Lecture 2 - Customer Behavior

Question 1

customer acquisition

Answer 1

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

Question 2

drivers of firm value

Answer 2

1. drivers of customer value = customer acquisition, retention, and expansion (cross-selling/selling more things)
2. customer profitability
3. profits & CF
4. Firm value

Question 3

customer acquisition

Answer 3

• the “Best” type of customers

- justify acquisition costs using CLV analysis

Question 4

customer expansion

Answer 4

• increase margin

- data mining for cross-selling (once you understand pain points and what people want, you can satisfy needs)

Question 5

customer retention

Answer 5

• *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

Question 6

CLV insights on retention

Answer 6

-increases in retention have bigger return than similar % increases in margin or decreases in discount rate

Question 7

80/20 rule

Answer 7

best customers account for most revenue

- not all customers fit value proposition

Question 8

customer heterogeneity

Answer 8

impactful

CLV can help determine how to make customer base more valuable

Question 9

customer equity

Answer 9

value of customers to the firm

= direct value, information value, relationship value, and communication value

Question 10

direct value

Answer 10

profits, $, part of CLV formula

Question 11

relationship value

Answer 11

part of CLV formula; how long you can keep customer

*retention

Question 12

information value

Answer 12

value of information your customers provide; retailers can monetize having point of sale info
Ex. FB

Question 13

communication value

Answer 13

word of mouth and brand ambassadors

Question 14

decision making process

Answer 14

1. need recognition: become aware of need/problem; whether organic or thru marketing
2. information search: produces consideration set
3. evaluation of alternatives
4. purchase decision
5. post-purchase behavior: satisfaction, repurchase, loyalty, disatisfaction

Question 15

customer journey and loyalty loop

Answer 15

circular form captures postpurchase behavior!

1. customer considers initial set of brands based on brand perceptions and exposure
2. consumers add/subtract brands as they evaluate
3. customer makes selection
4. after purchasing, customer builds expectations based on experience to inform the next decision journey

Question 16

evaluation of alternatives

Answer 16

influenced by motivation, effort req’d, perceived cost, risk and personal relevance

Question 17

high effort evaluation of alternatives

Answer 17

making a multi-attribute model (rating attributes and multiplying by importance)

Attitude towards brand = sum of (belief of strength of attribute * importance of attribute)

Question 18

for companies to be competitive

Answer 18

at least know the most important attribute to customers and be competitive on that front

Question 19

importance of attribute to customers

Answer 19

can be changed! look @Visa’s success by proclaiming advantages of card acceptance (they changed consumer’s importance priorities)

Question 20

low effort evaluation of alternatives

Answer 20

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 better

Question 21

understanding context of decision making

Answer 21

low effort or high effort??

Question 22

post-purchase processes

Answer 22

• 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

Question 23

sense of equity and fairness

Answer 23

• 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)

Question 24

disconfirmation

Answer 24

• 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)

Question 25

value proposition

Answer 25

delineates offering’s value that target customers will receive

Question 26

positioning

Answer 26

identifies primary benefits of offering that’ll serve as main reasons for customers to choose it

Question 27

customer value

Answer 27

• 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

Question 28

domains of customer value

Answer 28

• 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

Question 29

value fxn

Answer 29

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

Question 30

customer value as a function of offering attributes

Answer 30

how attributes can translate to subjective benefits and costs for target customers