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Week4-Consumer_BusinessMarkets.pptxIntegrated Marketing
Session 4
Analyzing and Understanding Consumer & Business Markets
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What we’ll cover today
Analyzing Consumer Markets
It Starts with Value
Influences of Consumer Behavior
The Buying Decision Process - Five Stage Model
Creating Consumer Loyalty
Consumer LIfetime Value
Developing Compelling Consumer Value Proposition
Analyzing Business Markets
Organizational Buying
Purchasing Process
B2B Marketing
Managing B2B Relationships
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Customer - Centric Marketing
How valuing customer equates to successful business
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It Starts with Value
Organizations must fully understand consumers and the marketplace in which it operates because marketing is about creating value for customers
Five core marketplace concepts:
Customer needs
Wants and demands
Customer value and satisfaction
Exchanges, transactions
Relationships and markets
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Customer Value Defined
Customer Value is the perception of what a product or service is worth to a Customer versus the possible alternatives.
Worth means whether the Customer feels s/he or he got benefits and services over what s/he paid.
In a simplistic equation form, Customer Value is Benefits-Cost (CV=B-C)
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With rise of digital technologies, informed customers excpect companies to do more to connect with them - expect them to listen and respond.
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How Customers Choose
Customers choose offer that they believe offers the highest value
Customer Perceived Value (CPV) -The difference between the prospective customer’s evaluation of all the benefits and costs of an offering and perceived alternatives
Total Customer Benefit (TCB)-Perceived monetary value of the bundle of economic, functional and psychological benefits based on product, service, people and image
Total Customer Cost (TCC) -Perceived bundle of costs incurred for market offering
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Examples - Dell Computer- Rose to success on low-priced computers, logistical efficiency and after-sales service. Cut costs by moving call centers to Phillipines & India, with understaffing. Led to 30 minute waits and half were transferred. Toll-free number was removed from site to discourage calls. Competitors took up the slack with low-cost and effective customer service. Market share and price declined sharply - focus was cost versus customer satisfaction
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Determinants of CPV
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Applying Value Concepts
Customer adds up: Economic +Functional +Psychological benefits from four sources:
Product - Deliver durablity, performance resale
Service - Delivery, Training, Maintenance
People - Knowledgeable and responsive staff
Image - Corporate image, reputation
Total Customer Cost; buyer’s time, energy. Psychological costs expended in acquisition, usage, maintenance, ownership and disposal + monetary cost = TCC
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Consumer Value Analysis
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Accurate and thorough intelligence is the foundation of all successful business ventures because it provides vital information about prospective and existing customers…the competition…and the industry in general. It enables business owners to determine the feasibility of a business before committing substantial resources to the venture.
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Delivering High Customer Value
Value Proposition - Cluster of benefits company promised to deliver, more than the core positioning of the offering e.g. Volvo - Not only safety but good performance, design, good for environment
Value Delivery System - All experiences customer will have on the way to obtaining and using the offering
Customer Loyalty - Deeply held commitment to rebuy or repatronize a preferred product or service in the future despite situational influences and marketing efforts that strive to cause switching behavior
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Apple, Amazon, Samsung. Call of Duty, Halp, Yeitter, Kindle, Mary Kay. Grey Hoose. Googlr. Youtube, Facbook. G}Dunkin Donuts, Zappos, Patron, Cdszf Whitestrios, Qalmart, Mayvelline, Clinique, Ketel One, Hyundai, LG, Avus, Linked IN
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Customer Satisfaction
Description:
Customer satisfaction is a marketing term that measures how products or services supplied by a company meet or surpass a customer's expectation. If product or service falls short - dissatisfied.
Customer satisfaction is important because it provides marketers and business owners with a metric that they can use to manage and improve their businesses.
High satisfaction creates an emotional bond and can be used to market product
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Company can not just satisfy customer - lowering price or increased service may decrease profit. Other options? Improve mfg, R&D
Investment. Can divert funds from other stakeholder needs - employees, dealers, suppliers and stockholders
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Monitoring Consumer Satisfaction
Companies systematically monitor how well they treat customers, identifying satisfaction and changing operations and marketing to keep them happy and satisfied.
Why? Key to customer RETENTION
Satisfied customer stays loyal longer, buy new and upgraded products, talk to others, less attention to competing brands, less price sensitive, transactions become routine. So less cost to retain.
Link btw CS and CL is not proportional; rated 1-5
1 - likely to abandon and badmouth
2-4 Fairly satisfied - easy to switch
5 - HIgh satisfaction/delight = emotional bond, will repurchase, talk (HS Xerox customers 6x more likely to repurchase
CS rank performance differently, impt to know perception of competition
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Measuring Consumer Satisfaction
Periodic surveys - “How are we doing?”; measure repurchase intentions, NPS - recommend?, explore perceived attributes or benefits
American Customer Satisfaction Index (ACSI) University of Michigan - Measures consumer perceived satisfaction with different industries, economic sectors, national economies. Correlation between Customer Satisfaction and and firm financial performance and ROI
Monitoring of own website, consumer comments/complaints and taking action
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Value Based Pricing
Value-based pricing - The method of setting a price which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to competitor (Harvard Business Review) Place a dollar amount on differentiation
Brand A to launch new 65 inch LED television biggest screen in marketplace
Brand B introduced 60-inch TV for $799
Both TVs have similar, undistinguished features
WIFI
High Definition
Same HDMI inputs
Same refresh rate
How do you determine price for Brand A?
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Value Based Pricing Guidelines
Focus on single segment:
B2B customer/Best Buy
Big-screen buyers, not all buyers
2. Compare with next best alternative (what would segment buy if this is not available?
3. Understand differentiated worth
4. Place dollar amount on differentiation
How much will buyers pay for 5 more inches of screen?
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How much - $150 makes Brand A pricing at $949
Will use conjoint analysis or qualitative customer interviewing to validate
May be too many features to be able to differentiate
May not work - may be better for B2b
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Cultivating Customer Satisfaction and Loyalty
How to Win Customers and Beat Competitors
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Customer Loyalty-Why Does it Matter?
On average loyal consumers are worth up to 10 times as much as their first purchase.
White House Office of Consumer Affairs
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Why Consumer Loyalty Matters
3 out of 10 will switch for better service experience - AMEX 2011
9 in 10 Americans will spend more with companies providing best customer service - RightNow Customer Experience Impact Report 2010
80% of respondents believe smaller companies place greater emphasis on service than larger companies
91% of customers will not return if you botch first encounter - Consumer Reports
81% of companies delivering excellent customer experience are outperforming their competition
For consumers with a strong brand relationship, 64% cited shared values as primary reason
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The Customer Loyalty Cycle
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Cycle requires commitment and focus. Companies need to monitor CS regularly as key to customer retention - Methodologies include periodic surveys, American Consumer Satisfaction Index measures perceived satisfaction oF various products, companies> Established correlation with CS score and firm’s financial performance - ROI, sales and long-term value.
Companies also use - Net Promoter Score , with varying results.
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Customer Loyalty Strategy
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Personalization - creates loyalty - Mints - waiter brought with no comment - increase tip by 3%. Second Group brought 2 mints per person after check - Tip went up 14%. Third group - Waiters brought mints with check. Returned with more and asked if they wanted extra - Tips went up 23%
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Maximizing Customer Lifetime Value
Customer lifetime value measures the profit your business makes from any given customer.
What can you do with Customer Lifetime Value?
Customer Lifetime Value is the single most important metric for understanding your customers. CLV helps you make important business decisions about sales, marketing, product development, and customer support. For example:
Marketing: How much should I spend to acquire a customer?
Product: How can I offer products and services tailored for my best customers?
Customer Support: How much should I spend to service and retain a customer?
Sales: What types of customers should sales reps spend the most time on trying to acquire?
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Calculating Customer LIfetime Value
How do you calculate Customer Lifetime Value? - May nuances BUT – Way to calculate CLV is to take the revenue you earn from a customer and subtract out the money spent on acquiring and serving them.
Estimate your Customer Lifetime Value - Value of an average order at your business is $50. Any time someone makes an order, they have a 10% chance of making a repeat purchase. It costs you $15 to acquire each new customer.
The total revenue you can expect to get from each customer is your average order value divided by one minus the repeat purchase rate, or $50 / ( 1 - 0.1) = $55.56. Subtract your customer acquisition cost from that, and you get a customer lifetime value of $40.56.
How to predict your Customer Lifetime Value - CLV can be calculated historically, over specific time periods, or it can be predictive. Each of these calculations serve different purposes. But, predictive CLV is the most powerful way to not only understand what a customer is worth to you now, but also how their value will change overtime.
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Calculating CLV
Calculate any purchase value Total Revenue divided by # or purchases
Starbucks customer spends $5.90 each visit (avg per week). 3x per week average is $9.00. Overall avg. $3,00
Calculate purchase frequency- avg. for 5 customers is 4.3 visits per wekk
Calculate avg. customer value for 5 customers x avg. purcshed value by avg. frequency = $24.30
Calculate avg. customer lifespan. Divide 1 by your churn rate
Customer Lifetime Value – Multiply avg. customer value by 52(weeks in a year) 52 x $24.30 =$25,272
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Value of Customer Lifetime Vlaue
New customer costs 5 to 25 times more than existing customer (Harvard Business Review)
5% increase in retention of customer increases profit by 25-95% (Bain & Co. Research Study)
This is why research and ongoing product innovation and quality/service improvements are essential to a brands longevity and profit
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Cultivating Customer Relationships
Customer Relationship Management (CRM) -process of carefully managing detailed information about customers and all customer “touch points” to maximize loyalty. Enables companies to provide excellent real-time service through use of individua account information - personalized marketing
Customer Value Management (CVM) - Optimization of the value of the customer base, Focuses on analysis of individual data on prospects and customers in developing marketing strategies to acquire and retain customers and drive behavior
Customer Touch Point - any occasion when customer encounters the brand; personal experience, mass communications, casual observation
What are touch points for the hotel experience?
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Reservations, Check-in, check-out, frequent stay programs, room service, business service, exercise facility, laundry, bar, restaurants, pool, beach
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What Influences Consumer Behavior
Cultural Factors - Fundamental determinant of personal wants and behaviors. Influenced through family and other key institutions. Children exposed to values including achievement, success, efficiency, practicality, progress, material comfort, individualism, freedom, external comfort, humanitarianism, youthfulness.
What are cultural factors in Your country?
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What Influences Consumer Behavior
Social Factors
Reference Groups (members) - Direct influence on attitude or behavior (primary: family, friends, neighbors, co-workers
Secondary: religious, professional , trade unions
These groups expose members to new behaviors and Influence attitudes, self-concept, pressures for conformity
Aspirational Groups - hope to join
Dissociative Groups - reject values
Opinion Leaders - Confident, socially active - offer informed advice on product
Cliques - small groups whose members interact frequently
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What Influences Consumer Behavior
Personal Factors
Age and stage in the life cycle - how does this affect choices?
Consumption impacted by family life cycle; number, gender and lifestyle of people in household
In US - average family size reduce from 4 to 2.6
How does this change impact marketers
Boo at the Zoo becomes Brew at the Zoo
Personality and self-concept - psychological traits leading to consistent responses to environmental stimuli
Lifestyle and values - economics, time-constraints
Brand personality - human traits ascribed to brand
Sincerity, excitement, competence, ruggedness (Brands?)
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Traits include self-confidence, dominance, autonomy, deference, sociability, defensiveness, adaptability
Name brands with with of these personalitities
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Key Psychological Processes
Motivation
Freud - unconscious behavior. React to shape, color, brand name
Maslow’s Theory - Driven by hierarchy of needs
Herzberg’s Theory - Dissatisfiers (seller to avoid) /Satisfiers
Perception - Process by which we select, analyze, organize ane interpret information to create meaningful picture of the world - Consumers perceive through their senses(touch, smell, sound, taste, vision. People respond differently to same stimuli
Selective Attention; relate to current need, anticipate, deviation
Selective Distortion - relate to our set preconceptions (blind test differentiation)
Selective retention - retain information that supports our attitudes and beliefs (repetition)
Subliminal perception - marketers embed subliminal messages in ads/packaging
Learning - induces change in behavior
Emotions- marketer make consumer feel proud, excited or confident and impacts emotional response
Memory- Product creates valued brand association
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Consumer Behavior
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Memory Encoding
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Five Stage Buying Decision Process
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Who Has Input Into Buying Decision?
Initiators - Early adapters
Influencers - alphas start trends
Deciders
Buyers -”Bees: - Hyper-devoted customers who live to spread the word
Users
Different marketing campaigns can be targeted to each type of person
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Behavioral Decision Theory (BDT)
Consumers don’t always make decisions in rational way
Decision Heuristics
Availability -predict and determine purchase based on knoledege (product failure - warranty
Representative - base decision on other similarities - packaging
Decision Framing - its all in what is presented
- $200 phone inexpensive if all others are $400
Take stairs versus elevator cause it is energy efficient and healthier OR
https://www.youtube.com/watch?v=2lXh2n0aPyw
Mental Accounting
Money is key to decision making
Consumers segregate gains -listing multiple benefits versus whole
Consumers integrate losses - advantage if cost added to larger purchase
Integrate smaller losses with larger gains (weekly tax versus annual tax)
Segregate small gains from large losses (rebates)
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Analyzing Business Markets
Business Market – all organizations that acquire goods and services used in production of other good and services sold, rented or supplied to others
Fewer, larger buyers(aircraft, defense, automobile parts (Goodyear)
Close supplier/customer relationship – expected to customize offerings (Billions in materials and services from 1000’s of suppliers). Seeking excellent performance; delivery, documentation, innovation, responsiveness, improvement, annual value-added and cost savings
Professional purchasing – by trained agents
Multiple buying influences
Multiple sales calls
Derived Demand
Inelastic demand
Fluctuating
Geographically concentrated buyers
Direct Purchasing
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Analyzing Business Markets
Business market - all organizations that acquire goods and services used in production of products or services that are sold, rented or supplied to others
Supply components for products is business to business marketplace
Communications
Name business markets
Purchase Deciders - Buying Center
Initiators - request something is purchased
Users - will use product or service
Influencers - influence buying decision
Deciders - decide on requirements or suppliers
Approvers - authorize purchase
Buyers - authority to choose suppliers
Gatekeepers - power to keep suppliers away from decision maker
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B 2 B industries include aerospace, agriculture, forestry, fisheries, chemical computer, construction, defense energy, mining, manufacturing, construction, transportation, communication, public utilities, banking, finance, nsurance, distribtuion amd services
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B 2 B
Stages in Buying Process
Problem recognition - need
Supplier search- catalogues, e-hubs-vertical markets, auction companies, exchange/commodity markets
Barter markets
Buying alliances
Lead Generation
Proposal Solicitation
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Group Class Assignment # 4
Homework Assignment 4 - Group Project - Leads Towards Midterm
This is assignment is a part of your midterm grade. In class you will determine your group members ( No more than 4 per group). Each group must collaborate together to select a product from the U.S. or China that is a relatively new product that you believe has enormous relevancy and value for today's consumer in the marketplace where it is sold. In addition, your group should potentially be product users, believe in the product's consumer benefits and value. As a group you will write a three page paper that includes the following:
1. Research together and determine a category; consumer products, food, beverage, technology, cosmetic, restaurant, commodity, health care, cosmetics, beauty. fashion, travel, etc.
2. Choose your Group's product, all in group must agree. This product will be the focus of work by your group for various assignments in-class as part of your midterm. You may not have the same product/brand as another group.
3. Prepare a brief description /summary of the Product or Service your group has chosen for this group project. Students work together on all aspects of this paper but each student researches and writes a specific section. Group develops information on the following:
Rationale for choosing this category and product. Why did your group wish to focus on this?
All aspects of the Brand Description - what it is, how it works, brand category it is in
Identify major product benefits and attributes
Identify customer value proposition
Identify brand price and how appropriate price is for brand based on benefits
Define how it meets a consumer need(s), wants, desires on following levels:
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Group Class Assignment # 4
Economic
Functional
Psychological
Describe the rationale as to how this brand meets criteria for customer satisfaction, customer retention and customer loyalty or not
Target audience - Define primary and secondary audiences. Develop profile for customers (age, geography, gender, psychographics, economics. (Read Building A Marketing Plan pp. 31-57). Explain why this audience is relevant and will engage with product
Describe what factors will influence the buying behavior of your target audience
Develop Brand Positioning statement (Building A Marketing Plan - Chapter 6)
Identify major competitors for this brand
Develop a simple SWOT analysis chart
Estimate the size of your actual market and revenue. Project potential market numbers and revenue in chart for next five years and discuss what you will do for this growth (or will it be stagnant or lose share? Explain?)
Describe why this product is relevant to today's consumer and to the current marketplace. Explain why it will be a success based on investment, innovation, market trends, customer relationship
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Group Assignment # 4
3. Group leader or Group Member(s) will give a brief overview of your chosen brand to the class. Every Group Member is required to write one or more sections and submit to Assignments on due date.
More research and content will be part of Assignment #5. Development and presentation of powerpoint will be part of Midterm.
Document includes:
a. 3- 4 page double spaced paper in 12 point Times Roman includes subsections for all areas described above. Each student must contribute to their chosen section and their name should be on all parts of paper they have written
b. References in APA annotation
https://owl.english.purdue.edu/owl/resource/560/01/
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