Customer Relationship Management (MKT 2227) PDF

Customer Relationship Management (MKT 2227) Creating Value and Loyalty Programs (Lesson 4 ) Maduka Udunuwara  Lesson Outcomes After completing this session students should be able to: Identify the meaning of value and its key compo...

Customer Relationship Management (MKT 2227) Creating Value and Loyalty Programs (Lesson 4 ) Maduka Udunuwara  Lesson Outcomes After completing this session students should be able to: Identify the meaning of value and its key components and be able to create value to the customers through key marketing tools Critically evaluate the loyalty programs implemented by organizations and being able to design effective loyalty programs to obtain maximum benefits for both customers and the organisation  Reminding the definition of CRM CRM is the core business strategy that integrates internal processes and functions and external networks to create and deliver value to targeted customers at a profit. It is grounded on high- quality customer-related data and enabled by information technology  What is value? Value is the customer’s perception of the balance between benefits received from a product or service and the sacrifices made to experience those benefits. It is possible to represent this definition in the form of an equation: Value=Benefits/ Sacrifices How do you maximize value?  Customer sacrifices to purchase a product Money Search cost Psychic Cost Functional–unsatisfactory performance outcomes Financial – monetary loss, unexpected extra costs Temporal – wasted time, delays leading to problems Physical – personal injury, damage to possessions Psychological – fears and negative emotions Social – how others may think and react Sensory – unwanted impact on any of five senses  Total cost of ownership (TOC) TCO looks not only at the costs of acquiring products, but also at the full costs of using, and servicing the product throughout its life, and ultimately disposing of the product. What is thought of as ‘ consumption ’ can be broken down into a number of activities or stages, including search, purchase, ownership, use, consumption and disposal. TCO is an attempt to come up with meaningful estimates of lifetime costs across all these stages. When customers take a TCO view of purchasing, suppliers can respond through a form of pricing called economic value to the customer (EVC). In a B2B context, EVC works by proving to customers that the value proposition being presented improves the profitability of the customer, by increasing sales, reducing costs or otherwise improving productivity. EVC computes for customers the value that the solution will deliver over the lifetime of ownership and use. Suppliers can apply EVC thinking to each stage of the ‘ consumption ’ process described above  Developing customer value propositions A value proposition is the explicit or implicit promise made by a company to its customers that it will deliver a particular bundle of value- creating benefits. The key value delivery strategies. 1. product leadership 2. customer intimacy and 3. operational excellence,  Operational excellence : strategy focused on efficiently, at very low cost, and pass on those savings to customers. For example Toyota, with its reputation for reliability, durability and competitive service costs, fits the operational excellence model well. How to achieve: lean manufacturing and efficient supply chains, close cooperation with suppliers, rigorous quality and cost controls, process measurement and improvement, and management of customer expectations. Product leadership: Aligning with this value discipline aim to provide the best products, services or solutions to customers. Continuous innovation underpins this strategy. Eg: Companies renowned for this are 3 M, Intel, GSK, LG and Singapore Airlines. Product leadership is reflected in a culture that encourages innovation, a risk-oriented management style, and investment in research and development. Customer intimacy: companies that pursue this strategy are able to adapt their offers to meet the needs of individual customers. Customer intimacy is based on customer insight. Eg: the US department store, Nordstrom. Adaptation and customization based on deep understanding of customer requirements underpin this strategy.  Designing loyalty programs for value What is a loyalty program? In recent years, many companies have introduced loyalty programs (LPs), frequent reward programs, customer magazines, online communities and blogs, or customer clubs (Kreutzer, 2016). An LP comprises a marketing process that generates rewards for customers, based on their repeat purchases or engagement with the brand. Identify examples of loyalty programs  Key objectives of introducing LPs consist of four categories 1. Building true (attitudinal and behavioral) loyalty 2. Efficiency profits Efficiency profits result from a change in the customer’s buying behavior, induced by the LP. This change in behavior can be measured in several ways: Basket size, Purchase frequency acceleration, Price sensitivity, Share of category requirements (SCR) or share of wallet, Retention, Lifetime duration 3. Effectiveness profits Effectiveness profits refer to the medium- to long- term profit consequences realized through the development of better knowledge about customer preferences. 4. Value alignment  Attitudinal versus behavioral loyalty Broadly speaking, behavioral loyalty refers to the observed actions that customers have demonstrated toward a particular product or service. Attitudinal loyalty instead refers to a customer’s perceptions and attitudes toward a particular product or service.  Designing loyalty programs LPs differ substantially both within and across industries. Managers can exercise discretion regarding the composition and the choice of dimensions to include in their LP design, as well as the corresponding weights assigned to each dimension.  Dimensions of loyalty programs Reward mechanism (transaction based vs. engagement based) Reward structure Hard versus soft rewards Product proposition support (choice of rewards) Aspirational value of reward Rate of rewards Tiering of rewards Timing of rewards Rewards based on specific criteria  Participation requirements Voluntary or automatic enrollment Automatic or manual point accumulation Payment function Sponsorship (existence of partner network, network externalities) Single versus multiform LP Within- versus across-sector LP Ownership (focal firm versus other firm)  Factors that determine the effectiveness of loyalty programs 1. LP design characteristics (Reward structure, Participation requirements, Payment function, Sponsorship (existence of partner network, network externalities), Cost and revenues 2. Customer characteristics 3. Firm characteristics (Perishability of a product, Breadth and depth of the firm offering the product at the store/retail level)  Successful loyalty card design and implementation Clearly determine your LP’s goals: Is its goal compatible with your marketing strategy and the positioning of your organization in the market? Align the design of your LP with the characteristics of your market, your customer base, and your firm: Knowing the customer base is important, because segments’ preferences for LP benefits vary. For example, senior citizens may not value the long-term accumulation of redeemable points as much as immediate price discounts on a product. Manage the costs of LPs: LPs are expensive, so cost management will always be a critical component. Consider all the costs involved (e.g., the opportunity cost of the time of the managers involved). Can these costs be mitigated by marginal cost rewards or contributions from manufacturers?