Marketing Management (Kotler & Keller): Chapter 5 Report & Analysis

This comprehensive report, based on Kotler and Keller's Marketing Management, 15th edition, Chapter 5, delves into the critical aspects of creating long-term customer loyalty and relationships. The report, prepared by a group of students, covers key concepts such as building customer value, satisfaction, and loyalty, including customer-perceived value and the importance of exceeding customer expectations. It explores maximizing customer lifetime value (CLV), analyzing the customer profitability and the marketing funnel. The report also discusses Customer Relationship Management (CRM) strategies, personalization, and customer empowerment. Furthermore, the report includes case analyses and marketing discussions using CLV to illustrate the practical application of these concepts, highlighting the importance of building strong brand communities and employing win-back strategies to retain customers. The report provides valuable insights into fostering long-term customer relationships, which are vital for any organization's success.

Marketing Management
Kotler and Keller, 15th edition.
Assignment Title: Chapter Review, Analysis and Case
Analysis
Group Number: 5
Section: A
Chapter 5
Creating Long-Term Loyalty Relationships
Date of Submission: 14/07/2020
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Section A
Group-5
Name Student’s ID
Khondoker Sadman Sakib (Leader) JH-26-93
Smrity Sarker Khan RH-26-097
Marzia Mumtarin RH-26-099
Asraf Ali JH-26-101
Afroza Mamataz RH-26-103
Maya Basu RH-26-105
Faisal Bhuiyan JH-26-107
MD. Hasib JH-26-109
MD. Amjad Hossain Sumon JH-26-111
Ifadi Newaz Ara RH-26-113
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Table of Contents
1. Introduction................................................................................................................................1
2. Chapter Review..........................................................................................................................1
2.1 Building Customer Value, Satisfaction, and Loyalty...........................................................1
2.2 Maximizing customer’s lifetime value.................................................................................3
2.3 Customer relationship Management.....................................................................................7
3. Introductory Case Analysis........................................................................................................8
4. Case Analysis.............................................................................................................................8
4.1 Case 1...................................................................................................................................8
4.2 Case 2...................................................................................................................................9
5. Marketing Discussion: Using CLV..........................................................................................11
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1. Introduction
No other party is as important as customers for marketing manager while dealing. Because the
prosperity of an organizations largely depends on the creating long term relationship with the
customers meaning long term loyalty too. This chapter emphasized the motto both theoretically
and mathematically. Customers always expect highest customer delivered value. So, marketing
managers have to aware how can provide highest customer perceived value with minimum cost.
If customers are frequently satisfied with products’ performance, they will be loyal in future
time. For this reason, marketing manager must ensure that they meet and exceed customer
expectations. Losing profitable customers is irreplaceable loss for an organization. Manager must
prefer keeping current customers to attract new customers. The key to retaining customers is
relationship marketing. To do so managers have ensured quality products or services according
to customers’ needs. Also, marketers have to estimate total customer life time value to balance
between cost and profit. Companies can develop skilled Customer Relationship Management
(CRM) software to attract and retain profitable customers. Moreover, we can say that the long-
term relationship or loyalty with customers is the key to success for any organizations.
2. Chapter Review
2.1 Building Customer Value, Satisfaction, and Loyalty
Managers who believe the customer is the company's only true profit center consider the person
serving the customer as the most important person in the organization. The rest of only support
staff to him. Some companies have been founded with the customer-on-top business world, and
customer advocacy has been their strategy-and competitive advantage.
Customer-Perceived Value
Customer-perceived value (CPV) is the difference between the prospective customer’s evaluation
of all the benefits and costs of an offering and the perceived alternatives. 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
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evaluating, obtaining, using, and disposing of the given market offering, including monetary,
time, energy, and psychological costs.
Suppose the buyer for a construction company wants to buy a tractor for residential construction
from either Caterpillar or Komatsu. After evaluating the two tractors on the basis of reliability,
durability, performance, and resale value, the buyer decides Caterpillar has greater. When a
customer wants to buy shoes from BATA or APEX, he will evaluate the two brands on the basis
of durability, performance, prices, Customer services and choose the best one.
Steps in a customer value analysis are:
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.
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.
3. Assess the company’s and competitors’ performances on the different customer values
against their rated importance.
4. Customers describe where they see the company’s and competitors’ performances on
each attribute and benefit. Examine how customers in a specific segment rate the
company’s performance against a specific major competitor on an individual attribute or
benefit basis. If the company’s offer exceeds the competitor’s 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.
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.
Delivering High Customer Value: ‘The value proposition consists of the whole cluster of
benefits the company promises to deliver, it is more than the core positioning of the offering’.
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The valuedelivery system includes all the experiences the customer will have on the way to
obtaining and using the offering.
Customer Satisfaction
Satisfaction is a person’s feelings of pleasure or disappointment that result from comparing a
product or service’s perceived performance (or outcome) to expectations. If the performance or
experience falls short of expectations, the customer is dissatisfied. If it matches expectations, the
customer is satisfied. If it exceeds expectations, the customer is highly satisfied or delighted.
There are several ways to measure customer satisfaction-
Periodic surveys – Periodic surveys involves getting in touch with your customers and taking
feedback from them directly.
Customer loss rate –Customer loss rate is one measure which can be done by the smallest of
enterprises to measure customer satisfaction.
Mystery shoppers – They can hire Mystery shoppers to pose as potential buyers and report on
strong and weak points experience in buying the company's and competitor's product.
Monitor competitor performance –Mystery shopping is one of the ways to monitor competitor
performance which can let you decide who has a better customer satisfaction.
Customer Loyalty
Customer loyalty is considered an effective manner to evaluate the progress of the firm.
Additionally, the marketing procedures of most companies rely on gaining customer loyalty
through the process of developing, retaining and enhancing the relationships with the potential
customers. The commitment of customers towards repurchasing behavior of customer is
indication of their loyalty
2.2 Maximizing customer’s lifetime value
There are three categories of customers. They are:
1. Largest customer: High profit customer
2. Smallest Customer: Low profit customer
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3. Midsize customer: in between high profitable and low profitable customer
Every brand needs to follow 80-20 rules that mean 80% of profit comes from 20% of customers.
This 20% should also be categorized by most profitable 20% and least profitable 20%.
Customers Profitability
A profitable customer is a lifetime stream of revenue. Profitable customers can be divided as
individually, market segment or by cannel. Sometimes the company needs to do some activities
to attract the losing customers because it is said that gaining a new customer is 5 time costlier
than keeping existing customers.
1. If we think about Meghna Group of Industries, we can see that they eliminated their new
launched cold drinks named by Mejanda because it was unprofitable. Same goes for RC Jeera
Pani.
2. Trying to sell customers 2-3 profit making products
3. Unprofitable customers should suggest switching to competitors.
There are many types of mechanism to calculate profitability of customers they are
1. ABC (Activity Based Costing): Both direct and indirect cost should be added.
2. CLV (Customer lifetime Value Calculation): It describes the net present value of stream of
future profits expected over the customer’s lifetime
Besides generating leads trough advertising, mail, tradeshow organizations need to reduce the
defection rate by Defining and measuring defection rate, distinguishing the cause of attrition and
managing better and by comparing CLV of customers to the cost of reducing defection cost.
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Figure 1: The Marketing Funnel
Managing Customer Base
Customer profitability analysis and the marketing funnel help marketers decide how to manage
groups of customers that vary in loyalty, profitability, risk, and other factors. Organizations can
Manage Customer base by reducing the rate of customer defection, increasing the loyalty of
customer relationship, seeking customer’s advice like different restaurant and service provider
does, making low profitable customers more profitable, focusing disproportionate effort on high
profit customers.
Building Loyalty
Companies should focus on some specific considerations to form strong connections with
customers. Company can improve loyalty and retention by the below three ways. Now we
describe:
Interact Closely with Customers
Connecting customers, clients, patients, and others directly with company employees is highly
motivating and informative. End users can offer tangible proof of the positive impact of the
company’s products and services, express appreciation for employee contributions, and elicit
empathy. Listening to customers is crucial to customer relationship management.
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Develop Loyalty Program
Frequency programs (FPs) are designed to reward customers who buy frequently and in
substantial amounts. They can help build long-term loyalty with high CLV customers, creating
cross-selling opportunities in the process. Most supermarket and drug store chains offer price
club cards that grant discounts on certain items. Typically, the first company to introduce an FP
in an industry gains the most benefit, especially if competitors are slow to respond.
Club membership programs attract and keep those customers responsible for the largest portion
of business. Clubs can be open to everyone who purchases a product or service or limited to an
affinity group or those willing to pay a small fee. Although open clubs are good for building a
database or snagging customers from competitors, limited membership is a more powerful
longterm loyalty builder.
Create Institutional Ties
The company may supply business customers with special equipment or computer links that help
them manage orders, payroll, and inventory. Customers are less inclined to switch to another
supplier when it means high capital costs, high search costs, or the loss of loyal-customer
discount. Brand Communities
A brand community is a specialized community of consumers and employees whose
identification and activities focus around the brand. Brand communities come in many forms.
Some arise organically from brand users and some are company-sponsored and facilitated. A
strong brand community results in a more loyal, committed customer base. A brand community
can be a constant source of inspiration and feedback for product improvements or innovations.
The activities and advocacy of members of a brand community can also substitute to some
degree for activities the firm would otherwise have to engage in, creating greater marketing
effectiveness and efficiency as a result. Building a positive, productive brand community
requires careful thought and implementation.
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Win-Backs
Regardless of how hard companies may try, some customers inevitably become inactive or drop
out. The challenge is to reactivate them through win-back strategies.72 It is often easier to
reattract ex-customers than to find new ones. Exit interviews and lost-customer surveys can
uncover sources of dissatisfaction and help win back only those with strong profit potential.
2.3 Customer relationship Management
Customer relationship management is a method by which an organization manages its customer’s
detailed information “touch point” to maximize loyalty. Through CRM using a company can
give real-time customer service as it makes sure effective use of an individual’s account
information. Companies customize their offerings, communication, media through the basing on
CRM information.
Personalizing marketing
Personalizing marketing is about making sure the brand its marketing is as personally relevant as
possible to as many customers. To personalize marketing companies, use emails, Web sites, call
centres and database. For example, Amazon uses the purchase history to recommend purchase
through emails to targeted individuals. In our country, different clothing brands and companies
are taking the help of personalized digital marketing to reach the target audience in the current
Covid19 situation.
Customer Empowerment
Marketers are providing resources and opportunities to demonstrate the passions of customers.
For example, Pantene Company had created a campaign that encourages women to cut their hair
and donate the clippings to make wigs for cancer patients. Consumers are participating more in
brand creation but it is also true that only some the total consumers want to get involved as they
have families, hobbies, jobs and own goals.
Customer reviews and recommendations: Customers recommendation, rating and reviews are
playing an important role for internet retailers such as Amazon.com. Checking reviews before
going to restaurants has become a common scenario in our country.
Customer complaints: Companies nowadays taking complaints positively and basing on them
they are improving their quality and services. For example, the 3M company claims that more
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than two-thirds of its product improvement ideas come from listening to customers complaints.
Studies show that dissatisfied customer with their purchase complaints only by 5 per cent of the
25 percent time as 5 percent of the time they assume that time and energy invested for
complaining do not worth.
3. Introductory Case Analysis
Company earn strong customer loyalty by enhancing capabilities of their that pose challenges.
Customer centered companies are adept at building customer relationships not just product, they
are skilled in market engineering not just product engineering. No industry has been more
thoroughly transformed than the music industry. Product has staked a claim to be the market
leader with its innovative automated music discovery and recommendation service. Pandora also
recommends other musical selection of a similar well-defined genre. Listener feedback to those
recommendations. More than 400 different music attributes judged by professional music lovers
who pass a rigorous test. Pandora launched its smart phone and making its service available
"anywhere, anytime" and provide feedback and buy music that involving to listeners. Advertisers
are able to target pandora's audiences by demographics characteristics and traits. Pandora faces
steep competition, however, which has unique features that may drive customer loyalty and
preferences.
4. Case Analysis
4.1 Case 1
In your opinion, how important is it to invest in customer loyalty for cars, a product most
people buy only every couple of years?
Car is a luxurious product for many people. But like brand Audi it is a very well-known band so
those who can afford this product they are very fond of this kind of product. Mostly people buy
this type of luxurious product in a year that’s why it is important to built long term loyalty.
Customer loyalty is a result of continuous positive emotional experience and satisfaction of using
a product/service that enforces the repetitive buying process. According to it is the key for any
company to get long-term market success. The cost of creating a new customer is a costly deal;
hence a company wants to resend its existing customer through the Loyalty program.
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Customer loyalty on the automobile industry or similar kind of industry, the product of which is
not consumed regularly but on an extended period is very uncertain. According to the loyalty on
the innovative products, including automobiles and Electronic equipment like cars are
insignificant while is significant with other regularly consumable goods. So, it’s very important
to keep mind that invest in customer loyalty for car necessary because if we can build it then
customers will be stuck with this kind of product.
Try to estimate the lifetime value for an Audi customer.
Answer: A life time value of your customer is loosely defined as the net money a customer
contributes over their life as a customer. Lets roughly assume that Audi profit per vehicle is
$6000. On average a customer purchase a car after every five years and in life time purchase 10
cars so profit from a customer will be $60000 so at 15%of discount rate the NPV will be CLV
for an Audi. What measures should Audi take to build long term loyalty relationship?
Audi needs to design a comprehensive, point by point marketing & communication plan for each
of the customer profile Audi have made. By designing a communication and marketing strategy
Audi can keep customers coming back again and again. They need to build best communication
mean with customers. Try to follow each customer’s needs and expectation and make relevant
promotion and communication with customer. If existing customer left then find out the reason
and try to solve it to back then again.
4.2 Case 2
What has Harley-Davidson done with its H.O.G. program to create an extraordinary
customer experience that is unique and valuable to its members? Has the motorcycle
manufacturer been successful?
First and foremost, Harley-Davidson done a good job for its Harley Owners Group (H.O.G)
program by giving a one-year free H.O.G membership to their customers. This program would
make the new members active with their Harley and keep the company close to its customers. In
the subsequent year, if they renewed their membership, the members could continue to enjoy
various discount and benefits such as invitations to events, for example short rides, major
destinations rides, charity functions as well as new bike model launches. Harley-Davidson
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