Intro-to-marketing-course-n.../Week2.md
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Introduction to marketing: Part 2 François Pelletier pdf_document

Wharton School - Introduction to marketing

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
  3. 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

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

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