Mastering Customer Relationship Management & Value Creation

Understanding Customer Value

The core of modern marketing revolves around understanding and delivering value to customers. This section defines key concepts that underpin successful customer relationships.

What is a Value Proposition?

A value proposition is the set of benefits or values a company promises to deliver to customers to satisfy their needs.

Defining Customer Relationship Management (CRM)

Customer Relationship Management (CRM) is a core concept of modern marketing. It is the process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. CRM deals with all aspects of acquiring, keeping, and growing customers.

Customer Perceived Value Explained

Customer perceived value is a customer’s evaluation of the difference between the benefits and costs of a marketing offer compared to competing offers. Customers do not judge product values and costs accurately or objectively; instead, they act on perceived value.

Understanding Customer Satisfaction

Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. Highly satisfied customers make repeat purchases and tell others about their good experiences with the product. The key is to match customer expectations with company performance.

For companies with many low-margin customers, the goal is to develop basic relationships. Conversely, in markets with few customers and high margins, sellers aim to create full partnerships with key customers.

Strategies for Capturing Customer Value

The ultimate goal of effective customer relationship management is to capture value from customers. This manifests in current and future sales, market share, and profits. Here are key strategies:

Building Customer Loyalty and Retention

The primary aim of customer relationship management is to create not just customer satisfaction, but ultimately, customer delight. Customer delight fosters an emotional relationship with a product or service, moving beyond mere rational preference.

The Power of Customer Lifetime Value

Companies are increasingly realizing that losing a customer means losing more than a single sale. It signifies losing the entire stream of purchases that the customer would make over a lifetime of patronage. This concept is known as customer lifetime value (CLV).

Increasing Share of Customer

Customer relationship management can significantly help marketers increase their share of customer—the portion of the customer’s purchasing that a company gets in its product categories.

To achieve this, firms can leverage existing customer relationships by offering a greater variety of products or services. Additionally, they can train employees to cross-sell and up-sell, effectively marketing more products and services to existing customers.

Maximizing Customer Equity

Customer equity is defined as the total combined customer lifetime values of all the company’s customers. Companies can classify customers according to their potential profitability and manage their relationships with them accordingly to maximize this equity.