Marketing

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PART II Connecting with Customers

C H A P T E R

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Creating Customer Value, Satisfaction, and Loyalty
In this chapter, we will address the following questions:
1. How can companies deliver customer value, satisfaction, and loyalty? 2. What is the lifetime value of a customer, and why is it important to marketers? 3. How can companies cultivate strong customer relationships? 4. What is the role of database marketing in customer relationship management?

MARKETING MANAGEMENT AT RITZ-CARLTON
The Ritz-Carlton hotel chain, owned by Marriott International, is known throughout the world for its singular focus on providing exceptional service and luxurious amenities. This customer-centered approach is expressed by the company’s motto: “We are ladies and gentlemen serving ladies and gentlemen.” Guests at any of the 62 Ritz-Carlton hotels in 21 countries notice the brand’s famed personal touch immediately upon checking in, when they are greeted by name. Ritz-Carlton creates a daily “Service Quality Index”(SQI) at each of its locations, so employees can continually monitor key guest service processes and swiftly address any potential problems. At corporate headquarters in Maryland, management can check the SQIs of all Ritz-Carlton hotels and instantly analyze each location’s performance. Other customer service initiatives include the CLASS (Customer Loyalty Anticipation Satisfaction System) database that contains the preferences and requirements of repeat Ritz-Carlton guests, and the CARE (Clean and Repair Everything) room maintenance system that ensures all guestrooms are 59 A Framework for Marketing Management, Fourth Edition, by Philip Kotler and Kevin Lane Keller. Published by Prentice Hall. Copyright © 2009 by Pearson Education, Inc.

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Part II Connecting with Customers checked and free of defects every 90 days. Such initiatives helped Ritz-Carlton become the only service company to win the Malcolm Baldrige National Quality Award twice. And they’ve enabled Ritz-Carlton to forge long-lasting customer relationships, as evidenced by the hotel’s Top 20 ranking on the Brand Keys 2006 Customer Loyalty Index.1 oday, companies face their toughest competition ever. Moving from a product and sales philosophy to a holistic marketing philosophy, however, gives them a better chance of outperforming the competition. And the cornerstone of a well-conceived marketing orientation is strong customer relationships. In this chapter, we discuss how companies can win customer loyalty and improve profits by doing a better job of meeting or exceeding customer expectations. We also discuss the use of database marketing for customer relationship management.

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BUILDING CUSTOMER VALUE AND SATISFACTION
Consumers are more educated and informed than ever, and they have the tools to verify companies’ claims and seek out superior alternatives.2 How then do they ultimately make choices? Customers tend to be value-maximizers, within the bounds of search costs and limited knowledge, mobility, and income. They estimate which offer will deliver the most perceived value and act on it. Whether the offer lives up to expectation affects customer satisfaction and the probability that the customer will purchase the product again.

Customer Perceived Value
Customer perceived value (CPV) is the difference between the prospective customer’s evaluation of all the benefits and all the costs of an offering and the perceived alternatives (see Figure 4.1). Total customer value is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect from a given market offering because of the products, services, personnel, and image...
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