This week in class we discussed CLV and its importance in the business environment. This type of analysis is pivotal to any business's success but is not as easy to manage as one would think. The initial step in determining the profitability of customers is to have a clear understanding of the activities the targets indulge in. Looking at historical data, demographics, and predicted buying patterns of both new and existing customers allows for the decision makers to segment and allocate necessary resources in the form of communication/promotion to the targeted base.
In the relationship marketing process communication/promotion allocated is dependent upon the preexisting relationship the firm has with the customer, if any. There are five different stages in the life cycle of a customer they are prospects, first-time buyers, early repeat buyers, core customers, and finally core defectors. The expected marketing costs during the customer life cycle are generally negatively correlated. This is to be expected because like any investment the upfront marketing (acquisition) costs incurred in the initial stages of new relationship are larger in the beginning and fade over time.
The strategic implications of CLV involve analysis and calculations to estimate the profitability of a given customer or group of customers. With this information in hand firms can decide whether to "fire", reward, or identify opportunities to cross-sell to their customers. "Firing" customers, or losing a percentage of the least-performing individuals, can provide a firm with a competitive advantage and allow them to retain their highest performing individuals at minimal costs. This can only be achieved with detailed customer information. Rewarding customers on the other hand is looked at as more of an investment in the firm's higher performing customers and can lead to higher loyalty which, in turn, increases the retention rate. Cross-selling looks to increase the profitability of customers through the packaging of products and again can only be utilized to its full potential with detailed customer information.
CLV is pivotal to the success of any business. Evolving customer needs, changing economic and social conditions, and competitors' actions are just a few parameters that can affect the relationship a customer maintains with a firm. The firm that has a framework to optimally deal with these changes is in position for success and CLV analysis and the constant re-evaluation of the listed outside parameters, amongst others, are the key to the castle.
Sunday, January 29, 2012
Sunday, January 22, 2012
STDP
You can have the perfect product but without the proper knowledge and strategy of how to exploit what makes the product perfect it can all go for naught. After marketing analysis has been performed the next stage of the marketing process consisting of three steps must be performed. These three steps are market segmentation, target market selection, and positioning.
Market segmentation involves dividing customers into selected stratas with the goal to create several heterogeneous groups with homogeneity within the groups. Segmentation is generally distinguished into two related types segmentation based on benefits sought by customers, as well as, on observable characteristics of customers. The whole goal of this step is to understand the benefit that customers seek and to help create customer profiles for each strata that has been developed.
Target market selection takes the information that has been developed in the market segmentation phase and evaluates which segments the business wishes to serve. The key to this phase is understanding differentiation. In order to reach a product's full potential data must constantly be collected and compared to see if and where an advantage can be made and a niche for the product to be carved.
After the business has decided where and to whom to market a unique selling proposition must be created. This, to me, is the most important stage in the process because you have to essentially convince the market to buy your product. Three main questions need to be answered in this stage they are:
In my opinion, if a business can successfully complete these three steps they are in a pretty good position to succeed. If this process were so easy we would see so many more products succeeding and the probability of failure would be significantly reduced. Even if this process is successfully completed there is still a very high risk of failure. Branding plays a significant role in the overall success of a product and is inextricably linked to positioning. The highest goal of a brand builder is to have the noun created displace the natural language, for example Kleenex.
Market segmentation involves dividing customers into selected stratas with the goal to create several heterogeneous groups with homogeneity within the groups. Segmentation is generally distinguished into two related types segmentation based on benefits sought by customers, as well as, on observable characteristics of customers. The whole goal of this step is to understand the benefit that customers seek and to help create customer profiles for each strata that has been developed.
Target market selection takes the information that has been developed in the market segmentation phase and evaluates which segments the business wishes to serve. The key to this phase is understanding differentiation. In order to reach a product's full potential data must constantly be collected and compared to see if and where an advantage can be made and a niche for the product to be carved.
After the business has decided where and to whom to market a unique selling proposition must be created. This, to me, is the most important stage in the process because you have to essentially convince the market to buy your product. Three main questions need to be answered in this stage they are:
- Who are the customers?
- What is the set of needs that the product fulfills?
- Why is the product the best option to satisfy those needs?
In my opinion, if a business can successfully complete these three steps they are in a pretty good position to succeed. If this process were so easy we would see so many more products succeeding and the probability of failure would be significantly reduced. Even if this process is successfully completed there is still a very high risk of failure. Branding plays a significant role in the overall success of a product and is inextricably linked to positioning. The highest goal of a brand builder is to have the noun created displace the natural language, for example Kleenex.
Marketing Myopia
As students interested in the field of Accounting it is sometimes easy to downplay the role of other fields and their importance to a businesses success. Marketing plays an integral part to any businesses success because without it the consumer would never want or get the product being produced by the business. As accountants we tend to take a more black and white or X and O approach to Marketing but Levitt stresses there is more to it than meets the eye. A key concept we discussed in class was Marketing Myopia. Marketing Myopia is considered the most influential Marketing idea of the past half-century and is based on the idea that businesses will ultimately do better in the end if they concentrate on meeting customers' needs rather than selling the product.
To illustrate the importance of his idea Levitt provides several examples of industries that experienced this tunnel vision and shortsightedness which ultimately led to lower profitability and sometimes consolidation. Some industry examples provided are dry cleaning, grocery stores, and the railroads. Levitt stresses that businesses should understand the benefit they are ultimately providing to consumers. He would suggest that these businesses lost sight of the benefit provided to consumers and became obsolete because of it.
Levitt also stresses that Marketing is different than Selling. My previous assumption was that Marketing and Selling were one in the same but it is easy to see now that they are clearly in separate circles. Marketing, according to Levitt, addresses the customers needs while Selling is simply the process of persuading the consumer to buy a product. We analyzed Marketing Myopia previously in M370 but as we have discussed before there is always more learning to be done because "you can learn Marketing in a day but it takes a lifetime to master."
To illustrate the importance of his idea Levitt provides several examples of industries that experienced this tunnel vision and shortsightedness which ultimately led to lower profitability and sometimes consolidation. Some industry examples provided are dry cleaning, grocery stores, and the railroads. Levitt stresses that businesses should understand the benefit they are ultimately providing to consumers. He would suggest that these businesses lost sight of the benefit provided to consumers and became obsolete because of it.
Levitt also stresses that Marketing is different than Selling. My previous assumption was that Marketing and Selling were one in the same but it is easy to see now that they are clearly in separate circles. Marketing, according to Levitt, addresses the customers needs while Selling is simply the process of persuading the consumer to buy a product. We analyzed Marketing Myopia previously in M370 but as we have discussed before there is always more learning to be done because "you can learn Marketing in a day but it takes a lifetime to master."
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