Chapter

Building Long-
Term Customer
Relationships

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Learning Objectives
1. How can companies deliver customer
value, satisfaction, and loyalty?
2. What is the lifetime value of customers,
and how can marketers maximize it?
3. How can companies attract and retain the
right customers and cultivate strong
customer relationships and communities?

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 Building Customer Value,
Satisfaction, and Loyalty
• Customer-perceived value (CPV)

– The difference between the prospective

customer’s evaluation of all the benefits and
costs of an offering and the perceived
alternatives

– Total customer benefit vs. total customer cost

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Total customer benefit is the perceived monetary value of the bundle of economic, functional, and psychological benefits cust
 Figure 4.1
Determinants of CPV

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Customer-perceived value is a useful framework that applies to many situations and yields rich insights. It suggests that the se
 Building Customer Value,
Satisfaction, and Loyalty
• Customer-perceived value (CPV)

– Loyalty

– Value proposition

– Value delivery system

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Consumers have varying degrees of loyalty to specific brands, stores, and companies. Loyalty has been defined as “a deeply h
 Building Customer Value,
Satisfaction, and Loyalty
• Total customer satisfaction
– A person’s feelings of pleasure or
disappointment that result from comparing a
product or service’s perceived performance
(or outcome) to expectations

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If the performance or experience falls short of expectations, the customer is dissatisfied. If it matches expectations, the c
 Building Customer Value,
Satisfaction, and Loyalty
• Monitoring satisfaction
– Many companies are systematically
measuring how well they treat customers,
identifying the factors shaping satisfaction,
and changing operations and marketing as a
result

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A highly satisfied customer generally stays loyal longer, buys more as the company introduces new and upgraded products, talk
 Building Customer Value,
Satisfaction, and Loyalty
• Product and service quality
– Quality is the totality of features and
characteristics of a product or service that
bear on its ability to satisfy stated or implied
needs
– Conformance quality vs. performance quality

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The seller has delivered quality whenever its product or service meets or exceeds the customers’ expectations. It’s important
 Maximizing
Customer Lifetime Value
• Customer profitabillity analysis
– Activity-based costing (ABC)

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A profitable customer is a person, household, or company that over time yields a revenue stream exceeding by an acceptable am
 Figure 4.2
Customer-Product Profitability Analysis

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A useful type of profitability analysis is shown in Figure 4.2. Customers are arrayed along the columns and products along th
 Maximizing
Customer Lifetime Value
• Customer lifetime value (CLV)
– The net present value of the stream of future
profits expected over the customer’s lifetime
purchases

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The company must subtract from its expected revenues the expected costs of attracting, selling, and servicing the account of
 Maximizing
Customer Lifetime Value

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CLV calculations provide a formal quantitative framework for planning customer investment and help marketers adopt a long
 Cultivating Customer
Relationships
• Customer relationship management
(CRM)
– The process of carefully managing detailed
information about individual customers and all
customer “touch points” to maximize loyalty
– Touch points

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Companies are using information about customers to enact precision marketing designed to build strong and profitable long
 CRM
• Personalizing marketing

• Permission marketing

• Customer empowerment

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Personalizing marketing is about making sure the brand and its marketing are as personally relevant as possible to as many cu
Although much has been made of the newly empowered consumer—in charge, setting the direction of the brand, and playing a much bi
 Attracting and Retaining
Customers
• Reducing customer churn/defection

ü Define and measure retention rate

ü Distinguish customer attrition causes
ü Compare lost CLV to reducing defection rate

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It is not enough to attract new customers; the company must also keep them and increase their business. To reduce the defecti
 Attracting and Retaining
Customers
• The marketing funnel

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Figure 4.3 shows the main steps in attracting and retaining customers in terms of a funnel. The marketing funnel identifies
 Attracting and Retaining
Customers
• Managing the customer base
Reduce
customer
defection
Focus on Increase
high-profit customer
customers longevity

Terminate Share of wallet

low-profit &
customers cross/upselling

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Customer profitability analysis and the marketing funnel help marketers decide how to manage groups of customers that vary in
 Building Loyalty
Interact closely with customers

Develop loyalty programs

Create institutional ties

Create value with brand communities

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Companies should strive to build loyalty for strong, enduring connections with customers.

Interact Closely with Customers. Listening to customers is crucial to customer relationship management. Some companies have c

Develop Loyalty Programs Frequency programs (FPs) are designed to reward customers who buy frequently and in substantial amou

Create Institutional. Ties The company may supply business customers with special equipment or services that help them manage

Create Value With Brand Communities. Thanks in part to the Internet, companies are collaborating with consumers to create val
 Brand Communities
• Sense of connection to
brand
• Shared rituals, stories,
and traditions that convey
meaning
• Shared responsibility to
the community members

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Three characteristics identify brand communities (listed on slide). Brand communities come in many different forms. Some aris
 Win-Backs
• Some customers inevitably become
inactive or drop
– Challenge is to reactivate them through win-
back strategies
– Often easier to reattract ex-customers than to
find new ones

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Exit interviews and lost-customer surveys can uncover sources of dissatisfaction and help win back only those with strong profit