---
title: "Introduction to marketing: Part 2"
author: "François Pelletier"
output: pdf_document
---

# Week 4: Customer centricity

## 4.1 From product-centric to customer-centric management

Three axis of marketing

    - Performance superiority: Having the best products
    - Operational excellence: Low cost and efficiency
    - Customer intimacy: Who is the customer. How intimate we want to get to add value.

What stores are customer inmtimate ?

### Product-centric approach

All about making money by maximising the value of the company
Total value of the company = time value of money -> Maximising shareholders value
Volume and cost reduction:

    - Will it scale : Can we deliver our products and services at scale ?
    - Different metrics:
        - Volume
        - Costs
        - Market share (how well you will do right in the future)

1. Fine tuning the metrics
2. Growth
    - PS and OE are now standard
    - Search new sources of growth:
        - New customer segments and geographies
        - Innovation (extending products)
    - Companies work in product/service expertise (silos).
        - Competitive advantage
4. Mental process: Divergent thinking, different uses for the same product

## 4.2 Cracks in the product centric approach

Changes in the last 15-20 years:

    - Emerging trends are here to stay
Leading factors:

    - Commoditization (technology enables product development)
        - Lifecycle is shorter
        - Always must have a new product coming
        - No more natural monopoly power
    - Smart customers
        - Technology enabled informatino flow
        - Aware of options availabl for them
        - Put mode demand of companies
        - Have to extract value from product
    - Retail saturation
        - Tech enabled delivery
        - Instant availability
    - Globalisation
    - Deregularization : Must be more competitive

More demanding customers:

    - How will the product solve my problem
    - end-to-end solutions with products form multiple vendors
    - Example: IBM
        - Customer centric solutions provider
        - Harder to commoditize
        - Left building and slling products
        
Information systems allow customer tracking

    - Before:
        Know the sales
        Don't know who buys and how many they buy
    - Now: Know who buys what and when

## 4.3 Data driven business models

Harrahs:

    - Casino chain in the US
    - Loyalty programs
    - Games / meals / rooms at a really granular data
    - Detect thresholds (when to offer a meal, ...)

Tesco:

    - Grocery chain in UK
    - Loyalty program
    - What products are boucht in Tesco vs. products bought elsewhere.
    - Know which customer can switch to competition easilyDefending against Wal-Mart

## 4.4 Three cheers from direct marketing

Individual customers = unit of analysis:

- Who they are, what they buy
- Determine marketing communication
- Segmentation / Customer lifetime value comes from direct marketing

What kind of product for the most valuable customers and how to attract them. Capacity to learn and leverage customer information: Should inspire from direct marketing books

[Being Direct Making Advertising Pay](http://www.amazon.ca/Being-Direct-Making-Advertising-Pay/dp/1558508341/ref=sr_1_fkmr0_1/187-5149283-2579953?ie=UTF8&qid=1415582982&sr=8-1-fkmr0&keywords=lester+winderman+marketing)

## 4.5 Which firms are customer centric ?

None of the big firms are really customer centric:

    - Walmart: Best at product-centric
    - Apple: Best at product superiority, begins to collect data abour customers with iStore
    - Starbucks: Customer-centric only at local level.
    - Nordstorm: Great personalized service, but not based on CLV, so does not target the best customers but all of them.

# Week 5: The Opportunities and Challenges of Customer Centricity 

## 5.1 What is customer centricity

How do you define customer centricity ?

    - Development and delivery of product and services
    - Fulfill the current and future needs of a select set of customers
    - Maximise their long-term value to the firm

You have to be willing to change:

    - Risky
    - Require data and models

Do something even if someone is not an actual customer because he/she will be one later

## 5.2 Living in a customer-centric world

- The main goal is still maximising the shareholder's value
- Distinguish the profitable customers from the less profitables ones
- Past is of some guidance for the future
- Focus of future profitability instead of short-term profitability

- Three tactics:
    1. Acquisition
    2. Retention
    3. Development

- Customer-centric organisational structure
- Customer data can't be commoditized easily
- Divergent (different uses for the same product) 
  to convergent thinking (different products for the same customer)

## 5.3 More reflections on customer-centricity

There is a balance between really valuable customers and not so valuable ones.
The latter ones add stability to the business like cash or bonds in an investment portfolio.

*Paradox of customer-centricity*
The more you focus on the most valuable customers, the most you need the other customers too.

## 5.4 Questions on customer-centricity

Who is your customer ?

Example: Healthcare: 

    - Patient
    - Doctor
    - Hospital
    - Insurance company

Procter & Gamble: Customer = Retailers

    - It could be the customers in a few years: get ready for a direct marketing approach

Barriers to customer-centricity:

    - Data
    - Regulatory issues
    - Control: Impossible to move
    - Specific challenges for each company
    - Resources available
    - Build IT, hire employees

What competitors are doing in this area:

    - Financial services
    - Hotels and hospitality
    - Be the first ones !

Does it make sense to be customer-centric ?

    - Technology initiatives
    - Experiments

You have to prepare before taking the big step.

# Week 6: How Can Customer Centricity Be Profitable? 

## 6.1 How Can Customer Centricity Be Profitable?

Focus on the right customers for strategic advantage

Product-centric approach have some cracks:

    - Commoditization
    - Well-informed customers
    - Globalization
    
Customer-centric: 

    - Promising alternative
    - Not clearly understood
    - Many firms are tauted to be customer-centric but are not really

Clear definition:

    - Celebration of customer heterogeneity
    - Customer lifetime value
    
How to manage tactics:

    - "Show me the money"
    - Can't be world-calss on 3 tactics
    - Doing one well can be really lucrative
    - A lot trickier than we think of

Where tu put the extra dollar ?
- Most managers would put it either in retention or development

### Acquisition

Metric: Cost per acquisition (CPA): Big mistake to guide customer acquisition performance

For employees, lawyers, technology: we focus on the best, not the cheapest
Why for customers we would like the cheapest to acquire ?

VPA: Value per acquisition = Customer lifetime value

    - Upper bound for spending to acquire a new customer
    - A lot of value in customers that we don't appreciate
    - Match info with what customer prove to be over time

### Customer acquisition summary

    - Avoid CPA mentality
    - Ceiling instead of floors
    - Heterogeneity with CLV (search words, geographical, social)
    - Be more patient and forward-looking when judging acquisition efforts
    - Firms tends to underspend on acquisition

## 6.2 Customer retention

Metric: Churn / Attrition / Retention rate

- Good measure, but need to examine it at the right levevl
- How the retentino rate variaes across customers

Average retention rate = bad calculation

[The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value](http://www.amazon.com/Loyalty-Effect-Hidden-Profits-Lasting/dp/1578516870/ref=sr_1_1?ie=UTF8&qid=1416192465&sr=8-1&keywords=the+loyalty+effect+reichheld)

Right calculation:
Average expected lifetime: Accounts for customer heterogeneity.

### Customer retention summary

    - There is no average customer
    - Difference can be huge between average measures and accounting for heterogeneity 
    - Attrition elasticity is much lower than in the homogeneous case
    - Investment in reducing attrition give more modest returns than expected

## 6.3 Customer development I

Make existing customers as valuable as possible
Loyalty programs themselves are not a tool for customer development

    - Cross selling
    - Up-selling
    - Increase frequency and volume
    - Premium pricing

## 6.4 Customer development II

Metric: 

    - Share of wallet: How many needs are met by this firm
    - Amount of product and services

Share of wallet is not correlated with size of wallet

Good and bad news about cross-selling

Good: Customer's share are correlated
Bad: Some customer will not become better customers

    - Upside of developmenet opportunities is more limited than managers think
    - Icing on the cake: Not to change the customer but unlock value that is already there

But: Acquisition is not valuable in saturated markets

### Overall summary

    - Celebrating heterogeneity
    - Smart acquisition
    - Don't overspend retention: 
      flighty customers will fly away no matter what you do or will become unprofitable

## 6.5 Wrap-up

Making customer centricity profitable:

    - Need to have the technology to track data and do projections
    - Update regularly the CLV
    - Break customers into segments that we cam measure:
        - When they reach us
        - What products they buy first
        - What campaign bring them to us
    - Allocate retention and development ressources appropriately: 
      target marketing communications based on a segment characteristics
    - Constantly experiment with these tactics
        - Send different messages to different people
    - Bottom up perspectives to drive product line decisions
    - Think about competition identifying the same high-value customers too
    



    