MKT 302 Midterm

is it cheaper to satisfy/retain an existing customer or acquire a new customer?

retain an existing customer (about 5 times cheaper) -"Win-backs" are often cheaper than new customers too

Segmentation vs. targetting vs. positioning

segmentation: How should consumers be grouped by demographics, behavior, attitudes? targeting: which segment(s) do we pursue? Who is in the selected segment(s)? -often involves characterizing representative member(s) of target audiences -you can even bring segments to life by naming them (ex: best buy with "jill" or "daryl." Positioning: what must we say to change current beliefs to desired beliefs? -Positioning involves making choices: deciding not to promote certain benefits to bring key benefit(s) into focus. -BMW highlights their performance/they perform well on the road (they could brag about comfort/how you will look driving it, but it is essential to focus on one thing) -Distance between current belief and desired belief: see how big the gap is (bigger gap → dislike the product → more time, money, resources devoted to closing the gap). -often have to change slogans

share of wallet

the percentage of the customer's purchases made from a particular retailer ex: recent shopping history for a JCrew Barnacle -one pants from JCrew, one from Banana Republic, one from Nordstrom, etc - They have a big wallet, but we have a low share of their big wallet (a good customer target → we want them to consolidate their money with us)

Brand Architecture

the relationship between different brands within your portfolio. Note: a lot of firms don't have brand architecture (those that only sell a single product or have a single location)

Goal-Gradiant Hypothesis

the tendency to approach a goal increases with proximity to the goal. -applied to reward programs (coffee shop: Data from a coffee-ship reward program: buy 10 to get the 11th free) -when raising money, you can keep moving the goal → keep going (trickery)

Perceptual maps

tool used to depict graphically the positioning of competing products -Doesn't just have to be a 2 by 2 (many different attributes mapped out on the right)

Points-of-parity

-Attributes or benefits that all brands within a category offer -Ex: the minimum service speeds required to be considered part of the quick-service food category -Generally viewed as necessary but not sufficient for success

Points-of-difference

-Attributes or benefits that customers strongly associate with a brand, positively value, and believe they could not find at the same extent with a competitor. -Strong brands can have multiple points-of-difference Ex: Changes in Subway's P-O-D over the years Subway "choose well" → subway "eat fresh" (P-O-D: they are fresher than competitors)

Customer Lifetime Value (CLV) why is CLV useful for marketers?

-CLV: Present value of all FUTURE profits generated from a particular customer -We want to understand how profitable each customer has been and will be -Offers useful guidance: pay no more than CLV to acquire customers or to avoid losing customers. What is the expected lifetime of purchases worth to us in today's dollars? -ex: 1 year from now maybe $50 more

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

-Come up with a premium version -Stimulate increased usage (If they use it sometimes, get them to use it all the time) Ex: -Got milk? Have celebrities drink it -Have it with lunch and dinner too. There's many health benefits of it.

Confirmation bias suggests that we treat negative (distressing) information differently than we treat positive (encouraging) information. Understand the different ways confirmation bias can manifest itself.

-Confirmation bias: a tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence -We ignore, or we pick apart -We don't treat good and bad info equally -Positive stuff: we usually believe -Negative stuff: we usually pick apart

Difference between core competency and points of difference

-Consumers don't care about core competence (it is more behind the scenes) -You care about a point of difference (its external) -Your core competence makes you produce one.

Conjoint Analysis -why is it valuable?

-Determines the importance of different attributes to different segments of customers. -Relative importance of product attributes is better measured when attributes are CONsidered JOINTly than separately -Better to infer what one prioritizes rather than asking them directly. -Forces consumers to make realistic tradeoffs ex: pricer but works better (trade-off) --> one customer may prefer a better price but the other may prefer better utility. ex: vacation packes: Some people care about price, how nice the hotel is, location you CAN'T just ask: "Please rate on a 0-10 scale, where 0 = not at all important and 10 = very important. Also good to discover a segment -ex: Customers didn't go out and seek chunky tomato sauce but they ended up preferring it over smooth! Lastly, it is important to measure how people PERCIEVE companies on these attributes -ex: how affordable are groceries at TJs? At Whole Foods? (Want to know how important affordability is to customers and how they see it at different stores).

Costs of loyalty programs

-Foregone sales do to product giveaways -Administration, marketing, IT, or maintenance expenses -Frequent purchasers benefit the most, but are these the customers we want to offer discounts to? -Difficult to reduce or restructure loyalty programs without disappointing customers.

Blue Ocean Strategy

-How to create uncontested market space and make the competition irrelevant -Looking for blue ocean: a clean, ownable, attainable space (not a lot of traffic)

What do we mean by a constant r?

-If r = 0.8, then after 1 year, there is an 80% chance that the customer will still be with the company. -After 10 years, there is a (.80)^10 = 10.7% chance that the customer will still be with the company.

Duluth Trading Co. is attempting to steal share from competing t-shirt manufacturers with ads like this: (longer t-shirts to have more coverage). Would you consider this more of a frontal attack or more of a flank attack?

-It is a flank attack -You are attacking an overlooked aspect within the category

How to define customers

-It is common to base definition on purchase behavior... -RFM (Recency-Frequency-Monetary) analysis -How recent, how frequent they shop, how much they spend -different industries have different RFM cutoffs Note: RFM is common but imperfect when purchases aren't involved

What can the "invisible gorilla" (basketball passing) demonstration teach us about goal pursuit?

-It teaches us that goals can overly focus attention, producing tunnel vision. -We often don't see what we aren't expected to see -You may lock in on a particular objective, and you might miss relevant information. The Invisible Gorilla: how our intuitions deceive us -Video: count how many times the players wearing white pass the basketball. -they are so busy passing the ball that they don't even see a man in a gorilla suit walk past them.

The Pepsi Challenge weaknesses

-It was far removed from the typical consumption experience (an alien experience - not similar to how we experience soda in real life). 1. They only took one sip. We normally consume more than a sip (it is more enjoyable after more consumption) 2. It was a blind test. We normally know what we are consuming (neural response from self-proclaimed coke lovers is more positive when they KNOW what they are getting) -So, your expectation shapes your experience when you know what you are about to get. Therefore, consumers are NOT blind taste testers. Parallels to Payless shoe example

Why might a commercial for Puffs facial tissues increase sales of Kleenex?

-Kleenex is the leader of the category, so when non-leaders try to grow the category, people are going to go to the category. -Oftentimes, we mix up tissues and Kleenex to be the same thing; thus, seeing Puffs makes people think of Kleenex.

Potential effects of stealing share

-Many brands don't feel comfortable attacking other brands, and want to focus on telling their story... so they may still intend to steal from a larger competitor by highlighting their point(s)-of-difference. -An explicit attack might provoke retaliation, hurting both brands (a feud) -Visa would never attack Amex and vice versa -Sometimes it happens behind the scenes -ex: Alcohol industry bankrolls fight against legal pot (they think the legalization of marijuana is a threat)

Will we emphasize acquiring new customers or retaining existing customers?

-Not an exclusive focus -Try to acquire customers you'll be able to retain -Retain happy customers who will spread positive word of mouth. -ex: JC penny markets different merchandise to loyalists vs. emerging clients

Let's think about the high-end fashion brand CHANEL. Here are some representative ads that feature young women (on review guide). Most of CHANEL's fashion products are sold to people over age 50. That might be surprising based on ads like these. But why should it not be surprising? In other words, what segmentation approach is suggested by these ads?

-Perception: how ppl see the players in the category -They are segmenting on attitudes -They want people to FEEL young, even if they are old -Aspirational ("this is what you can look like if you purchase from us"). -Chanel features young people in ads, even though most of their buyers are older.

Sprint Ad: What is sprint doing here? ....when it comes to reliability with phone carriers, theres a less than 1% difference. BUT, when it comes to saving money, sprint is best.

-Reassuring on the point of parity -You won't notice the quality difference, but you WILL notice the price difference

Which of the following statements is more correct: "Segments are created by brands" or "Segments are discovered by brands"?

-Segments are DISOVERED by brands -We offer Coke and people are anxious about calories, so they give them diet Coke -Or anxious about caffeine, so they give them decaf

Caveats: why the relationship between loyalty and profitability is more nuanced/subtle than typically assumed

-Surveys consistently reveal that consumers believe loyal customers deserve lower prices. -they are angry when new customers get the perks (a recent AT&T campaign addressing this concern) -loyal customers are more knowledgeable about product offerings and prices (prices might be more price-sensitive than sporadic customers).

"Pink Tax" (gender segmentation) is it true??

-The Pink version seems to be more expensive than a none pink version -idea that women will pay more, or parents will pay more for female children over males.. BUT, not as widespread as we once thought. New evidence regarding the pink tax: -In the personal care category, women's products are 11.6% more expensive then men's products -***BUT these are not apples-to-apples comparisons -Price differences mainly come from product differentiation, not a "tax"

Market mytopia

-The tendency to define business based on products rather than consumer benefits/experiences from using the products. -Marketing myopia leads you to a mistaken view of what you are up against. -Ex: what do consumers buy when buying a quarter-inch drill? You don't care about the physical drill (item), but the hole it's creating → competing with what other tools can make a hole). -Ex: Netflix is competing with Hulu, but also other activities that help you unwind (talking to your friends over the phone).

Coke vs pepsi experiment/challenge

-True preferences assessed by blind taste tests (i.e. repeated choice between two unmarked cups containing pepsi or coke) -verbally stated preferences (e.g. "I generally prefer Coke") did not correlate with true preferences -People kept choosing Pepsi. Pepsi tasted better (was sweeter) -Customer revolt forces the company to bring back the old, familiar flavor of coke; so Coke reponded by making the formula sweeter. -People went back to drinking coke more. Coke's Reponse: -coke was less focused on fighting Pepsi, and more focused on saving their category. -they asked people who preferred Coke to share their stores/reasons why they liked it more.

what could happen when non-leaders promote the category?

-When non-leaders promote the category...gives business to the leaders. Ex: Loctite ad in superbowl boosted sales for gorilla glue (makes people go to store for glue, but then sees gorilla glue) -Non-leaders' ads especially likely to help leaders when leaders are prototypical -Examples: Puffs tissues helps kleenex; Curad bandages make people buy band-aids So, Non-leaders really need to signify why their brand is special/different

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

-can disrupt habits (You prompt them to take a fresh look, one that may not be favorable to you). -some customers would have continued/renewed on autopilot --the offer (ex, upgrade at a steep discount) can prompt them to review and change their consumption habits. -If they didn't have the intention of leaving, you are just giving them free money.

consumer proposition vs. desired belief

-desired belief is ideally more or less a restatement of the consumer proposition -Sometimes the consumer proposition will include facts that won't be retained in the desired belief example: "70% of people prefer pepsi to coke" (consumer prop) "Pepsi tastes better than coke" (desired belief)

If a company is new, can they focus on retention? probabilities of new companies with aquisition/rentention

-if a company is new, focusing on retention is not an option (there is no one to retain) -they need to focus on acquisition Note: just because a company is focusing on acquisition, that doesn't mean it's new. It could be new. But it could also be a well-established company trying to grow the category or trying to steal loyalists from an even larger competitor. The probability that a company is focusing on retention if it is new = 0% The probability that a company is focusing on acquisition if it is new = 100% The probability that a company is new if it is focusing on acquisition x < 100%

Retention in digital settings

-interactions between customers and firms can take multiple forms -often, in digital settings, there may be no monetary exchange (ex, continuing to use free email or music service) -From this perspective, retention is when the customer continues to transact with the firm.

How do profitability and market share function together?

-intuitive response: they move together -BUT...there will probably be some more peak before 100% -Getting the last 20-30% of people may be too expensive/not productive -Ex: Is A Snookie Product Placement Bad for Business? -She had a bad reputation/"cheesy" style -Was better if she was wearing competitors brands

Ways to get marketing wrong

1. Attending to the wrong type of market research 2. Focusing on internal capabilities 3. Over/underpromising (and reducing percieved quality) 4. Diluting the brand (Brand-to-product connection - e.g., Hooters with safe air travel) 5. Failing to understand relevant segments (gender inequality)

What loyalty programs can do

1. Create barriers to exit (a "lock-in") -ex: offer airline miles that disappear if you leave 2. Win a greater share of wallet (consolidate purchases) -ex: an amazon visa that offers 1 point/$1 spent but 3 points/$1 spent at Amazon 3. Encourage purchases that wouldn't normally happen -ex: Multi-tier reward programs (ex: silver, gold, platinum) 4. Ex: Manipulate the points per purchase -ex: 5 points per purchase for the first four purchases, then one point per purchase (but you are so close to completing your goal at that point). Note: Generally, loyalty positively correlated with profitability (But there are important caveats)

Different types of marketing 1. Mass 2. Segment-based 3. One-to-one

1. Mass: -every customer gets the same offering 2. Segment-based: -a mix of mass and one-to-one 3. One-to-one: -easy to do for e-commerce (writing emails directed toward people/targeted ads)

What are the 4 types of customers?

1. People outside the category -people who don't eat fast food 2. our customers -people who eat at McDonald's but not atother restaurants 3. multi-brand customers -people who eat fast food at McDonald's AND at other franchises 4. competitors customers -people who eat fast food but NOT at McDonald's

Different types of "brand extension"

1. Product line extensions -ex parent brand: Doritos; extensions: different flavors/colored bags 2. Category extensions -Swiss army knives (Watches, pants, fragrances) or Amazon (prime video, AWS, Amazon) 3. Branded variants: accommodating customers with different WTPs, often by offering cheaper versions at lower-status outlets (expensive Burberry coat is available at Saks, but the inexpensive one isn't). Note: Harley Davidson Destiny Perfume is a brand extension and category extension

caveats of core competence (2)

1. Some strategic assets are a consequence of core competencies (but some are not) -ex: patents that Google simply buys from IBM 2. ***Some companies do not have a core competence!!!! (not all companies have a unique skill that other companies can't mimic) -Lacking one does not mean instant failure, but some companies that have a core competence do not realize it or would have a hard time identifying it

Two-Big caveats to the 5-box perspective (and positioning in general):

1. The sometimes weak link between beliefs and behavior -There are a lot of things you believe but can't act on -need to try shifting beliefs -The belief to behavior link is not always straightforward -You need motivation, opportunity, and behaviors to act on beliefs (ex: you can believe exercise is important or that you should watch less TV, but you may not be motivated to act on it). -you want stuff at the grocery store that you don't buy (unhealthy) -Voters agree with one candidate but vote for the other because they FEEL like they should. 2. The sometimes weak link between the consumer proposition and (updated) beliefs -consumer propositions do not always lead to desired beliefs. We don't believe everything we hear; we counter-argue, and initial beliefs can be hard to change (even when you provide evidence that belief is false_ -Once you know something, hard to un-know it

Common Brand Strategies/Architecture (Umbrella, Distinct), hybrid)

1. Umbrella brand: a family of products that deliver the same benefit (ex: crest toothpaste mouthwash and whitening) -branded house -advantage: you already have the customer's trust 2. Distinct branding: firms offer several products with distinct meanings, brand names, and logos tested to different audiences. (common in consumer packaged goods; Unilever owns Axe, dove, etc...but the logo is really tiny on the back of the bottles -house of brands 3. Hybrid Branding: a blending of two types of brands (ex: 3M logo on post-its, power brake cleaner, and Nexcare bandaids) -there are associated sub-brands; people know the products are 3M bc the logo is bigger/seen Helpful article explaining this: https://www.thebrandingjournal.com/2022/01/brand-architecture/

1. When should we segment? 2. Why do we segment?

1. When: -When the incremental value from customizing outweighs the costs of developing, separate offerings for each segment -When the cost of customization is high (e.g., durable goods such as household appliances), companies tend to develop offerings that serve relatively large segments. -When the cost of customization is low (for example, delivering online news), offerings can easily be tailored for smaller segments. -We can't be everything to everyone (there are some segments that we should be happy to ignore). Why: -We segment to increase the efficiency of our marketing efforts -it is important to understand the different segments relevant to your brand -only target those segments that are likely to be most responsive (maybe some other non-targeted ones will also be persuaded!) Notes: -Target market size and probability of conversion are inversely related, generally -probability of conversion meaning: the likelihood of turning prospects into customers, so a smaller, more focused target market may have a higher probability of conversion into customers. -We want to find the optimal balance between size, pr (conversion) → how likely they are to respond positively.

What do acquisition efforts often have to overcome? Acquisition efforts vs. retention efforts focus?

1. acquisition efforts often have to overcome existing brand loyalties 2. Acquisition efforts focus on raising awareness; retention efforts are less focused on the product

Some benefits of customer loyalty

1. can be a barrier to entry 2. Inertia -allows time to respond to competitor innovations -protection against price attacks 3. the source of price premiums -the additional amount a customer will pay for the brand in comparison with another brand offering similar benefits. (people buy coke even when Pepsi is cheaper)

Why do we see so many brand extensions?

1. consumers can alleviate boredom but stay in the family 2. billboard effect (ex: red wall of coke) 3. pricing breadth (Create regular/premium versions) 4. Lower cost (Cheaper to extend the brand than to create an entirely new brand) 5. Reduce the risk of product failure, career risk Note: YET extending the brand also has the risk of diluting the brand.

The basic framework for organizing marketing plans

1. foundational considerations 2. acquisition and retention 3. source of volume 4. STP (segment, target, position) 5. Execute (The 4 P's: product service, price, place, promotion).

Drawbacks of segmenting on demographic, behavioral, attitude variables

1. potentially limits growth -marketers can't grow a demographic segment but might be able to stimulate needs/what they prioritize -Ex: Cant grow the segment of 20-something women, but you can grow an attitudinal segment (the number of people who think a trend is cool). 2. what is cheap and abundant for us... 3. only some behaviors are strongly predicted by demographics -ex: Say you want to guess who punched a hole in the wall...Age and sex are pretty good predictors (A male between 20 and 25) 4. Demographics alone won't always tell us what we are looking for (ex: -ex: Ozzy Osbourne (the prince of darkness) and Prince Charles: same age, British citizens, of royal blood. They're in the same demographic segment, but I can't imagine marketing to them the same way. 5. segmenting on behavior alone can be problematic -lots of instances where our purchases don't reflect our typical attitudes gifts, using company credit card, on a date) 6. feelings don't always translate in a straight forward way (a busy person → i have a high need for convenience)...but you may be busy and not have this need. 7. attitudinal data = difficult to collect (are people telling the truth, requires frequent measurements) -ex: some older people don't car about having wrinkles and some do.

Ways to stimulate demand

1. stimulate heightened usage among loyalist - gets more out of our existing customers (not new customers) 2. bring people into the category (competitors may also benefit from these efforts) -When the total market expands, the category leader usually gains the most (they are the most recognizable, easiest to find, so category leaders are most motivated to expand the category). ex: If people get excited about fast food, they may go to Wendy's as well.

Common loyalty

A deeply held commitment to rebuy a product or service despite situational influences and marketing efforts having the potential to cause defection. Acquisition challenge: overcome existing brand loyalties. Ex: when brand keys ranked credit card loyalty, discover had stronger customer loyalty then amex (less people but stronger loyalty)

Common segment definition

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

Who would more routinely use branded variants: a soda manufacturer or a phone manufacturer?

A phone manufacturer

Some illustrations of an Acquisition focus Some Illustrations of an acquisition marketing objective Some Illustrations of a Retention Focus Some illustrations of retention marketing

Acquisition focus: -repetition of a phrase ("Apply directly to forehead HEAD ON") --> helps acquire customers Acquisition marketing: Leveraging awareness of stronger competitor -"There's no cola like the uncola" -Mcdonald's saying: "Four bucks is dumb" → speaking to people who get their coffee from Starbucks -Kohl's is betting on Amazon returns to drive sales If you have an Amazon return, bring it to Kohl Retention focus: -Ads that focus less on the product (Keeping the product relevant/logo popping out at you) -Talking to people who already own iPhones (trade in your 13 to get a 14). Other than that, it may target people who have Samsung to switch over. Retention marketing: -Monopoly: Consolidate money → collecting game pieces to win something big -Sephora rewards programs Note: in general, for rewards programs, light buyers increase the most over time, and heavy buyers stay relatively the same. -It is hard to get rewards programs just right

which of the following businesses is most likely to face a share of wallet problem? A. a motorcycle manufacturer -a desk manufacturer -a wedding planning business -a real estate agency -an airline

An airline → less loyalty with airlines, people just go with whatever is cheapest → spreading their loyalty.

Barnacle

Barnacles are customers that have a low overall spend and customer lifetime value yet remain in your customer base for longer than most customers (low profitability)

What is generally considered to be larger: the number of people whose beliefs the marketer can change or the number of people whose behavior the marketer can change?

Beliefs! -You can change beliefs but not behavior -Some people may forget their beliefs were changed or forget to act on them (forget to behave)

size of wallet

Buyer's total amount of money spent in a category ex: recent shopping history for a JCrew barnacle: -a pair of pants from Jcrew and a pair of shoes from Jcrew

What is a brand's category? Who are their competitors?

Category: The brands with which a brand competes and which function as close substitutes. If consumers do not commonly choose between two brands, they should probably not be considered in the same category. Category is usually narrower than the core business. -Ex: Coca-Cola's category: Soda; their core business: refreshments

Repositioning examples Where the product doesn't change that much (cheerios, donut, cliff bar) Getting adults to buy sports cards...

Cheerios → Cheerios protein (Wanted it to taste good on the first try, so they loaded it up with sugar. They added a sprinkle of protein). Repositioning: party bagel, not a donut Cliff bar: We are an energy bar; One bar is all you need to climb a mountain -Its basically a candy bar with tons of sugar Getting adults to buy sports cards: it is not a toy; it is an investment.

How does coke use differences to target different segments?

Coca-Cola uses small differences to target different segments: -Diet coke: people who don't want all the sugar -Caffeine free: for the people who don't like caffeine -Coke zero: more masculine bc men didn't like the word "diet" -Different flavors Note: For coke zero, you will mostly see men and for diet coke, you will mostly see women (men don't like the word diet) -Subtle, but clear -Minimal difference in ingredients -don't market it like "it's not for men"

5 box positioning statement (One way to conceptualize positioning)

Current belief (driving current behavior) → consumer proposition → desired belief (driving desired behavior) ex: 7 up example current belief: 7 up is for upset stomachs; current behavior: when I want soda I drink coke desired belief: 7-up is actually a side and it is refreshing desired behavior: next time I want soda, I'll get a 7-up.

You want to encourage people to exercise, so you give them "points" each time they exercise. If they collect 100 points in 5 days, they receive a prize. They must exercise all 5 days to receive the entire 100 points. How might you allocate those points over the five days to maximize their motivation and reduce their likelihood of dropping out of the program: __ , __ , __ , __ , __ (there are many possible correct answers here)

Day 1: 40 Day 2: 30 Day 3: 15 Day 4: 10 Day 5: 5 (start with a lot of points, but then they are so close to reaching their goal, so they will keep going).

What kind of branding strategy would a pharmaceutical company prefer?

Distinct branding -would minimize the damage if the product fails/potential fallout (If one drug fails, you don't want it to affect every drug they sell).

Distinctiveness vs. centrality (new approach that is often mapped out)

Distinctiveness: how you stand out from other competitors Centrality: how representative brands are (in shaping perceptions) with cars: -distinctiveness: how the price stands out -centrality: how representative the brand tesla, audi, etc -in the chart, distinctiveness is Aspirational quadrant: you are central and distinctiveness is a better predictor of price

If we're thinking about Netflix, would "entertainment" be a better way to describe their category or their core business?

Entertainment would be better to describe their core business with the category being streaming content (Hulu, Disney Plus) Category = smaller Core = bigger/essential

True or False: When a brand is considered highly "central," it must also be considered highly "distinctive.

False

True or False: All brand extensions create brand dilution.

False (only some) -some brand extensions are good

True or False: Repositioning is always associated with some kind of packaging redesign.

False!! -Doesn't HAVE to be -You may not want to change iconic packing -You just want to change how people think about things

True or False: A perceptual map must feature only two axes (an x-axis and a y-axis).

False!!! A perceptual map is how people see the players in a category and how they are viewed.

How can non-leaders steal share? (2 types)

Frontal attack: -Head-on attack of the fundamental aspects of the leader (ex: Pepsi tastes better than Coke) Flank attack -attack a leader's weak points/blind spots Ex: attack an area where the leader is geographically weak or attack a segment that has been neglected by the leader. ex: "there's buzz and there's news" : NYTimes attacking Buzzfeed News. ex: Coor's beer "light beer shouldn't taste like water" picking on a competitor.

Computing CLV -Margins (m) -Annual retention rate (r) -discount rate (d)

If the customer produces a constant stream of annual margin (m), and if the annual retention rate (r)is constant then: E(CLV) = m(1+d)/1 + d- r Margins (m): annual revenue per customer - costs associated with serving that customer (ex: ads targeted at them) -The "Margin" in CLV refers to the profit margin or the portion of the revenue generated from a customer that contributes to the company's profits. -Usually assumed to be constant, but can certainly change over time -Annual retention rate (r): percent of current customers who will still be with the firm at the end of the year -discount rate (d): adjusts for the fact that money today is worth more than money tomorrow -CLV doesn't like discounting future dollars

Computing expected customer lifetime value As m increases... As r increases... as d increases...

If the customer produces a constant stream of annual margin (m), and if the annual retention rate (r)is constant: As m increases, CLV will increase As r increases, CLV will increase As d increases, CLV will decrease

Contractual settings: Determining the size of the customer base

In contractual settings, we observe the time at which costumers become inactive ("churn") -Ex: people who sign up for blue apron (subscriber retention by number of months since acquisition)

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

Invest in the barnacle with the Low SHARE of wallet -because they have money to spend, so you want them to consolidate it with you Low size: you can't change their wallet size

Stealing share

Involves targeting competitors' customers -usually, the strategy choice for non-category leaders -steal loyal customers from competitor(s) -convince multi-brand users to become more loyal to us, less loyal to competitors -Ads that invoke a comparison with the category leader are typically intended to steal share (ex: We're bigger, better, faster, cheaper than...) Note: Sometimes attempts to steal share can create ambiguity about category membership (Can create a need to reassure that the brand has the required points-of-parity).

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

It would cause you to UNDER-estimate how many competitors you have/the competitors you are up against. -You aren't thinking of the broader range of competition → only the companies that "look like you." ex: if Dominos only focuses on their products, rather than the fast service... they won't realize the other quick services they are competing with (like quick technology, not just fast delivery of food)

When introducing a reward program (e.g., earn discounts or rewards by frequently shopping with us), are you generally more likely to influence the buying behavior of heavy buyers or of light buyers?

Light buyers -They may have been low share of wallet people -You should consolidate their purchases so they are usually most responsive. -The heavy buyers are already heavy buyers

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

More effective when rates are FLEXIBLE (more easy to motivate) -If you have a lot of it in your home, does it influence how much you consume? -usage depends on how much is in front of you (you may eat more cookies if they are in front of you). -If inflexible, it just encourages people to stockpile -For Inflexible usage rates: you are going to use how much you need (ex, you will use the amount of toilet paper or dish soap you need)

Shampoo A and Shampoo B are identical except for their packaging and price. Shampoo A comes in a blue bottle and is priced at $5. Shampoo B comes in a pink bottle and is priced at $4. Is this pattern consistent with the idea of a "pink tax"?

NO! Pink tax → shampoo A should be $4 -Pink tax is weak because you aren't always comparing apples to apples (men's products may be different than females).

are negative or positive position statements often more powerful?

Negative, "prevention-focused" positioning statements are often more powerful ex: IBM tagline: no one ever got fired for buying an IBM -Your office is taking a risk if you buy another system, so buy ours! -FUD factor FUD: Fear, uncertainty, doubt

Is it optimal to capture everyone in the market (reaching 100% market share when competition is present)? Why/why not? In other words...

No! -It's hard to please everyone -Acquisition cost is too big/too expensive to acquire everyone -Without the resources to please all your customers, you may be overwhelmed and fall short on QUALITY. -Not profitable to peal some people away from what they're already loyal to (too expensive to acquire loyalists) -Exclusivity concerns: You don't want everyone using your brand (People may prefer exclusivity: think luxury clothing brands). Ex: AOL was good at convincing everyone to sign up, but they didn't have the capacity to serve everyone who signed up

According to the "Red Ocean" reading, whose beliefs should we be most focused on?

Noncustomers (people outside the category) -They have the greatest insight on the points-of-pain -Growth comes from converting nonusers

Caution is required when targeting vulnerable segments with potentially harmful products...who is viewed as vulnerable?

People incapable of making informed decisions at the time of purchase, perhaps due to: -Limited education -Conditions that interfere with info processing (ex: hearing difficulties associated with aging) -Financial distress -Addiction ex: Juul Ads appearing on cartoon network and other youth sites, suit claims (a "no no") -some people even view fast-food / sugary products as harmful

Brands within a category have what two things...

Points-of-parity and points-of-difference

Which type of ad is more likely to capitalize on the FUD factor: a political campaign commercial or a paper towel commercial?

Political campaign FUD: if you don't vote with me things are going to go bad/disaster is on the way

The purpose of Goals and the attributes of beneficial goals

Purposes: -Simplify decision-making -Performance benchmark -Prioritized -Quantified -Includes a temporal benchmark -Realistic -Internally consistent But beware: overly ambitious goals can stimulate dishonesty. (Ford produced the Ford Pinto) They can also overly focus attention. (Producing tunnel vision)

Retention involves proactive and reactive retention campaigns. Explain both... What do proactive campaigns involve?

Reactive campaigns: -A reaction to an external event (circumstance, competitor, etc) -they are more straightforward (at least in contractual settings) Proactive campaigns: -they are initiated based on careful planning and anticipation of future events or opportunities. -they involve both false negatives and false positives False negatives: failing to identify customers who intend to leave False positives: offering Incentives to stay (or renew/upgrade) to customers who never had any intention of leaving.

Segmentation efforts will ideally yield "mutually exclusive and collectively exhaustive" (MECE) segments...explain How are customers commonly segmented?

Segments should be sufficiently different from one another so that they do not overlap. Variables on which customers are commonly segmented: 1. Demographic (income, climate, gender, generational, region, etc) 2. Behavioral ex: ads for Nicorette gum instead of smoking 3. Attitudinal (Thoughts, feelings, beliefs, desires, aspirations) -ex: adult toothpaste ad (need for white teeth vs. fresh breath vs. low price vs. romance vs. flavor) Examples: -setting segments by age (no one is in more than one segment). -Segmenting by citizenship would not produce MECE segments (people are in more than one) -PRIZM (potential rating index by Zip markets) -Potential based on zipcode (ex: where should we locate our franchise) -Takes into account location, education, affluence, family life cycle, urbanization, race, ethnicity, mobility -62 types of clusters

Glenlivet, a high-end whisky producer, recently introduced "whisky pods," an unusual product that lets you drink whisky by biting into a pod....Imagine that I write an online product review saying that I ate some Glenlivet pods and was sick for a week. What are some reasons why I might write such a review?

Someone may lie about their usage in order to convince others to get rid of the product and get the brand to discontinue the product....which self-appoints the brand manager. -bc you love the brand and you don't love the product, so you don't want to see the brand embarrass themselves. This is because they don't want the brand to be diluted.

Marketing consensus

The art and science of meeting needs profitably

Stealing share examples when it is good to welcome competition: -Toy R US -Fox New's Weather Channel

Toys R US -A world without Toys R Us: toymakers could be hit by a ripple effect. -If Toys R Us closes and if people don't know there's a good bunch of stores around, they fear the answer will be more online shopping. Fox New's Weather Channel -Welcomes competition -"Now the world will understand how big of a business the weather business is and how important it is."

True or False: It is possible to consistently target vulnerable consumers without getting into any legal or public relations problems.

True -What if it wasn't a harmful product -If it was harmful, yes -But if it was something like salad, you wouldn't get into any legal problems (not harmful)

The 80/20 "rule" (also called the Pareto principle)

Typically, a small percentage of customers generate the majority of profits roughly 80% of purchases come from 20% of customers Top consumers doing the lionshare of the work

belief perseverance From a marketer's perspective, when might belief perseverance be a good thing?

What is it: clinging to one's initial conceptions after the basis on which they were formed has been discredited. -It can be a good thing (even if it sounds bad) -Maybe the false belief favors you -If your competitor debunks it, but it benefits you → good thing -Depends on what side of the false belief you are on.

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

Yes, they do... One perspective: Brands don't matter if you have ratings on Amazon..BUT they do!! Reviews themselves aren't a pure reflection of your experience with a product (reviews are tainted, even if people think they are giving a good review of their experience) -Reviews are influenced by branding/advertising (Maybe through price, what they are hearing, etc). Amazon rating suggests: -Ratings correlate poorly with consumer report (CR) scores -Average user ratings don't predict resale value (CR scores do) -Average ratings are influenced by price and brand image, even when controlling for quality (CR scores). -Some people (negatively) review products they never purchased

core competency

a set of knowledge/skills that is difficult for competitors to imitate -they generate strategic assets, which generate benefits for consumers (products). -it usually provides access to multiple markets Core competence → strategic asset → product benefit -Ex for Walmart: Core competence: superior "logistics know-how" Strategic asset: low costs for Walmart Product benefit: low prices to customers

who is most motivated to stimulate demand?

category leaders

Noncontractual settings: Determining the size of the customer base

in noncontractual settings, we do NOT observe the time at which customers become inactive (ex: eating cheetos)