Week 4: Chapter 2 Flashcards
what are examples of things customers would value
- price
- customer service
- quality/durability
- if its what you need
- purchase process (online vs. in person)
- brand
what are the different eras of marketing
- production-oriented era
- sales-oriented era
- market-oriented era
- value-based era
what is production-oriented era & when was it
- from the beginning until 1920
- when most firms believed a good product would sell itself
what is sales-oriented era & when was it
- from 1920-1950
- firms found an answer to overproduction by focusing on sales
what is market-oriented era & when was it
- from 1950-1990
- the focus was on what customers wanted
what is value-based era & when was it
- 1990-now
- maintains the market orientation but also includes a focus on giving greater value than the competition
what is the concept of customer value
- value means different things to different people
- value can be measured by what a customer exchanges for various options that can satisfy a want or a need
- for most customers, value is a function of the benefit relative to the price paid
what is the formula for value
value = benefits - price
what are the different types of prices in value
- monetary
- perceived risk
- inconvenience
what is an example of a product that has unlimited value
life saving drug
what is a functional benefit
when the product does the job its supposed to
what are the different types of benefits in value
- functional
- psychological
- economic
what is a psychological benefit
ex. the social status a good provides
what is monetary price
like the actual dollar amount
what is an economic benefit
ex. getting branded products at lower prices
what is perceived risk price
ex. when you pay for something that isn’t worth the price (based on your standards)
what is inconvenience price
- additional fees
- costly upkeep of products/services
- additional costs/burdens embedded in the price
what are the different types of perceived risk
- performance risk
- financial risk
- social risk
- physiological risk
- psychological risk
what is financial risk
- the value of the good is based on the price
- the risk that purchasing the good was not a good use of money
what is performance risk
when a product is not doing what its supposed to
what is social risk
- how it will affect your social standing
- ex. purchasing a controversial product
what is physiological risk
questioning if it is safe
what is the customer value driven by
- customer needs and availability of of options
- functional & economic needs and perceived and psychological needs
what possible general behaviours exists after a customer perceives a need
- ignore the need
- postpone it
- engage in a purchase process to identify options to satisfy it
what are the options to satisfy the need
- search for options
- evaluate options
- choose option
- purchase option
- use option
what is subject and importance of need
- the primary bases for a person’s perception of the need
- needs higher up in maslows hierarchy of needs are more crucial than those farther down
- you move up the levels as each need is met
- helps the company determine who (which level) to target
what are maslows hierarcy of needs
- physiological needs (hunger, thirst)
- safety needs (security, protection)
- social needs (sense of belonging, love)
- esteem needs (self-esteem, recognition, status)
- self-actualization needs (self-development and realization)
what is objective measurement
- should do measures
- measures attempt to estimate the objective/true customer value of a product or service offering
what are the three types of objective customer value measures
- internal engineering assessments
- indirect survey questions
- field value in use assessments
what is internal engineering assessment
- estimates of customer value by relying on evaluations by the selling firm’s own managers and engineers based on laboratory tests use of the product by the firm’s own employees (alpha tests) or computer simulations
- they don’t contact customers to get the value, but they need to have a good understanding of the usage situation in the different markets and production process
what does the success of internal engineering assessment depend on
- how well a firm understands its customers’ buying behaviour and usage patterns
- depends on how they translate their understanding into economic estimates of customer value
what is a limitation of internal engineering assessment
- biased
- do they have an objective view of what customers need
what is indirect survey questions
- asking customers about the value they place on satisfying a need or resolving a problem
- salespeople may ask company personnel about the effect of one or more changes in existing offerings on certain aspects of their needs or problems
- the question focuses on the changes instead of the worth of the entire product
- can create estimates of the customer value of each change to the product offering
- need to phrase questions that get the right information but shouldn’t be too biased
- ex. if they change x, what would the value become?
what is field value in use (VIU) assessment
- customer and supplier conduct a joint value assessment
- for a suppliers current product, its the price that would make a customer indifferent (economic breakeven) between continuing to use the current product vs switching to another option
- for a new product, its the maximum amount the customer would be willing to pay for the new product, given the extra benefit it would offer
what are the different unconstrained question measures
- focus groups
- direct survey questions
- importance ratings
what is perceptual customer value
- plan to do measures
- driven by psychological considerations
- done from customer measurements that question customers about their perceptions of and preferences for various offerings and the attributes and benefits of the offerings
what are the different types of perceptual measures
- constrained measures
- unconstrained measures
what are unconstrained measures
- place few boundaries on customer value assessments
- (everything can be rated as very important)
what are constrained measures
- establish parameters for customer value assessments
- customers rank alternatives or allocate a fixed number of points across them
what are focus groups
- 5-10 customers convene for a several hour discussion with a trained moderator about their perceptions, attitudes, preferences, and usage of a (usually new) product/service
- they are asked about potential product offerings or concepts and asks them about the value or worth of various opinions
- goal is to obtain a better understanding of common/shared perceptions of a well-defined target group of customers
- can create a hypothesis from it
what are the issues with focus groups
- its prone to bias
- there can be intimidation
- your responses can be influenced by the people around you (to say similar things)
what are importance ratings
- the most popular approaches to measuring customer value
- respondents receive a set of attributes and describe a product offering and rate them according to their importance to them
- easy to develop
what are direct survey questions
a sample of customers who agree to complete a questionnaire that includes a description of one or more potential product offerings or concepts
what are the different constrained question measures
- conjoint analysis
- benchmarking
what are the limitations of importance ratings
- individuals might give high ratings to all choices
- it doesn’t show any relative value/tradeoff
- it doesn’t link to behaviour
what is benchmarking
- respondents receive descriptions of a product offering that represents the best available competitive product or service that is used as a benchmark
- customers indicate how much more they would be willing to pay for added product attributes or features to the benchmark offering
what is conjoint analysis
- most widely used approaches
- employs a field research survey to ask respondents to provide their overall ratings for each set of potential offerings
- when you go ask questions to customers in their natural environment
what are behavioural customer values
- have done measures
- using actual past consumer behaviour to estimate value
- ignores new customers which could be a good source of growth
what are the different have done measures
- choice models
- data mining
what are choice models
- using past behaviour to infer or estimate the value of product characteristics that might best explain or predict actual behaviour
- firms can observe choices and infer the value that best explains those choices
- output is an estimate of importance weights and probabilities of each market alternative for each customer
what is data mining
- many organizations keep extensive records of customer purchases
- data can be cross-matched with other data pertaining to customer characteristics (data is sold to other companies)
- organizations can analyze the information to product segments according to the customer profitability, the range of products and services acquired, etc.
what is the customer lifetime value
- the lifetime value of a customer generally = total profit a firm can expect to earn from that customer during the time the firm continues to maintain an ongoing relationship with the customer
- growing availability of CRM (customer relationship management systems) and other customer database allows marketers to track the behaviours of individual customers in far more detail than ever before
what is the formula for CLV
0 calculate margin:
margin = (revenue - cost) * d * % active
d = 1/(1+r)^n; r = discount rate, n = period (anticipated lifetime of the customer)
- then calculate cumulated of margin for each period
- the last cumulated value of the chart = CLV
what is the total lifetime value of customer made up of
- economic value
- relationship value
what is economic value
(risk adjusted) revenue flow - cost to serve
what is the economic lifetime value calculation
expected revenue cash flow - expected cost to serve cash flow = expected profit cash flow, then risk adjustment = risk adjusted cash flow
what is relationship value
- reference
- referral
- learning
- innovation
etc.
what is risk adjustment in economic lifetime value calculation
how likely customers will stay vs leave
what lowers 2 parts of the economic lifetime value calculation
- loyalty
- lowers expected cost to serve cash flow and the risk adjustment
what are the different accounts of customer relationship value
- reference accounts
- referral accounts
- learning accounts
- innovation accounts
what are reference accounts
- give us prestige, high credibility
- though leaders in the field and can provide the firm with credibility
- someone who can speak for the company (has high credibility)
what are learning accounts
- help us refine our offerings/beta testers
- accounts are willing to provide valuable feedback and suggestions prior to full market launches
what are referral accounts
- give us high quality leads
- accounts that can be strong recommendation
- can be from someone you trust
- companies want to keep lifetime customers that would give out referrals
why is clv important for companies
- helps allocate resources efficiently
- determine the lifetime customers worth spending on
- personalized experience
what are innovation accounts
- help us develop new offerings
- most university based physicians
- those that can drive innovations
what is the clv-based customer portfolio analysis
puts relationship value on the left and economic value on the bottom, going low to high from top to bottom and left to right
what is the analysis for those with high relationship value but low economic value
do a cost and benefit analysis
what is the analysis for those with high relationship value and high economic value
they are hard to find
what is the analysis for those with low relationship value and low economic value
they are customers you don’t want
what is the analysis for those with low relationship value but high economic value
they are the ones you want to nurture
what are the objectives for CLV based management
- increase customer retention (costs/benefits of customers)
- improve customer selectivity (who to serve? how to increase CLV?)
- meet competitive imperatives (drive or be driven?)
- boost cost efficiency (“A”, “B”, “C” customers? do we know true costs?)
what are the approaches to increase CLV from CRM
- reduce rate of defection
- increase longevity
- enhance share of wallet
- attempt to alter behaviour of low profit customers
- focus more effort on high profit customers
