Marketing Management 15th Edition Kotler Solutions Manual

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1 Marketing Management 15th Edition Kotler Solutions Manual Completed download: (Completed downloadable package SOLUTIONS MANUAL for Marketing Management 15th Edition by Philip T. Kotler, Kevin Lane Keller) Chapter 5: CREATING LONG-TERM LOYALTY RELATIONSHIPS LEARNING OBJECTIVES In this chapter, we will address the following questions: 1. What are customer value, satisfaction, and loyalty, and how can companies deliver them? 2. What is the lifetime value of customers and how can marketers maximize it? 3. How can companies attract and retain the right customers and cultivate strong customer relationships? 4. How do customers new capabilities affect the way companies conduct their marketing? CHAPTER SUMMARY 1. Customers are value maximizers. They form an expectation of value and act on it. Buyers will buy from the firm that they perceive to offer the highest customer-delivered value, defined as the difference between total customer benefits and total customer cost. 2. A buyer s satisfaction is a function of the product s perceived performance and the buyer s expectations. Recognizing that high satisfaction leads to high customer loyalty, companies must ensure that they meet and exceed customer expectations. 3. Losing profitable customers can dramatically affect a firm s profits. The cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. The key to retaining customers is relationship marketing. 4. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs. Marketers play a key role in achieving high levels of total quality so that firms remain solvent and profitable. 5. Marketing managers must calculate customer lifetime values of their customer base to understand their profit implications. They must also determine ways to increase the value of the customer base. 6.Companies are also becoming skilled in customer relationship management (CRM), which focuses on developing programs to attract and retain the right customers and meeting the individual needs of those valued customers. OPENING THOUGHT

2 Although most students understand the concept of buying, some will have difficulty in understanding the differences between total customer value and total customer cost. It will be beneficial for long-term understanding and retention to cover what the definition is and what it is not. Secondly, the distinction between satisfaction and total customer satisfaction for the consumer might be challenging for some students. Some students may have a hard time understanding the distinction between perception and expectation. Finally, it might be necessary to reemphasize the concepts of Customer Relationship Management (CRM), customer databases, and database mining often in the lecture. Students may confuse the concept of mailing lists with databases. However, most of the students today are proficient in Internet usage and can cite examples of relationship marketing from their own favorite Internet sites such as Amazon.com. TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS B) At this point in the semester-long marketing plan project, students should have completed their value proposition for the fictional product, defined how they will deliver satisfaction and maintain customer loyalty. C) Have students (in groups or individually) select a local firm in their community, or a local division of a national firm, and seek permission to interview their corporate executives on their corporation s definition of customer satisfaction, loyalty, and what their particular firm does to foster such customer relations. This project can be combined with the project on marketing research and as such, students can create questionnaires suitable for mailing to these executives. The students can then present these findings to the class in a group or by individual presentations. This could be a full-semester project or limited to a few weeks of the semester. D) Sonic Smartphone Marketing Plan: Sonic has decided to focus on total customer satisfaction, because studies have shown that customers who are completely satisfied with the product or service are much more likely to buy more from the company than customers who report they are satisfied. You have been asked by Jane Melody to: Recommend how Sonic should measure total customer satisfaction. Review the possible ways to gain customer satisfaction information and write the recommended approach in a marketing plan or enter into the Positioning section of Marketing Plan Pro..

3 ASSIGNMENTS Key manufacturers and others must be concerned with how customers view products (customer satisfaction perceptions) being disseminated throughout the electronic world via the Internet. No longer can one discount the power of the mouse for affecting potential customers. In small groups, students are to select a particular firm or product and are to research what is being said on the Internet regarding this company/product. What affects/effects does this type of dissemination of consumer opinions via the Internet have on the company s marketing strategies? What can the company do to stem the tide of such comments? How does a company defend itself against blatantly untrue consumer opinions? Have each of the students read 1 Michael Tsiros, Vikas Mittal, William T. Ross Jr., The Role of Attributions in Customer Satisfaction: A Reexamination, Journal of Consumer Research, 31 (September), 2004, pp and comment on their findings. Customer relationship management is a current business buzz word. Students can be directed to do an Internet research project from named marketing/business journals on the subject of customer relations management (the chapter s endnotes can provide a good source of leads for the students). Each student can be directed to research, read, and compile a report on their findings from a minimum of five articles from five different marketing (and business magazines such as Fortune). The student s report is to comment on how these articles compare, complement, or contrast the material contained in this chapter. The research firm J.D. Powers and Associates (jdpower.com) lists eight categories of products for consumers to research before purchasing the product or service. Breaking up the class into eight groups, have the students research the top performers for each category and be able to share their findings as to what characteristics, policies, procedures, and vision these top rated companies have in common. Is there a common link among all of the winners? Are there differences? In terms of the material contained in this chapter, how would you explain these similarities and differences? END-OF-CHAPTER SUPPORT MARKETING DEBATE Online Versus Offline Privacy As more firms practice relationship marketing and develop customer databases, privacy issues are emerging as an important topic. Consumers and public interest groups are scrutinizing and sometimes criticizing the privacy policies of firms and raising concerns about potential theft of online credit card information or other potentially sensitive or confidential financial information. Others maintain online privacy fears are unfounded and that security issues are as much a concern offline. They argue that the opportunity to steal information exists virtually everywhere and it s up to the consumer to protect their interests. Take a position: Privacy is a bigger issue online than offline versus Privacy is no different online than offline. Pro: Privacy is a larger issue in the online world than the offline world simply because the information has a greater opportunity to be exposed to more people than offline transactions. The transmission of private information electronically travels through electronic channels each Solutions manual for marketing management 15th edition by philip t. kotler, kevin lane keller

4 of which presents opportunity for misdirection or computer hacking activities. In many of these cases, the person, or firm transmitting this information, redirecting this information receiving this information and storing this information is unknown to the consumer. In the offline world, the consumer has the opportunity to know the company, personnel, or firm receiving this information and has the opportunity to accept or decline sharing their personal information. Con: Transmission of personal information in the offline world still travels electronically, in many cases. The act of paying with a credit card still involves the transmission of data electronically at some point in the transaction. What differs is the fact that the consumer is initially interfacing with a person (or firm). Although this does not mitigate the risks involved to the consumer, it does present some concrete knowledge of the people, or firm involved in the transaction. MARKETING DISCUSSION: Using CLV Consider the lifetime value of customers (CLV). Choose a business and show how you would go about developing a quantitative formulation that captures the concept. How would that business change if they totally embraced the customer equity concept and maximized CLV? Suggested Response A) CLV describes the net present value of the stream of future profits expected over the customers lifetime purchases. Each student s example will differ but the main tenets of each report should include the following: 1) Add: a) Profit from a sale (dollar or percent). b) Number of sales per customer per year. c) Average age of a customer. d) Average expected lifespan of a customer. 2) Subtract: a) Appropriate discount rate. b) Costs of attracting one customer. c) Selling one customer. d) Servicing one customer. B) Organizations would change by beginning to take a long-term perspective rather than a short-term (quarter-to-quarter view). No longer viewing a customer as a transaction but rather as a lifetime value solidifies and demonstrates the impact that a single consumer has to a firm in a language they understand dollars. Firms would begin to customize offerings and messages to each customer, ensure that retention strategies are in place, differentiate customers in terms of needs and value to the company, and build stronger relationships with key customers. Because of a change in the loci of focus for the firm, strategies, and actions based upon which would provide the best return on its marketing investments would be implemented..

5 Marketing Excellence: NORDSTROM 1) How else can Nordstrom continue to provide exceptional customer service and grow brand loyalty? Suggested Answer: Nordstrom knows that its customers are value maximizers. Customers form an expectation of value and act on it, that s what makes Nordstrom and has made Nordstrom so successful to date. Buyers will buy from the firm that they perceive to offer the highest customer-delivered value, defined as the difference between total customer benefits and total customer cost. This is Nordstrom s objective and target albeit a moving one! As customer and consumer tastes change and their expectations change, Nordstrom must change with them change in the quality of products they offer, the type of stores they build, stock, and man. Nordstrom must begin to data mine and grow their customer base their Fashion Rewards Program has 4 levels based on customer spending. Nordstrom must grow their lowest level shopper to become their highest level spender. 2) What are Nordstrom s greatest risks and who are its biggest competitors? Suggested Answer: Nordstrom must constantly be adding new customers and cultivate the occasional Nordstrom shopper to become a regular. Nordstrom s biggest competitors are those companies who recognize the value of customer service and that the consumer will and do form an expectation of value price versus quality or price/quality versus service. Nordstrom s competitors include existing retailers and online retailers. Marketing Excellence: TESCO 1) What s most important to the Tesco brand? Suggested Answer: Student answers will vary, but it will be important for Tesco to not only appear friendlier but also be friendlier at all touchpoints. Doing so will have a positive impact on satisfaction which could, in turn, result in higher levels of customer loyalty and higher share of wallet. 2) How will Tesco grow without losing focus on its core customer? Suggested Answer: Student answers will vary but it is suggested that Tesco could move further into non-food retailing (home improvement stores, departmental stores, and specialty stores like arts and crafts) or totally out of retailing into more service related industries. Tesco can target all segments of the consumer market using their rewards program. That program allows Tesco to specifically manage and reach consumers at all income and taste levels. 3) How can Tesco take its customer loyalty programs to the next level? Suggested Answer: Student answers will vary but it is suggested that Tesco can/could increase the usage of their loyalty program to include non-consumerables such as housing, durable goods, travel, entertainment, casual dining, and other partnered services. DETAILED CHAPTER OUTLINE Solutions manual for marketing management 15th edition by philip t. kotler, kevin lane keller

6 Opening Vignette: Customer-centered companies are using technology to connect with customers and build customer relationships. Pandora tracks preferences and makes recommendations to drive customer preference for its service and loyalty. I. Building Customer Value, Satisfaction and Loyalty A. Managers who believe the customer is the only true profit center place customers at the top of the organizational chart, followed by the people who serve them. a. Managers at every level must be personally engaged in knowing, meeting and serving customers b. Increasingly informed consumers expect companies to connect, satisfy, delight, listen and respond to them B. Customer-Perceived Value a. Customers tend to be value maximizers within the bounds of search costs and limited knowledge, mobility, and income. b. Customers choose the offer they believe will deliver the highest value and act on it c. Customer-perceived value is the difference between the prospective customer s evaluation of all the benefits and costs of an offering and the perceived alternatives d. Total customer benefit is the perceived monetary value of the bundle of economic, functional and psychological benefits customers expect from a given market offering because of the product, service, people, and image e. Total customer cost is the perceived bundle of costs customers expect to incur in evaluating, obtaining, using and disposing of the given market offering, including monetary, time, energy, and psychological costs C. Applying Value Concepts a. Customer value analysis is used to reveal the company s strengths and weaknesses relative to those of competitors b. Steps in the analysis i. Identify the major attributes and benefits that customers value ii. Assess the quantitative importance of the different attributes and benefits iii. Assess the company s and competitor s performances on the different customer values against their rated importance iv. Examine how customers in a specific segment rate the company s performance against a specific major competitor on an individual attribute or benefit basis v. Monitor customer values over time c. Choice Processes and Implications i. The buyer might be under orders to buy at the lowest price ii. The buyer might make choices to look good in the short-run iii. The buyer might have more weight to their personal benefit than the company s benefit d. The seller must assess the total customer benefit and total customer cost associated with each competitor s offer in order to know how its.

7 own offer rates in the buyer s mind. e. The seller at a disadvantage has two alternatives: increase total customer benefit or decrease total customer cost. D. Consumers have varying degrees of loyalty to specific brands, stores, and companies. a. Loyalty is a deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts having the potential to cause switching behavior b. The value proposition consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. c. The value delivery system includes all the experiences the customer will have on the way to obtaining and using the offering. At the heart of a good value delivery system is a set of core business processes that help deliver distinctive consumer value. E. Satisfaction is a person s feeling of pleasure or disappointment that result from comparing a product or service s perceived performance (or outcome) to expectations a. If the performance or experience falls short of expectations, the customer is dissatisfied. b. If it matches expectations, the customer is satisfied. c. If it exceeds expectations, the customer is highly satisfied or delighted d. Customer assessments of product or service performance depend on many factors, including the type of loyalty relationship the customer has with the brand. e. Although the customer-centered firm seeks to create high customer satisfaction, increasing customer satisfaction by lowering price or increasing services may result in lower profits. f. Expectations result from past buying experience, friends and associates advice, public information and discourse, and marketers and competitors information and promises. g. Many companies systematically measure how well they treat customers, identify factors shaping satisfaction and change operations and marketing as a result because satisfaction affects retention and word of mouth h. High satisfaction or delight creates an emotional bond with the brand or company, not just a rational preference. i. Periodic surveys can track customers overall satisfaction directly and ask additional questions to measure repurchase intention, likelihood or willingness to recommend the company and brand to others, and specific attribute or benefit perceptions likely to be related to customer satisfaction. j. American Customer Satisfaction Index (ACSI) measures consumers perceived satisfaction with different firms, industries, economic sectors, and national economies k. The Net Promoter score is a 1-to-10 scale on which to rate their likelihood of recommending the company. i. Marketers then subtract Detractors (those who gave a 0 to 6) from Promoters (those who gave a 9 or 10) to arrive at the Net Solutions manual for marketing management 15th edition by philip t. kotler, kevin lane keller

8 II.. Promoter Score (NPS). ii. Customers who rate the brand with a 7 or 8 are deemed Passively Satisfied and are not included. iii. A typical set of NPS scores falls in the 10 percent to 30 percent range, but world-class companies can score over 50 percent. l. Companies need to monitor their competitors performance and their customer loss rate m. For customer-centered companies, customer satisfaction is both a goal and a marketing tool. F. Satisfaction will also depend on product and service quality a. Quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs b. Higher levels of quality result in higher levels of customer satisfaction, which support higher prices and (often) lower costs. c. Marketing plays an especially important role in helping companies identify and deliver high-quality goods and services to target customers. i. Correctly identify customers needs and requirements ii. Communicate customer expectations properly to product designers iii. Make sure customers orders are filled correctly and on time iv. Check that customers have received proper instructions, training, and technical assistance in the use of the product v. Stay in touch with customers after the sale to ensure they are, and remain, satisfied vi. Gather customer ideas for product and service improvements and convey them to the appropriate departments Maximizing Customer Lifetime Value A. The rule states that 80 percent or more of the company s profits come from the top 20 percent of its customers. B. Companies need to concern themselves with Return on Customer (ROC) and how efficiently they create value from the customers and prospects available i. A profitable customer is a person, household, or company that over time yields a revenue stream exceeding by an acceptable amount the company s cost stream for attracting, selling, and serving that customer. ii. Marketers can assess customer profitability individually, by market segment, or by channel iii. Companies that conduct customer profitability analysis: 1. Can raise the price of its less profitable products or eliminate them 2. Can try to sell less profitable profit-making products 3. Can ignore unprofitable customers/encourage them to switch to competitors iv. Activity-based costing accounting tries to identify the real costs associated with serving each customer and estimates all revenue coming from the customer, less all costs (including making and

9 distriuting the products and services, taking phone calls, traveling, entertainment and gifts, etc.) C. Customer lifetime value describes the net present value of the stream of future profits expected over the customer s lifetime purchases i. Expected revenues minus the expected costs of attracting, selling and servicing the account, after the appropriate discount rate is applied ii. Provide a formal framework for planning customer investment iii. Help marketers adopt a long-term perspective iv. Harrah s tracks customer data and uses predictive analyses to maximize lifetime value v. Lifetime value can be estimated for three to five years or use an infinite time horizon D. Attracting and Retaining Customers i. Companies incur time and money costs looking for new customers ii. Different acquisiton methods yield different CLVs iii. A company must keep customers and increase their business, or avoid customer churn iv. To reduce the defection rate, the company must 1. Define and measure its retention rate 2. Distinguish the causes of customer attration and identify those that can be managed better 3. Compare the lost customer s lifetime value to the costs of reducing the defection rate v. Retention dynamics can be envisioned as a marketing funnel that identifies the percentage of potential target customers at each stage in the decision process. 1. Firms can calculate conversion rates, or the percentage of customers at one stage who move to the next 2. Satisfied customers are the company s customer relationship capital vi. Winning companies improve the aggregate value of the customer base by: 1. Reducing the rate of customer defection 2. Increasing the longevity of the customer relationship 3. Enhancing customer growth through share of wallet, crossselling and up-selling 4. Making low-profit customers more profitable or terminating them 5. Focusing disproportionate effort on high-profit customers vii. Companies that want to build loyalty should: 1. Interact closely with customers 2. Develop loyalty programs/frequency programs/club membership programs 3. Create institutional ties E. Brand communities are specialized communities of consumers and employees whose identification and activities focus around the brand, characterized by: i. A consciousness of kind/felt connection to the brand, company, product or other community members ii. Shared rituals, stories, and traditions that help convey the meaning of Solutions manual for marketing management 15th edition by philip t. kotler, kevin lane keller

10 III.. the community iii. A shared moral responsibility or duty to both the community as a whole and individual community members iv. Brand communities can rise organically from brand users or can be company-sponsored/facilitated v. The more connected members are, the more likely he or she will spend more vi. Twelve value creation activities (in four categories) take place in brand communities, including 1. Social Networking a. Welcoming b. Empathizing c. Governing 2. Impression Management a. Evangelizing b. Justifying 3. Community Engagement a. Staking b. Milestoning c. Badging d. Documenting 4. Brand use a. Grooming b. Customizing c. Commoditizing vii. To make online brand communities more effective: 1. Enhance the timeliness of information exchanged 2. Enhance the relevance of information posted 3. Extend the conversation 4. Increase the frequency of information exchanged F. Win-back strategies should be use to reattract ex-customers Cultivating Customer Relationships A. Information is easy to differentiate, customize, personalize and dispatch over networks at incredible speed B. Customer relationship management is the process of carefully managing detailed information about individual customers and all customer touch points to maximize loyalty i. Enables real-time customer service through effective use of inidivual account information ii. Behavioral targeting allows companies to track online behavior of target customers and find the best match between ads and prospects iii. Customer value management describes the company s organization of the value or the customer base iv. Personalizing marketing is about making sure the brand and its marketing are as personally relevant as possible to as many customers as possible v. Permission marketing is the practice of marketing to consumer only after gaining their expressed permission (in contrast to interruption

11 marketing via mass media campaigns) vi. Participatory marketing is more appropriate since consumers participate in the solution C. Customers are empowered to become evangelists and demonstrate their passion. i. Reviews and recommendations are an important source of information for consumer decision-making ii. The quality and integrity of reviews can be in question iii. Bloggers who review many products can be influential iv. Online word of mouth is especially critical for small brands D. Companies should make it easy for customers to complain 1. Set up a seven-day, 24-hour toll-free hotline (by phone, fax, or ) 2. Contact the complaining customer as quickly as possible. 3. Accept responsibility for the customer s disappointment; don t blame the customer. 4. Use customer service people who are friendly and empathic. 5. Resolve the complaint swiftly and to the customer s satisfaction. E. Some customers are opportunistic, and firms can fight back if a complaint is unjustified or build a strong image/generate goodwill Reference links: marketing management kotler 15th edition solutions manual marketing management 15th edition pdf free download marketing management by philip kotler 15th edition pdf principles of marketing by philip kotler 15th edition pdf free download marketing management kotler 15th edition marketing management by philip kotler free ebook download Solutions manual for marketing management 15th edition by philip t. kotler, kevin lane keller