new economy- value- retention

7/31/2019 New Economy- Value- Retention

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MARKETING MANAGEMENT

Adapting marketing for thenew economy and CreatingCustomer Value,Satisfaction, and Loyalty

Kotler Keller


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Major drivers of the new economy

Digitization and connectivity Disintermediation and re-intermediation

Online middlemen

Customization and customerization Individually differentiated products vs.

personalized products and channels

Industry convergence Blurring of boundaries

Disney, Kodak etc


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Old Economy vs. New

Old Economy New economyOrganize by product units Organize by mkt. segments

Focus on profitable transactions Focus on customer lifetime value

Focus on shareholders Focus on stakeholders

Marketing does the marketing Everyone does the marketing

Build brands through advertising Build brands through performance

Focus on customer acquisition Focus on customer retention

No customer satisfaction measured Measure customer satisfaction andretention rate

Over-promise, under-deliver Under-promise, Over-deliverLook at the financial scorecard Look also at the marketing scorecard


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E-commerce

E-commerce vs. e-business Online transactions

Four major internet domains

B2C:

B2B:web procurement

Which is greater? Forrester and Gartner

C2C: information creation

Chat-rooms, blogs, IM,WOM vs. WOW

C2B:

Email su estions and com laints


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E-commerce

business-to-employee (B2E) business-to-government (B2G)

government-to-business (G2B)

government-to-government (G2G)

government-to-citizen (G2C)


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Pure click vs. brick and click

Pure click: Search engines: users point-of-entry

ISPs: internet connection for a fee

Commerce sites: sell goods and services

Transactions sites: auctions and brokerage

Content sites:NY Times, Dawn, Wikipedia

Enabler sites: provides s/w and h/w that enablesweb communication and commerce


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Pure click vs. brick and clickcont

Brick and click: Compaq, Merrill Lynch, Barnes and

Nobles etc

How to conduct online stores without cannibalizingtheir own stores, resellers or agents

Who will be more successful? Pure click or brick andclick?


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Pure click vs. brick and clickcont

Brick and click: Why? Better known brands

Customer acquisition cost is lower More access to resources e.g. financial funds

Deeper industrial knowledge and experience

More options as online and physical store offerings


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Organizational Charts


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Customer value and satisfaction

Customer perceived value Difference between the prospective

customers evaluation of all benefits and all

the costs of an offering and the perceivedalternatives.

Total customer value

Perceived monetary value of the bundles ofeconomic, functional and psychologicalbenefits customers expect from a givenmarket offering.


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Determinants of Customer-DeliveredValue

Customer-delivered

value

Totalcustomer

value

Total

customercost

Productvalue

Monetarycost

Personalvalue

Energycost


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Customer value and satisfaction

The real price of anything is the toil andtrouble of acquiring it

Satisfaction:

Feeling of pleasure or displeasure resulting

from comparing a products performancewith the expectations.


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Loyalty

A deeply held commitment to re-buyor re-patronize a preferred product

or service in the future despite situationalinfluences and marketing efforts having

the potential to cause switching behavior.


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Measuring Satisfaction

Periodic Surveys

Customer Loss Rate

Mystery Shoppers

Monitor competitiveperformance


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Countrywidereceived the

#1 customersatisfactionrating from

J.D. PowerandAssociates


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Product and Service Quality

Quality is the totality of features andcharacteristics of a product or

service that bear on itsability to satisfy

stated or implied needs.


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Customer Life Time Value

The present value of the stream of futureprofits expected over the customers

lifetime purchases.


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Estimating Lifetime Value

Annual customer revenue: $5,000 Average number of loyal years: 2

Company profit margin: 10%

Customer lifetime value: $1,000


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Successful Relationships

CustomerValue

CustomerSatisfaction

CustomerRetention

C.V = benefit/costs

Performance vs.

Expectations

Loyal customers


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Types of Customers(Satisfaction vs. Behavior)

Loyalists: will keep purchasing

Apostles: experience> expectation, +ve WOM Defectors: neutral, may switch

Terrorists: -ve exp and WOM Hostages: unhappy but stick around due to monopoly or

low price

Mercenaries : satisfied but not loyal, impulsive, bargainbuyers


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Customer Profitability-FocusedMarketing

Heavy users, not price sensitive, try new products

Heavy users but price sensitive

Spending volume implies no special treatment

Cost the company and generate ve WOM


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Framework for CRM

Identify prospects and customers

Differentiate customers by needsand value to company

Interact to improve knowledge

Customize for each customer


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CRM Strategies

Reduce the rate of defection

Terminate low-profitcustomers

Focus more effort on

high-profit customers


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Mass vs. One-to-One Marketing

Mass Average customer

Customer anonymity

Standard product Mass production

Mass distribution

Mass advertising One-way message

Economies of scale

One-to-One Individual customer

Customer profile

Customized marketoffering

Customizedproduction

Economies of scope


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Customer Retention

Acquisition of customers can cost 5 timesmore than retaining current customers.

The average company loses 10% of its

customers each year. A 5% reduction to the customer defection

rate can increase profits by 25% to 85%.

The customer profit rate increases over thelife of a retained customer.

Th C t D l t


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The Customer-DevelopmentProcess

Prospects

Suspects

Disqualified

First-timecustomers

Repeatcustomers Clients Members

PartnersEx-customers

L l f i t t i C t


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Levels of investment in CustomerRelationship Building

Partnership: workcontin. with large

customers

Proactive: regular contact withcustomer about product offerings

Accountable: post-sale service and

suggestions

Reactive: sells and encourages feedback

Basic: salesperson simply sells


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Reducing Customer Defection

Define and measure retention rate.

Distinguish causes of customer attrition.

Estimate profit loss associated with loss ofcustomers.

Assess cost to reduce defection rate.

Gather customer feedback.


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Cost of Lost Customer

A company has 64k accounts

It lost 5% of its accounts this year due topoor service. Loss is 3,200 accts (.05* 64k)

Avg. lost acct means a $40k loss inrevenue. Total loss in revenue is $128million (3,200*40k)

If profit margin of company is 10% the totalloss for 2009 is (.10*$128 m)=$12.8 million.


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Total Quality Management

TQM is an organization-wideapproach to continuouslyimproving the quality of

all the organizations processes,

products, and services.

new economy- value- retention

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