Marketing Strategies to Consumers Flashcards
Evaluation of: Consumer Loyalty Consumer Profitability Formulas and their meaning
Value Proposition
A set of benefits that satisfy customers’ needs.
It is made physical by an actual offering which is usually a combination of:
- Products
- Services
- Experiences
- Information
Brand
An offering coming from a known source that customers are familiar with (such as a particular firm, NPO or person)
- Certainty
- Comfort
- Expectations
5 Dimensions of Brand Personality
- Sincerity – down to earth, honest, wholesome, cheerful (Tropicana)
- Excitement – daring, spirited, imaginative, up to date (Pepsi)
- Competence – reliable, intelligent, successful, have expertise (IBM)
- Sophistication – upper-class, elegant, charming, refined (L’Oréal)
- Ruggedness – tough, outdoorsy (Wrangler)
Value Perceptions
Value - The sum of tangible and intangible benefits and costs
Value Perceptions - increase with quality and service but decrease with price.
Marketing in this sense, is a form of customer value managment
Customer Perceived Value (CPV)
The difference between customers evaluation of all the benefits and all the costs of a specific offering.
- Total Customer Benefit – The perceived monetary value of the bundle of economic functional and psychological benefits customers expect from a given market offering (due to product, service, people and image)
- Total Customer Cost – The perceived bundle of costs customers expects to incur in evaluating, obtaining, using and exposing the given market offering (including monetary, time, energy and psychological cost)
What Can marketers do to improve CPV?
- Increase their Total customer benefit
- Reduce the buyer’s opportunity costs
- Can reduce the products monetary cost by reducing the price of the product
See: Customer Value Triad
Customer Expectations
The perceived value a customer seeks before purchasing a product
Customer Satisfaction
- Reflects a customer’s judgment of a product’s perceived performance in relationship to its expectations
- The extent to which products meet or surpass customer expectations
Therefore, Marketers must manage customer expectations too…
Advantages of Satisfied Customers:
- More loyal
- Spend more on brand
- Talks favorably to others about company (Word of Mouth)
- Pays less attention to competing brands
- Less sensitive to changes in price
- May offer insights and inputs about products
- Costs less to serve existing customers than recruiting new ones
Customer Loyalty
A customer’s commitment or attachment to a brand, store, manufacturer, service provider or other entity.
Measured by P (Brand repurchase) – 5 levels
- Indifference - Low loyalty and no preference for brand over competitors
- Divided - Loyal to a small group of brands
- Switch- Loyal to a couple of brands but switch once in a while
- Occasional - Loyal but once in a while switches brand
- Undivided -Buyer never switches to another brand whatsoever
Customer Satisfaction to Customer Loyalty Relationship
Highly satisfied customers tend to be more Loyal to the company
Effects at different levels of satisfaction (1-5)
-
At Level 1
- Leave
- Bad word of mouth
- Sales loss
- Of existing customers
- Of potential customers
-
At Level 2-4
- Fairly satisfied
- Low confidence/trust of value received
- Easily switch to competitors
- Loyalty depends on Competitors actions
- Such as product availability
- Such as special offers, salesperson efforts
-
At Level 5
- Lower sensitivity to competitor’s price
- Less likely to meet competitor’s salespeople
- Repurchase products and upgrades
- Good word of mouth – refer new customers to company
- Lower revenue fluctuation
Marketing Management
The art and science of:
Choosing target markets, getting, keeping and growing customers through creating, delivering and communicating superior customer value.
Marketing Management Tasks
- Developing marketing strategies and plans
- Capturing Marketing Insights
- Connecting with customers
- Building strong brands: Existing brand (understand strengths and weaknesses) Vs. New brand (Unknown potential)
- Shaping Market Offerings
- Product decisions
- Pricing policy
- Delivering Value
- Communicating Value
- Creating successful long-term growth
The Value of Customers to the Firm
Attract new customers & Retain existing customers?
Some customers are Unprofitable whilst others are More Valuable.
“If they cannot be converted, get rid of the worst customers. Attract new customers whilst retaining profitable customers. “
Unprofitable Consumer Characteristics
- Buys only when product is discounted
- Purchase small quantities
- Demands compensation for service failure
- Requires frequent maintenance/tech
- Often switches competitors
Profitable Consumer Characteristics
- Pays Full Price
- Loyal
- Purchases Large Quantities
- Recommends the brand/store to others
- No service calls, no product returns
The Effect of Size of Customer Base
- Large corporations* – Will pay lower prices and service costs but buy many units which results in high transaction costs.
- Individual Users* – Will pay full price and _require many service_s. Low to no transaction costs.
- Those in-between* – most profitable.
Evaluating customer profitability
- Focus on the stream of revenue and cost over time, not on the profit from a particular transaction.
- Emphasize the lifetime stream of revenues and costs
- Marketers can assess profitability at different levels
- By channel
- By Market segment
- Individually
- Many companies measure customer satisfaction
- Few measure individual customer profitability
Customer Profitibility Analysis (CPA)
Customer Lifetime Value (CLV)
A prediction of the net profit attributed to the entire future relationship with a customer (or group of customers)
or
The discounted sum of all future customer revenue streams (Revenue) minus product, servicing and remarketing (Costs)
Framework:
- Calculates dollar value per relationship
- Based on stream of profits from multiple transactions
- Calculating values of past customers
- Using this information to project forward
Applications:
- How much to spend to acquire a customer
- How aggressively to spend to retain a customer?
- Product mix/development decisions
- To Value a company
(CLV) Discount Rate
The time value of money
$1000 received today is NOT equivalent to $1000 received 24 months from now
Net Present Value (NPV)
Today’s value of the expected cash flows
MINUS
Today’s value of invested cash
(CLV) Rentention or Loyalty Rate
(1 minus Attrition (Lost) Rate)
- Fraction of current customers retained each period from t –> t+1
- The marketing manager considers Saving costs by cutting retention spending VS Increasing costs whereas customer attrition rate is expected to go down
Customer Acquisition Cost (CAC) Management
How much should the marketer spend on recruiting a new customer?
Offensive vs Defensive
Offensive Marketing
- Focus on customer acquisition
- Aggressive sales (CAC)
- Newcomers pour new revenue money
- Fill the leaky bucket
Defensive Marketing
- Customer retention
- Customer relationship management
- Reduce customer churn
- Fix the Leaky Bucket
The difference between a marketer and seller
Holistic Marketing (HMO)
The philosophy which considers business and all its parts as one single entity and gives a shared purpose to every activity and person related to that business
Four Components:
- Relationship Marketing
- Integrated Marketing
- Internal Marketing
- Performance Marketing
(HMO) Relationship Marketing
Focus on the relationships with:
- Customers (Consumers & Businesses)
- Employees (From Customer service representative to assembly line workers)
- Members of the financial community (Shareholders Investors & Analysts)
- Partners (Channels, Supplier,Distributors, Dealers & Agencies)
(HMO) Intergrated Marketing
Two Key Principles:
- Marketing activities can create value
- Any activity should be designed with all others in minds
Example: When a hospital expects to buy a machine from GE, it expects a professional installation, high quality maintenance, training services to hospital employees, top quality on demand customer service, all this must be integrated into the offering
(HMO) Internal Marketing
Everyone in the company adopts marketing principles
- Synergy of Departments (Development, Manufacturing, Logicstics, Financial…) required to achieve customer goals
- Requires horizontal alignment with other departments and vertical alignment with senior management
- Marketing is equally important within and outside the company
(HMO) Performance Marketing
Quantifying returns (cash flow) for business for marketing activities
The range of possible outcomes is influcenced by:
-
Micro Environment
- Customers
- Competitors
- Suppliers
- Intermediaries
-
Macro Environment (PEST)
- Political Legal
- Economic
- Social Cultural
- Technological
-
Assessing Returns
- Financial and nonfinancial returns to both business and society
-
Marketers monitor
- Market share, customer satisfaction
- Customer retention/loss rate
- Product quality
-
Financial accountability:
- Justifying marketing investments in terms of:
- Financial return/profitability
- Building the brand
- Growing customer base
- Measures direct/indirect value their efforts create
- Intangible assets contributing to market value such as:
- Brands, customer base
- Distributor and supplier relations
- Employees, intellectual property
- Justifying marketing investments in terms of:
-
Social Responsibility marketing:
- Satisfying customers more effectively that competitors
- While preserving society’s long-term well-being
- E.g. Panasonic offers recycling programs with their products
-
Commoditization
- The process by which distinguishable goods become simple commodities
- Services/materials are available easily
- Commodity – undifferentiated products
- Becomes harder for specific products to stand out
-
Consumer Social Consciousness
- care about impact on society and environment
- Soc. Responsibility: means for differentiation
- build preference for their offerings
- increase sales and profits
- e.g. Ben & Jerrys had a triple bottom line for their company:
- Economic Mission
- Product Mission
- Social Mission
Traditional Organization Hierarchy
Customers at the bottom
Customer Centric Companies
Customers (and thier loyalty) are the key to profit!
Example: Amazon,Inc
Customers are key to their DNA:
- Jeff Bezos Management Techniques
- Symbols (empty chair in the offices showing customers importance)
- Call centers – Every manager attends two days of call center training to ensure everybody understands importance of customers
- Hiring Process – Importance of Customer experience, raising bars
- New Product Development – develops new products based on customers desires rather than own workers opinions. This is a backwards development process.
- Culture of Metrics – Amazon routinely tests companies reactions to different product qualities.
Measurement Techniques
- Periodic Surveys to own customers (Satisfaction & willingness to reccomend to others
- Timeline (Survey through customer lifespan)
- Monitoring Competitors (Loss rate, Hiring mystery shoppers & call to competitor service centers)
-
Counting Complaints (Fewer complaints should equal higher customer satisfaction.
- Problem: Many who are dissatisfied will not complain (don’t know how, not worth the effort, etc.)
- Those who do register complaints (60% will keep doing business if their complaint is resolved, 95% if it is resolved fast)
- Buyers who have complaints that are well solved are likely to share their postitive experience with 5 people & Buyers who have complaints that are not resolved are likely to share their negative experience with 11 people.
Consumer Behavior
The study of how individuals, groups and organizations select, buy, use and dispose of goods, services, ideas or experiences to satisfy their needs and wants.
Factors of Consumer Behavior
- Cultural Factors
- Specific identification and belongingness for members
- Nationalities, religions, geographic regions & ethnical-racial groups
- Consumers who share similar values, interests and traits
- Social Factors
- Family, friends and co-workers
- Statuses in society; Social class
- Personal Factors
- Personality, Self-Concept
- Lifestyle, Values and Habits
- Age, Sex, Life Cycle stages, Occupation
