chapter 3 - marketing principle #2: all customers change -> managing customer dynamics

Question 1

sources of customer dynamics

Answer 1

1. individual level:
   - discrete life events: rate of change = immediate
   - typical lifecycle/maturation (e.g. age): rate of change = slow
   - product learning effects: rate of change = medium
2. product market level:
   - product lifecycle: rate of change = medium
3. environmental level:
   - changes in economy, government, industry, culture: rate of change = slow to immediate

Question 2

customer learning effect

Answer 2

= the process by customers become familiar with the product by using it, which changes their weighting of the relative importance of difference attributes due to enhanced knowledge and experience

Question 3

product lifecycle

Answer 3

= captures prototypical changes in customers’ purchase criteria and marketers’ actions as the product category matures

Question 4

3 categories of approaches for managing customer dynamics

Answer 4

1. lifecycle approach
2. customer dynamic segmentation approach
3. customer lifetime value approach

Question 5

lifecycle approach

Answer 5

• Customer lifecycle= attempts to capture how individuals typically change as they age
  and reach common age-related milestones.
• Product-lifecycle= four typical stages in relation to their acceptance by society
  (introduction, growth, maturity, and decline).
• Industry lifecycle= establishment of range/boundaries, innovation stage, shakeout
  stage, maturity, and decline stage.
  –> pros: simplicity, ease of use
  –> cons: assumes all customers follow one curve; averages all customers; ignores causes of customer dynamics

Question 6

customer dynamic segmentation approach

Answer 6

• aka acquisition, expansion, retention (AER) model
• captures customers entering the firm’s portfolio and accumulating over time even as customers leave
• use of Lost customer analysis= a firm contacts customers who have migrated away, to
  identify the cause for this change, then works backward to fix the problem and ensure other customers don’t leave for the same reason
• acquisition stage = begins with the first contact, before the purchase occurs when customers start to learn about the offerings and how to interface with this firm
• expansion stage = firms are trying to upsell or cross-sell to expand their sales and
  engagement with existing customers
• retention stage = deals with customers who migrate because of the mismatch in the
  core offering or a life event or just because of the tendency to switch
  –> pros: combines lifecycle and segmentation methods; matches strategic marketing thinking; identifies temporally homogeneous groups
  –> cons: segments are not perfectly homogeneous; puts continuous change into discrete stages

Question 7

customer lifetime value (CLV) approach

Answer 7

= attempts to capture the true contribution of each customer, by determining the discounted value of the sales and costs associated with this customer across the expected migration paths followed throughout the relationship with the firm.
- The simplified version of CLV uses three readily available customer behaviours; recency (time elapsed since last purchase), frequency (of purchases in last period), and monetary (purchases in last period). Also called the RFM variables
–> pros: provides insights for AER decisions; supports a customer-centric culture; captures dynamics and heterogeneity
–> cons: requires insight into future migration; requires detailed financial data

Question 8

process for managing customer dynamics steps

Answer 8

1. Customer segmentation
2. Migration paths and triggers
3. Customer lifetime value of segments and migrations
4. AER positioning statements
5. AER strategies