Lecture 2 - Customer Behavior Flashcards
customer acquisition
generally easier bc you can just spend more $$ on ads and targeting campaigns
*you have to target the right customers so you can keep them longer, then they’ll be more valuable to you
drivers of firm value
- drivers of customer value = customer acquisition, retention, and expansion (cross-selling/selling more things)
- customer profitability
- profits & CF
- Firm value
customer acquisition
- the “Best” type of customers
- justify acquisition costs using CLV analysis
customer expansion
- increase margin
- data mining for cross-selling (once you understand pain points and what people want, you can satisfy needs)
customer retention
- *acquire the right customers in the firs tplace
- increase satisfaction, reduce churn, increase loyalty
- switching cost, bundling, contracts make it harder for customers to leave
CLV insights on retention
-increases in retention have bigger return than similar % increases in margin or decreases in discount rate
80/20 rule
best customers account for most revenue
- not all customers fit value proposition
customer heterogeneity
impactful
CLV can help determine how to make customer base more valuable
customer equity
value of customers to the firm
= direct value, information value, relationship value, and communication value
direct value
profits, $, part of CLV formula
relationship value
part of CLV formula; how long you can keep customer
*retention
information value
value of information your customers provide; retailers can monetize having point of sale info
Ex. FB
communication value
word of mouth and brand ambassadors
decision making process
- need recognition: become aware of need/problem; whether organic or thru marketing
- information search: produces consideration set
- evaluation of alternatives
- purchase decision
- post-purchase behavior: satisfaction, repurchase, loyalty, disatisfaction
customer journey and loyalty loop
circular form captures postpurchase behavior!
- customer considers initial set of brands based on brand perceptions and exposure
- consumers add/subtract brands as they evaluate
- customer makes selection
- after purchasing, customer builds expectations based on experience to inform the next decision journey
evaluation of alternatives
influenced by motivation, effort req’d, perceived cost, risk and personal relevance
high effort evaluation of alternatives
making a multi-attribute model (rating attributes and multiplying by importance)
Attitude towards brand = sum of (belief of strength of attribute * importance of attribute)
for companies to be competitive
at least know the most important attribute to customers and be competitive on that front
importance of attribute to customers
can be changed! look @Visa’s success by proclaiming advantages of card acceptance (they changed consumer’s importance priorities)
low effort evaluation of alternatives
automatic = resource saving
heuristics = choice tactics; price (price/quality inference, esp when we aren't experts), habit, normative ("#1 selling car", it must be good if everyone's buying it), more is betterunderstanding context of decision making
low effort or high effort??
post-purchase processes
- satisfaction/dissatisfaction (repeat business is a profit center, CLV)
- factors that influence satisfaction = performance/quality, value ratio
- sense of equity/fairness in the exchange
- idea of expectations/disconfirmation
sense of equity and fairness
- people evaluate a transaction according to rewards/costs, which corresponds to the +/- things derived from the exchange
- economic model: subtract cost from rewards and compare to both expectations and alternatives
- fairness = comparison; we look @ outputs vs inputs and we want them to be at a comparable level to some other standard of comparison (ex. seeing ppl get free dessert next to you, your satisfaction decr even though you were fine before)
disconfirmation
- satisfaction or dissatisfaction occurs when there’s either +/- discrepancy between expectations and the product’s actual performance
- keep in mind that expectations are very malleable
- therefore, manage expectations reasonably to attract customers, but also allowing for moderate overdelivery
Satisfaction = f(perceived perf - expectations)
value proposition
delineates offering’s value that target customers will receive
positioning
identifies primary benefits of offering that’ll serve as main reasons for customers to choose it
customer value
- customer’s subjective (and idiosyncratic) assessment of how offering will fit their needs
- fxn of fit b/w attributes and customer needs, and how customer interacts with the offering
domains of customer value
- not mutually exclusive*
- functional = directly related to offering performance
- psychological= seeking emotional/self-expressive benefits
- monetary= costs but also benefits from discounts; important in commoditized categories
value fxn
how customers evaluate performance of offering on different attribute; how they combine to form overall assessment
- identifying this can help co prioritize aspects of the offering that should be improved to create more customer value
- attributes, relative importance of attributes, offering’s performance on attributes
customer value as a function of offering attributes
how attributes can translate to subjective benefits and costs for target customers
