psychic costs.

Caterpillar can improve its offer in three ways. First, it can increase total customer value by improving product, services, personnel, and/or image benefits. Second, it can reduce the buyer's nonmonetary costs by reducing the time, energy, and psychic costs. Third, it can reduce its product's monetary cost to the buyer.

Delivering Hıgt Customer Value:"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."A 2002 survey of American consumers revealed that some of the brands that have great consumer loyalty include Avis rental cars, Sprint long-distance service, Nokia mobile phones, Ritz-Carlton hotels, and Miller Genuine Draft beer.

The value propositionconsists 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 a long-lasting car, good service, and a long warranty period.

The value-delivery systemincludes all the experiences the customer will have on the way to obtaining and using the offering.

Total Customer Satisfaction: Satisfaction is a person's feelings of pleasure or disappointment resulting from comparing a product's perceived performance (or outcome) in relation to his or her expectations.

Customer Expectations:How do buyers form their expectations? From past buying experience, friends' and associates' advice, and marketers' and competitors' information and promises.

Measuring Satisfaction: The link between customer satisfaction and customer loyalty, however, is not proportional. Suppose customer satisfaction is rated on a scale from one to five. At a very low level of customer satisfaction (level one), customers are likely to abandon the company and even bad-mouth it.

Companies can monitor the customer lossrare and contact customers who have stopped buying or who have switched to another supplier to learn why this happened. Finally, companies can hire mystery shoppersto pose as potential buyers and report on strong and weak points experienced in buying the company's and competitors' products.

The University of Michigan's Claes Fornell has developed the American Customer Satisfaction Index (ACSI) to measure the perceived satisfaction consumers feel with different firms, industries, economic sectors, and national economies.

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

performance quality

Total quality

Total Quality Management: Total quality management (TQM) is an organization-wide approach to continuously improving the quality of all the organization's processes, products, and services.Marketers play several roles in helping their companies define and deliver high-quality goods and services to target customers.

Maximizing Customer Lifetime Value:According to James V. Putten of American Express, the best customers outspend others by ratios of 16 to 1 in retailing, 13 to 1 in the restaurant business, 12 to 1 in the airline business, and 5 to 1 in the hotel and motel industry.

Customer Profitability: There are only two solutions to handling unprofitable customers: Raise fees or reduce service support.

Customer profitability analysis (CPA) is best conducted with the tools of an accounting technique called Activity-Based Costing (ABC). The company estimates all revenue coming from the customer, less all costs. The costs should include not only the cost of making and distributing the products and services, but also such costs as taking phone calls from the customer, traveling to visit the customer, entertainment and gifts—all the company's resources that went into serving that customer. When this is done for each customer, it is possible to classify customers into different profit tiers: platinum customers (most profitable), gold customers (profitable), iron customers (low profitability but desirable), and lead customers

Competitive advantage is a company's ability to perform in one or more ways that competitors cannot or will not match.

Measuring 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.

We can work out an example of estimating CLV.

Cost of average sales call (including salary, commission, benefits, and expenses)

Average number of sales calls to convert an average prospect into a customer

Cost of attracting a new customer.

Customer Equity: Customer equity is the total of the discounted lifetime values of all of the firm's customers.

Value equity

Brand equity

Relationship equity

Cultivating Customer Relationships: Mass customization is the ability of a company to meet each customer's requirements—to prepare on a mass basis individually designed products, services, programs, and communications.

Customer Relationship Management (CRM): This is the process of managing detailed information about individual customers and carefully managing all customer "touch points" to maximize customer loyalty.

Peppers and Rogers outline a four-step framework for one-to-one marketing that can be adapted to CRM marketing as follows:

Attracting, Retaining, and Growing Customers: There are two main ways to strengthen customer retention. One is to erect high switching barriers. Customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or the loss of loyal-customer discounts. The better approach is to deliver high customer satisfaction.

Satisfied customers constitute the company's customer relationship capital. If the company were to be sold, the acquiring company would have to pay not only for the plant and equipment and the brand name, but also for the delivered customer base.

The starting point is everyone who might conceivably buy the product or service {suspects). From these the company determines the most likely prospects, which it hopes to convert into first-time customers, and then into repeat customers, and then into clients—people to whom the company gives very special and knowledgeable treatment. The next challenge is to turn clients into members by starting a membership program that offers benefits to customers who join, and then into advocates, customers who enthusiastically recommend the company and its products and services to others. The ultimate challenge is to turn advocates into partners.

Building Loyalty: We need to distinguish five different levels of investment in customer relationship building:

Basic marketing.

Reactive marketing.

Accountable marketing.

Proactive marketing.

Partnership marketing.

Reducing Customer Defection: There are five main steps a company can take to reduce the defection rate.

First, the company must define and measure its retention rate.

Second, the company must distinguish the causes of customer attrition and identify those that can be managed better.

Third, the company needs to estimate how much profit it loses when it loses customers.

Fourth, the company needs to figure out how much it would cost to reduce the defection rate.

And finally nothing beats listening to customers.

Forming Strong Customer Bonds: Berry and Parasuraman have identified three retention-building approaches.

Adding Financial Benefits: Two financial benefits that companies can offer are frequency programs and club marketing programs.
Adding Social Benefits: Company personnel work on cementing social bonds with customers by individualizing and personalizing customer relationships.
Adding Structural Ties: The company may supply customers with special equipment or computer links that help customers manage orders, payroll, and inventory.

Customer Databases and Database Marketing:A customer database is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, and actionable for such marketing purposes.

Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) for the purpose of contacting, transacting, and building customer relationships.

Customer Databases: A customer mailing list is simply a set of names, addresses, and telephone numbers. Business database would contain business customers' past purchases; past volumes, prices, and profits; buyer team member names (and ages, birthdays, hobbies, and favorite foods)

Data Warehouses and Datamining: These data are collected by the company's contact center and organized into a dataware-house. Company personnel can capture, query, and analyze the data.

Through datamining,marketing statisticians can extract useful information about individuals, trends, and segments from the mass of data.

Using Tha Database

To identify prospects.

To decide which customers should receive a particular offer

To reactivate customer purchases.

To avoid serious customer mistakes.

The Downside of Database Marketing and CRM: Four problems can deter a firm from effectively using CRM.

The first is that building and maintaining a customer database requires a large investment in computer hardware, database software, analytical programs, communication links, and skilled personnel.

The second problem is the difficulty of getting everyone in the company to be customer-oriented and to use the available information.

The third problem is that not all customers want a relationship with the company, and they may resent knowing that the company has collected that much personal information about them.

A fourth problem is that the assumptions behind CRM may not always hold true.80 For example, it may not be the case that it costs less to serve more loyal customers.