International marketing management lesson 03

UNIT II LESSON CUSTOMER VALUE AND SATISFACTION CONTENTS 3.0 Aims and Objectives 3.1 Introduction 3.2 Definition of Customer Value 3.2.1 Customer Lifetime Value 3.2.2 Calculating Customer Lifetime Value 3.3 Customer Satisfaction 3.4 Retaining Customer Value and Satisfaction 3.4.1 Why Businesses Fail 3.4.2 Value of Retaining a Customer 3.5 Suggestions for Retaining Customer Value and Satisfaction 3.5.1 Select your Customers Carefully 3.5.2 Quality is all about Customers' Perceptions 3.5.3 Five Basic Elements 3.5.4 Value Innovation 3.5.5 Create Differentiation 3.5.6 Focus on the Moment of Truth 3.5.7 Good, Better and Best 3.6 Customer Value in the Context of Outsourcing Customer Service 3.7 Let us Sum up 3.8 Lesson End Activity 3.9 Keywords 3.10 Questions for Discussion 3.11 Suggested Readings 3.0 AIMS AND OBJECTIVES After studying this lesson, you will be able to: Define customer value and satisfaction Know how to retain customer value and satisfaction Describe the value of retaining a customer 54 International Marketing Management 3.1 INTRODUCTION The purpose of a business is to create and keep a customer The two most important words to keep in mind in developing a successful customer base are Positioning and Differentiation Differentiation refers to your ability to separate yourself and your product or service from that of your competitors And it is the key to building and maintaining a competitive advantage Positioning refers to the way your customers think and talk about you and your company when you are not there The position that you hold in the customer's mind determines all of his reactions and interactions with you Your position determines whether or not your customer buys, whether he buys again and whether he refers others to you Everything that you with regard to your customer affects the way your customer thinks about you This is the advantage that you and your company have over your competitors in the same marketplace - the unique and special benefits that no one else can give your customer The purpose of a business is to create and keep a customer If a business successfully creates and keeps customers in a cost-effective way, it will make a profit while continuing to survive and thrive If, for any reason, a business fails to attract or sustain a sufficient number of customers, it will experience losses Too many losses will lead to the demise of the enterprise According to Dun and Bradstreet, the single, most important reason for the failure of businesses in America is lack of sales And, of course, this refers to resales as well as initial sales So your company's job is to create and keep a customer, and your job is exactly the same Remember, no matter what your official title is, you are a salesperson for yourself and your company And the best way to increase your value as a salesperson is to build your customer base 3.2 DEFINITION OF CUSTOMER VALUE Difference between what a customer gets from a product, and what he or she has to give in order to get it is called customer value Value of a product within the context of marketing means the relationship between the consumer's expectations of product quality to the actual amount paid for it It is often expressed as the equation: Value = Benefits / Price or alternatively: Value = Quality received / Expectations There are parallels between cultural expectations and consumer expectations Thus pizza in Japan might be topped with tuna rather than pepperoni, as pizza might be in the US; the value in the marketplace varies from place to place as well as from market to market For a firm to deliver value to its customers, they must consider what is known as the "total market offering." This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitors' market offerings and prices Value can thus be defined as the relationship of a firm's market offerings to those of its competitors Value in marketing can be defined by both qualitative and quantitative measures On the qualitative side, value is the perceived gain composed of individual's emotional, mental and physical condition plus various social, economic, cultural and environmental factors On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars For an individual to deliver value, one has to grow his/her knowledge and skill sets to showcase benefits delivered in a transaction (e.g., getting paid for a job) For an organization to deliver value, it has to improve its value: cost ratio When an organization delivers high value at high price, the perceived value may be low When it delivers high value at low price, the perceived value may be high The key to deliver high perceived value is attaching value to each of the individuals or organizations–making them believe that what you are offering is beyond expectation–helping them to solve a problem, offering a solution, giving results, and making them happy Value changes based on time, place and people in relation to changing environmental factors It is a creative energy exchange between people and organizations in our marketplace 3.2.1 Customer Lifetime Value In marketing, Customer Lifetime Value (CLV), Lifetime Customer Value (LCV), or Lifetime Value (LTV) and a new concept of "customer life cycle management" is the present value of the future cash flows attributed to the customer relationship Use of customer lifetime value as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales 3.2.2 Calculating Customer Lifetime Value Customer lifetime value has intuitive appeal as a marketing concept, because in theory it represents exactly how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer In reality, it is difficult to make accurate calculations of customer lifetime value due to the complexity of and uncertainty surrounding customer relationships The specific calculation depends on the nature of the customer relationship Customer relationships are often divided into two categories In contractual or retention situations, customers who not renew are considered "lost for good" Magazine subscriptions and car insurance are examples of customer retention situations The other category is referred to as customer migrations situations In customer migration situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future In customer retention situations, the firm knows when the relationship is over One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned) Most models to calculate CLV apply to the contractual or customer retention situation These models make several simplifying assumptions and often involve the following inputs: Churn rate: The percentage of customers who end their relationship with a company in a given period One minus the churn rate is the retention rate Most models can be written using either churn rate or retention rate If the model uses only one churn rate, the assumption is that the churn rate is constant across the life of the customer relationship 55 Customer Value and Satisfaction 56 International Marketing Management Discount rate: The cost of capital used to discount future revenue from a customer Discounting is an advanced topic that is frequently ignored in customer lifetime value calculations The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate Retention cost: The amount of money a company has to spend in a given period to retain an existing customer Retention costs include customer support, billing, promotional incentives, etc Period: The unit of time into which a customer relationship is divided for analysis A year is the most commonly used period Customer lifetime value is a multiperiod calculation, usually stretching 3-7 years into the future In practice, analysis beyond this point is viewed as too speculative to be reliable The number of periods used in the calculation is sometimes referred to as the model horizon Periodic Revenue: The amount of revenue collected from a customer in the period Profit Margin: Profit as a percentage of revenue Depending on circumstances this may be reflected as a percentage of gross or net profit For incremental marketing that does not incur any incremental overhead that would be allocated against profit, gross profit margins are acceptable 3.3 CUSTOMER SATISFACTION If you're a service provider, customer expectations can pose a major challenge That's because expectations are wondrous creatures: They grow, they shrink, they change shape, they change direction They shift constantly, and they shift easily And how satisfied (or dissatisfied) your customers are is determined by these expectations and your performance in meeting them If expressed as a calculation, customer satisfaction might look something like this: Customer Satisfaction = Your Performance Customer Expectations Of course, customer satisfaction is influenced by a complex interplay of factors; it's hardly as simple as plugging numbers into a formula and calculating the result Nevertheless, this calculation serves as a reminder that your customers' level of satisfaction can be affected by changes in either their expectations or your performance That means you have to pay attention to both And that's where things can get tricky, because how you perceive your performance may differ from how your customers perceive it In fact, discrepancies between your perceptions and theirs would not be at all unusual; I routinely encounter such discrepancies when I interview a company's service staff as well as its customers So, even if you're working yourself to the proverbial bone, if customers view you as unresponsive, then you are unresponsive - in their eyes The reverse is also true: If you really are unresponsive, but customers perceive that you deliver superior service, then you (in their eyes), and you gain little by trying to convince them otherwise I'm not advocating bumbleheaded service, of course, but merely emphasizing that customer satisfaction is driven by their perceptions, not yours Their perceptions are their reality, and any overlap between their view of the world and your own may be simply one of those delightful coincidences Check Your Progress 1 Define purpose of business What you understand by customer value? 3.4 RETAINING CUSTOMER VALUE AND SATISFACTION Creating value for customers is critical to every company's success especially during times of austerity In the old economy, the focus of most companies was internal with respect to their customers-meaning they would view customers based on what they had to sell In the new economy, the focus of companies is more external and is based on identifying customers' needs and what they will buy Focusing on what customers need is key to growing top-line revenues, reducing operating expenses and growing the bottom line Customers buy value, therefore it follows that improving the customer experience will increase customer loyalty or retention Customers who are loyal are those who continue to business with you whether or not you offer the best, lowest price or fastest delivery of your product/service This is because these customers perceive they are receiving value, which is what they receive and how they receive it Focusing on providing a great experience with the right customers over time will improve the bottom line through creating more loyal customers Loyal customers can be counted on to build a solid base of revenues as well as to expand profits Customer satisfaction and customer value are distinctly different (although related) concepts and the latter is more strongly linked to and predictive of customer behavior Indices of customer satisfaction are about attitudes, while customer value is about behavior Measures of satisfaction indicate how customers feel about products and services, while measures of customer value are indices of how customers will act For example, GM's Cadillac Division surveyed its customers and were happy to find out that 90% of them were satisfied or highly satisfied with their recent purchase of a new Cadillac But Cadillac was quite dismayed to learn that only about 30-40% of these new Cadillac owners would buy another Cadillac, compared with more than 80% of Japanese auto purchasers GM had simply been asking about customer satisfaction, not about customer value - about attitudes, not about behavior If you ask most executives what their companies do, they will say they are in the business of selling a product or service to a particular group of customers in order to increase their revenues and market share Few will respond that they are in the business of providing value to their customers to create a long-term loyal and profitable relationship that will assure their market share 3.4.1 Why Businesses Fail There is a greater concern with short-term financial improvements rather than long-term customer loyalty The issue is that executives concentrate on the symptom rather than the root cause, which is a breakdown in the value creation system An example is when profits are declining, CEOs direct their management teams to 57 Customer Value and Satisfaction 58 International Marketing Management review their expenses and eliminate non-essential ones This typically results in the short-term action of downsizing headcount and often causes a longer-term impact to the company’s ability to provide value to its customers Also, monthly reviews focus on financial figures versus focusing on customer value issues Senior executives are not personally involved with the job of customer loyalty creation Nor is their financial compensation tied to creating customer value When CEOs see customer issues as secondary to profits, they often delegate them because they not view this as their primary responsibility Those CEOs-called loyalty leaders-committed themselves and their companies to a mission higher than profits: creating so much customer value that there would be plenty for employees and investors These CEOs viewed their ability to create customer loyalty as a measure of their progress It was clear to these CEOs that on average most American companies lose one-half of their customers every five years, therefore the job of creating value is too important to delegate No one person within an organization is the focal point for the customer There is not a single point of accountability for the customer The maintenance of the customer relationship is a cross-functional responsibility without the requisite accountability or measurement Questions about customer value are questions about basic company strategy; therefore the involvement of the CEO is key to its success Customers buy value, therefore it follows that improving the customer experience will increase customer loyalty or retention 3.4.2 Value of Retaining a Customer In Frederick Reichheld's book The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value, his analysis showed that the cost of acquiring new customers was five times the cost of servicing existing ones If for no other reason then achieving a more effective way to service customers, focus on retention would be a worthwhile endeavor But above and beyond that there are many more reasons to retain an existing customer Establishing a repeat buyer involves understanding the buying behavior of your customer and their needs throughout the customer life cycle The focus of chief executives on growing the company revenues, reducing the operating costs and increasing profitability is possible by leveraging the existing customer base The key to growing top-line revenues and reducing operating costs resulting in bottom-line growth is establishing value for the customer The repeated creation of value for your customers will in turn lead to customer loyalty Customers buy value therefore it follows that improving the customer experience will increase customer loyalty or retention Value is created through seeking to understand the needs of your customer and how cross-functionally your company can fulfill those needs Although value is often viewed from a financial perspective, there are many other ways to demonstrate value such as superior quality, increased speed and greater productivity Real value is established by repeatedly delivering what your customer expects regardless of who in the organization is providing the service By providing a great experience with the right customers, over time, companies experience improved financial performance and more loyal customers Customer loyalty is an integrated system, and there are a number of economic effects that are created as loyalty weaves through a business: Revenues and market share grow through repeat buyers Sustainable growth enables a company to attract and retain the best employees Motivated, long-term employees become interested in learning how to reduce costs and improve quality, which further increases customer value and productivity Increased productivity and loyal customers create greater efficiencies and generate cost savings that is hard for competitors to match Loyal investors begin to act like partners as they see cash flow back into the business, which lowers the cost of capital and increase market capitalization According to Frederick Reichheld, making loyalists out of just 5% more customers would lead, on average, to an increase in profit (value) per customer of between 25% and 100% Reichheld advises companies to attract and keep customers in one of the following groups: Customers who are inherently more loyal because they prefer long-term relationships Customers who are inherently more profitable because they spend more, require less service, and pay their bills on time Customers who find your products and services more valuable, a better fit, than those of your competitors Growing Customer Revenue and Profitability: There are three actions that companies called loyalty leaders in order to leverage their customer base to achieve customer value creation First, the CEO must set the tone for the creation of customer loyalty We have often heard that “it starts from the top.” If the CEO delegates this responsibility, it will not be deemed a top priority and will not be taken seriously by employees According to Frederick Reichheld in his recent article “Lead for Loyalty" in the Harvard Business Review, he said, “Outstanding loyalty is the direct result of the words and deeds-the decisions and practices-of committed top executives who have personal integrity.” There are six principles that Reichheld identified that loyalty leaders have in common These principles start at the top and permeate all relationships, both internally and externally The six principles of loyalty are: Practice what you preach (it's not just about value but reinforcement of that value through actions) Play to win-win (create a win-win with your employees who deliver the value) Be picky (be selective in choosing your customers) Keep it simple (hold employees responsible and accountable for loyalty and give them clear and simple guidelines to be able to create it) Reward the right results (reward your loyal customers and those employees who create value for them) Listen hard, talk straight (ask questions, seek to understand and communicate the answer clearly) Second, in customer-centric companies, cross-functional responsibility is critical to create customer value No one person is responsible for delivering value and service to customers but rather everyone is This approach often requires teamwork that crosses organizational boundaries In a customer-centric organization, employees are given the authority and tools to treat customers right and to marshal whatever resources they need to address the problem Customers and problems don't always respect the organization chart 59 Customer Value and Satisfaction 60 International Marketing Management Third, it is not acceptable to have just customer satisfaction; it is imperative to create customer loyalty Customer satisfaction alone is not a predictor of customer loyalty because it fails to predict how customers will actually behave Satisfaction scores measure only past experience-not the customer's intentions Interestingly enough, most studies regarding the correlation between customer satisfaction and customer loyalty indicate that a high customer satisfaction rating of more than 90% often indicates a loyalty rating barely reaching 50% However, there is a very strong correlation between customer loyalty as measured by retention rates and company profitability Studies have shown the following: A 5% reduction of customer defection can result in profit increase of 25-100% A 2% increase in customer retention equals cutting operating cost by 10% It costs at least five times more to obtain new customers than it does to retain (and resell to) customers you already have 3.5 SUGGESTIONS FOR RETAINING CUSTOMER VALUE AND SATISFACTION 3.5.1 Select your Customers Carefully When you begin to think about acquiring and keeping customers for life, you need to think about the particular types of customers for whom your competitive advantage is so important that they would be poorly served by using anyone else's product You need to then emphasize again and again that the special features and benefits you offer are so important that they should not even think of going somewhere else If, for any reason, you fail to this, you may lose the customer and all the work you've done in building that relationship in the first place First, determine exactly what your current positioning is today with your customers How they think about you and what they say? How could you improve your positioning? Second, determine your exact competitive advantage, your area of superiority in what you How can you increase in your area of excellence and then convey it better to your customers? 3.5.2 Quality is all about Customers' Perceptions Like beauty and truth, quality is in the eye of the beholder, your customer “Perception is all there is ” says Tom Peters “There is only one perceived reality, the way each of us chooses to perceive a communication, the value of a service, the value of a particular product feature, the quality of a product.” Customer is defined as anyone who receives that which is produced by the individual or organization that has value Customer expectations are continuously increasing Brand loyalty is a thing of the past Customers seek out products and producers that are best able to satisfy their requirements A product does not need to be rated highest by customers on all dimensions, only on those they think are important 3.5.3 Five Basic Elements Leadership Corporate vision inspires and energizes all employees Leaders are energized, communicate strategic direction, and lead by example Leaders inspire and energize people, provide coaching Leaders create positive change and see change as an opportunity Corporate Culture Shared values link the organization together; all employees live the values Corporate culture inspires people and nurtures an attitude of relentless growth Team culture reigns, teams are infused with purpose, personality, and passion Customer-focused quality culture and continuous improvement culture established Empowered Employees People are sharply aligned with corporate vision and strategies Individuals and teams are empowered and have a decision-making authority People hate and fight bureaucracy relentlessly at all organizational levels Innovators have freedom to experiment, fail, and begin again more intelligently Performance Management Motivation systems encourage extraordinary performance from all employees Suggestion systems involve all employees in continuous efficiency improvement Coaching environment helps people unlock their true potential Effective performance measurement system is established Corporate Capabilities Effective creativity, idea, and knowledge management systems are established Teamwork is made a religion, cross-functional innovation teams are empowered Cross-functional synergies are exploited, diversity is leveraged Leadership development programs help grow leaders at all organizational levels 3.5.4 Value Innovation The value innovation concept provides a relevant support for questioning product/market strategies as well as underlying assumptions You must examine radically what constitutes real value for customers by asking fundamental questions: what value offering need to be introduced or increased to meet customer needs? What value offerings can be reduced or eliminated, because they not constitute real value for customers? Your company should deliver a particular customer value proposition to a definable market in order to exist Competition is all about value: creating it and capturing it In fact, your values are the reason you everything you Plain and simple And since everyone on this planet holds to these values, effective marketing targets the corollary emotions that run as conduits from these mission control centers This is the secret to instant access into someone’s subconscious mind It is also the answer to doing this so effectively that the subconscious literally kicks the conscious mind of your target market in the seat of its pants and compels it to something These control centers work to drive the behaviors of everyone If someone values what you have, they will trade you their money for what you have Now that's a value!, says Mike Litman 61 Customer Value and Satisfaction 62 International Marketing Management You can charge the customer the value provided, regardless of its cost “If the price charged for an item is commensurate with the benefits provided, then it will be considered a good value in the mind of the buyer But remember, there are limits even in a monopolistic situation.” For each option that you present to the potential customer, provide a value proposition Your value proposition should be something that can be conveyed in three to five bullet points, three to five sentences, or spoken in thirty seconds or less You should be precise and succinct Present the value proposition from the customer point of view For example, rather than say "we ship in three to five days", you could say "the product will typically arrive at your door in three to five days" Rather than say "we have the fastest process", you could say "our process is fast, so you get results faster" 3.5.5 Create Differentiation Create differentiation within your own products or services If you have an assortment of products or services to offer, you may have identified your differentiation already Common examples of differentiation for products may be based on size, speed, color, components, combinations or accessories Common examples of differentiation for services include speed, performance, quality, responsiveness, availability, ease or integration If you are in the unique position of having only one product or service to offer potential customers then you should consider accessories, partners or other options to create a variety of levels from the perspective of your future customers If all else fails, you can offer different levels of shipping speed or delivery 3.5.6 Focus on the Moment of Truth Focus on the moment of truth, the place or position that your products or services will be offered to the customer In a retail environment this may be the end-cap, a wall display, shelf space or a counter display On the Internet this may be an on-line store, e-bay or your personal web site It may be in a catalog or a brochure It could even be part of an email communication Occasionally the moment of truth may be in the form of a bid or proposal after several months of discussions with a potential client The moment of truth is the moment that the customer has a an option to make a purchase decision, to buy your products, invest in your services or hire you This is the moment that you need to put your good, better and best foot forward 3.5.7 Good, Better and Best Give your customer three options Show them something good, show them something better and show them your best It is a simple formula that takes a little care and creativity in crafting your message The three offers should be based on the foundation of a consistent theme, the single most important underlying reason to invest in your products or services The 'good' product or service should be the lowest cost option but still demonstrate your inherent value and differentiation from the competition You should be able to clearly define your value, the features, advantages and benefits of what you have to offer This is the customer minimum investment to buy, and it should be a good one Step up to better Using the foundation established with your 'good' offer, add something more for a slightly higher price The customer value should be easily distinguished and highlighted as more significant than the slightly increased price Make a clear comparison to the "good" product or service This should be a preferred alternative for the potential customer The option should be slightly more expensive, but worth it Some examples may include, "with additional 1GB memory", "includes six months of Satellite Radio", "bundle package includes download of 50 songs", "50% faster than the original", and similar comparisons Show them your best The third option should be the best that you have to offer, the cream of the crop This is the most expensive option and will only be selected by the most exclusive of customers It should also have something in common with the original "good" option and the "better" option, but the third and final option should be recognizable the best you have to offer The price may be significantly higher than the other two options, and that is fine Demonstrating a significant leap to a higher price point for the top of the line option will help to differentiate the cost value of the other two options Do not expect large volume of sales on the best offer Rather, use this to demonstrate competitive advantage and differentiation with the "wow" factor Even if you have hundreds of customized solutions or products, select and present three options, good, better and best In the decision process, human beings can easily compare and contrast three options The mind can juggle three prices and three sets of features for a quick and easy decision process Once you add a fourth element, the customer needs to start a deeper level of analytical comparison If you have too many options then the customer will need to spend more time to consider the alternatives, and while they are weighing your multiple options they may start to consider the competition as well Limit your presentation to three options If the customer makes a specific request for an alternative, then provide the alternative that the customer has requested, but avoid introducing too many new variables unless asked The more factors in a decision, the longer the process and the more likely to turn your "Moment of Truth" into a Lapse into Confusion Check Your Progress Distinguish between customer value and customer satisfaction What you understand by customer life-time value? 3.6 CUSTOMER VALUE IN THE CONTEXT OF OUTSOURCING CUSTOMER SERVICE A problem faced by the manufacturers who outsource their customer service function to independent representatives is how to promote customer satisfaction and loyalty when their representatives "own the customer." Manufacturers often attempt to enhance customer value and competitive advantage through superior customer service, but lack of control over the customer interface may weaken their ability to so (Christopher, 1998; Zeithaml & Bitner, 2003) Effective downstream integration of the supply chain is critical to achieving this objective (e.g., Bowersox, Closs & Cooper, 2002; Christopher, 1998), but downstream channel partners may resent direct overtures to customers as threats to undermine their customer relationships and resist attempts to exercise control through contractual arrangements At the same time, manufacturers have a strong profit incentive to find ways to maximize customer satisfaction (Christopher, 1998; Hunter, 1997; Reicheld, 1996) The issue of delivering customer satisfaction through independent 63 Customer Value and Satisfaction 64 International Marketing Management channels is significant in light of recent estimates that the average brand owner realizes between 35% and 40% of revenue through independent partners, with the average in some industries much higher (e.g., 80% in financial services, 90% in automotive; Harbison and Pekar, 1998; Seibel Systems, 2002) Although a voluminous literature exists on the quality of relationships between distribution channel and supply chain partners, we are not aware of research that investigates the effect of relationship quality between channel partners with customer satisfaction Building on research in services management (e.g., Heskett, Sasser, & Schlesinger, 1997), we investigate whether fostering a supportive relationship with independent representatives can provide manufacturers a modicum of leverage over customer satisfaction when their representatives own the customer We suggest that enhancing the job satisfaction of independent representatives by supporting and facilitating their work is an important means by which manufacturers can foster downstream integration of the supply chain The issue of delivering customer satisfaction through independent channel members can be framed as an agency problem The manufacturer must rely on its independent representatives to provide customer service Information asymmetry exists because the independent representatives know much more about the quality of service and customer satisfaction than the manufacturer does At the same time, customer satisfaction affects the manufacturer's sales and profits (Reicheld, 1996) The question, then, is how can a manufacturer most effectively promote customer satisfaction through an independent channel? One alternative is to measure customer outcomes such as satisfaction and retention and compensate the independent channel members (service providers) partially on the basis of the results This approach is expensive, however, and independent representatives may resent the manufacturer's intrusion into their customer relationships A second, less expensive approach would be to periodically assess representatives' attitudes and behavior To the extent that these correlate with customer satisfaction, such assessments would provide information about service quality and customer satisfaction Although in agency theory monitoring representatives' behavior is generally regarded as more costly than monitoring outcomes (Bergen, Dutta, & Walker, 1992; Eisenhardt, 1989), this may not be true when the outcome of interest is the satisfaction of a large customer base and the number of independent representatives is much smaller In this case, the cost of measuring customer satisfaction outcomes may far exceed the cost of periodically assessing representatives' attitudes and behaviors 3.7 LET US SUM UP The ability of a company to create value for its customers is the key to long-term customer loyalty Creating loyalty and establishing value goes beyond just having a satisfied customer What becomes most critical is the behavior of the customer with regards to whether they will buy from a provider time after time Establishing a repeat buyer involves understanding the buying behavior of your customer and their needs throughout the entire customer life cycle It is critical to ensure that there is a point of accountability within the company for taking care of the customer It is the job of the CEO to focus the entire organization on customers versus delegating this responsibility to some one else There are innumerable reasons why companies not focus on long-term customer loyalty but instead focus on short-term profitability These reasons ironically not sustain profitability, which is the ultimate goal of growth-oriented companies CEOs in the new economy are now realizing the effects of actions they took in the old economy Those CEOs who considered it their job to be personally involved with creating customer loyalty are reaping the benefit of their decision 3.8 LESSON END ACTIVITY There is always a gap between value promise and value delivery, which leads to consumer dissatisfaction Find out ten reasons of consumers dissatisfaction 3.9 KEYWORDS Customer Value: Difference between what a customer gets from a product and what he or she has to give in order to get it Customer Satisfaction: Customer satisfaction is the result of a subjective comparison of expected and perceived attribute levels Positioning: It refers to the way your customers think and talk about the product and company Differentiation: It refers to the ability of the product and the company from that of the competitors 3.10 QUESTIONS FOR DISCUSSION What is customer value? Why it is necessary to understand customer value? What are the characteristics of customer value? Why are they dynamic in nature? What is customer satisfaction? How will you measure customer satisfaction? Discuss the criteria to retain customer value and satisfaction Check Your Progress: Model Answers CYP 1 The purpose of business is to create and keep a customer The difference between what a customer gets from a product, and what he or she has to give in order to get is called the customer value CYP Customer Satisfaction vs Customer value: Customer satisfaction and customer value are distinctly different (although related) concepts and the latter is more strongly linked to and predictive of customer behaviour Indices of customer satisfaction are about attitudes, while customer value is about behaviour Measures of satisfaction indicate how customers feel about products and services, while measures of customer value are indices of how customers will act Customer Lifetime Value: It is the present value of the future cash flows attributed to the customer relationship 3.11 SUGGESTED READINGS PKVasudeva, International Marketing, Excel Books, New Delhi, 2006 Shyam Shukla, International Business, Excel Books, New Delhi, 2008 Philip R Catero, International Marketing Keegan, Global Marketing Management 65 Customer Value and Satisfaction ... PKVasudeva, International Marketing, Excel Books, New Delhi, 2006 Shyam Shukla, International Business, Excel Books, New Delhi, 2008 Philip R Catero, International Marketing Keegan, Global Marketing Management. .. example is when profits are declining, CEOs direct their management teams to 57 Customer Value and Satisfaction 58 International Marketing Management review their expenses and eliminate non-essential... retain customer value and satisfaction Describe the value of retaining a customer 54 International Marketing Management 3.1 INTRODUCTION The purpose of a business is to create and keep a customer