exam 2 Flashcards
Define the 3 stages of the customer life cycle
Acquisition, Retention, Development
If a company wants to reduce its sales and marketing expenses, why should you argue that an emphasis on customer acquisition is misguided?
Costs money to acquire a customer. Customer retention and development don’t need advertising
“new to category” customer
Customers who have either identified new need or found a new solution for their need. Ex) Couple having first child are new to category for baby stuff
“new to company” customer
Customers won from competitors. Very expensive, might not get total share of wallet
Hofmeyr’s conversion model
Determines the likelihood of a customer switching to your company by segmenting customers into 4 levels of commitment
COMMITTED CUSTOMERS
- entrenched: unlikely to switch
- average: unlikely to switch in the short term, but may switch in the medium turn
UNCOMMITTED
- Shallow: probably already considering alternatives
- convertible: most likely to defect
Hofmeyrs 4 questions to measure committment
- How happy are you with ___?
- Is this relationship something you care about?
- Is there any other alternative that appeals to you?
- If so, how different is the alternative from the other?
Hofmeyrs non customer segments
OPEN NON-CUSTOMERS
available: non customers that prefer alternative to current offer
ambivalent: attracted to alternative
UNAVAILABLE NON CUSTOMERS
weakly unavailable: prefer current brands
strongly unavailable: strong preference for current brand
relate hofmyers use of “commitment” to “attitudinal loyalty.”
Commitment is how people feel about the company. Feelings lead to endorsement
Discuss how a company would use the knowledge that some of its customer are “committed” and that some are “uncommitted.”
of open non-customers > # of uncommitted customers, companies should focus strongly on acquisition
Customer churn
customer ceases relationship with company
Why is the objective of retention not to retain every customer?
Some customers are more valuable than others and some cost you more money than they bring in
What are the three measures of customer retention?
Raw customer retention rate
Number of customers doing business with a firm at the end of a period expressed as % of those who were active customers at the beginning of the period.
Sales-adjusted retention rate
Value of sales achieved from the retained customers expressed as a % of the sales achieved from all customers who were active at the beginning of the period.
Profit-adjusted retention rate
Profit earned from the retained customers expressed as a % of the profit earned from all customers who were active at the beginning of the period
Why does a focus on retention usually lead to increased profits
- Purchases grow as tenure grows
- Customer management costs fall over time
- Customer referrals grow
- New customers may have greater future life-time value potential than longer tenure customers
Positive retention strategies
delight, create engagement
negative retention strategies
Create exit barriers Enforce the contract Extract switching penalties
