Chapter 2 - Customer Satisfaction and Loyalty

[Virtual Presenter] Chapter 2 Customer Satisfaction and Loyalty.

[Virtual Presenter] 1. Introduction: Customer Satisfaction and Loyalty Introduction Customer satisfaction & loyalty are critical for long term business success. With increasing competition and high customer acquisition costs, organizations focus more on retaining existing customers rather than constantly acquiring new ones. Customer Satisfaction is the foundation Customer Loyalty is the outcome Loyalty Programs are tools Customer Lifetime Value is the strategic measure Meaning of Customer Satisfaction Customer Satisfaction refers to the extent to which a product or service’s actual performance matches or exceeds customer expectations. Satisfaction = Perceived Performance – Customer Expectations.

[Audio] 1. Introduction: Customer Satisfaction and Loyalty Sources of Customer Satisfaction Product or service quality Price fairness Ease of purchase and usage Customer service and support After sales service Importance of Customer Satisfaction Reduces customer complaints Increases repeat purchase Builds positive word of mouth Acts as a prerequisite for loyalty.

[Audio] 1. Introduction: Customer Satisfaction and Loyalty Customer Satisfaction vs Dissatisfaction Satisfied customers are more likely to stay Dissatisfied customers switch brands and spread negative word of mouth.

[Audio] 2. Customer Loyalty. 2. Customer Loyalty.

[Audio] 2. Customer Loyalty Meaning Customer Loyalty refers to a customer’s commitment to repurchase or continue using a brand, despite the availability of alternatives. Loyalty is not only repeat purchase but also emotional attachment and advocacy. Types of Customer Loyalty Behavioural Loyalty Repeated purchases Habit based loyalty Attitudinal Loyalty Emotional connection Brand preference and advocacy.

[Audio] 2. Customer Loyalty Why Customer Loyalty Matters Loyal customers are less price sensitive Cost of retention is lower than acquisition Loyal customers promote the brand.

[Audio] 3. Loyalty Programs Meaning A Loyalty Program is a structured marketing effort that rewards customers for repeat purchases, engagement, or long term association with a brand. Objectives of Loyalty Programs Increase repeat purchases Reduce customer churn Encourage higher spending Strengthen customer brand relationship Common Types of Loyalty Programs Points based programs Tier based programs Cashback and discounts Membership and subscription programs.

[Audio] 3. Loyalty Programs Factors Leading to Success Simple and transparent reward structure Meaningful and relevant rewards Easy redemption process Personalization based on customer data Consistent communication Benefits of Successful Loyalty Programs Higher customer retention Increased share of wallet Better customer insights Stronger emotional bonding.

[Audio] 4. Success of Loyalty Programs Reasons for Failure Overly complex rules Low perceived value of rewards Difficult redemption process Lack of personalization Too many similar loyalty programs in the market Consequences of Failed Loyalty Programs Customer frustration Increased churn Wastage of marketing budget Damage to brand trust.

[Audio] 5. Customer Life Time Value Meaning Customer Lifetime Value (C-L-V--) is the total net profit a company expects to earn from a customer over the entire duration of the relationship. It answers: “How valuable is a customer in the long run?” Simple Conceptual Formula 155 depends on: Average purchase value Purchase frequency Customer lifespan Profit margin.

[Audio] 5. Customer Life Time Value Importance of 155 Helps identify high value customers Guides marketing budget allocation Supports customer segmentation Improves profitability and retention strategy 155 and Loyalty Loyal customers have higher 155 Loyalty programs aim to increase C-L-V--, not just transactions Strategic Importance in Marketing Satisfaction builds trust Loyalty ensures stability Loyalty programs encourage repeat behaviour.

[Audio] 5. Customer Life Time Value Strategic Importance in Marketing 155 provides long term profitability perspective Together, these concepts shift marketing focus from short term sales to long term relationships..

[Audio] 6. The Leaky Bucket Theory or Analogy The leaky bucket theory is more of an analogy than a theory. It is used because it is a nice and simple way of understanding the concept of customer relationship management and how to increase customer lifetime value (C-L-T-V-) The theory uses a bucket that has several holes in the base and its walls. A hose is put into the bucket and it is filled with water. Some of water will run out holes. In analogy, water going into the bucket represents new customers being acquired and the water flowing out of the bucket represents customers lost to the firm. The amount of water in the bucket represents the total customer base of the firm at that time. As suggested by analogy, this is quite a dynamic situation – as there is a constant flow of new customers & consistent loss of existing customers. Therefore, size of the total customer base constantly varies – sometimes upwards and sometimes declining – depending upon the water flow into the bucket and the number of holes that water can flow out of..

[Audio] The Leaky Bucket Theory or Analogy. The Leaky Bucket Theory or Analogy.

[Audio] The Leaky Bucket Theory or Analogy The analogy is designed to highlight that firm has two approaches it can take in order to maximize amount of water in bucket (in other words, the size of the customer base). These two approaches are increasing the water flow into the bucket – in other words, increasing the number of new customers acquired. Or it can look to reduce or plug some of the holes in the bucket to reduce the water loss – in other words, concentrating on customer retention. Therefore, the leaky bucket theory is a good analogy for the marketing challenge that firms face in determining the proportion of their marketing expenditure and activities that should be focused upon acquiring new customers versus retaining existing customers. While this above point seems quite logical, it was not until the 1980's that firms started to realize the importance of customer retention and loyalty. Prior to that time majority of marketing expenditure was focused upon acquiring new customers with little thought or effort focused on retention activities..