marketing management
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Session1CustomerOrientedMarketing1.pdf
1/1/2021
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MGT 209: Marketing Management
Session 1: Customer Focus, Customer
Performance, and Profit Impact
MGT 209: Marketing Management
Professor Ashish Sood
Introduction
• Course overview
• Customer Focus, Customer Performance, and Profit Impact • Building a customer focused organization • Measuring customer performance • Profit impact of
customer retention and customer loyalty
• Course Setup • What you need to participate in class
• Register on PollEv (Free) • Register on Rogerbest.com (Free)
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Customer Acquisition Customer Retention
Profits
Strategic Marketing Process
Customer Company Competitor Collaborators Context
Market Segmentation
Target Market Selection
Product and Service Positioning
Product & Service
Place/
Channels Promotion Pricing
(Strengths/ Weaknesses/ Opportunities/ Threats)
Creating
Value
Capturing
Value
Sustaining
Value
Situation Analysis
Customer Focus, Customer Performance, and Profit Impact
Building a Customer-
Focused Organization
In this section we will look at how customer-focused organizations not only
outperform their competition over the long term by consistently delivering
higher levels of customer satisfaction, they also realize higher profits over
the short run.
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Satisfied is not good enough. Completely satisfied—that’s a big deal. A completely satisfied
customer is at least three times more likely to return than one who’s just satisfied.
―Andrew Taylor, CEO, Enterprise Rent-A-Car
Very Satisfied Customers Drive Profits
Customer Focus, Customer Performance, and Profit Impact
Little or no customer focus translates into an unfocused competitive position and minimal customer
satisfaction. The result is a vicious circle of poor performance.
Underwhelming Customers
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Apple, Southwest Airlines, and Clorox would be a part of the top performers in the
graph above. Their average stock price index started at 100 and 10 years later
was 300. Poor performers started at 100 and 10 years later were still at 100.
Top Performers Produce Higher Investor Returns
• Senior Mgmt Leadership • Employee Customer
Training • Customer Involvement
• Customer Satisfaction • Customer Retention • Customer Loyalty
• Customer Experiences • Customer Solutions • Customer Complaints
How would this model work differently in
Bank of America vs. Southwest Airlines?
Customer-Focused Organization
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ACSI studies have shown that Customer Satisfaction is a leading indicator of company
financial performance. The ACSI database reports all companies by industry.
American Customer Satisfaction Index - University of Michigan (www.theACSI.org)
Benchmarking Customer Satisfaction
Measuring Customer
Performance
In this section we will look at how companies that use customer
performance metrics are able to identify their unprofitable customers. For
any business, knowing which customers not to attract is just as important
as knowing which customers to attract.
Customer Focus, Customer Performance, and Profit Impact
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To determine the CSI for a sampling of customers,
simply compute the average of the customers’ satisfaction ratings.
Customer satisfaction is a forecast of future revenues and profits.
Very Dissatisfied
0
Dissatisfied
20
Somewhat
Dissatisfied
40
Somewhat
Satisfied
60
Satisfied
80
Very
Satisfied
100
Customer Satisfaction A Key Performance Metric
De-averaging CSI provides a wide-angle view of customer satisfaction and allows
managers to see more completely the opportunities for improvement.
Customer Satisfaction – Wide-Angle View
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“Very satisfied” customers not only buy more, they often buy higher-margin products
and services, which results in a higher% margin on total sales.
De-averaging CSI is critical to understanding customer profitability
Profit Impact of Very Satisfied Customers
When we chart customer profitability against customer satisfaction, we see that the
“very satisfied” customers are the ones who drive profitability.
Profitability of Satisfied Customers
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Each year, the
business above loses
22,400 customers
who are dissatisfied,
but do not complain.
Dissatisfied customers often do not complain, but they do walk and they do talk.
Complaint Behavior and Retention
(75%)
Dissatisfied but no complaint??
• Well-documented studies have found that a surprisingly small%age of dissatisfied customers complain to a business. • Increase customer support costs; lower profitability
• Negative Word-of-Mouth • Avg. 8-10 people
• Many more online
• Adverse impact on: • Customer retention,
• New customer acquisition,
• Firm reputation,
• Brand equity.
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Facebook as an Outlet for Customer Dissatisfaction
An individual’s car was towed despite being legally parked with a
valid parking sticker. The individual created a Facebook page to
express his dissatisfaction with the towing company.
More than 10,000 supporters, some using other social media, also
expressed their dissatisfaction with the towing company.
Many related their own bad experiences, and 20 formal
complaints were filed over a 3-year period as a result .
Customer Dissatisfaction and the Use of Social Media
Alaska Air uses twitter as a channel to promote new fares/routes and to
field customer service issues. Their twitter page is a mix of responses to
customers, promotions, and warnings of weather delays.
Managing the Customer Experience with Twitter
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Dissatisfied customers often do not complain, but they do walk and they do talk.
Marketing Performance
Tool 1.2 Complaint Behavior and Retention
To estimate retention rates, businesses can use a customer survey as outlined above.
How likely are you to buy this product or brand
again on your next purchase?
Estimating Customer Retention
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Estimating Customer Retention
Note: A business that has a 50% customer retention rate has a
fifty-fifty chance of retaining any one customer from one year to the next.
This fact translates into an average customer life of 2 years!
Customer Retention => Customer Life Expectancy
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Profit impact of
customer retention
and customer loyalty.
In this section we will look at how loyal customers have a longer
customer history, are more committed to the company brand, buy more,
and are more likely to recommend the brand to others.
Customer Performance and Profit Impact
Loyal customers
• Length of customer history
• Buy more
• Buy again and again
• Choose one product more frequently over others
• More likely to recommend the brand to others….
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Loyal customers have a long customer history, buy at an above-average purchase amount, have a high
desire to repurchase, have strong product preferences for the company’s products and would
recommend the company’s products to friends, relatives, and co-workers.
Assessing Customer Loyalty
Managing Customer Loyalty
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Customer Loyalty Classifications
• Loyal Customers (Score 70 – 100) • Need to be managed differently; special offers and services not offered to others • Loyalty program should include precautions against demoting loyal customers. • Produce a referral value that is over three times their customer lifetime value.
• Repeat Customers (Score 40 – 90) • Many repeat customers are simply “big spenders”; high profit potential • Buy a lot from many companies and low loyalty (15-20% of portfolio)
• Buy at above-average levels and frequently purchase products for others. • “satisfied” or “very satisfied” customers with an excellent retention rate, • Less likely than loyal customers to recommend the product of a specific
business. • Companies often mismanage repeat customers; at risk of becoming lost customers.
Customer Loyalty Classifications
• Captive Customers (Score 20 – 40) • Dissatisfied long-term customers who cannot switch easily. • Weak product preference; low recommendations making new customer acquisition harder. • CLV is above average - above-average customer history but the future cash flow is at risk • Companies often lack awareness of existence / frustrations of these customers.
• New Customers (Score 0 – 60) • Include both first-time customers and returning customers (usually 15-20%). • New customers should possess traits of target customers (satisfaction, retention, and loyalty). • Low customer history and below-average CLV; Low loyalty; high expectations. • Returning customers likely to resume their former purchasing patterns. Require “critical care”.
• Unprofitable Customers (Score 0 – 40) • Unprofitable and unlikely ever to be loyal; Drain on profits (30-35% of portfolio). • Low customer history, desire to repurchase, and low purchase amount; little or no inclination
to recommend the company or its product; typically buy on price promotions. • Best approach, and often the hardest, is to help them leave.
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Every additional customer who is retained increases a business’s net profit.
Placing a high priority on satisfying and retaining customers
can provide tremendous financial leverage.
Customer Retention and Profitability
The lifetime value using a 10% discount rate is $111.70,
the net present value of customer cash flow over 5 years.
The average credit card customer for this company has a customer life of 5 years. It costs the
company $51 to acquire a new customer and by year 5 they produce $55 in customer profit.
Customer Lifetime Value
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Present Value Formula
The cost of acquiring an online grocery customer is almost twice the cost of
acquiring an online consumer electronics or apparel customer.
Value of Online Customers
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The “second lifetime value” of a win-back customer has a net present value almost
3x higher than the average lifetime value of an entirely new customer.
The return of a former customer is a lost opportunity that has reappeared—
a second chance to develop a loyal customer.
Customer Lifetime Value Of Win-Back Customers
Customer Loyalty Scores and Customer Lifetime Value are closely correlated.
Customer Lifetime Value and Customer Loyalty
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Loyal customers play an important role in company profitability.
How would management of customer loyalty improve profits?
MBM6
Chapter 1
Marketing Performance
Tool 1.4 Customer Loyalty & Customer Profitability
Key Takeaways
• Businesses with strong customer focus deliver above-average profits. • Developing a customer focus requires customer leadership: senior management
leadership, employee customer training, and customer involvement. • Understand the customer experience, encourage customer complaints, and seek
to develop customer solutions, not just products. • Customer metrics (satisfaction, retention, and loyalty), are key performance
metrics of a customer-focused organization.
• Customer satisfaction metric is related to profitability. • Unbundling the score into different levels of customer satisfaction allows better
understanding of overall average and profit impact of of customer satisfaction. • Customers complaints provide information on how to retain customers who
otherwise would be lost.
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Key Takeaways contd.
• Customer satisfaction affects customer retention. • Higher customer retention delivers higher customer profits - not only annual
profits but future profits as well, due to a longer customer life. • More expensive to acquire a new customer than to retain a current customer. • Customers generally buy more the longer they stay with a business.
• Loyal customers: • Have long purchase history, an above-average purchase amount, a high desire
to repurchase, and a strong product preference; +ve WOM. • Are highly profitable and have an above-average CLV. • Goal is to move all customers to higher levels of customer loyalty.
Next steps
• Get familiar with iLearn and class materials
• Fill the group preference survey
• What you need to participate in class • Register on PollEv
• Explore Rogerbest.com
• Next session: • Marketing Analytics
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