Managing customer loyalty

Foundations for a thriving business

1. Customers will continue to change in needs, demographics, lifestyle and consumption behavior
2. Competitors will change as new technologies emerge and barriers to foreign competition shift.
3. The environment in which businesses operate will continue to change as economic, political, social and technological forces shift.

Successful customer relationship marketing enables businesses with a strong customer focus achieve high levels of customer satisfaction and customer loyalty which directly translates to higher profitability.

A common measure of customer satisfaction is the Customer Satisfaction Index (CSI). derived from customers rating of the overall satisfaction on a six-point scale that ranges from very dissatisfied to very satisfied. CSI is a forward looking indicator on the performance of an organization, that measures how well customers will respond to the company in the future. other performance measures like market share are backward looking.

Research results indicate the following

	Very Dissat	Dissatisfied	Somewhat dissat	Somewhat Sat	Satisfied	Very Sat
%customers	2%	5%	10%	22%	36%	25%
Profitability	-90%	-75%	-50%	25%	125%	800%
Customer turnover		25%			70%

out of 100 dissatisfied customers 4 complain, 96 do not complain, 95% of non complainers exit, whereas 25% of complainers exit.


Customer life

Customer life {N} = 1/(1-customer retention {cr})

Customer Loyalty index (CLI) is defined as

CLI = Customer satisfaction * Customer retention * Customer recommendation
since the negative recommends have more severe consequences, dissatisfied customers tend to accelerate mass defections especially in the presence of an alternative or substitute.

Strategies for managing customer loyalty and profitability

<       Customer profitability	Very high       High	High Potentials Life time value = 2x Customer retention =50% Selectively invest in 1:1 relationships	Top performers Lifetime value = 5x Customer retention = 80% Invest in customized relationships
	Average
	Breakeven       Negative	Non Profits Lifetime value =-x Customer retention 33% Separate potential opportunities from nomads	Under achievers Lifetime value = x Customer retention = 80% Invest in sustaining loyalty and build opportunities to increase margin
	Very weak    Weak   Average     Strong   Very strong                          Customer Loyalty  >

Finance notes

Fundamentals of financial decisionmaking

The first step to any decisionmaking is identifying costs and benefits.Clearly articulating how the costs and benefits are determined, example using the market, historical data or forecast based on some mathemathical model.

Once this is done converting costs and benefits to a common denominator and then comparing provides a solid basis for decisionmaking. For financial purposes and to begin with we consider time as thedifferenciating factor. TO compare costs and benefits that coudl be spread across time, we have to convert both to a single point for comparison. Interest rates are typically used as the exchange rate across time.

When the costs and benefits of any investment is calculated in terms of cash today we term the value as Present value (PV).

We Define Net Present Value NPV = PV(benefits)-PV(costs).

alternatively NPV = PV(all cash flows)

NPV decision rule states that when comparing projects or investments choose the project withthe highest and positive NPV. ( no exceptions)

Law of one price:

If equivalent goods or services trade simultaneously in different competitive markets, then they will trade for the same price in both markets.


Three rules of time travel

1. Only values at the same point in time can be compared or combined.
2. To move cash forward in time you must compound it FV = C * (1+r)^n
3. To move cash backward in time you must discount it PV = C/(1+r)^n


This pretty much summarizes the basic transformation. using timelines and the above formulae, we can compute, compare and contrast complex real live situations.

THats all for now :-)

Value Proposition

Value Proposition: A concise statement of the compelling promise that a product, brand, or company makes to a defined target audience that outweighs its total perceived cost while being differentiated from available alternatives and supported by reasons to believe.

The customer/target audience weighs in

The promise, the differentiation and the supporting evidence

Against the costs/price and the risks.

Essentially weighing costs against benefits

Components of benefits

Promise is a crisp articulation of the primary benefits—functional, emotional, and economic—that customers get from buying, using, endorsing our brands, products, or initiatives.

Differentiation is the distinctive claim that sets us apart in a meaningful way from the competing alternatives that the target audience may consider, including the status quo alternative.

Supporting arguments are the reasons the prospects should believe the promise and the claims of differentiation we make for our products, brands, or company.