Marketing Management

By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha

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SUMMARY by

Chapter 5
Creating Customer Value,
Satisfaction and Loyalty

In the face of increasing competition, companies today face their toughest test of
survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy,
however, may provide a better chance of outperforming competition. And at the
cornerstone of this philosophy are strong customer relations.
Customer This chapter discusses the importance and various methods of creating customer value
and sustaining customer loyalty. As customers have become more informed and
Perceived educated than ever, organisations have started to adopt business models where the
customer is at the top.
Value:
Total Customer Benefit
Customer It is the perceived monetary value of the bundle of economic, functional, and
Perceived Value: It psychological benefits customers expect from a given market offering because of the
products, services, personnel and image involved.
is the difference
between the
prospective Total Customer Cost
It is the perceived bundle of costs customers expect to incur in evaluating, obtaining,
customer’s
using, and disposing of the given market offering, including monetary, time, energy, and
evaluation of all the psychological costs.
benefits and all the
costs of an offering,
Very often, a customer value analysis is undertaken by managers to better understand
and the perceived the company’s strengths and weaknesses in comparison with competition. It follows the
alternatives. pattern below
1. Identify the major attributes and benefits that customers value.
2. Assess the quantitative importance of the different attributes and benefits.
 Chapter 5 - Creating Customer Value, Satisfaction and Loyalty
Trends
3. Assess the company’s and competitors’ performances on the different customer
values on each attribute and benefit.
4. Assess how customers in a specific segment rate the company’s performance
against a major competitor on an individual attribute or benefit basis.
5. Monitor customer values over time as the economy, technology, and features
change.

Total
Customer Customer profitability
A profitable customer is one that over time yields a revenue stream that is significantly
Satisfaction: greater than that company’s cost stream for attracting, selling and servicing that
customer.
It is the measure of
a customer’s
feelings of pleasure
150-20 Rule
The 20% most profitable customers generate as much as 150% of the profits of the
or disappointment
company; the 20% least profitable customers lose 100% of the profits.
that results from Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV).
comparing a CLV describes the net present value of the future stream of profits expected over the
product’s perceived customer’s lifetime purchases. CLV calculations are generally used by marketers to
develop a long-term perspective.
performance to
their expectations.

Customer Relationship Management (CRM)

Satisfaction is
It is the process of carefully managing detailed information about individual customers
usually measured and all occasions where a customer encounters a brand/product to maximise customer
with the help of loyalty.
customer surveys. CRM can be conducted using the following 4 steps –
The two major 1. Identify your prospects and customers.
2. Differentiate customers in terms of their needs and their value to your
factors involved in
company.
customer 3. Interact with individual customers to improve your knowledge about their
satisfaction are needs and to build stronger relationships.
complaint handling 4. Customize products, services, and messages to each customer.

and product/service
The value of the customer base can be increased by improved by measures such as
quality. reducing the rate of customer defection, increasing the longevity of the customer
relationship, making low-profit customers more profitable or terminating them, etc.
Chapter 5 - Creating Customer Value, Satisfaction and Loyalty
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Building Customer Loyalty
It involves the following procedures –
1. Interacting with customers
2. Developing loyalty programs
3. Personalising marketing
4. Creating institutional ties

Database marketing
It is the process of building, maintaining and using customer databases and other
databases to contact, transact and build customer relationships.

Customer Database
It contains customers’ past purchases, past volumes, past prices and profits; buyers’
personal details, status of current contacts, the company’s share of the buyer’s
business, competitive suppliers, etc.

Datamining
Through datamining, marketers can extract information about individuals, trends, etc.
from the customer database. It uses techniques such as cluster analysis, predictive
modelling, etc.

Disadvantages of Datamining and CRM

1. Building and maintaining a database requires huge amounts of investment in
terms of computer hardware.
2. Convincing employees to be customer oriented than using traditional methods.
3. Customer attitudes about privacy of personal data.
Probability of error of CRM methods or assumptions made thereof.