Capturing Customer Value

Source: Kotler Philip, Armstrong Gary, Agnihotri Prafulla, 2018,Principles of Marketing, 17thEdition, Pearson India
Education Services; Ramaswamy V. S and Namkumari S, 2018, Marketing Management-Global Perspective Indian Context,
6th Revised edition, Sage Publications India Pvt Ltd; Baines P, Fill C et al., Marketing, 2013, Asian Edition, Oxford University
Press.
Only for class discussion purpose, DO NOT share, publish, print, or distribute

Dr. Sanjeev Malaviya 11/17/2022

The Value Delivery Process

Make the Product Sell the Product

Traditional Business Process

Communicate the
Choose the value Provide the value
value

Value Creation & Delivery Sequence

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Organizational Charts

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What is Customer Perceived value ?

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 Determinants of Customer perceived
Value

Image benefit

Personnel benefit Total

customer
Services benefit benefit
Product benefit Customer
perceived
Monetary cost value

Time cost Total

customer
Energy cost cost
Psychological cost
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Steps in a Customer Value Analysis

 Identify major attributes and benefits that customers

value
 Assess the quantitative importance of different
attributes and benefits
 Assess the company’s and competitor’s
performances on the different customer values against
rated importance
 Examine ratings of specific segments
 Monitor customer values over time

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What is Value Proposition ?
&
What is Loyalty ?

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Value Proposition & Loyalty
 The value proposition consists of the whole cluster of
benefits the company promises to deliver.

 Loyalty is defined as “a deeply held commitment to rebuy

or repatronize a preferred product or service in the
future despite situational influences and marketing efforts
having the potential to cause switching behavior.”

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Satisfaction is...

...a person’s feelings of pleasure or

disappointment resulting from comparing a
product’s perceived performance (or outcome)
in relation to his or her expectations.

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Product & 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.
 We can say that the seller has delivered quality whenever
its product or service meets or exceeds the customers’
expectation.
 What role Marketers play in TQM ?

Dr. Sanjeev Malaviya 11/17/2022

 The Generic Value Chain

Firm infrastructure
Activities
Support

Human resource management

Technology Development

Procurement

Market-
Out- Serv-
Inbound Opera- ing
bound ice
Logistics tions and
Logistics
sales

Primary Activities
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 Levi Strauss’ Value-Delivery Network

Order Order Order Order

Fiber Fabric Levi’s Retailer Customer
Provider Provider) Apparel)

Delivery Delivery Delivery Delivery

Competition is between networks, not companies.

The winner is the company with the better network.

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Maximizing Customer Lifetime Value
 Marketing is an art of attracting & keeping profitable
customers.
 A profitable customer is a person, household, or company
that over a period of time yields a revenue stream that
exceeds by an acceptable amount of the company’s cost
stream for attracting, selling, and servicing that customer.

Dr. Sanjeev Malaviya 11/17/2022

Maximizing Customer Lifetime Value

 Lifetime value

 Customer profitability: 20-80 rule

 Customer equity: the total asset value of the
relationships which an organization has with its customers.

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Customer/Product Profitability Analysis

Customers
C1 C2 C3

+ + +
Highly
P P1 profitable
r product

o
d
P2
+ Profitable
product

u
c
P3
- - Unprofitable
product

-
t Highly
P4 Unprofitable
s product

High profit Mixed-bag Losing

customer customer customer
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Estimating Lifetime Value

 Annual customer revenue: $500

 Average number of loyal years: 20
 Company profit margin: 10
 Customer lifetime value: $1000

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Measuring Customer Lifetime Value
 CLV describes the net present value of the stream of
future profits expected over the customers’ lifetime
purchases.

 CLV=m r

(1+d-r)

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Customer Relationship Management
 CRM is the process of carefully managing detailed
information about individual customers and all customer
“touch points” to maximize customer loyalty.
 A customer touch point is any occasion on which a
customer encounters the brand and product----from
actual experience to personal or mass communications to
casual observation.

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Framework for CRM
 Identify prospects and customers
 Differentiate customers by needs and value to company
 Interact to improve knowledge
 Customize for each customer

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CRM Strategies
 Reduce the rate of defection
 Increase longevity
 Enhance share of wallet
 Terminate low-profit customers
 Focus more effort on high-profit customers

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Attracting Customers
1. Lead Generation-(It creates a list of suspects)
 Developing advertisements and releasing them trough appropriate media
 Mailing or making a personal phone call to prospective customers
 Participating in trade shows, fairs and organizing events

2. Lead Qualification-To find which suspects are prospects

 By interviewing them
 Checking on their financial standing etc.
 The prospects are graded as hot, warm & cool.

3. Account Conversion
• The sales people first contact the hot prospects
• They give presentation, answering objections & negotiating final terms.

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How To Reduce The Defection Rate
1. Define and measure the defection rate
2. Identify the causes for attrition
3. Estimate the amount of profit lost by losing the
customer
 In case of an individual customer, it is the life time value of
the customer, i.e. the PV of the profit stream the customer
would have generated had he not defected prematurely
4. Figure out the cost of retaining a customer
 If the future profit is more than the cost of retention, the
company should make efforts to retain them.
5. Listen to the customers as it helps in retaining them.

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Need For Retention
 Acquiring a new customer costs five times more than
satisfying an existing customer.
 On an average , companies lose, 10% of customers every
year.
 A 5 % reduction in the customer defection rate can
increase profits by 25% to 85%, depending on the
industry.
 The customer profit rate tends to increase over the life
of the retained customer.

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Customer Development Process

Suspects

First-time Repeat
Prospects Clients Advocates Partners
customers customers

Disqualified
prospects Inactive or
ex-customers

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 Levels of Investment In Relationship
Building

1. Basic Marketing- The salesperson sells the product

2. Reactive Marketing- Encourages the customer to call
3. Accountable Marketing- The salesperson calls the customer
4. Proactive Marketing- The salesperson contacts the customer
from time to time
5. Partnership Marketing- The company works continuously with
the customer to discover ways to perform better

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Levels of Relationship Marketing

High Medium Low

margin margin margin
Many Basic or
customers/ Accountable Reactive reactive
distributors

Medium
number of Proactive Accountable Reactive
customers/
distributors

Few
customers/ Partnership Proactive Accountable
distributors
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BEST WISHES !

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