Chapter 2 Flashcards
(52 cards)
What is the Customer Lifetime Value? (CLV)
Marketing metric that quantifies how much a customer is worth to the firm: net present value of the stream of future profits expected over the customer’s lifetime purchases
Example MoreTV, a streaming subscription service, spends an average of $6 to acquire each new customer.
The annual subscription fee is $75 per customer and it costs $15 per year to service the customer. A
typical customer’s re-subscription rate dwindles by about 15% each year. Assuming a 10% discount
rate, what is the lifetime value of a typical customer for MoreTV?
Solution:
CLV = ($60*.85 / (1+.1–.85)) – $6 = $198
where
$60 = m ($75 - $15)
0.85 = r (100% - 15%)
0.1 = I (10% discount rate (given)
How to calculate customer lifetime value?
Infinite time horizon:
CLV = m((r/(1+I-r)-AC
m = margin
r = retention rate
I = discount rate
AC = acquisition costs
if m is not given
m = revenue x profit contribution % or revenue - costs to serve the customer
What is the buyer goal hierarchy?
Framework that articulates three customer goals assigned to products and services :
emotional, functional, economic goals
Allows firms to make more informed commercialization decisions
What are emotional goal?
Include self-image, feelings, emotions, affiliations the company relates to the product.
They change slowly, are complex, and are pursued consciously but also subconsciously
What are functional goals?
Tangible, identifiable and specific characteristics of the product.
e.g. Uber vehicles are clean
What are economic goals?
Center on the assessment of a fair exchange of benefits for the product’s price or one product’s lower price over another.
e.g. Lower price: Uber is generally cheaper than a taxi
Fair exchange: Lululemon yoga pants are expensive but their quality and how I look makes them worth it
What is marketing myopia?
A nearsighted focus on selling products and services, rather than seeing the “big picture” of what consumers really want
Lack of insight into what a business is doing for its consumers.
Where did the term marketing myopia originate?
Harvard Business School, Theodore Levitt
Companies too worried about production of goods and services without understanding what companies want or need.
How to solve marketing myopia?
Understand what the consumer really wants and needs
Successful companies focus on consumer needs, not their own products and services, which could be replaced by competitive alternatives
What is a marketing strategy?
A firm’s target market, marketing mix and method of obtaining a sustainable competitive advantage
What is a sustainable competitive advantage?
Something the firm can persistently do better than its competitors, and that cannot be easily replicated
What are four macro strategies that focus on aspects of the marketing mix?
Customer excellence locational excellence, operational excellence, product excellence
What is customer excellence?
Involves a focus on retaining loyal customers and excellent customer service
How to retain loyal customers?
- View customers with a lifetime value perspective rather than transaction-by-transaction basis
- Loyalty programs to create emotional attachment and strengthen Customer Relationship Management (CRM) program
How to provide excellent customer service?
- Apps, e.g. Disney MyMagic app
- Excellent communication and trained staff
What is operational excellence?
Involves a firm’s focus on efficient operations, excellent supply chain management
How? Develop sophisticated distribution and information systems, strong relationships with vendors
e.g. Amazon Prime
What is product excellence?
Involves a focus on achieving high-quality products; effective branding and positioning is key
e.g consistent brand image, constantly reinforcing it through merch, service, promotion
e.g. McDonald’s logo and slogan
What is locational excellence?
Method of achieving excellence by having a strong physical location and/or Internet presence.
How? Allows customers to access the product more easier
e.g. Starbucks, high density of stores makes it difficult for a competitor to enter the market and find good locations
Why would firms need to have multiple sources of advantage?
A single strategy is not sufficient to build a sustainable competitive advantage. Multiple approaches allow firms to build a “wall” around their position.
e.g. Southwest as an efficient low-cost carrier in the US
What is a marketing plan?
A written document composed of 5 things:
1. an analysis of current marketing situation
2. opportunities and threats for the firm
3. marketing objectives + strategy specified in terms of 4 Ps
4. action programs
5. projected/pro forma income (and other financial) statements
Three major phases of marketing plan?
Planning, implementation control phase
What is the planning phase?
Part of strategic marketing process where marketing executives with other top managers
1) define the mission/vision of the business
2) evaluate the situation by assessing how various players inside and outside of the org, affect the firm’s potential for success
What is the implementation phase?
Part of the strategic marketing process where marketing MANAGERS
1) identify and evaluate opportunities by segmentation, targeting + positioning
2) implement marketing mix (4 Ps)
