MKTG470_Chapter 12 - Chapter12: /oraccountbalances...

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Customers become more profitable the  longer they remain with a firm: Increased purchases and/or account balances Reduced operating costs Referrals to other customers Price premiums Chapter 12: Relationships and Loyalty
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How Much Profit a Customer  Generates Over Time Credit card Industrial laundry Industrial distribution Auto servicing 0 (Year 1=100) 50 250 300 350 – 100 150 200 Year 1 Year 2 Year 3 Year 4 Year 5
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Why Customers Are More Profitable Over Time 1 2 3 4 5 6 7 Year Profit from price premium Profit from references Profit from reduced op. costs Profit from increased usage Base Profit / Loss
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Assessing the Value of a Loyal Customer Must not assume that loyal customers are  always more profitable than those making one- time transactions Large customers may expect price discounts in  return for loyalty Revenues don’t necessarily increase with time for  all types of customers  Tasks Determine costs and revenues for customers  from different market segments Predict future profitability 
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Measuring Customer Equity Acquisition Revenues (application fee + initial purchase) Costs (marketing + credit check + account set up) Projected annually Revenues (annual fee + sales + service fees + value of  referrals) Costs (account management + cost of sales + write-offs) Value of referrals  Percentage of customers influenced by other customers Net Present Value  Sum anticipated annual values (future profits)  Discounted each year into the future
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Why Are Customers Loyal?
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