Marketing Management:

An Asian Perspective,
6th Edition

Instructor Supplements
Created by Geoffrey da Silva
Creating Customer Value, Satisfaction and Loyalty

3 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
5
 Learning Issues for Chapter Five

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?

4. How can companies attract and retain the right customers

5. What is database marketing?

4 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Importance of Building Customer Relationships

• Today, companies face their toughest competition ever.

• Moving from a product-and-sales philosophy to a holistic marketing

philosophy, however, gives them a better chance of outperforming
competition.

• The cornerstone of a well-conceived holistic marketing orientation is strong

customer relationships.

• Marketers must connect with customers—informing, engaging, and maybe

even energizing them in the process.

• Customer-centred companies are adept at building customer relationships,

not just products; they are skilled in market engineering, not just product
engineering.
5 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Creating Loyal Customers

Quote by Peppers and Rogers:

The only value your company will ever create is the value that
comes from customers—the ones you have now and the ones
you will have in the future. Businesses succeed by getting,
keeping, and growing customers. Customers are the only
reason you build factories, hire employees, schedule
meetings, lay fiber-optic lines, or engage in any business
activity. Without customers, you don’t have a business.

6 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Building Customer Value, Satisfaction and Loyalty

• Managers who believe the customer is the company’s only true

“profit center” consider the traditional organization chart in Figure
5.1(a)—a pyramid with the president at the top, management in
the middle, and frontline people and customers at the bottom—
obsolete.

• Successful marketing companies invert the chart (Figure 5.1b). At

the top are customers; next in importance are frontline people who
meet, serve, and satisfy customers; under them are the middle
managers, whose job is to support the frontline people so they can
serve customers well; and at the base is top management, whose
job is to hire and support good middle managers.

7 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Building Customer Value, Satisfaction and Loyalty

• Customers are added along the sides of Figure 5.1b to

indicate that managers at every level must be personally
involved in knowing, meeting, and serving customers.

8 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Figure 5.1: Traditional Organization Chart versus
Modern Customer-oriented Organization Chart

9 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Putting Customers on Top

• Some companies have been founded with the customer-on-top

business model, and customer advocacy has been their strategy—
and competitive advantage—all along.

• With the rise of digital technologies such as the Internet,

increasingly informed consumers today expect companies to do
more than connect with them, more than satisfy them, and even
more than delight them. They expect companies to listen and
respond to them.

10 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Perceived Value

• Consumers are better educated and informed than ever, and they
have the tools to verify companies’ claims and seek out superior
alternatives.

• Customers tend to be value-maximizers within the bounds of search

costs and limited knowledge, mobility, and income.

• Customers estimate which offer will deliver the most perceived

value and act on it.

• 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.

11 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Dell strategy to responding to customer
expectations

When certain business decisions

led to a deterioration of
customer service, Dell’s founder
Michael Dell took decisive
action.

12 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Perceived Value

• Total customer benefit is the perceived monetary value of the

bundle of economic, functional, and psychological benefits
customers expect from a given market offering because of the
product, service, people, and image.

• Total customer cost is the perceived bundle of costs customers

expect to incur in evaluating, obtaining, using, and disposing of the
given market offering, including monetary, time, energy, and
psychological costs.

• Customer-perceived value is thus based on the difference between

benefits the customer gets and costs he or she assumes for
different choices.

13 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Figure 5.2: Determinants of Customer-delivered
Value

14 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Applying Value Concepts

Managers conduct a customer value analysis to reveal the

company’s strengths and weaknesses relative to those of
competitors. These steps are:

a. Identify the major attributes and benefits

customers’ value.

b. Assess the quantitative importance of the different

attributes and benefits.

15 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Applying Value Concepts

c. Assess the company’s and competitor’s

performances on the different customer values
against their rated importance.

d. Examine how customers in a specific segment rate

the company’s performance against a specific major
competitor on an individual attribute or benefit basis.

e. Monitor customer values over time.

16 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Caterpillar’s market success is partly a result of how
well the firm creates customer value.

17 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Responding to Differences in Customer Values

Gillette adapted to the Japanese market after its research

showed that Japanese men shave less frequently than men from
other parts of the world; and that they shower in the evening
and shave the next morning. The razor, called Air instead of
Phantom as the latter did not translate well in Japan, was
launched.

18 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Choices and Implications

• Some marketers might argue the process we have described

is too rational. Suppose the customer chooses the Komatsu
tractor. Here are three possibilities.

a. The buyer might be under orders to buy at the lowest price.

b. The buyer will retire before the company realizes the Komatsu
tractor is more expensive to operate.

c. The buyer enjoys a long-term friendship with the Komatsu

salesperson.

19 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Choices and Implications

• Buyers operate under various constraints and occasionally

make choices that give more weight to their personal benefit
than to the company’s benefit.

• Customer perceived value is a useful framework that applies

to many situations and yields rich insights.

• It suggests that the seller must assess the total customer

benefit and total customer cost associated with each
competitor’s offer in order to know how his or her offer rates
in the buyer’s mind.

20 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Disadvantages of Customer Perceived Value

1. To increase total customer value (by strengthening or

augmenting the offer’s product, services, personnel, and
image benefits).

2. To decrease total customer cost (by reducing price,

simplifying the ordering, and delivery process, or absorbing
some buyer risk by offering a warranty).

21 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Delivering High Customer Value

• Consumers have varying degrees of loyalty to specific brands,

stores, and companies.

• Loyalty is defined as “a deeply held commitment to rebuy or

re-patronize a preferred product or service in the future
despite situational influences and marketing efforts having
the potential to cause switching behavior.”

22 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Table 5.1: Top 25 Brands in Customer Loyalty

23 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Value Proposition

• The value proposition consists of the whole cluster of

benefits the company promises to deliver; it is more than the
core positioning of the offering.

• The value proposition is a statement about the resulting

experience customers will gain from the company’s market
offering and from their relationship with the supplier.

• The brand must represent a promise about the total

experience customers can expect.

24 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Value Delivery System

• Whether the bran promise (expressed in the firm’s value

proposition) is kept depends on the company’s ability to
manage its value-delivery system.

• The value-delivery system includes all the experiences the

customer will have on the way to obtaining and using the
offering.

25 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Singapore Airlines

SIA continues its efforts to provide customers with an excellent pre- and on-board flight experience.

26 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Total Customer Satisfaction

• Whether the buyer is satisfied after the purchase depends on

the offer’s performance in relation to the buyer’s
expectations.

• Satisfaction is a person’s feelings of pleasure or

disappointment that result from comparing a product’s
perceived performance (or outcome) to expectations.

• A customer’s decision to be loyal or to defect is the sum or

many small encounters with the company. Many companies
now strive to create a “branded customer experience.”

27 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Expectations

• How do buyers form their expectations?

• From past buying experience, friends’ and associates’ advice, and

marketers’ and competitors’ information and promises.

• If marketers raise expectations too high, the buyer is likely to be

disappointed.

• However, if the company sets expectations too low, it will not

attract enough buyers (although it will satisfy those who do buy).

• Some of today’s most successful companies are raising expectations

and delivering performances to match.

28 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Korean automaker Kia found success in the U.S. by launching low-cost, high-quality cars with
enough reliability to offer 10-year warranties.

29 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Monitoring Satisfaction

• Many companies are systematically measuring how well they

treat customers, identifying the factors shaping satisfaction,
and changing operations and marketing as a result.

• Wise firms measure customer satisfaction regularly, because

it is one key to customer retention.

• The link between customer satisfaction and customer loyalty

is not proportional.

• The company needs to recognize that customers vary in how

they define good performance.
30 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Measurement Techniques

• Periodic surveys can track customer satisfaction directly.

• Companies can monitor their customer loss rate and

contact those who have stopped buying or who have switched
to another supplier to find out why.

• Companies can hire mystery shoppers to pose as potential

buyers and report on strong and weak points experienced in
buying the company’s and competitors’ products.

• Companies need to monitor their competitors’

performance too.
31 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Influence of Customer Satisfaction

• For customer-centred companies, customer satisfaction is

both a goal and a marketing tool.

• Companies need to be especially concerned today with their

customer satisfaction level because the Internet provides a
tool for consumers to spread bad word of mouth—as well as
good word of mouth—to the rest of the world.

• Some customers set up their own Web sites to air grievances

and protests, targeting high-profile brands.

32 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Complaints

• Companies believe they’re getting a sense of customer

satisfaction by monitoring complaints. Some statistics to
note:
– Customers are dissatisfied 25% of the time
– Only 5% complain
– 95% will do business again with that company if their complaint is
resolved quickly

• It is critical that marketers deal with negative experiences

properly.

33 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Procedures to Recover Customer Goodwill

1. Set up a 7-day, 24-hour toll-free “hotline” (by phone, fax, or email) to

receive and act on customer complaints.

2. Contact the complaining customer as quickly as possible. The slower the

company is to respond, the more dissatisfaction may grow and lead to
negative word of mouth.

3. Accept responsibility for the customer’s disappointment. Do not blame the

customer.

4. Use customer-service people who are emphatic.

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

complaining customers are not looking for compensation so much as a
sign that the company cares.
34 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Product and Service Quality

• Satisfaction will also depend on 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.

35 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer-centered Definition of Quality

• The seller has delivered quality whenever the seller’s product

or service meets or exceeds the customers’ expectations.

• A company that satisfies most of its customers’ needs most of

the time is called a quality company, but it is important to
distinguish between conformance quality and
performance quality (or grade).

36 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Uniqlo and Product Quality

Uniqlo ensures product quality to keep customers coming back. Specialists are sent to troubleshoot
and oversee production.

37 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Impact of Quality

• Product and service quality, customer satisfaction, and

company profitability are intimately connected.

• Higher levels of quality result in higher levels of customer

satisfaction, which support higher prices and (often) lower
costs.

• Quality is clearly the key to value creation and customer

satisfaction.

• Total quality is everyone’s job, just as marketing is everyone’s

job.
38 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Marketing and Total Quality

39 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Maximizing Customer Lifetime Value

• Marketing is the art of attracting and keeping profitable customers.

• The 20–80 rule says the top 20% of customers generate 80% or more of
the company’s profits.

• It is not always the company’s largest customers who yield the most profit.

• The largest customers demand considerable service and receive the

deepest discounts.

• The smallest customers pay full price and receive minimal service, but the
costs of transacting with small customers reduce their profitability.

40 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Profitability

• 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.

• The emphasis is on the lifetime stream of revenue and cost,

not on the profit from a particular transaction.

41 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Profitability Analysis

• A useful type of profitability analysis is shown in Figure 5.3.

• Customers are arrayed along the columns and products along the rows.

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

• Customer 1 is very profitable; he buys two profit-making products (P1 and

P2).

• Customer 2 yields a picture of mixed profitability; he buys one profitable

product and one unprofitable product.

• Customer 3 is a losing customer because he buys one profitable product

and two unprofitable products.
42 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Figure 5.3: Customer–Product Profitability Analysis

43 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 What can the company do about Customers 2 and 3?

a. It can raise the price of its less profitable products or

eliminate them.

b. It can try to sell them its profit-making products.

c. It can encourage them to switch to competitors.

44 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Activity-based Accounting

• Customer profitability analysis (CPA) is best conducted with the tools of an

accounting technique called Activity-Based Costing (ABC).

• ABC accounting tries to identify the real costs associated with serving each
customer—the costs of products and services based on the resources they
consume.

• The company estimates all revenue coming from the customer, less all
costs.

• Companies that fail to measure their costs correctly are also not measuring
their profit correctly, and are likely to misallocate their marketing effort.

45 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 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.

• CLV calculations provide a formal quantitative framework for

planning customer investment and helps marketers to adopt a long-
term perspective.

• See the Marketing Memo: Calculating customer lifetime

value.

• Shows the formula for calculating customer lifetime value for a

company.

46 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Marketing Memo: Calculating Customer Lifetime
Value

47 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Marketing Memo: Calculating Customer Lifetime
Value

Table 5.2 A Hypothetical Example to Illustrate CLV Calculations

48 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Marketing Memo: Calculating Customer Lifetime
Value

49 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Cultivating Customer Relationships

• Companies are using information about customers to enact

precision marketing designed to build strong long-term
relationships.

• Information is easy to differentiate, customize, personalize,

and dispatch over networks at incredible speed.

50 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Cultivating Customer Relationships

• Customer empowerment has become a way of life for many

companies that have had to adjust to a shift in the power
with their customer relationships.

51 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Relationship Management (CRM)

• Customer relationship management (CRM) is the process of

carefully managing detailed information about individual
customers and all customer “touch points” to maximize
customer loyalty.

• A customer touch point is any occasion on which a customer

encounters the brand and product, from actual experience to
personal or mass communications to casual observation.

52 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 CRM and Touch-Points for a Hotel

The touch points include reservations, check-in and check-out,

frequent-stay programs, room service, business services,
exercise facilities, laundry service, restaurants, and bars.

• For instance, the Four Seasons relies on personal touches, such as

staff that always address guests by name, high-powered
employees who understand the needs of sophisticated business
travelers, and at least one
best-in-region facility, such as
a premier restaurant or spa.

53 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Benefits of CRM

• CRM enables companies to provide excellent real-time

customer service through the effective use of individual
account information.

• Based on what they know about each valued customer,

companies can customize market offerings, services,
programs, messages, and media.

54 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Personalizing Marketing

• Personalized marketing is about making sure the brand and

its marketing are as relevant as possible to as many
customers as possible.

• A challenge, given that no two customers are identical.

• An increasingly essential ingredient for the best relationship

marketing today is the right technology.

55 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Personalizing Marketing—Domino’s Pizza

To break through the clutter in Japan, Domino’s Pizza offered personalized marketing. Using the GPS
function in a smartphone app, Domino’s can deliver the pizzas to customers in any location instead
of a fixed address.

56 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Personalizing Marketing

• E-commerce companies looking to attract and retain customers are

discovering that personalization goes beyond creating customized
information.

• Companies are also recognizing the importance of the personal component

to CRM and what happens once customers make actual contact with the
company.

• Employee can create strong bonds with customers by individualizing and

personalizing relationships.

• To adapt to customers’ increased desire for personalization, marketers have

embraced concepts such as permission marketing and one-to-one
marketing.

57 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Permission Marketing

• Permission marketing is the practice of marketing to

consumers only after gaining their expressed permission, is
based on the premise that marketers can no longer use
“interruption marketing” via mass-media campaigns.

• It is “anticipated, personal, and relevant.”

• Presumes consumers know what they want.

• “Participatory marketing” may be more appropriate—

marketers and consumers work together to find out how the
firm can best satisfy consumers.
58 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 One-to-one Marketing

A four-step approach to one-to-one marketing:

a.Identify your prospect and customers.

b.Differentiate customers in terms of their needs

and their value to your company.

c.Interact with individual customers to improve

your knowledge about their individual needs and to
build strong relationships.

d.Customize products, service, and messages to

each customer.

59 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Requirements for Effective One-to-one Marketing

• One-to-one marketing is not for every company.

• The required investment in information collection, hardware,

and software may exceed the payout.

• It works best for companies that normally collect a great deal

of individual customer information, carry a lot of products
that can be cross-sold, carry products that need periodic
replacement or upgrading, and sell products of high value.

60 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Empowerment

• Consumers are beginning in a very real sense to own brands

and participate in their creation.

• Other marketers have begun to advocate a “bottom-up”

grassroots approach to marketing.

• Marketers are helping consumers become evangelists for

brands by providing them resources and opportunities to
demonstrate their passion.

• Only some consumers want to get involved with some of the

brands they use and then only some of the time.
61 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Helping Consumers Become Ambassadors of Brands

• Marketers are helping consumers become ambassadors for

brands by providing them resources and opportunities to
demonstrate their passion.

• Doritos held a contest to let consumers name their next

flavor.

• Converse asked amateur filmmakers to submit 30-second

short films that demonstrated their inspiration from the iconic
sneaker brand.

• See the example of Pepsi in China on the next slide.

62 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 In an initiative to involve Chinese consumers as ambassadors for its brand, Pepsi gave the public an
opportunity to submit online patriotic slogans that may be used in its commercials.

63 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Reviews and Recommendations

• An increasing important decision factor on consumer choice is

“recommendations by consumers.”

• Online customer ratings and reviews are playing an important

role for Internet retailers.

• For smaller brands with limited media budgets, online word-

of-mouth is critical.

• Negative reviews can be helpful.

• There are also blogs with product reviews.

64 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Monitoring Customer Comments on Facebook

DiGi, a Malaysian mobile network provider, has a team that goes through its Facebook to monitor
consumer grouses and provide real-time support to these customers.

65 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Attracting and Retaining Customers

• Companies seeking to expand their profits and sales must

spend considerable time and resources searching for new
customers.

• To generate leads, the company develops ads and places

them in media that will reach new prospects.

• Different acquisition methods yield customers with varying

CLVs.

66 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Reducing Defection

To reduce the defection rate, the company must:

1. Define and measure its retention rate.

2. Distinguish the causes of customer attrition and identify those

that can be managed better.

3. Compare the lost customer’s lifetime value to the costs of

reducing the defection rate.

67 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Reducing Defection: Case of Sony’s PlayStation

When an Internet security

breach occurred, Sony’s
PlayStation tried to win back
customers through an apology
and offering free access to a
premium service.

68 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Sometimes Defection is Due to Variety-Seeking
Customers

Variety-seeking, a trend
prominent among Japanese
youths, led to Pepsi introducing
a variety of “limited edition”
flavoured drinks such as Ice
Cucumber. Ice Cucumber was a
successful short-lived offering.

69 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Retention Dynamics

The marketing funnel (Figure 5.4) identifies the percentage of potential target market at each stage
in the decision process, from merely aware to highly loyal.

70 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Retention Dynamics

• By calculating conversion rates the funnel allows marketers to

identify any bottleneck or barrier to building a loyal customer
franchise.

• The funnel also emphasizes how important it is not just to

attract new customers, but to retain and cultivate existing
ones.

• Satisfied customers are the company’s customer

relationship capital.

71 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 “Customer Relationship Capital”

If the company were sold, the acquiring company would pay not
only for the plant and equipment and brand name, but also for
the delivered customer base, the number and value of
customers who will do business with the new firm.

72 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Important Facts about Customer Retention

1. Acquiring new customers can

cost five times more than the
costs involved in satisfying and
retaining current customers. It
requires a great deal of effort to
induce satisfied customers to
switch away from their current
suppliers.

2. The average company loses

10% of its customers each
year.
73 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Important Facts about Customer Retention

3. A 5% reduction in the customer

defection rate can increase profits
by 25% to 85%, depending on the
industry.

4. Profit rate tends to increase

over the life of the retained
customer due to increased
purchases, referrals, price
premiums, and reduced operating
costs to service.

74 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Managing the Customer Base

A key driver of shareholder value is the aggregate value of the

customer base. Winning companies improve the value of their
customer base by excelling at strategies such as:

a.Reducing the rate of customer defection.

b.Increasing the longevity of the customer relationship.

c.Enhancing the growth potential of each customer through “share of-wallet,

cross-selling, and up-selling.”

d.Making low-profit customers more profitable or terminating them.

e.Focusing disproportionate effort on high-value customers.

75 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Building Loyalty

• Creating a strong, tight connection to customers is the dream

of any marketer and often the key to long-term marketing
success.

• Retention-building activities include:

a. Financial benefits

b. Social benefits

c. Structural ties

76 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Interacting with Customers

• Listening to customers is crucial to CRM. Some companies

have created an on-going mechanism that keeps senior
managers permanently plugged in to frontline customer
feedback.

• But listening is only part of the story. It is also important to

be a customer advocate and, as much as possible, take the
customers’ side on issues, understanding their point of view.

77 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Interacting with customers, such as getting their feedback, helps Build-A-Bear Workshop develop
new-product ideas.

78 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Developing Loyalty Programs

Two customer loyalty programs that companies can offer are

frequency programs and club marketing programs.

a. Frequency programs (FPs)

b. Club membership programs

79 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Frequency Programs

• Frequency programs (FPs) are designed to provide rewards to

customers who buy frequently and in substantial amounts.

• They can help build long-term loyalty with high CLV

customers, creating cross-selling opportunities in the process.

• Typically, the first company to introduce an FP gains the most

benefit, especially if competitors are slow to respond.

• After competitors respond, FPs can become a financial burden

to all the offering companies.

80 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Club Membership Programs

• Club membership programs can be open to anyone who

purchases a product or service, or it can be limited to an
affinity group, or to those willing to pay a small fee.

• Although open clubs are good for building a database or

snagging customers from competitors, limited membership
clubs are more powerful long-term loyalty builders.

81 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Creating Institutional Ties

The company may supply customers with special equipment or computer links that help them
manage orders, payroll, and inventory.

82 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Win-Backs

• The challenge is to reactivate lost customers through “win-

back” strategies such as exit interviews and lost-customer
surveys.

• It is often easier to re-attract ex-customers (because the

company knows their names and histories) than to find new
ones.

• The key is to analyze the causes of customer defection

through exit interviews and lost-customer surveys, and win
back only those who have strong profit potential.

83 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Database and Database Marketing

• Marketers must know their customers. And in order to know

the customer, the company must collect information and store
it in a database from which to conduct database marketing.

• A customer database is an organized collection of

comprehensive information about individual customers or
prospects that is current, accessible, and actionable for lead
generation, lead qualification, sale of a product or service, or
maintenance of customer relationships.

84 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Database and Database Marketing

• Database marketing is the process of building, maintaining,

and using customer databases and other databases to
contact, transact, and build customer relationships.

85 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Customer Databases

• Customer databases are not customer mailing lists. A

customer mailing list is simply a set of names, addresses, and
telephone numbers.

• A customer database also contains the consumer’s past

purchases, demographics, psychographics, mediagraphics,
and other useful information.

• A business database contains business customers’ past

purchases, past volumes, prices, and profits, buyer team
member names, and other useful information.

86 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Data Warehouses and Data mining

• Savvy companies capture information every time a customer

comes into contact with any of their departments.

• These data are collected by the company’s contact center and

organized into a data warehouse.

• Through data mining, marketing statisticians can extract from

the mass of data useful information about individuals, trends,
and segments.

87 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 5 Ways of Using Databases

1. To identify prospects.

2. To decide which customers should receive a particular offer.

3. To deepen customer loyalty.

4. To reactivate customer purchases.

5. To avoid serious customer mistakes

88 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 The Downside of Database Marketing and CRM

Five main problems can prevent a firm from effectively using

CRM:

1. Some situations are just not conducive to database

management.

2. Building and maintaining a customer database requires a

large, well-placed investment in computer hardware,
database software, analytical programs, communication
links, and skilled staff.

89 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 The Downside of Database Marketing and CRM

3. It may be difficult to get everyone in the company to be

customer-oriented and use the available information.

4. Not all customers want a relationship with the company.

5. The assumptions behind CRM may not always hold true (i.e.,
it might not be the case that it costs less to serve the more
loyal customers).

90 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
 Challenges in Asian Context

1. Language preferences are complex but important.

2. The issue of identifying customers uniquely by name poses

challenges in a racially diverse society.

3. Some jurisdictions allow for more than one marriage, and

wealthy male customers may have several addresses in
intricate arrangements.

4. There is also a bias against flaunting wealth and a reluctance

to declare it to strangers (particularly if there is a perceived
link to a government authority).
91 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
Schema for Chapter Five

92 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
Thank you