CHAPTER 5: CREATING LONG-TERM LOYALTY RELATIONSHIP

Question 1

Define customer perceived value.

Answer 1

Customer perceived value is defined as the difference between the potential customer’s evaluation of the benefits and costs of receiving a product or service. This concept captures how customers view the overall value of a product based on what they believe they gain, whether functional, emotional, or economic, compared to the price they pay and the sacrifices they make to acquire it.

Essentially, customer perceived value is influenced by:

1. Benefits: Features and performance of the product, as well as additional services and experiences provided.
2. Costs: Monetary costs, time, effort, and any trade-offs consumers may have to make.

A positive customer perceived value leads to customer satisfaction and loyalty, while a negative perception can result in customer dissatisfaction and churn. Understanding this value helps marketers position their products more effectively and tailor their offerings to meet customer expectations and needs,.

Question 2

What are the steps in customer value analysis?

Answer 2

The steps in customer value analysis are as follows:

1. Identify Major Attributes and Benefits: Determine the key attributes and benefits that customers value in products or services.
2. Assess Quantitative Importance: Evaluate the relative importance of these various attributes and benefits to customers.
3. Performance Assessment: Performance assessment involves evaluating how well a company’s products, services, or marketing efforts meet customer needs and expectations. This includes measuring the actual performance attributes of offerings (such as quality, features, service levels) and customer satisfaction outcomes. Companies assess performance to identify strengths and weaknesses relative to customer requirements and expectations. This process typically involves
4. Competitive Performance Rating: the performance assessment by comparing the company’s current performance against that of competitors on the same customer-valued attributes. This enables the company to understand its competitive position in the marketplace. It typically involves
5. Monitor Customer Values Over Time: Continuously track and monitor changes in customer values over time to adapt to evolving preferences and market conditions.

Question 3

How do companies build customer value, satisfaction, and loyalty?

Answer 3

Companies build customer value, satisfaction, and loyalty through a comprehensive strategy that integrates customer-perceived value, total customer satisfaction, and high product and service quality. Here are the key methods they employ:

1. Customer-Perceived Value (CPV):

• Understanding Customer Choices: Companies recognize that customers are value maximizers who make choices based on their evaluation of benefits versus costs. They consider how well a brand provides value relative to alternatives.
• Assessing Total Customer Benefit vs. Total Customer Cost: Companies need to identify the total benefits customers perceive from their offerings and juxtapose this against the costs incurred. This means evaluating not just the financial costs but also the time, energy, and experience associated with using the product or service.

2. Total Customer Satisfaction:

• Meeting Expectations: Customer satisfaction is defined as the feelings of pleasure or disappointment resulting from comparing a product or service’s perceived performance to the expectations. Companies strive to meet or exceed these expectations to foster satisfaction.
• Influence of Expectations: Customer expectations are shaped by various factors, including past experiences, recommendations from peers, public discourse, and the marketing promises made by the company. By managing these expectations effectively through transparent communication, companies can enhance satisfaction.

3. High Product and Service Quality:

• Quality Assessment: Companies must continuously evaluate the quality of their products and services to ensure they meet customer expectations and industry standards. High-quality offerings contribute significantly to customer-perceived value and satisfaction.
• Continuous Improvement: Engaging in quality assurance and improvement practices allows companies to adapt their offerings based on customer feedback and evolving standards in the market. This commitment to quality reinforces customer trust and loyalty.

4. Building Loyalty:

• Developing Loyalty Programs: Creating programs designed to reward frequent buyers, such as frequency programs (FPs) that recognize customers for consistent purchasing behavior, helps maintain loyalty. Additionally, club membership programs can effectively attract and retain customers who contribute significantly to business revenue.
• Creating Institutional Ties: For business clientele, providing specialized services, equipment, or systems that facilitate easier management of their orders and inventories strengthens the relationship. This minimizes the likelihood of switching due to the associated high costs.

In summary, by focusing on customer-perceived value, delivering total customer satisfaction through exceptional product and service quality, and implementing effective loyalty strategies, companies can successfully build a loyal customer base. This ultimately leads to sustained business success and competitiveness in the market.

Question 4

What is customer lifetime value?

Answer 4

Customer Lifetime Value (CLV) is a crucial metric that represents the net present value (NPV) of the stream of future profits a company expects to generate from a customer over their entire relationship with that customer. It provides a quantitative framework for understanding how valuable a customer is to a business across all interactions, rather than on a single transaction.

Question 5

How can marketers maximize customer lifetime value?

Answer 5

Marketers can maximize customer lifetime value (CLV) through a variety of strategies outlined in Chapter 5:

1. Understanding Customer Segmentation: By analyzing customer segments based on their behaviors, preferences, and profitability, marketers can tailor their approaches to different groups. This allows for targeted marketing efforts that can improve retention and increase spending.
2. Enhancing Customer Acquisition: Marketers should focus on optimizing the customer acquisition process to attract higher-value customers. This can be achieved by refining marketing messages and utilizing channels that effectively reach prospective customers likely to have a higher CLV.
3. Improving Customer Retention: Retention strategies are crucial for maximizing CLV. Marketers can implement loyalty programs, personalized communications, and regular engagement to encourage repeat purchases and reduce churn rates. Satisfied customers are more likely to stay longer and spend more.
4. Increasing Cross-Selling and Upselling Opportunities: By identifying additional products or services that complement what customers have already purchased, marketers can increase the average order value. This approach takes advantage of existing relationships and knowledge about customer preferences.
5. Leveraging Data Analytics: Utilizing data analytics helps marketers gain insights into customer behaviors, preferences, and trends. By analyzing this data, marketers can make informed decisions about how to enhance the customer experience and increase CLV.
6. Personalization of Marketing Efforts: Personalizing marketing strategies based on individual customer data can create more relevant experiences. This can include customized recommendations, targeted promotions, and tailored communication that resonate with each customer.
7. Providing Exceptional Customer Service: By ensuring that customer service is responsive, helpful, and focused on resolving issues, companies can enhance customer satisfaction. Positive experiences lead to higher loyalty and long-term relationships.
8. Fostering Community Engagement: Building a community around the brand can create a sense of belonging and encourage loyal behavior. Engaging customers through social media and interactive campaigns can enhance their connection to the brand.
9. Monitoring and Adjusting Strategies: Continuously measuring customer satisfaction and CLV metrics enables marketers to adjust their strategies over time. This ongoing assessment allows for the identification of effective practices and the elimination of those that do not provide value.

By implementing these strategies, marketers can effectively increase customer lifetime value, thereby enhancing the overall profitability and sustainability of the business.

Question 6

How can companies attract & retain the right customer and cultivate strong customer relationship and communities?

Answer 6

Companies can attract and retain the right customers and cultivate strong customer relationships and communities through a combination of strategic approaches focusing on customer value, loyalty, and profitability. The key methods include:

1. Attracting the Right Customers

• Customer Acquisition: Companies invest time and resources in identifying and attracting customers who have high Customer Lifetime Value (CLV) potential. Different acquisition methods yield customers with varying CLVs, so it is vital to target those who are likely to bring long-term profitability.

2. Reducing Customer Defection (Churn)

• Retention Efforts: Reducing defection is critical for maximizing profits. Companies focus on retention rates (such as subscription renewals) by improving product quality, service, and pricing, and addressing the primary causes of customer attrition, including poor service and high prices.
• Resolving Complaints Effectively: Satisfactorily resolving customer complaints can turn detractors into promoters, where customers share positive experiences, helping to reduce churn.

3. Increasing Customer Longevity

• Customer Relationship Management (CRM): Building ongoing, personalized relationships keeps customers engaged longer. CRM tools help marketers personalize marketing efforts and deliver relevant offers to customers, encouraging repeat purchases.
• Close Interaction: Connecting customers directly with employees and listening to their needs fosters loyalty and improves retention.

4. Increasing Share of Wallet and Cross-/Upselling

• Cross-Selling and Upselling: Once a customer is engaged, companies encourage buying additional or higher-value products/services. This increases the share of wallet, meaning the portion of a customer’s total spending captured by the company.
• Loyalty Programs: Frequency programs and club memberships reward frequent and high-volume buyers, encouraging customers to increase their purchases and stay committed to the brand.

5. Terminating Low-Profit Customers

• Rationalizing Customer Base: Some customers may be low profit or loss-making. Instead of trying to terminate these customers outright, companies may try to encourage them to buy more, purchase in larger quantities, pay higher fees, or forego certain services to improve profitability.

6. Focusing on High-Profit Customers

• Special Treatment and Loyalty Building: High-profit customers can be treated preferentially to deepen loyalty. Special programs, personalized offers, and exclusive services increase their lifetime value and reduce defection risk.

7. Cultivating Strong Customer Relationships and Communities

• Personalization / Permission Marketing: Tailoring marketing messages so they are personally relevant ensures customers feel valued, enhancing their relationship with the brand.
• Customer Empowerment: Enabling customers to become brand evangelists by providing resources to express their passion helps build a loyal community.
• Leveraging Customer Reviews and Recommendations: Encouraging and highlighting customer feedback helps build trust and influences purchase decisions positively.
• Building Institutional Ties: Offering business customers specialized equipment or technology links that increase switching costs strengthens long-term relationships.
• Community Engagement: Companies foster communities where customers can connect with company employees and with each other, sharing positive experiences and support, which enhances loyalty and advocacy.

Question 7

How do customers’ new capabilities affect the way companies conduct their marketing?

Answer 7

Customers’ new capabilities, particularly those driven by advancements in technology and increased access to information, have significantly transformed the marketing landscape. Here are several key ways these changes affect how companies conduct their marketing:

1. Increased Access to Information

Empowered Consumers:

• Customers now have access to a vast amount of information about products, services, and brands through online resources, reviews, and social media. This empowerment means companies must be transparent and provide accurate information to gain trust and attract informed consumers.

Comparative Shopping:

• With the ability to easily compare prices and features across different brands, customers are more selective and demand value for their money. Companies must articulate their unique selling propositions clearly and ensure their offerings are competitive.

2. Demand for Personalization

Tailored Marketing:

• Customers expect personalized experiences and recommendations based on their preferences and past behaviors. Companies are responding by utilizing data analytics and customer relationship management (CRM) systems to tailor their marketing efforts, ensuring relevance.

Targeted Communications:

• The ability to segment customers and target them with specific messages has become crucial. Personalized email campaigns, tailored advertisements, and customized content resonate better with audiences, driving engagement and loyalty.

3. Rise of Social Media and Online Interaction

Engagement and Interaction:

• Social media platforms have transformed how customers interact not only with brands but also with each other. This shift compels companies to engage more dynamically on these platforms, responding to queries, managing complaints, and encouraging discussions.

User-Generated Content and Advocacy:

• Customers now create content (reviews, testimonials, blogs) that influences the buying decisions of others. Companies must monitor and encourage positive user-generated content, as satisfied customers can serve as brand advocates.

4. Shift Towards Experience Over Products

Focus on Customer Experience:

• Customers prioritize experiences over mere transactions, leading companies to rethink their marketing strategies. Businesses are now highlighting customer experiences, service quality, and emotional connections, rather than just the products themselves.

Community Building:

• Companies increasingly focus on building communities around their brands, where customers can engage, share experiences, and foster relationships. This strategy not only enhances customer loyalty but also encourages advocacy.

5. Greater Expectations for Responsiveness

Real-Time Communication:

• Customers expect quick responses to inquiries and issues, thanks to advancements in communication technology. Companies must adapt their customer service strategies to provide timely responses through various channels, including chatbots and social media.

Feedback Utilization:

• The capability of customers to provide immediate feedback on their experiences means companies must be agile in adapting their marketing practices. Companies that actively listen to and implement customer feedback are more likely to retain and satisfy their clientele.

6. Enhanced Data Analytics

Data-Driven Marketing Strategies:

• With the prevalence of data analytics tools, companies have the capability to gain deeper insights into customer behaviors, preferences, and trends. This allows for more strategic decision-making in marketing, enabling targeted campaigns that respond directly to customer needs.

Predictive Analytics:

• Companies use predictive analytics to anticipate customer behavior based on past interactions, allowing for proactive marketing efforts that align with consumer expectations and desires.

Conclusion

In summary, customers’ new capabilities—spurred by technological advancements and access to information—have reshaped the marketing landscape fundamentally. Companies must adapt by embracing transparency, personalization, enhanced engagement, and customer experience to succeed in this evolving environment. As customers continue to gain more power and influence, marketers must evolve to meet their expectations and foster lasting relationships.