Customer Equity

Advanced Marketing / Chapter 1: Introduction

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Euromarketing // ULB

ADVANCED MARKETING

MANAGING

CUSTOMER

EQUITYCHRISTIAN BLUEMELHUBER

ULB, SOLVAY BUSINESS SCHOOL


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COURSE OUTLINE

1INTRODUCTION TO MARKETING:MAIN CONCEPTS, CHALLENGES, NEW CONCEPTS, CE FRAMEWORK

2CUSTOMER SELECTION:VALUABLE CUSTOMERS, CUSTOMER PYRAMIDE

3

BRAND EQUITY:CUSTOMER KNOWLEDGE, POSITIONING, ARCHITECTURE

4

VALUE EQUITY:PRODUCTS AND SERVICES, QUALITY, PRICE, CONVENIENCE

5 RETENTION EQUITY:LOYALTY PROGRAMS, FITD-TECHNIQUE

6 MANAGEMENT-SUMMARY


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GRADING

AWRITTEN EXAM:END OF TERM, CONTENT: COURSE

B HOMEWORK:CHOOSE A COMPANY/BRAND: PREPARE QUESTIONS, DO ACTIONS

PROVIDE ME WITH BOOKLET AT THE END OF SEMESTER

50%

50%


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ADVANCED MARKETING

INTRODUCTION!Marketing: Overview

!CLV and Customer Equity

!Drivers of Customer Equity: First Overview

1.


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„OFFICIAL DEFINITIONS“ OF MARKETING

AMERICAN MARKETING ASSOCIATION

AMA (2005)Marketing is an organizational function and a set of processes forcreating, communicating, and delivering value to customers and formanaging customer relationships in ways that benefit theorganization and its stakeholders“.

AMA (1985)Marketing is the process of planning and execution the conception,pricing, promotion, and distribution of ideas, goods, and services tocreate exchanges that satisfy individual and organizationalobjectives.


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TWO INTERPRETATIONS OF MARKETING

MARKETING AS EXCHANGE

MARKETING AS MANAGERIAL STYLE

„It is the whole business seen from the point ofview of it´s final result, that is, from thecustomer´s point of view“ DRUCKER 1954

MARKET DRIVEN

VS.

DRIVING MARKETS

Jaworski, Kohli and Sahay

„The term market driven refers to learning, understanding, and

respondong to stakeholder perceptions and behaviors within a

given market structure. In contrast, the term driving market refers

to changing the composition and/or roles of players in a market

and/or the behavior(s) of players in the market“

„The crux of marketing lies in a general idea ofexchange rather than the narrower idea of markettransactions.“ GENERIC CONCEPT OF MARKETING


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CUSTOMER ORIENTATION

„set of beliefs that puts the customer´s interest first,while not excluding those of all other stakeholders ..In order to develop a long-term profitable [viable]enterprise“ Deshpandé, Farley, and Webster 1993,JoM, p. 27


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AN AXIS OF EQUAL?

!Marketing concept ubiquitous

!Functional equivalence of products

!Marketing-literate consumers“Consumers are like roaches. We spray them withmarketing and for a time it works. Then inevitably theydevelop an immunity, a resistance.” Bond and Kirshenbaum (1998, p.92)


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An ALTERNATIVE INTERPRETATION

„The end of marketing – its overallaim and purpose – is to sell stuff toconsumers. No more, no less“(Stephen Brown)

„Marketease“

TEASE"Teasing, tantalizing the customer

"Exclusivity

"Amplify

"Sell Sham Secrets

"Excitement, Extravangance, Excess


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MARKETING MANAGEMENT

art„is the

and science

of choosing target markets and getting,keeping, and growing customersthrough creating, delivering, andcommunicating superior customervalue“ Kotler/Keller 2006, p. 6


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UNDERSTAND THE CUSTOMER...

Customer

Brand/

Product

(Peer)

GroupSituation

CEX

! CUSTOMER

EXPERIENCES

CULTURE

! MYTHS

! CULTURAL ICONS,

VALUES

linking

! SOCIETING

! „THE LINK IS MORE

IMPORTANT THAN

THE THING“


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MODÈLE DE 8 „C“

CONCEPTION

COMMUNICATION

CANALISATION

CONVICTION

Tools

CIBLE CONTENTEMENT

CONCURRENCE

COMBATITIVE

Jean-Pierre Baeyens


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PRODUCT

PLACE

PRICE

PROMOTION

PROCESSESPEOPLE

PHYSICAL

EVIDENCE

STRATEGY AND INSTRUMENTS

Strategy


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THE MARKETING MIX & THE 4/7 P´S

THE CORE OF TRADITIONAL MARKETING

(marketing instruments)

product

price

place

promotion

people

processes

physical evidence

ORIGINAL LIST EXTENDED (SERVICES MARKETING) LIST


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COMMODITIES

GOODS

SERVICES

EXPERIENCES

TRANSFOR-

MATIONS

“market”

“customer”

“guest”

“aspirant”

”buyer”

PRODUCT PYRAMIDE


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Searchqualities

Experiencequalities

Credencequalities

MOST

GOODS

MOST

SERVICES

fifficult to

evaluate

easy to

evaluate

Jew

elry

Furn

iture

Auto

mob

iles

Rest

aura

nts

Vaca

tions

Hai

rcut

Child

car

e

Lega

l ser

vice

Med

ical

dia

gnos

is

HIGH IN:

PRODUCT TYPES


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1 Search properties:

attributes that a consumer can determine before purchasing a product.

2 Experience properties :attributes can only be discerned after purchase or during consumption.

3 Credence properties:

characteristics a consumer may find impossible to evaluate, even after

purchase or during consumption.

„search qualities“

„experience qualities“

„credence qualities“

Quelle: Zeithaml, V.A. (1981): How Consumer Evaluation Processes Differ between Goods and Serices, in: Donnelly, J.H./George, W.R. (ed.):

Marketing of Services, Chicago.

INFORMATIONECONOMICAL PERSPECTIVE


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Search qualities as clue:

!price, tanbibles, people

# indicators for expected quality

!Reputation and image of the company

# earlier performances give information (to others)

Credible sources prefered:

SUBSTITUTES FORQUALITY

BEHAVIOR IN THE CONTEXT OFEXPERIENCE/CREDENCE PROPERTIES

# personal sources (friends, aquaintances, etc.) more important thanimpersonal sources (eg, ads)


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PRODUCTS: GOODS VS. SERVICES

Goods...

Services...

! Tangible product, s.th we can touch, see, smell, etc.

! Ownership

Information! Anything that can be digitized

! Ownership

! No ownership!

! Integration of an external factor

! Offer is always only a potenzial

Bundles!


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MARKETING-INSTRUMENTS: PRODUCT

A product is everything a customer receives - the basic benefits, the pysicalproduct and ist packaging, and the „extras“ that come with the product

Solomon, Marshall and Stuart, 2006, page 230

AUGMENTED P.

CORE P.

ACTUAL P.

Basic Benefits

Features

Package

Brand

Quality

Appearance

Warranty

Repair/maintanance service after sale

Customer support

Delivery

Use Instructions

Transportation

Exitement

Image enhancement

Engine Size

Color

Interior Design

Options available

Model name

Body Style

4-year guarantee

2,9% interest auto loan

Free oil changes

Example: Automobile


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MARKETING-INSTRUMENTS: PRICE

Price is the value the customer gives up or exchange to obtain a desiredproduct Solomon, Marshall and Stuart, 2006, page 325

Monetary Prices Nonmonetary Prices

"Products and services

"„Opportunity Costs“


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MARKETING-INSTRUMENTS: PROMOTION

Marketing communication to... ! INFORM consumers

! REMIND them

! PERSUADE consumers to choose a product

! BUILD and MAINTAIN RELATIONSHIPS

SOURCE MESSAGE MEDIUM RECEIVER

ENCODING DECODING

NOISE

FEEDBACK


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MARKETING-INSTRUMENTS: PROMOTION

Possibilities:

LIFE

COMMUNI-

CATION

MASS MEDIA

COMMUNI-

CATION

Promotional materials

Sales Tools

Advertising

MailsInitiatives

CongressesSymposia

Product Training

Meetings

EXPERIENCE

Monologue Communication form dialogue

Non-personal contact personal

Passive consumer integration active

Low experience high

Mid emotion high

Low linking among customers high


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MARKETING-INSTRUMENTS: PLACE

Getting products to customers

Channels of Distribution:

PRODUCER CUSTOMERDirect-Marketing

PRODUCER CUSTOMER

PRODUCER CUSTOMER

RETAILER

RETAILERWHOLESALER

Trends: MULTI-CHANNELING

BRICKS and CLICKS

EVOLUTION OF RETAILING / WHEEL OF RETAILING


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MARKETING-INSTRUMENTS: PROCESSES

The actual procedures, mechanisms, and flow of activities by which aproduct/service is delivered -- delivery and operating systems

! Standardized

! Customized

! Simple

! Complex

! High customer

integration

! Low customer

integration


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MARKETING-INSTRUMENTS: PEOPLE

All human actors that take part in product/service delivery andinfluence the buyer´s perceptions.

Employee ! Recruiting

! Training

! Motivation

! Rewards

Customer ! Education

! Training


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MARKETING-INSTRUMENTS: PHYSICAL EVIDENCE

The environement in which the service is delivered and where the firm and thecustomer interact.

StimuliEnvironmental Dim.

! Ambient

Conditions(Temp., Noise, etc.)

! Space/Function(Layout, Furniture,

Equipment, etc.)

! Signs, Symbols,

Artifacts(Signage, Decor,

Personal artifacts)

OrganismInternal Response

! Cognitive

! Emotional

! Physiological

! Employee

Response

! Customer

Response

Behavior

! Individual

Customer

Behavior

! Individual

Employee

Behavior

! Social

Interactions


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STRATEGY

„Strategy is creating fit among a company´sactivities. The success of a strategy dependson doing many things well – not just a few –and integrating among them“ MICHAEL PORTER 1996, page 75

„Strategy is consistency inbehavior, whether or not intended“

HARRY MINTZBERG 1987, page 12


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FIT THROUGH...

STANDARDS

ORGANIZATION

GOALS

STRATEGIC INTENT

CULTURE

! Obsession

! Identity

! Mission

! „rules of the game“, Incentives


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„Our Vision is: We take pride in Serving ourGuests the Best Burgers and a variety of otherGreat Tasting, Healthy Foods Cooked over anOpen Fire. That´s what we´re all about“

„The mission of Southwest Airlines is dedication to

the highest quality of customer service delivered with

a sense of warmth, friendliness, individual pride an

company spirit.“

A MISSION AND A VISION


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XEROX„We make copyingequipment“

„We help improveoffice producticity“

ENCYCLOPEDIA BRIT„We sellencyclopedias“

„We distributeinformation“

COLUMBIA PICTURES „We make movies“„We marketentertainment“

REVLON „We make cosmetics“ „We sell hope“

PRODUCT- OR MARKET-ORIENTED MISSIONS?


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TWO THEORETICAL FOUNDATIONS

market-based view resource-based view

outside-in-perspektive inside-out-perspektive!Companies differ in resources

!Development, protection, and

exploitation of resources/

competences as basis of a

competitive advantage

Structure Conduct Perform. Resources Conduct Perform.

!Attractive industry

!Advantageous/profitable

position within industry

!Assumed prompt availability of

resources


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since 1990stil 1980s

MARKETING AS INVESTMENT

Strategic Marketing Planing

STRATEGIC

PLANNING

STRATEGIC

PLANNING

FINANCIAL

ANALYST

MARKETING

RESEARCHER

MARKETING as

EXPENSE

MARKETING as

INVESTMENT

source: Baldinger 1997


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TOP MARKETING GOALS

eg.,

! turnover

! sales

! market share

refer to concretetransactions

refer to mental processeswithin consumer

economic goals psychographic goals

strategic goal!Competitive advantage

eg.,

! awareness, brand recognition

! image

!customer satisfaction

!customer retention


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COMPETITIVE ADVANTAGE

A company´s (brand´s) ability to perform in one or moreways that competitors cannot or will not match

strategic competitive advantage

leverageable competitive advantageCan be used as springboard to new advantages

(Microsoft operating system lev. From Office to

network apps)

is relevant for the customer (customer advantage)

is perceived as credible

is defendable (long-term) against competition


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MARKETING CHALLENGES

„the marketplace isn´t what it used to be“ Kotler/Keller 2005, p. 13

Changing Technology! Digital revolution: Information age

! Customization, targeted comm, info

Attention Economy! Too much information

! Awareness as critical resource!

Global Economy! Greater Competition

! Growth opportunities

Regionalization/Anti-Globalization! Culture determines cons. behavior

! Critical Consumers, eg., „Adbusters“

Hyper, hyper! Big is beautiful, winner-takes-all

! Giant retailers, top-media

Differentiation! small is beautiful

! Category brands, where is the „mid“?

Customer Empowerment! Informed, price-sensitive, convenience-oriented, demanding, etc.


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IMPORTANT SHIFTS IN MARKETING (MANAGEMENT)

FROM marketing does the marketing TO everyone does the marketing

FROM making everything TO buying more goods and services fromoutside

FROM relying on old market positions TO uncovering new ones

FROM building brands trough advertising TO building brandsthrough CEX

FROM focusing on profitable transactions TO focusing on customerlifetime value (CLV)

FROM being local TO beeing global – both local and gobal


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„OLD ECONOMY“ ! „NEW ECONOMY“

Goods ! Services

Transactions ! Relationships

Attracting Customers ! Retaining Customers

Product Focus ! Customer Focus

Brand Equity ! CUSTOMER EQUITY


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RETURN ON MARKETING (RoM)

COST OF MARKETING

INVESTMENT

DRIVER IMPROVEMENTS

IMPROVED CUSTOMER

PERCEPTIONS

IMPROVED CLV

INCREASED C´ EQUITY

RETURN ON

MARKETING

INVESTMENT

INCR. C´

ATTRACTION

INCR. C´

RETENTION

MARKETING INVESTMENT

Rust, Lemon, and Zeithaml,

2004, JoM, p. 112


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CHAIN OF MARKETNG PRODUCTIVITY

TECHNICAL ACTIONS

marketing actions

Rust, Ambler, Carpenter, Kumar, and Srivastava, 2004, JoM, p. 77.

the firm

Advertising

Service improvements, etc.

CUSTOMER IMPACTon attitudes

on satisfaction….

MARKET IMPACTMarket share impact

Sales imact, etc.

FINANCIAL IMPACTROI, etc.

IMPACT ON FIRM VALUE

STRATEGIESpromotion s., product s.

channes s., etc.

MARKETING ASSETSBrand equity

Customer equity

MARKET POSITIONMarket share

Sales, etc.

FINANCIAL POSITIONProfits,

Cash flow, etc.

VLAUE OF THE FIRMMarket capitalization

Tobin´s q


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WORDS AND CONCEPTS…

attitudes

satisfaction

Consumer´s overall, enduring evaluation of a concept or

object, such as a person, a brand, a service. An attitude lasts

over time, is general in that it summarizes

consumers´evaluatiuon.

Attitudes are learned

3 dimensions:

" thoughts (cognitive dim)

" affective (feelings)

" behavioral (actions)

ss a person´s feelings of pleasure or disappointment

resulting from comparing a product´s perceived performance

(or outcome) in relation to his/her expectations.


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Tobis q.: Tobins q-ratio is the market value of a firm’s securities to the

replacement costs of its tangible assets.

q>1: market valus higher than replacement costs

q<1: market valus smaller than replacement costs

market to book Ratiocompares market value to book value


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customer impact $Main marketing concept

$Different conceptualizations

CUSTOMER

AWARENESS

CUSTOMER

ASSOCIATIONS

CUSTOMER

ATTITUDES

CUSTOMER

ATTACHEMENTS

CUSTOMER

EXPERIENCE/

BEHAVIOR


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CUSTOMER EQUITY: A Definition

A firm´s Customer Equity isthe total of the discountedlifetime values of all itscustomers RUST/ZEITHAML/LEMON, page 4


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COMPUTING CUSTOMER EQUITY

CE(t) = ! [Ni,t_i,t(Si,t-Ci,t) – Ni,tBi,a,t + ! N (_Pj,t+k)

(Si,t+k – Ci,t+k – Bi,r,t+k – Bi,AO,t+k) ( )k]1

1+d

Customer Equity for customers aquired at time t

Number of potential customers at time t in segment i

Aquisition probability Retention probability

Discount rateB=marketing costs for

"retained customers

"add-on selling

"aquiring customers

C=costs for goods S=sales of product/servicessource:

Blattberg/Getz/Thomas, S. 23


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IMPROVE CLV

Retention

Aquisition

Add-on selling

Customized Marketing

(eg, Comm, reactivation, loyalty

porgams, pricings, customer

service)

eg, cross selling, comm., brand

personality, product portfolio mgt.

Customer Insight

Brand Management


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DRIVERS OF CUSTOMER EQUITYRUST/ZEITHAML/LEMON

CUSTOMEREQUITY

BRANDEQUITY

VALUEEQUITY

RETENT.EQUITY


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BRANDEQUITY

"perceptions, that are not explained by a firm´s objektive

attributes

" perceptions tend to be emotional, subjective, irrational

" „We call the Customer Equity gained from the subjective

appraisal of the brand the firm´s Brand Equity“ (RZL, S. 8)


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VALUEEQUITY

" perceptions of value, which are formed primarily by

perceptions of quality, price, and convenience

" Relatively cognitive, objective, and rational

" „We call the Customer Equity gained from customer´s value

perceptions the firm´s Value Equity“ (RZL, S. 8)


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RETENT.EQUITY

" Customers choose company again and again: repeat

customers

"Retention programs and relationship building

activities

" „We call the Customer Equity gained from retention

programs and relationship building the firm´s Retention

Equity“ (RZL, S. 8)


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DRIVERS OF CUSTOMER EQUITY

RUST/ZEITHAML/LEMON

CUSTOMEREQUITY

BRANDEQUITY

VALUEEQUITY

RETENT.EQUITY

„I appreciate the

safety features of my

Volvo“

„My Ford Mustang is

a part of who I am“

„I would miss the

workout community

if I left this health

club“


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SUB-DIMENSIONS OF CUSTOMER EQUITYRUST/ZEITHAML/LEMON

CE

BRANDEQUITY

VALUEEQUITY

RETENT.EQUITY

" QUALITY

" PRICE

" CONVENIENCE

" AWARENESS

" ATTITUDES

" ETHICS/BEHAVIOR

" LOYALTY

" COMMUNITY

BUILDING

" SPECIAL TREATMENT


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CUSTOMER EQUITY SOURCES

!Goal: Strong Relationships between Firm and Customers

!Process: Initial Buying, Repeat Buying/Loyalty

!Value, Brand, Retention Equity % Customer Lifetime Value (CLV)

!CLV = Customer Equity

FIRM ATTRACTS

CUSTOMERS

CUSTOMERS

PURCHASE FROM

FIRM

FIRM BUILD

CONNECTIONS

WITH FIRM

Value Perceptions

Price Perceptions


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STEPS IN DRIVING CUSTOMER EQUITY

step 1 What really drives Customer Equity?

Brand? Value? Or Retention?

step 2 What are the key drivers of brand Equity?

Value Equity? Retention Equity?

Drivers must be actionable

step 3 Benchmark against competitors

step 4 Invest in areas where payback to Customer Equity is highest


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VALUE

EQUITY

BRAND

EQUITY

RETENTION

EQUITY

PRODUCT

PLACE

PRICE

PROMOTION

PROCESSESPEOPLE

PHYSICAL

EVIDENCE

7P´s AND CUSTOMER EQUITY


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Value Equity

Brand Equity Relationship Equity

BRAND

BOOSTING

PROGRAMS

ADVERTISE

RETENT.

PROGRAMS

RETENTION

PROGRAMS

QUAL.,

PRICE

CONV.

EFFORTS

BALANCED

STRATEGY

ADVERTISE

VALUE

IMRPOVEM.

INCR. VALUE

FOR CURRENT

CUSTOMERS

STRATEGIC TRIANGLE


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DRIVERS OF CUSTOMER EQUITY

Example: Restaurant Chain

BRANDEQUITY

VALUEEQUITY

RETENT.EQUITY

!Food Quality

!Service Quality

!Price Competitiveness

!Speed of Service

!Restaurant Visability

!Brand Image

!Sensitivity to Minorities

!Atmosphere

! Frequent Buyer Cards

! Waitstaff Know

Customers Names

Customer Equity

Documents

marketing mix marketing

end of marketing

marketing management

crux of marketing

introduction chart

introduction christian

marketing concept ubiquitous

core of traditional