Capturing Value from Customers
The final step in the marketing process includes capturing value
from customers in return, in the form of present or future sales, market share,
and profits. By producing superior customer value, the firm builds highly
satisfied customers who remain loyal and buy more. Thus a company gets long-run
returns from the customers.
Building Customer Loyalty and Retention
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| A Firm can build highly satisfied customers by providing superior customer values. (Photo by Akshay93) |
Good Customers Relationship Management makes customer delight. In
return, delighted customers stay loyal and talk positively to others about the company
and its products. Studies show a large difference in the loyalty of customers
who are less satisfied, somewhat satisfied, and completely satisfied. Even a
slight drop from complete satisfaction can create a huge drop in loyalty.
Consequently, the purpose of customer relationship management is to produce not
only customer's satisfaction but also customer's delight.
Companies are comprehending that losing a customer means losing
more than a single sale. It can be considered the loss of entire purchases that
a customer makes over the lifetime investment.
The companies must aim high in developing customer relationships.
Customer delight produces an emotional relationship with a product or service,
not just a rational preference. Every company having outstanding customer
service and high customer loyalty recommends the following "Golden
Rule":
"Sell decent product to your customers treating them as human beings, and definitely they will always come back for more products"
Growing Share of Customer
Managing good customers’ relationship is very important for the
marketers to capture value for the lifetime and to increase their share of
customer. The share of a customer is the portion of customer's buying that a
company gets in its product categories. Many marketers are now spending less
time figuring out how to increase the share of market and more time striking to
grow share of customer. For example; banks want to increase "share of
wallet", Supermarkets and restaurants want to get more "share of stomach",
Car companies want to increase "share of the garage" and airlines
want greater "share of travel".
To increase the share of customer, companies can leverage customer
relationships by offering superior variety to current customers or they can
train employees to cross-sell and up-sell in order to market more products and
services to present customers. For example, Amazon.com is highly skilled at
leveraging relationships with its more than 35 million customers to
increase its share of each customer's purchases.
Presently, you know a popular
online bookseller “Amazon” who offers customers music, videos, gifts, toys,
consumer electronics, office products, home improvement items, lawn and garden
products, apparel and accessories, and an online auction. Additionally, based
on each customer's purchasing history, the company recommends relevant books,
CDs, or videos that capture the attention of customers. Thus, Amazon.com gets
a better share of time and entertainment budget of every customer.
Building Customer Equity
Almost every company wants to build its relationship with the
profitable customers, retain them and capture value from them for the lifetime,
and earn a greater share of their purchases.
What is Customer Equity?
The main goal of customer relationship management is to produce
high customer equity. Customer equity is the lifetime value of a company's
existing and potential customers. Clearly, the more loyal the firm's profitable
customers, the higher the firm's customer's equity. Customer's equity may be a
better measure of a firm's performance than current sales or market share.
Though sales and market share reflect the past, customer equity suggests the
future. Consider Cadillac:
In the 1970s and 1980s, Cadillac had some of the most loyal
customers in the industry. To an entire generation of car buyers, the name
"Cadillac" defined American Luxury. Cadillac's share of the luxury
car market reached a whopping 51 percent in 1976. Based on market share and
sales, the brand's future looked rosy. However, measures of customer
equity would have painted a bleaker picture. Cadillac clients were getting
older (average age 60) and average customer life worth was falling. Several
Cadillac consumers were on their last automotive. Thus, although
Cadillac's market share was good, its consumer equity wasn't. Compare this with
BMW. It's younger and vigorous image did not win BMW the first market share
war. However, it didn't win BMW younger clients with higher customer life
values. The result: Cadillac currently captures solely a few 15% market share,
which is below BMW's. And BMW's customer equity remains much higher. It
has more customers with a higher average customer lifetime value. Thus, market
share is not the answer.
We should care not just about existing sales but also about future sales. Customer lifetime value and customer equity are the names of the game.
