MKT - Midterm

RFM

(Recency - frequency- monetary) analysis

Components of CLV

(m) margins: annual revenue - operating expenses (r)annual retention rate - percent of current customers who will still be with the firm at the end of the year (d)discount rate - typically around 10 - 16%

What loyalty programs can do

1. Create barriers to exit (a lock in) Offer airline miles that disappear if you leave 2. Win greater share of wallet (consolidate purchases) Amazon visa offers 1 point /1 dollar spent but 3 points for 1/ dollar on amazon 3. Encourage purchases that wouldn't normally happen Multi-tier reward programs (silver, gold, platinum)

How do you grow a category where just about everyone is already buying

1. Upscale version adding new value 2. Current users to stimulate heightened demand Drink milk more often Reminding to switch razors Go bananas more recipes for them

The pepsi challenge was far removed from a typical consumption experience

1. We normally consume more than a sip (wine favor wines that offer immediate pleasure and gratification the scenes will almost always gravitate to the obvious and miss the subtle - I have fallen victim to the sweeter is better trap many times myself) In general sweet wins in small sample taste tests 2. We normally know what we are consuming (neurological level → when people say it tastes better really helps it taste better for you) Preferred coke when they knew what it was Why we they can't see them on the voice or blind auditions for orchestra because there were not as many woman

The probability that a company is new if its pursuing an ACQUISITION MO

< 100%

The probability that a company is pursing RETENTION MO if its new

= 0%

The probability that a company is pursing ACQUISITION MO if its new

= 100%

Central brand

??

Sprint 1% better that much better

???

Dluth

????

Umbrella branding:

A branded house, a family of products that all deliver the same higher-order benefit (NIKE) Umbrella brands are not very flexible, damage from product failures can be quite high

Psychologists routinely find that the closer people are to their goal the more quickly they will work to accomplish the goal. How can this insight help us design reward program punch cards?

A bunch card with a few already punched in

Are promotions generally more effective (at accelerating usage) when usage rates are flexible or inflexible?

Accelerating Usage through Price Promotions Key question is how flexible usage rates are If usage is inflexible price promotions just encourage people to stockpile Ex. bacon, potato chips, soda, yogurt, toilet paper Perishable goods better to discount because they go bad so you have to figure out how to use

If we are a new company it is clear what our marketing objective is

Acquistion

Retention Marketing Objective

Ads focus less on the product Mcdonalds monopoly, loyalty programs,

Flank attack

Attack a leader's weak points, blind spots E.g attack an area where leader is geographically weak E.g attack a segment that has been neglected by leader Isn't focal

Ways to get marketing wrong

Attending to wrong type of market research Focusing on internal capabilities, not consumer needs Overpromising Diluting the brand Over-segmenting

Points of parity:

Attributes or benefits that all brands within a category offer The minimum service speed required to be considered part of a quick service food category Generally viewed as necessary but not sufficient for success Dominates: market leader

Points of difference:

Attributes or benefits that consumers strongly associate with a brand positively value and believe they could not find to the same extent with a competitor In a quick service food category subway's P-O-D has long been healthiness Strong brands can have multiple points of difference

Some benefits of loyalty

Can be a barrier to entry for competition Inertia Allows time to respond to competitor innovations Protection against price attacks Source of premiums Additional amount a customer will pay for the brand in comparison with another brand offering similar benefits

Attitudes

Can be quite predictive of behavior E.g age alone doesn't predict purchases of anti-aging products; aging anxiety and importance of appearance are also important predictors But attitudinal data more difficult to collect Are people telling the truth? Requires more frequent measurement

What are the dangers of false positives in proactive retention campaigns? In other words what are the dangers of offering incentives to stay to customers who never had any intention of leaving?

Can disrupt → remind you that you have the subscription so you may cancel Some customers would have continued/renewed on autopilot The offer (e.g. upgrade at a steep discount) can prompt them to review and change their consumption habits

Also important to measure and plot perception data

Conjoint analysis reveals which attributes are important How consumers perceive companies on those attributes can also be measured How affordable are groceries at Kroger/Whole foods? How healthy are Cheerios/Special K?

Why do we see so many brand extensions?

Consumers can alleviate boredom, but stay in the same family Billboard effect: serves as advertising you remember it more more likely to buy it Pricing breadth → capture all consumer surplus Lower cost: need to create awareness of new product but not brand, reduced packing market research costs, about 30M to launch a brand successfully 5M for extension, leverage brand equity Capitalize on placebo effects Risk minimization → reduce risk that the new product will fail, reduce career risk

Ways to determine Determine the size of the customer base

Contractual settings → we observe the time at which customers become inactive (churn) Stop paying gym membership Non Contractual settings → we do not observe the time at which customers become inactive Can't tell if switched to another or are not applying daily

Variables on which consumers are commonly segmented

Demographic - age, gender, occupation Behavioral - activities, purchases Attitudinal - thoughts, feelings, beliefs, desires, aspirations

Fundamental Entity

Determining the FE is relevant when there is a parent brand with sub-brands or subsidiaries FE is the perspective from which a brand forms its marketing plan EX. Hilton (FE) - garden inn, hampton, Waldof (Sub brands)

Ex. of core competence

EX. 3M Core comp: org culture that fosters creativity and innovation Strategic asset: portfolio of patents Product benefit: novel products

Product line extension

EX. Different kind of doritos, flaming hot, cheddar or law and order SVU/Trial by jury/Criminal Intent

Demographic Variables

Ex. Region, Pop density, Climate, Gender, Age, income, occupation, education, life cycle Easy to fall in love with demo data

Marketing objectives:

Focus on acquisition or retention?

Source of volume:

Focus on stealing share or stimulating demand?

Costs of loyalty programs

Foregone sales due to product giveaways Administration, marketing, IT, or maintenance expenses

PRIZM (Potential Rating Index by Zip Markets)

Geo Clustering technique by Claritas Takes into account location education affluence family life cycle urbanization race ethnicity mobility 62 types of clusters → blue blood eaters, money and brains, gray power ... Issues: alot of generalization & assumptions

Business objectives:

Goal? Core competence? Fundamental entity?

What can the "monkey business" (basketball passing) demonstration teach us about goal pursuit?

Goals can cloud our judgment make us overly focused on achieving that goal

Frontal attack

Head on attack of fundamental aspects of leader Challengers need high resources Core benefit attribute Subway losing weight Real cheese There's buzz and then there news

Acquisition marketing

HeadOn example → repeat, simple, directions Leveraging awareness of stronger competitor (mcdonalds paying four bucks is dumb, there no cola like the uncola

When introducing a reward program are you generally more likely to influence the buying behavior of heavy buyers or of light buyers?

Heavy buyers benefits the most

Distinct branding is _____ eff/flex/cost

High efficiency Low flexibility Easier and less costly

Introducing brand variations

Hopefully down line would specifically distinguish price, allows to segment on income → risk brand dilution

Distinct branding:

House of brands, firms offer several products with distinct meanings, brand names, and logos, targeted to different audiences (Unilever)

Execute (4p's):

How exactly do we implement our strategy/articulate our positioning?

What conjoint analysis is NOT (very incomplete list)

How important is the presence of a Good Housekeeping Seal when buying a vacuum

Current state of marketing research + practice

Huge effort toward predicting churn which customers are at the highest risk of churning Less attention toward Who to target (highest risk of churning or highest sensitivity to incentives to stay) When to target and with what incentives How to manage multiple retention campaigns How to integrate retention programs with other marketing activities

If our marketing objective is retention what if anything does this imply about our source of volume

Increased frequency and steal market share

As m increase ..... It As r increases .... It As d increases ... It

It increases, It increases , It decreases

Core Competence:

Leads to sustainable competitive advantage An input not an output General strategic assets, which in turn generate benefits for consumers (products) Core competencies ideally provides access to mult markets Anyone can figure out how to make tape but 3M has unique insight into adhesives which opens many doors

But segmenting on behavior alone can also be problematic

Lots of instances where our purchases don't reflect our typical attitudes for example: Gifts Using the company credit card On a date paying for someone else's preferences

Umbrella branding is _____ eff/flex/cost

Low efficiency High flexibility Hard to implement & costly

Which type of Barnacle should we invest in: A barnacle with a low size of wallet or a barnacle with a low share of the wallet?

Low share of wallet

Acquisition Challenge:

Overcome existing brand loyalties

What kind of branding strategy would a pharmaceutical company prefer?

Pharma → distinct branding incase something goes wrong with one of the drugs

Drawbacks of segmenting on demographic variables

Potentially limits growth Marketers cant grow a demographic segment But might be able to stimulate needs What is cheap and abundant for us... Only some behaviors are strongly predicted by demographics

CLV

Present value of all future profits generated from a particular customer

CLV:

Present value of all future profits generated from a particular customer

Attributes of beneficial goals

Prioritized An ultimate goal maximize net income driven by a series of smaller behavioral goals increase # of first time buyers, switchers Quantified Includes a temporal benchmark Realistic Internally consistent

Retention involves

Proactive campaigns → incentives Reactive campaigns → no longer, active now get them back

Type of product extensions

Product line, Category extensions, Introducing brand variations

Potential issues with RFM

RFM is common, but imperfect when purchases are not involved Interactions between customers and firms can take multiple forms Often in digital settings there may be no monetary exchange (e.g. continuing to use free email or music service) From this perspective retention is when the customer continues to transact with the firm

When competition is present (outside of the monopoly context) why is reaching 100% market share not optimal?

Reasons why won't happen 1. Illegal 2. Super costly 3. B/c consumers out there are loyal to competitors 4. Some exclusivity valued Closer you get to 100% market share → start losing profitability

If we are a well established company it is clear what our marketing objective is

Retention

Levitt's argument selling is not equal to marketing

Selling focuses on seller needs Marketing focuses on buyers needs Goal is to design products that sell themselves FOcus is then more on raising awareness and making the product available than on active selling

Goals Two primary purposes:

Simplify decision making Performance benchmark

What factors increase (or explain) the profitability of loyal customers? Are there factors that can weaken the relationship between loyalty and profitability?

Some benefits of loyalty Can be a barrier to entry for competition Inertia Allows time to respond to competitor innovations Protection against price attacks Source of premiums Additional amount a customer will pay for the brand in comparison with another brand offering similar benefits *Caveats: why the relationship between loyalty and profitability is more nuance than typically assumed?* Surveys consistently reveal that customers believe loyal customers deserve lower prices - angry when customers get the perks Loyal customers more knowledgeable about product offerings, prices - might be more price-sensitive than sporadic customers

Do all companies have core competence?

Some companies do not have core competence lacking one does not mean instant failure but really hard to survive and grow without one

* Important caveat* of core competence

Some strategic assets are a consequence of core competencies But some strategic assets are not ex. Patents that google simply buys from IBM Both types can be quite valuable

If we are primarily focused on pulling new people into the category what is our source of volume

Stimulate demand

Coke vs. Pepsi Flank and frontal

Strong assocaition with american values Younger segment thought might have been ignored so pepsi said come alive your in the pepsi generation (flank) Pepsi taste challenge (frontal)

*Caveats: why the relationship between loyalty and profitability is more nuance than typically assumed?*

Surveys consistently reveal that customers believe loyal customers deserve lower prices - angry when customers get the perks Loyal customers more knowledgeable about product offerings, prices - might be more price-sensitive than sporadic customers

Category extensions

Taking a brand name putting it on different product category EX. Swatch watch, clothing, cologne

Segmenting on attitudes

Thoughts, feelings, beliefs, desire, aspirations Ideally these will translate to needs we can fulfill profitability I am very busy person - I have high need for convenience It's dangerous world - I have a high need for safety Translation to needs is not always straightforward I think pollution is endangering the Earth - nothing I can do, tends to translate to forward looking activities

Stealing share

Usually the strategy of choice or non-category leaders Ads that invoke a comparison with the category leader are typically intended to steal share → were bigger/better/faster/cheaper than

Core competence requires continuous investment

What happens if those investments are neglected Imagine if coke stops investing in marketing Short run effect on profits → minimal still strategic asset + brand 10 years, profits could increase because not paying marketing Long run effect on profits → sales drop comp see opp to out compete LR profits decrease

When should we segment?

When incremental value from customizing outweighs costs of developing separate offerings for each segment When cost customization is high companies tend to develop offerings that serve relatively large segments EX. durable goods such as household appliance When cost customization is low offerings can easily be tailored for smaller segments EX. Delivering online news

Non leaders ads especially likely to help leaders are prototypical

When non leaders promote the category they bring people to the most well known brand Name brand + produce are synonymous

STP:

Who exactly are we talking to? What do they currently believe? What do we want them to believe? What do we need to say to shift their beliefs?

A Pink Tax

Woman pay more for pink Added cost for products that are pink or geared to woman

Can a distinct branding approach make it difficult to precisely identify a "fundamental equity"?

Yes because there are several products with distinct meanings brand names and logos targeted to different audiences

Do brands still matter when consumers have easy access to huge number of product reviews?

Yes but less

Common loyalty definition

a deeply held commitment to rebuy a product or service despite situational influence and marketing efforts having the potential to cause defection

Common segment definition

a group of consumers sharing at least one characteristic that should increase their responsiveness to marketing effort

Marketing

art and science of meeting needs profitably

Brand Keys publishes a popular brand loyalty measure:

based on interviews with about 40k consumers assessing their cognitive and emotional attachment to brands

Parts of the big framework

business objectives, marketing objectives, source of volume STP: segment, target, position Execute: product/service, price, place, promotion

Conjoint analysis:

determines the importance of different attributes to different segment of consumers Relative importance of product attributes is better measure when attributes are considered jointly than separately Forces consumers to make realistic tradeoffs

We segment to increase the

efficiency of our marketing efforts

Expand the category New value

get our customers to trade up or spend more sometimes you might create a new category (premium)

Expand the category New volume

get our customers to use more frequently or in different ways

Expand the category New users

get people outside the category into the category (white space)

Where are you most likely to observe survivor bias:

in a highly heterogeneous population or in a highly homogeneous population? Highly heterogeneous population "Survivor bias" - aggregate retention rate increases overtime, even though the underlying retention rate for each customer has not changed Aggregate retention rate can be misleading..

CLV =

m(1+d) / 1+d-r

Segmentation efforts will ideally yield

mutually exclusive and collectively exhaustive MECE segments

An important advantage of umbrella brands is ___

product extensions

Core competence is a

skill set that is difficult for competitors to imitate

Category:

the brands with which a brand competes and which function as close substitutes Is usually narrower than core business Coke competing w/ diff sodas

When the total market expands

the category leader usually gains the most They're the most recognizable brand, easiest to find

Would marketing myopia cause you to under-estimate or overestimate how many competitors you're up against?

under?????? Overcome → doing mkt research figure out what cons actually have What business can do rather than what the customer needs