Summary Strategic Marketing & Sales IB Y4Q1

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,Chapter 1 Customer focus, Customer performance &
Profit Impact
Customer loyalty
Customer loyalty = a measurement of the customer’s likeliness to do repeat business with a
company  it is the result of customer satisfaction, positive customer experience and the overall
value perceived from the goods/services

- Loyal customers = long customer history, are more committed, buy more and are more likely
to recommend
- Repeat customers = long history, less committed, buy less and are less likely to recommend
- Dissatisfied “captive customers” = based on history and purchase amounts, they look like
repeat customers, but they are less satisfied, have a low level of product preference and
would like to switch if they could  would not recommend or would advise into NOT buying
- New customers
- Nonprofitable customers

Customer satisfaction* & retention** have a positive impact on profitability

*Customer satisfaction = a measurement that determines how happy customers are with a
company’s products, services & capabilities
**Customer retention = the ability of a company to retain its customers over a specified period

When a company is attracting new customers and managing them to a level of loyalty & profitability
 there are potential customers the business should NOT pursue

- Attracting the right customers = part of customer relationship marketing
- Classify customers on basis of customer loyalty and profitability

Measuring Customer Loyalty
Customer loyalty is based on 5 components;
1. Customer history
2. Purchase amount
3. Desire to repurchase
4. Product reference
5. Would recommend

These components are asses using 3 levels of customer behaviour;
- E.g. long, average, short. Strong, average, weak. Yes, maybe, no.

The average of these five loyalty components provides the customer loyalty index (varying from 0-
100)  The higher the index, the higher the loyalty

Customer loyalty index=customer history + purchase amount+ desire ¿ repurchase+ product preference+would




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,Definitions loyalty components

1. Customer history = a simply long, average or short  relative to the average customer
history for a company
2. Purchase amount = varies from below average to above average  a loyal customer has an
above-average purchase amount, whereas a less-than-loyal customer has a below-average
purchase amount
3. Desire to repurchase = varies from low to high  with average reflecting a moderate
commitment to buying again from the business
4. Product preference = varies from weak to strong  a loyal customer would have a high
preference for the product of the company and a less-than-loyal customer would prefer the
product of a different company
5. Customer recommendation = varies from yes, maybe, no  loyal customers would always
recommend and less-than=loyal customers would not recommend or advise against buying
from the company

Customer loyalty classification
The higher the loyalty score, the more loyal the customer & a higher customer profitability

The lower the loyalty score, the less loyal the customer is & the lower the customer profitability is

Because customer loyalty is measured  specific marketing programs can be developed for each
classification of customer loyalty

- These programs can improve customer profitability (& therefore, company profitability)
- Goal of customer relationship marketing = to manage these 5 customer loyalty
classifications to obtain a higher level of overall loyalty and customer profitability

Loyal Customers
- Loyalty index= 70-100
- Loyal customers need to be managed differently
 Exclusive rewards, special offers & services (that are not offered to others)

Repeat Customers
- Loyal customers in waiting  high profit potential, product preference is average to high
- A above-average customer lifetime value but lower than that of the loyal customers
- Loyalty index = 50-69
- Risk = repeat customers can be lost customers if managed wrongly
 Offering benefits that are designed to increase the satisfaction and retention
 Expand loyalty programs

Captive Customers
- Are dissatisfied but have no other place to go
- Customers are locked into their next purchase
- Loyalty index = low
 Early detection of captive customers = manage them with respect to their customer
dissatisfaction
 Reducing the possibility of switching


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, New Customers
- Loyalty score = low
- No loyalty yet
- Required = critical care
 High expectations need to be managed in an effort to lift them to a higher level of
customer loyalty
 Specific management based on purchasing patterns and customer loyalty
development  essential to provide them with a positive experience

Unprofitable Customers
- - the result of mismanaged customer selection
- Sometime known as “misfits”  great customer, but for different companies
- Best approach = help them to leave

Managing Customer Loyalty
Successful customer relationship marketing = involves managing all customer relationships based
on the customer levels of loyalty and profit potential

An effective program

- starts with; identifying the target customers
- & includes; strategies for managing new customers and abandoning unprofitable ones




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