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- 1. B C O M 22353: MARKETING M A N A G E M E N T Lesson III: Crafting Customer Value Mr. Sachith Ranasinghe 1
- 2. University of Kelaniya,Sri Lanka Mr. Sachith Ranasinghe B.Com (Special) Kelaniya Lecturer (Probationary) Department of Commerce And Financial Management E-mail sachithr@kln.ac.lk 2
- 3. 3 L E A R N I N G OBJECTIVES 1. Define Customer Perceived Value and explain the Customer Value Analysis 2. Explain value chain and identify application of value chain to an industry 3. Describe customer profitability and customer lifetime value 4. Define the marketing funnel and explain the concept of loyalty 3
- 4. C u s t o m e r V a l u e , S a t i s f a c t i o n & L o y a l t y Managers who believe the customer is the companys only true profit center consider the traditional organization chart. Successful marketing companies invert the chart to look like Figure 5.1(b). Managers at every level must be personally engaged in knowing, meeting, and serving customers 4 4
- 5. C u s t o m e r V a l u e , S a t i s f a c t i o n & L o y a l t y 4 5
- 6. C u s t o m e r P e r c e i v e d V a l u e Customer-perceived value (CPV) is the difference between the prospective customers evaluation of all the benefits and costs of an offering and the perceived alternatives. 4 6 CPV TCB TCC
- 7. C u s t o m e r P e r c e i v e d V a l u e 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. 4 7
- 8. C u s t o m e r P e r c e i v e d V a l u e 4 8 1. Total Customer Cost a. Monetary Cost b. Time Cost c. Energy Cost d. Psychological Cost 2. Total Customer Benefit a. Product Benefit b. Services Benefit c. Personnel Benefit d. Image Cost
- 9. C u s t o m e r P e r c e i v e d V a l u e 4 9 Total Customer Cost a) Monetary Cost - the price paid for the product or service by the customer. b) Time Cost the cost to the customer in time spent in the decision making and buying process such as searching, evaluating, purchasing and delivery lead times. c) Energy Cost - the degree of physical effort expended by the customer while searching for, evaluating, buying, installing, using and receiving delivery of the product. d) Psychological Cost - the cost related to any dissatisfaction and frustration experienced by the customer during the evaluation and purchasing journey.
- 10. C u s t o m e r P e r c e i v e d V a l u e 4 10 Total Customer Benefit a) Product Benefit - the basic attributes of the product such as quality, design, functionality, packaging and cost savings. b) Services Benefit the support services offered alongside the product. These may include pre-sales and post-sales customer services such as delivery, installation, warranties, servicing and guarantees. c) Personnel Benefit - the value added by company representatives during the sales process to overcome customer objections and facilitate a sale. d) Image Benefit - the perceived value to a customer of increased image and reputation achieved by being seen to own and use the product.
- 11. C u s t o m e r V a l u e A n a l y s i s Managers conduct a customer value analysis to reveal the companys strengths and weaknesses relative to those of various competitors, a systematic process with multiple steps. 4 1. Identify the major attributes and benefits that customers value. 2. Assess the quantitative importance of the different attributes and benefit. 3. Assess the companys and competitors performances on the different customer values against their rated importance. 4. Examine how customers in a specific segment rate the companys performance. against a specific major competitor on an individual attribute or benefit basis. 5. Monitor customer values over time. 11
- 12. 1. Identify the major attributes and benefits that customers value Customers are asked what attributes, benefits, and performance levels they look for in choosing a product and vendors. Attributes and benefits should be defined broadly to encompass all the inputs to customers decisions. 4 12
- 13. 2. Assess the quantitative importance of the different attributes and benefits Customers are asked to rate the importance of different attributes and benefits. If their ratings diverge too much, the marketer should cluster them into different segments. 4 13
- 14. 3. Assess the companys and competitors performances on the different customer values against their rated importance. Customers describe where they see the companys and competitors performances on each attribute and benefit. 4 14
- 15. 4. Examine how customers in a specific segment rate the companys performance against a specific major competitor on an individual attribute or benefit basis If the companys offer exceeds the competitors offer on all important attributes and benefits, the company can charge a higher price (thereby earning higher profits), or it can charge the same price and gain more market share. 4 15
- 16. 5. Monitor customer values over time The company must periodically redo its studies of customer values and competitors standings as the economy, technology, and product features change. 4 16
- 17. Choice Processes and Implications Some marketers might argue the process we have described is too rational. TPB versus Impulse Buying. Buying only for Customers Personal Benefit. 4 17
- 18. Choice Processes and Implications 1. The buyer might be under orders to buy at the lowest price. 2. The buyer will retire before the company realizes the competitive product is more expensive to operate. 3. The buyer enjoys a long-term friendship with the competitive organizations salesperson. Buyers operate under various constraints and occasionally make choices that give more weight to their personal benefit than to the companys benefit 4 18
- 19. CPV - Conclusion 1. It suggests that the seller must assess the total customer benefit and total customer cost associated with each competitors offer in order to know how its own offer rates in the buyers mind. 2. It also implies that the seller at a disadvantage has two alternatives: increase total customer benefit or decrease total customer cost. 3. The former calls for strengthening or augmenting the economical, functional, and psychological benefits. The latter calls for reducing the buyers costs. 4 19
- 20. Delivering High Customer Value Attaining Loyalty Loyalty has been 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. 4 20
- 21. Delivering High Customer Value Attaining Loyalty Value Proposition consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. Value Delivery System includes all the experiences the customer will have on the way to obtaining and using the offering. At the heart of a good value delivery system is a set of core business processes that help deliver distinctive consumer value. 4 21
- 22. T h e V a l u e C h a i n 4 22
- 23. T h e V a l u e C h a i n V a l u e D e l i v e r y N e t w o r k 4 23
- 24. P a t h w a y s t o b u i l d C u s t o m e r L o y a l t y 1. Interact Closely with Customers - Connecting customers, clients, patients, and others directly with company employees is highly motivating and informative. 2. Develop Loyalty Programs e.g.: Frequency programs (FPs) are designed to reward customers who buy frequently and in substantial amounts. 3. Build Brand Communities - A brand community is a specialized community of consumers and employees whose identification and activities focus around the brand. a) A consciousness of kind, b) Shared rituals, stories, and traditions that help convey the meaning of the community, c) A shared moral responsibility or duty to both the community as a whole and individual community members 4 24
- 25. P a t h w a y s t o b u i l d C u s t o m e r L o y a l t y 4 25
- 26. Customer Profitability 4 A profitable customer is a person, household, or company that over time yields a revenue stream exceeding by an acceptable amount the companys cost stream for attracting, selling, and serving that customer. Marketers can assess customer profitability individually, by market segment, or by channel. 26
- 27. Customer Profitability 4 Individual or Segmented? Common Approach Many companies measure customer satisfaction, but few measure individual customer profitability. Banks claim this is a difficult task because each customer uses different banking services, and the transactions are logged in different departments. 27
- 28. Customer Profitability Analysis 4 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 customerthe costs of products and services based on the resources they consume. The company estimates all revenue coming from the customer, less all costs. 28
- 29. Customer Profitability Analysis 4 Each cell contains a symbol representing 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 mixed profitability; she buys one profitable product (P1) and one unprofitable product (P3). Customer 3 is a losing customer because he buys one profitable product (P1) and two unprofitable products (P3 and P4). 29
- 30. Customer Lifetime Value (CLV) 4 Customer lifetime value (CLV) describes the net present value of the stream of future profits expected over the customers lifetime purchases. The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of that customer, applying the appropriate discount rate (depending on cost of capital and risk attitudes). 30
- 31. Customer Churn (Defection) 4 It is not enough to attract new customers; the company must also keep them and increase their business. To reduce the defection rate, the company must: 1. Define and measure its retention rate. (subscription rate, graduation rate, etc.) 2. Distinguish the causes of customer attrition and identify those that can be managed better. (poor service, shoddy products, and high prices versus changing geo area) 3. Compare the lost customers lifetime value to the costs of reducing the defection rate. 31
- 32. The Marketing Funnel 4 The marketing funnel identifies the percentage of the potential target market at each stage in the decision process, from merely aware to highly loyal. Consumers must move through each stage before becoming loyal customers. Some marketers extend the funnel to include loyal customers who are brand advocates or even partners with the firm. 32
- 34. Contemporary Pathways to Cultivate Customer Relationships 4 Customer Relationship Management (CRM) is the process of carefully managing detailed information about individual customers and all customer touch points to maximize loyalty. Customer Value Management (CVM), describes the companys optimization of the value of its customer base. CVM focuses on the analysis of individual data on prospects and customers to develop marketing strategies to acquire and retain customers and drive customer behavior. 34
- 35. Contemporary Pathways to Cultivate Customer Relationships 4 Personalizing Marketing is about making sure the brand and its marketing are as personally relevant as possible to as many customers as possible. Customer Empowerment and Customer Reviews & Recommendations 35
- 36. Q U E S T I O N S ? 48 36