Summary
Customers will buy from the company they perceive to offer them the highest customer-delivered value. This is defined as the difference between total customer benefits and total customer cost. Companies realize that a satisfied customer can lead to long-term customer loyalty and customer lifetime value. Companies develop programs to retain customers through customer relationship management and by gathering as much information as they can about the customers and their buying history and store it in databases and data warehouses for later mining and marketing purposes.
A. Building Customer Value, Satisfaction, and Loyalty
1. Customers will research an offer to see which one will deliver the most perceived value. Customer perceived value is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives.
2. An example of this is when a customer compares two or more similar offers to determine which one will ultimately offer the best value, such as when a customer compares a Caterpillar tractor with a Komatsu tractor and weighs all the advantages and disadvantages of each.
3. Customer value, satisfaction and loyalty are expectations of the customer for the company to provide long-term benefits for purchasing their product over a competitor’s product. A seller must assess the total customer benefits and costs associated with the customer evaluating a competitor’s product against their own and choosing which offer to accept. Customers have varying degrees of loyalty to products and brands, depending on their satisfaction with the product. Companies must also monitor customer satisfaction and how well they treat the customers. A highly satisfied customer is usually a more loyal customer. In order to keep a customer satisfied, a company must offer product and service quality. A company has delivered quality when a customer is completely satisfied with the product and service.
B. Maximizing Customer Lifetime Value
1. Marketing is the art of attracting and keeping profitable customers but not every customer is profitable and the company may lose money on some of its customers. The 80 – 20 rule states that 80 percent or more of the profits come from 20 percent of its customers.
2. A great example of customer loyalty to a company is auto manufacturers. Consumers, especially men, seem to be extremely loyal to Chevy, Ford or Dodge. Once a consumer has a preference of one brand over another, it seems to be nearly impossible to change their minds.
3. In defining a profitable customer the emphasis is on lifetime revenue stream and not just the profit from one transaction. Not all customers are profitable and the company should try to rid itself of unprofitable customers because there are costs associated with serving that customer. A customer profitability analysis is a useful tool for determining customer profitability and can be conducted with activity-based costing (ABC), which estimates revenue against the cost associated with serving the customer. The concept of customer lifetime value describes the net present value of the stream of future profits expected over the customer’s lifetime purchases.
C. Cultivating Customer Relationships
1. Companies can cultivate customer relationships through customer relationship management (CRM), which is a process of managing detailed information about customers and customer touch points to maximize loyalty.
2. Hotels have many customer touch points as guests go through reservations, check in and check out, room service, business services, etc.
3. CRM enables companies to provide excellent real time customer service through the effective use of individual account information. Companies can market services based on information they have gathered about customers preferences and buying history. Companies who wish to increase their profits must spend a lot of time increasing their customer base and then they must be able to retain the customers and keep them from defecting. The marketing funnel identifies the percentage of the potential target market at each stage in the decision process. A customer profitability analysis and the marketing funnel help marketers decide how to manage groups of customers. Companies want to create a strong, tight connection to customers. They can do this by interacting with customers, developing loyalty programs and creating institutional ties.
D. Customer Databases and Database Marketing
1. 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, sales, or maintenance of customer relationships. Database marketing is the process of building, maintaining, and using customer databases and other databases (products, suppliers, resellers) to contact, transact with, and build relationships with customers.
2. Amazon is a good example of a customer database and database marketing. When you pull up the Amazon website, they provide you with a list of previously viewed and purchased items and make suggestions for things that you might be interested in.
3. Marketers must know their customers. They must learn their preferences, their buying habits, the past purchase volumes and other key and relevant information. They keep and organize this information in data warehouses. From these marketers can capture, query, and analyze it. Data mining allows marketers to extract useful customer information from the databases. There are problems with using database marketing. The benefits do not come without costs and risks.
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