Marketing Chapter 5 Mini Sim_Big Data McNeese State University

Segment 3 46-65

Although annual spending on camping gear and apparel ranges from $300 to $2000, industry data suggests that the average "high-end" camper spends $850 per year on the latest camping gear. Using Camp Plus's transaction data, you calculate total annual spending for each of its 10,000 customers and then apply industry spending to calculate each customer's share of customer (SOC). Using statistical analysis, you group the customers into five distinct segments, as follows: Segment 1: SOC = 1-15% (2000 customers) Segment 2: SOC = 16-45% (3000 customers) Segment 3: SOC = 46-65% (2500 customers) Segment 4: SOC = 66-90% (1500 customers) Segment 5: SOC = 91%+ (1000 customers) Your plan is to implement a campaign to increase the customers' Camp Plus purchases. Focusing on share of customer and segment size, which of the five segments will you target first?

internal and external data

Big Data analysis can involve massive amounts of data and complex analysis. However, you know that some of the simpler customer relationship management (CRM) metrics are often a good starting point for firms seeking to increase their profitability. It is well-known that retaining an existing customer is far less expensive than acquiring a new one, so you suggest that the owners begin by calculating share of customer to identify opportunities to sell more products to existing customers. Before you can calculate Camp Plus's share of customer, you need to determine what type of data you need to gather. What data sources will you need to utilize to calculate share of customer?

20% (20, 80 rule)

Data-driven firms often use the share of customer metric in place of share of market to evaluate their customer portfolio. Share of customer, often called share of wallet, captures the percentage of an individual's purchase of a product that is the same brand. For example, if a customer spends $500 a year on lattes every year, and $350 was spent on Starbucks lattes, Starbucks' share of customer for that consumer is 70%. What share of wallet does Dunkin' Donuts have for that same customer if he spends $100 each year on Dunkin' Donuts lattes?

coupon: offer the segment additional price promotions...

Online retailers lose approximately 25% of their customers every year. Unfortunately, due to the highly competitive camping gear marketplace, Camp Plus loses approximately 35% of its customers every year to its competition, giving it a retention rate of only 65%. Using a discount rate of 10%, you calculate a CLV for each of the 10,000 customers in Camp Plus's database. CLV Formula: Infinite Time Horizon CLV = [(GC * r) / (1 + i - r)] - AC] CLV = Customer lifetime value GC = Annual gross contribution from customer (Revenues − Servicing and retention costs) r = Average retention rate of customer i = Interest or "discount rate" AC = Acquisition cost Based on this calculation, you find that 10% of Camp Plus's customers have a negative customer lifetime value. What strategy would you recommend to Camp Plus to deal with these customers?

prioritize: allocate the majority of the acquisition budget to the direct mail and search engine...

Understanding the variance in acquisition costs is a helpful starting point in customer analysis, but it does not tell the full story. The next time you meet with Camp Plus, you suggest that you combine the acquisition cost analysis with your CLV analysis to determine if customer profitability varies based on mode of acquisition. You present your findings to the owners and discuss potential strategies. Which strategy do you recommend based on your acquisition-CLV analysis?

more data: recommended that camp plus complete further analysis to determine if customer profitability varies by acquisition type.

With a churn rate of 35%, customer acquisition remains an important marketing priority for Camp Plus. One of the many databases Camp Plus has is its marketing acquisition database, from which the average acquisition cost by channel was calculated. Camp Plus has a limited marketing budget and wants to spend its resources wisely. Currently, 20% of its customers are acquired through direct mail, 10% from social media marketing, 40% from banner ads, and 30% from search engine marketing. What strategy do you recommend for Camp Plus's new customer acquisition moving forward?

special treatment: camp plus needs to provide the best service and offers to segments 1 & 2... Low Priority: segment 4 should receive only minimal marketing...

With a strategy for the bottom 10% of customers finalized, you turn your attention to the remaining 90%. Using the CLV values that you calculated earlier, you group the customers into segments based on their relative levels of lifetime profitability. You present your data to the owners in your next meeting to continue the CRM discussion. What are the two most powerful conclusions/recommendations you can make based on your CLV findings? Percentage of Total Profit Contributed by Segment

email a 10% off $100 coupon to the target segments

With your first target identified, you turn your attention to the communication method. After meeting with Camp Plus's marketing group, three proposals are on the table. Keep in mind that although Camp Plus's goal for this campaign is to increase share of customer, the overarching goals are increasing market share and firm profitability. Therefore, the communication method you recommend must balance reach and impact against expenses. Which of the three marketing campaigns would you recommend that Camp Plus use to begin its share of customer initiative?

Margin, retention rate, and acquisition cost

You know that CLV represents the total profit of a customer's lifetime revenue stream; therefore, a number of variables must be included in the calculation. In addition to discount rate, what are the three other key variables that will need to be included in Camp Plus's CLV analysis?

unstructured

customer service requests: all customer emails archived... product review comments: camp plus has access to thousands...

Structured

page views: cost plus's website analytics data includes the number of page views per visit as well as time spent on each page. product review ratings: Shoppers who purchase products on costplus website are encouraged to rate the products...