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5 CREATING LONG-TERM
LOYALTY
RELATIONSHIPS
LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. What are customer value, satisfaction, and loyalty, and how can companies
deliver them?
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?
4. What are the pros and cons of database marketing?
CHAPTER SUMMARY
1. Customers are value maximizers. They form an expectation of value and act on it. Buyers
will buy from the firm that they perceive to offer the highest customer-delivered value,
defined as the difference between total customer benefits and total customer cost.
2. A buyers satisfaction is a function of the products perceived performance and the buyers
expectations. Recognizing that high satisfaction leads to high customer loyalty, companies
must ensure that they meet and exceed customer expectations.
3. Losing profitable customers can dramatically affect a firms profits. The cost of attracting a
new customer is estimated to be five times the cost of keeping a current customer happy. The
key to retaining customers is relationship marketing.
4. Quality is the totality of features and characteristics of a product or service that bear on its
ability to satisfy stated or implied needs. Marketers play a key role in achieving high levels of
total quality so that firms remain solvent and profitable.
5. Marketing managers must calculate customer lifetime values of their customer base to
understand their profit implications. They must also determine ways to increase the value of
the customer base.
6. Companies are also becoming skilled in customer relationship management (CRM), which
focuses on developing programs to attract and retain the right customers and meeting the
individual needs of those valued customers.
7. Customer relationship management often requires building a customer database and doing
data mining to detect trends, segments, and individual needs. A number of significant risks
also exist, so marketers must proceed thoughtfully.
PROJECTS
1. At this point in the semester-long marketing plan project, students should have completed
their value proposition for the fictional product, defined how they will deliver satisfaction
and maintain customer loyalty.
2. Have students (in groups or individually) select a local firm in their community, or a local
division of a national firm, and seek permission to interview their corporate executives on
their corporations definition of customer satisfaction, loyalty, and what their particular
firm does to foster such customer relations. This project can be combined with the project
on marketing research and as such, students can create questionnaires suitable for mailing
to these executives. The students can then present these findings to the class in a group or
by individual presentations. This could be a full-semester project or limited to a few weeks
of the semester.
3. Sonic PDA Marketing Plan: Sonic has decided to focus on total customer satisfaction,
because studies have shown that customers who are completely satisfied with the
product or service are much more likely to buy more from the company than customers
who report they are satisfied. You have been asked by Jane Melody to:
Review the possible ways to gain customer satisfaction information and write the
recommended approach in a marketing plan or enter into the Positioning section of Marketing
Plan Pro.
Have each of the students read 1 Michael Tsiros, Vikas Mittal, William T. Ross Jr., The
Role of Attributions in Customer Satisfaction: A Reexamination, Journal of Consumer
Research, 31 (September), 2004, pp. 476-483 and comment on their findings.
Customer relations management is a current business buzz word. Students can be directed to
do an Internet research project from named marketing/business journals on the subject of
customer relations management (the chapters endnotes can provide a good source of leads for
the students). Each student can be directed to research, read, and compile a report on their
findings from a minimum of five articles from five different marketing (and business
magazines such as Fortune). The students report is to comment on how these articles
compare, complement, or contrast the material contained in this chapter.
The research firm J.D. Powers and Associates (jdpower.com) lists eight categories of products
for consumers to research before purchasing the product or service. Breaking up the class into
eight groups, have the students research the top performers for each category and be able to
share their findings as to what characteristics, policies, procedures, and vision these top rated
companies have in common. Is there a common link among all of the winners? Are there
differences? In terms of the material contained in this chapter, how would you explain these
similarities and differences?
END-OF-CHAPTER SUPPORT
MARKETING DEBATEOnline Versus Off-Line Privacy
As more firms practice relationship marketing and develop customer databases, privacy issues
are emerging as an important topic. Consumers and public interest groups are scrutinizing
and sometimes criticizingthe privacy policies of firms and raising concerns about potential
theft of online credit card information or other potentially sensitive or confidential financial
information. Others maintain online privacy fears are unfounded and that security issues are as
much a concern offline. They argue that the opportunity to steal information exists virtually
everywhere and its up to the consumer to protect their interests.
Take a position: (1) Privacy is a bigger issue online than off-line versus Privacy is no
different online than off-line.
Suggested Answer: This question serves to revise and relate key concepts learnt. The
following are key areas that Harley-Davidson has done well in creating an extraordinary
customer experience that is unique and valuable to its members.
(i) Customer-perceived value is based on the difference between benefits that the customer
gets and costs the customer assumes for different choices. Harley-Davidson has increased the
For example, the Harley Owners Group (H.O.G.) program offers purchasers of Harley-
Davidson motorbikes an initial one year of free membership with its H.O.G and riding club.
This provides opportunities for new Harley owners to come together and instills a sense of
belonging to the Harley community. With the renewal of membership, membership privileges
include various discounts and benefits that members can enjoy.
(ii) Delivering high customer value. Consumers have varying degrees of loyalty to specific
brands, stores and companies. Oliver defines loyalty as a deep held commitment to rebuy or
repatronize a preferred product or service despite situational influences and marketing efforts
having the potential to cause switching behavior. The value proposition is a promise about
the experience customers can expect from the companys market offering and their
relationship with the supplier. Harley-Davidson delivers high customer value in that it offers
more than the tangible benefits of a quality motorcycle but other intangible benefits such as
encouraging good service and consistent service by independent dealers, thereby providing
H.O.G members the genuine Harley-Davidson experience. Members have ownership of an
asp rational brand, experiences of freedom and relational benefits through H.O.G. membership
and community, indulgence in shared activities and hobbies.
(iii) Customer relationship management (CRM) is the process of carefully managing detailed
information about individual customers and all customer touch points to maximize loyalty.
CRM is important because a major driver of company profitability is the aggregate value of
the companys customer base. Personalized Marketing is about making sure the brand and its
marketing are as relevant as possible to as many customers as possible.
Harley-Davidson sells its motorbikes globally through its dealers which supports the activities
of H.O.G.
Harley-Davidson dealers, ranging from the CEO to sales staff, maintain personalized
relationships with customers through face-to-face and social media contact.
Harley owners can chat electronically through various channels such as social media, which
allows communication with dealers and owners of Harley-Davidson. This creates relevance
and an emotional connection.
(iv) Building customer loyalty, listening to customers and becoming a customer advocate.
2. To enlarge its customer base, what kinds of things would you recommend Harley-
Davidson do to cultivate long-term relationships with a younger audience, e.g., aged 18-34?
(i) Customer relationship management activities such as greater exposure of the Harley-
Davidson brand and Harley-Davidson motorcycles, accessories, spare parts, motor clothes to
connect with the younger audience. Harley-Davidson has also made in-person connections
with new potential riders at music festivals such as South by Southwest in Austin and Texas
by using dynamometers to create an interactive experience called Jump Start, which allows
novice or non riders an opportunity to feel what its like to ride and hear a Harley. The
company also brings dynamometers to Garage Parties to connect with potential women riders.
To consider customization of Harley Davidson products, services and programs for the
younger Harley owners. Customers can request for customized seat, personalized designs,
colors and textures on its motorcycles when they want to purchase a motorcycle.
Provide a trial or experience with the existing riders so that all the benefits associated in the
Harley-Davidson motorcycles can be thoroughly experienced before actual purchase. Also,
create an interactive experience called Jump Start, which allows novice or non riders an
opportunity to feel what its like to ride and hear a Harley.
(ii) Introduction and development of new models of motorcycles (Product) regularly such as
cool looking motorcycles that has the impactful, powerful sounding engine, sophisticated
charismatic look of designs, better handling motorcycles. For example, for its Dark Custom
series, Harley-Davidson merely modified some design elements as it consists largely of
existing Harley motorcycles that have flat black paint, much less chrome and toned-down
styling. It portrayed its heritage message of freedom, unique, individual expression and shared
experience that was similar with its older customers.
(iii) Successfully connecting with younger customers through social media applications such
as Facebook and personalized programs and H.O.G. programs (Place). Continue maintaining
engaging relationships with its young adults who are global fans on its Facebook page.
Continue to gather important feedback about the appeal of Harleys strong brand name and its
brand associations. For example,Harley-Davidson just being Harley-Davidson gives an
essential and authentic cool factor.
(v) H.O.G. activities like frequent rides, gatherings for Men, Women, Children, friends to
relax and talk shop (Loyalty program and promotion).
(vi) Charities and social events can be organized through educational institutions, or
established companies/MNCs. Charity campaigns, internships can be held for positive
exposure of its brand name (Promotion-Publicity).
Customer Empowerment
A) Consumers are beginning in a very real sense to own brands and participate in their
creation.
2. Distinguish the causes of customer attrition and identify those that can be managed
better.
3. Compare the lost customers lifetime value to the costs of reducing the defection rate.
Retention Dynamics
A) The marketing funnel identifies the percentage of potential target market at each stage
in the decision process, from merely aware to highly loyal (Figure 5.5).
B) By calculating conversion rates the funnel allows marketers to identify any bottleneck
or barrier to building a loyal customer franchise.
C) The funnel also emphasizes how important it is not just to attract new customers, but
to retain and cultivate existing ones.
D) Satisfied customers are the companys customer relationship capital.