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Marketing Management

Fifteenth Edition

Chapter 5

Creating

Long-Term

Loyalty

Relationships

Where Are We?

Collaborator

Company

Competitor

Consumer

Context

Understanding

Marketplace

By what value?

Positioning

Designing a Customer-

Driven Marketing

Strategy

Value Delivery

by Place

Value Creation

by Product

Value Comm.

by Promotion

Value

Captuer

by Price

Brand Equity

Customer Equity

Developing &

Implementing Marketing

Programs

Managing Marketing

Assets

To whom?

Segmentation & Targeting

Learning Objectives

5.1 What are customer value, satisfaction,

and loyalty, and how can companies

deliver them?

5.2 What is the lifetime value of customers,

and how can marketers maximize it?

5.3 How can companies attract and retain

the right customers and cultivate strong

customer relationships and communities?

Building Customer Value,

Satisfaction, and Loyalty

Figure 5.1 Traditional Organization versus Modern Customer-Oriented

Company Organization

Building Customer Value, Satisfaction,

and Loyalty

• Customer-Perceived Value (CPV)

– The difference between the prospective customer’s

evaluation of all the benefits and costs of an offering and

the perceived alternatives

– Total customer benefit vs. total customer cost

• Total customer satisfaction

– A person’s feelings of pleasure or disappointment that

result from comparing a product or service’s perceived

performance (or outcome) to expectations

Maximizing Customer Lifetime

Value

• Customer Lifetime Value (CLV)

– The net present value of the stream of future profits

expected over the customer’s lifetime purchases

Maximizing Customer Lifetime

Value

Table 5.3 A Hypothetical Example to Illustrate CLV Calculations

Blank Year

Year

Number of

customers

100 90 80 72 60 48 34 23 12 6 2

Revenue

per

customer

Blank 100 110 120 125 130 135 140 142 143 145

Variable

cost per

customer

Blank 70 72 75 76 78 79 80 81 82 83

Margin per

customer

Blank 30 38 45 49 52 56 60 61 61 62

Acquisition

Cost per

Customer

40 Blank Blank Blank Blank Blank Blank Blan

Blan

Blank

Total Cost

or Profit

-4,000 2,700 3,040 3,240 2,940 2,496 1,904 1,38

732 366 124

Present

Value

-4,000 2,454.

2,512.

2,434.

2,008.

1,549.

1,074.

708.

341.

155.

47.81

Attracting and Retaining

Customers

• Retention dynamics/marketing funnel

Figure 5.4 The Marketing Funnel

Attracting and Retaining

Customers

• A key driver of shareholder value is the aggregate

value of the customer base

• Managing the customer base

– Reduce customer defection

– Focus on high-profit customers

– Increase customer longevity

– Terminate low-profit customers

– Share of wallet and cross/upselling

Building Loyalty

• Interact closely with customers

• Develop loyalty programs

• Create institutional ties

Table 5.5 Value Creation Practices

• Social networking

– Welcoming,

empathizing, governing

• Impression management

– Evangelizing, justifying

• Community engagement

– Staking, milestoning,

badging, documenting

• Brand use

– Grooming, customizing,

commoditizing