Chapter 3

Question 1

Medium rate of change customer dynamic sources

Answer 1

discrete life events, product learning efforts, product lifecycle

Question 2

Immediate rate of change customer dynamic sources

Answer 2

discrete life events
changes in economy, government, industry, or culture

Question 3

lifestyle approach

Answer 3

use generic stages of growth and their position in the lifecycle to determine customer preferences and associated strategies

Question 4

dynamic customer segmentation

Answer 4

segments a firm’s existing customers on the basis of their similar, expected migration patterns

Question 5

customer lifetime value

Answer 5

contribution of each customer according to the expected migration path over the entire lifetime with the firm

Question 6

Pros of Lifecycle

Answer 6

simplicity
ease of use

Question 7

Cons of Lifecycle

Answer 7

assumes all customers follow one curve
averages all customers
ignores causes of customer dynamics
misses many unique trigger points/migration paths

Question 8

pros of dynamic customer segmentation

Answer 8

combines lifestyle and segmentation
matches strategic marketing thinking
identifies temporally homogenous groups

Question 9

cons of Dynamic Customer Segmentation

Answer 9

segments not perfectly homogenous
puts continuous change into discrete changes

Question 10

Pros of Customer Lifetime Value Approach

Answer 10

provides insights for AER decisions
supports customer-centricity
captures dynamics + heterogeneity

Question 11

cons of Customer Lifetime Value Approach

Answer 11

requires insight into future migration and detailed financial data

Question 12

Stages of Product Lifestyle

Answer 12

introduction, growth, maturity, decline

Question 13

What is another name for dynamic-based segmentation?

Answer 13

AER model (Acquisition-Expansion-Retention Model)

Question 14

acquisition stage

Answer 14

begins with first contact, typically before the first purchase occurs, when prospects and early customers have similar needs

Question 15

expansion stages

Answer 15

firms try to upsell/cross-sell to expand sales and engage with existing customers

Question 16

retention stage

Answer 16

customer migrate in pursuit of greener pastures

Question 17

Hidden Markov Models (HMM)

Answer 17

form of dynamic segmentation that can uncover stages or “states” of customer behaviors, as well as how those states evolve

Question 18

When to use HMM analysis?

Answer 18

understand dynamics/stages of customer’s relationship with a business
dynamically segment customer base
predict changes in stages

Question 19

Fice Outputs of HMM Analysis

Answer 19

1. Number of feasible/dynamic states in data
2. Initial probability that a customer is in each state
3. transition probabilities, or the probability that customers move from one state to another
4. conditional probability of a behaviour given customers’ hidden state
5. effect of marketing in moving customers across states

Question 20

Why do customer states get hidden?

Answer 20

unaware of biases and what they are based on; customers just show behaviours, so marketers do not see all constraints

Question 21

Variables for Customer Lifetime Value analysis

Answer 21

net cash flow
time horizon
discount rate

Question 22

Variables for Simplified Customer Lifetime Value analysis

Answer 22

margin for customer in sales
annual marketing cost for customer
retention rate for customer as %
discount rate as a %
acquisition cost for customer in $

Question 23

When to use Customer lifetime analysis

Answer 23

identify which customers are worth acquiring/retaining
determine where to target marketing programs to maximize firm’s return of marketing investments
understand true value of a customer to a firm

Question 24

What does it mean if a CLV is negative?

Answer 24

customer is not profitable

Question 25

Choice Models

Answer 25

Analysis approach that attempts to determine the impact of different factors (price, promotion) on consumer’s individual choices (joining, cross buying, leaving)

Question 26

What model is really good at determining best AER strategies?

Answer 26

choice models

Question 27

What does choice model provide?

Answer 27

elasticity
probabilities of customer’s choice

Question 28

latent class choice models

Answer 28

clusters and runs choice model at same time

Question 29

When to use Choice Model Analysis

Answer 29

determine the customer’s most likely choice when faced with many alternatives
determine most important factors that influence customer choice likelihood
segment/target customers according to choice drivers
simulate potential market share for various products on the basis of customer choice

Question 30

Steps to Manage customer dynamics

Answer 30

1. Dynamic Segmentation
2. Migration Paths/Triggers
3. Customer Lifetime value of segments/migrations
4. AER Positioning statements
5. AER strategies

Question 31

Lost customer analysis

Answer 31

mathematical choice model that predicts likelihood of an observed customer choice/response