gaining competitive advantage through engagement strategy · •the drive for customer-centricity...

www.drvkumar.com© Dr. V Kumar

Gaining Competitive Advantage through

Engagement StrategyISB Customer Behavior & Branding PGPpro

V. Kumar, PhDRegents’ Professor,

Richard and Susan Lenny Distinguished Chair & Professor of Marketing, Executive Director, Center for Excellence in Brand & Customer Management,

and Director of the Ph.D. Program in MarketingJ. Mack Robinson College of Business, Georgia State University, Atlanta GA

andChang Jiang Scholar, HUST, Wuhan China.

Fellow, Hagler Institute for Advanced Study, TAMU, College Station, TX Senior Fellow, Indian School of Business, India

Putting it all togetherDay 2 – Session 10

April 22, 2018 DelhiApril 29, 2018 Hyderabad

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POPULAR PRESS PERSPECTIVE ON

ENGAGEMENT

Engagement is the continuous development of an emotional relationshiphttp://www.staffsquared.com/blog/2012/06/15/effective-engagement-lead-great-business-success-performance-2/

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Engagement was the 8th top buzz word in 2014 in businesshttp://mashable.com/2014/07/22/stop-using-jargon/#BmoqGIiai8qP

Engagement is both a strategy and an investment in employeeshttp://dalecarnegiewayohio.com/2013/10/18/is-the-business-buzzword-engagement/

Engagement is a function of listening to the customer’s voice- http://mashable.com/2013/05/01/engagement-buzzword/#VvubX.tCoOq6

“Engagement is the desire to think about and interact with an organization beyond what is necessary - purchasing multiple products, sharing feedback on social media sites, and acting as a reference” – Bruce Temkin, CEO Temkin Group

Engagement Concept Customer Engagement Employee Engagement Measuring CE & EE Implementation Actions

http://www.staffsquared.com/blog/2012/06/15/effective-engagement-lead-great-business-success-performance-2/

http://mashable.com/2014/07/22/stop-using-jargon/#BmoqGIiai8qP

http://dalecarnegiewayohio.com/2013/10/18/is-the-business-buzzword-engagement/

http://mashable.com/2013/05/01/engagement-buzzword/#VvubX.tCoOq6


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Based on various perspectives of

Engagement, the main components seem to

focus on…

Customers and Employees



WHAT IS CUSTOMER ENGAGEMENT?


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Total value provided by customers to the firm through their behavior and interactions

Source: Kumar, V. (2013), “Profitable Customer Engagement,” Sage Publications.

CUSTOMER

ENGAGEMENT


FORCES BEHIND EVOLUTION OF CUSTOMER

MANAGEMENT

TransactionRecency,

Frequency,

Monetary

Value

Relationship

Engagement

Satisfaction & Emotion

Trust & Commitment

5



MARKET PLACE EVIDENCE FOR

ENGAGING CUSTOMERS

Consumer Electronics

Fully-engaged shoppers make 44% more visits

per year and spend $84 more than actively

disengaged shoppers

Fully engaged customers make 56% more visits per month

than actively disengaged Casual

Restaurants

Fast Food

Fully engaged customers make 28% more visits per month

than actively disengaged customers

Fully engaged hotel guests spend 46% more per year than actively

disengaged guests

Hospitality Sector

Insurance Sector

Fully engaged policy owners purchase 22%

more types of insurance products

than actively disengaged

Fully engaged customers bring 37% more annual revenue to their primary bank

than actively disengaged Retail Banking

Industry

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7

FIRMS WANT MORE… ENGAGING

CUSTOMERS IS NOT ENOUGH, SO WHO

ELSE SHOULD THEY ENGAGE?



OF COURSE, EMPLOYEES!

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EMPLOYEE

ENGAGEMENT

“A multidimensional construct which comprises of all the different facets of employees attitudes and behaviors towards the organization”

Source: Kumar, V., and Anita Pansari (2015), “Measuring the Benefits of Employee Engagement,” MIT Sloan Management Review, 56(4), 67-72.

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WHAT IS EMPLOYEE ENGAGEMENT?



MARKET PLACE EVIDENCE FOR ENGAGING

EMPLOYEES

10



COMPONENTS OF EMPLOYEE

ENGAGEMENT (EE)

1

1

Employee Satisfaction

Employee Identification

Employee Commitment

Employee Loyalty

Employee Performance



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ONCE CUSTOMER AND EMPLOYEE

ENGAGEMENT HAVE BEEN MEASURED,

HOW DO THEY WORK TOGETHER?



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LINKING ENGAGEMENT TO FIRM PERFORMANCE

Source: Kumar, V., and Anita Pansari (2016), “Competitive Advantage through Engagement,” Journal of Marketing Research, 53(4), 497-514.

FIRM

PERFORMANCE

EMPLOYEE

ENGAGEMENT

CUSTOMER

ENGAGEMENT

EMPLOYEE

EMPOWERMENTService vs.

Manufacturing

Control Variables


B2B vs. B2C


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ENGAGEMENT AND FIRM PROFITABILITY

MODERATELY ENGAGED (60-79)

SOMEWHAT ENGAGED (40-59)

DISENGAGED (20-39)

EMPLOYEE

ENGAGEMENT

CUSTOMER

ENGAGEMENT

DISENGAGED (16-31)

SOMEWHAT ENGAGED (32-47)

MODERATELY ENGAGED (48-63)

SUPER ENGAGED (80-100) SUPER ENGAGED (64-80)



IMPLEMENTING ENGAGEMENT STRATEGY

Obtained contact information for 2,000 randomly selected large public firms listed in the U.S. stock exchange from a trading firm

Measured the level of Engagement with 120 companies at two time periods over a 2-year period (August 2013 and August 2014)

The 120 firms were grouped as:• 62 B2B firms and 58 B2C firms • 52 manufacturing firms and 68

service firms

Large companies with 5,000+ employees and operations in

the U.S.

Employee Survey: Contacted the HR mangers within the firms (Average Response Rate of 67%)

Customer Survey: Link to survey was sent by firm to its customers (Average Response Rate of 32%)

15Engagement Concept Customer Engagement Employee Engagement Measuring CE & EE Implementation Actions


MANAGING ENGAGEMENT

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HIGH

LOW

HIGHLOW FIRM’S IDEAL

POSITION

CUSTOMER

ENGAGEMENT

EMPLOYEE

ENGAGEMEN

T



IMPLEMENTING ENGAGEMENT

What the Data Shows

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Average

Number of

Employees

Average

Years of

Work

Experience

Average

Number of

Customers

Average

Number of

Years

Transacting

with the

Company

Type of

Firm

Time

Period

Average

CE

Average

EE

Average

Employee

Empower

ment

Average

Revenues

Average

Profit

1,122 8.1 596 6.1B2B

Product

T1 36 32 6.4

+8.2% +23.8%T2 48 44 9.1

1,304 7.7 722 7.2B2B

Service

T1 50 60 7.2

-5.2% -8.1%T2 43 52 7.1

1,286 4.9 1,816 5.4B2C

Product

T1 55 60 6.6

+3.4% +9.2%T2 62 67 6.9

1,461 5.6 1,604 3.2B2C

Service

T1 35 36 5.5

+5.6% +5.4%T2 41 40 5.7



Linking CLV to Firm Level Metrics

(Share Holder Value)

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www.drvkumar.com© Dr. V Kumar 19

In the current marketplace:

• The CEOs of many firms have put customers at the top of the list to focus for growth (NYSE CEO Report, Opinion Research Corporation, 2007)

• The drive for customer-centricity is stronger than ever before

• The CMO should be the most sought-after executive in the boardroom

In reality:

• The CMO is the most frequently fired C-level executive, with an average tenure under 24 months (Spencer Stuart Report, 2006)

• “There is a perceived lack of marketing accountability, threatening marketing’s existence…” (Rust et al. 2004)

• The CMO presence in top management teams has practically no impact on firm performance (Nath & Mahajan 2008)


Marketing Strategy Implementation

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The marketing initiatives were differentiated on the basis of the lifetime value of each customer/customer segment.

B2B Firm B2C Firm

Resource Reallocation Customer Selection

Selective Customer Acquisition Cross-Selling

Multi-Channel Behavior Multi-Channel Behavior

CLV Based Marketing Strategies (Implemented in July 2006):


Stock price movement of the B2B Firm

21

30

32

34

36

38

40

42

44

46

48

50

Oct

-05

No

v-0

5

Dec

-05

Jan

-06

Feb

-06

Mar

-06

Ap

r-06

May

-06

Jun

-06

Jul-

06

Au

g-0

6

Sep

-06

Oct

-06

No

v-0

6

Dec

-06

Jan

-07

Feb

-07

Mar

-07

Ap

r-07

Time(months)

Time after CLV Based

Time Before CLV Based Strategy Implementation

Av

g M

on

thly

Sto

ck P

rice

($)

Strategy Implementation


Stock price movement of the B2C Firm

22

16

18

20

22

24

26

28

30

Oct

-05

No

v-0

5

Dec

-05

Jan

-06

Feb

-06

Mar

-06

Ap

r-06

May

-06

Jun

-06

Jul-

06

Au

g-0

6

Sep

-06

Oct

-06

No

v-0

6

Dec

-06

Jan

-07

Feb

-07

Mar

-07

Ap

r-07

Time(months)

Av

g M

on

thly

Sto

ck P

rice

($)

Time Before CLV Based Strategy Implementation

Time After CLV Based Strategy Implementation


Can such a lift outperform market expectations?

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Comparison of B2B firm’s Stock Price movement with the S&P 500 Index

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0%

5%

10%

15%

20%

25%

30%

35%

Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07

Time (months)

% Change in B2B Firm Stock Price

% Change in S&P500

Creation of Shareholder Value

% C

han

ge

fro

m J

uly

06 L

evel


Comparison of B2C firm’s Stock Price movement with the S&P 500 Index

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0%

10%

20%

30%

40%

50%

60%

70%

Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07

Time (months)

% Change in B2C Firm Stock Price

% Change in S&P500

Creation of Shareholder Value

% C

han

ge

fro

m J

uly

06 L

evel


Stock Price Increase After Wheel of Fortune Strategy Implementation

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58%

17% 15%

Percentage increase over nine months

B2C firm Stock Price

S&P 500

Index

Average Stock Price

of Top Three Competitors

33%

17%12%

B2B firm Stock Price

S&P 500

Index

Average Stock Price

of Top Three Competitors

Percentage increase over nine months

B2C Firm B2B Firm

The increases in Market Capitalization for the B2C firm and the B2B firm during the test period (July 2006 – April 2007) were approximately 57.6% and 32.8%, respectively


What did we learn during this class?

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Conceptual Approach to Measure CEV

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• Total value provided by customers to the firms through their (a) purchase transactions with the firm, (b) ability to refer other customers to the firm, (c) power to positively influence other customers about the firm’s offerings , and (d) knowledge about the firm’s product/service offerings in providing a feedback to the firm.

Customer Engagement Value (CEV)

Customer Lifetime Value (CLV)

Net present value of future cash flows

from a customer over his/her lifetime with

the company

Customer Referral Value (CRV)

Quantifiable measure of the type, quantity,

& effectiveness of paid referrals that an individual customer provides to others

Customer Influence Value (CIV)

Monetary value of customers’ social

media influence on other acquired customers and

prospects

Customer Knowledge Value (CKV)

Value a customer adds to the firm through his/her

feedback

Firm and Competitive Actions

Customer Behavior / Attitudes / Network Metrics

Source: Kumar, V. (2013), “Profitable Customer Engagement: Concepts, Metrics & Strategies”, Sage Publications.

Customer Brand Value (CBV)


Key Takeaways

• Efficient Customer Management is about knowing your customers well to deliver superior value while maximizing profitability for the firm

• Get a deeper understanding of your customers’ loyalty – Understand the drivers of customer/distributor loyalty

– Manage ‘loyalty’ and ‘profitability’ simultaneously

• Adopt a forward looking metric such as the customer lifetime value for superior decision making and customer management strategies:

– Selling the right product to the right customer at the right time

– Allocating the optimal marketing budget across different customers/distributors based on their ‘future’ revenue potential

– Linking acquisition & retention to profitability

– Predicting churn of your customers/distributors

– Channel migration analysis

– Linking Brand Value to Customer Lifetime Value

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The Wheel of Fortune Strategies Used for Maximizing CLV

Acquiring Profitable Customers

Customer Selection

Preventing Attrition of Customers

Referral Marketing

Strategy

Linking Investments in

Branding to Customer Profitability

Pitching the Right Product,to the Right Customer, at

the Right Time

Managing Loyalty and Profitability

Simultaneously

MEASURING& MAXIMIZING CUSTOMER

LIFETIME VALUE

Linking CLV to Shareholder

Value

Product Returns

Future of Customer

Management

Cross - Buy

Source: Kumar, V., “Managing Customers for Profits”, Reprinted 2009, The Wharton School Publishing

Optimal Allocation of

ResourcesManaging

Multi-channel Shoppers

Interaction Orientation

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The Big Picture

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Initial Purchase

CustomerCharacteristics

Reinforcement

Behavior

Customer Engagement Value (CEV)

• CLV, CIV, BRV, CRV, CKV & CBV

Consequences

Higher Customer ProfitabilityStronger Social Networks

Prospects

Profiling

Strategy (CLV)

1.Choose the Right Customers2.Optimal Contact with the Customer3.Send the Right Message at the Right Time4.Manage Multichannel Shopping5.Manage High-cost Customers6.Find and Keep the Right Customers7.Manage Loyalty and Profitability Simultaneously

Strategy (CRV)8.Managing Brand Value to Maximize Customer Value9.Increase Product Knowledge10.Increase Customer Satisfaction of Potentially High Value Customer

CLVExchange CharacteristicsObserved Customer HeterogeneityFirm Initiated ContactCustomer Initiated Contact

BRV, CRV & CIVCustomer AdvocacyReferrals(Word-of-Mouth and Observational Learning)

CKV


Path to Increased Profitability- A Differentiated & Sustainable Strategy

CREATE RADICALLY

INNOVATIVE PRODUCTS

SELL TO MORE

CUSTOMERS -Customer

Acquisition

VALUE TO THE CUSTOMER -

Create Rich Experience

HIGHER SATISFACTION

STRONGER LOYALTY

RETAIN YOUR CUSTOMERS

SELL MORE TO EXISTING CUSTOMERS-Cross-Sell, Up-

Sell

ENHANCED REVENUES

VALUE FROM THE

CUSTOMER -Higher Profits

Reinvested profits

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Path to ProfitabilityReversing the Conventional Wisdom

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CLV

Cross-Sell

Up-Sell

Enhanced Revenues

LoyaltyManagement

Differential Experience & Satisfaction

Retention of Profitable Customers

Seek Inputs for Product Innovation

Acquisition of Profitable Customers


.....need to end up together in an eternal blissful marriage so that the managers can live happily ever after

CEV

Loyalty & Profitability

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THANK YOU!

Customer marketing strategy without using a forward looking metric like CLV is like driving a car by looking in the rear view mirror.

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