Data for Marketing Analytics - Pennsylvania State University · 2016-01-29 · MKTG 521, Spring...
Transcript of Data for Marketing Analytics - Pennsylvania State University · 2016-01-29 · MKTG 521, Spring...
MKTG 521, Spring 2016 1
Data for Marketing Analytics
Measuring Value for Customers
Objective Value
Observed/Behavioral Value
Conjoint/Tradeoffs
Measuring Value of Customers
Arvind Rangaswamy
www.arvind.info
Measuring Customer Value
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Customer Value is Hidden
Price is transparent. Value is hidden.
Customer value could be a hidden source of
wealth for a firm to potentially tap into to increase
its profitability.
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The Value Salami
Cost, Price, and Value in a Market Economy
Customer
Value
Perceived
Value
Price
Pro-rated
Total Cost
Cost of Goods
and Services
Value Created
Customer Surplus or
Economic Driving
Force
Margin
Potential Value Lost
Value Added
0
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Present
State
Behaviors
Ignore
Postpone
Engage in
Purchase Process
Desired
State
Functional
and
Economic
Needs
Perceived
and
Psychological
Needs •Search for options
•Evaluate options
•Choose product
•Purchase product
•Use product
Customer
Value
Measurement
Approaches
Objective
Measures
of Value
Perceptual
Measures
of Value
Behavioral
Measures
of Value
Customer Needs and Buying
Process
Motivation
Customer Needs and Customer Value Measurement
Measuring
Objective Customer Value
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Choosing a Value Assessment Method
Criterion Objective
Value Based Behavior
Based
Perceived Value Based
Conjoint/ Tradeoff?
Unconstrained (e.g. Focus group)
Amount of Customer Info Needed
High Low Medium Low
No. of Customers Low High Medium Any
Good in Dynamic Markets?
Yes No Partly* Partly*
Past Purchase Data Available?
Not Necessary Needed Not Necessary Not Necessary
Analysis Time Frame?
Long Medium Long/Medium Short
Cost Very High/Respondent
Medium High Low
Insight Very High Medium High Low
Appropriate for Lead Users?
Yes No Yes No
Predictive of Behavior?
High Moderate Moderate Low
* If we get customers to reliably report how they will behave after change.
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Value of our offering =
the hypothetical price for our offering at which
a particular customer would be at overall
economic break-even relative to the best
alternative available to that customer for
performing a given set of functions.
The Objective Customer
Value for our Offering
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An Example Tool for Assessing Objective Customer Value
This tool allows customers to evaluate
different transformer designs to find
one that has the best economic value.
http://tcocalculator.abb.com/
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An Example Value Calculation
Measuring Behavior-Based
Customer Value
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Choosing a Value Assessment Method
Criterion Objective
Value Based Behavior
Based
Perceived Value Based
Conjoint/ Tradeoff?
Unconstrained (e.g. Focus group)
Amount of Customer Info Needed
High Low Medium Low
No. of Customers Low High Medium Any
Good in Dynamic Markets?
Yes No Partly* Partly*
Past Purchase Data Available?
Not Necessary Needed Not Necessary Not Necessary
Analysis Time Frame?
Long Medium Long/Medium Short
Cost Very High/Respondent
Medium High Low
Insight Very High Medium High Low
Appropriate for Lead Users?
Yes No Yes No
Predictive of Behavior?
High Moderate Moderate Low
* If we get customers to reliably report how they will behave after change.
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Data Everywhere Marketers Dream or Nightmare?
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Complex
Unstructured
Data
Traditional
Structured
Data
Growth in Non-Traditional Data
Source: IDC report, As the Economy Contracts, the Digital Universe Expands (May 2009)
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Raw Data Needs Formatting
For Human Use
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Some Domains of “Big Data” Marketing Analytics
Data
Siz
e (
Vo
lum
e)
Data Complexity (Variety, Velocity)
Low (structured) High (Unstructured)
Small
Large
Typical
Marketing
Analytics
Data
e.g., Social
media/social
networks data
(1) User reviews
(2) Process data
(3) …
(1) Search analytics
(2) Marketing
Analytics Online
(3) …….
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The Many Challenges for Business Analytics
Getting the data is much easier than making it useful.
Relevant data may have to be integrated from many sources.
Too much data – where to start? What to focus on? What to keep?
Lack of numerosity (“Number sense”) for the types of data we are seeing now.
Data often are of poor quality for addressing questions of interest.
Lack of skills (especially at business schools) for dealing with unstructured data.
Businesses focus on correlation, academics focus on causation.
….
Measuring Behavior-Based
Customer Value
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Choosing a Value Assessment Method
Criterion Objective
Value Based Behavior
Based
Perceived Value Based
Conjoint/ Tradeoff?
Unconstrained (e.g. Focus group)
Amount of Customer Info Needed
High Low Medium Low
No. of Customers Low High Medium Any
Good in Dynamic Markets?
Yes No Partly* Partly*
Past Purchase Data Available?
Not Necessary Needed Not Necessary Not Necessary
Analysis Time Frame?
Long Medium Long/Medium Short
Cost Very High/Respondent
Medium High Low
Insight Very High Medium High Low
Appropriate for Lead Users?
Yes No Yes No
Predictive of Behavior?
High Moderate Moderate Low
* If we get customers to reliably report how they will behave after change.
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Typical Approach to Measuring Value of Product Attributes
When choosing a restaurant, how important is…
Circle one
Not Very
Important Important
Decor 1 2 3 4 5 6 7 8 9
Location 1 2 3 4 5 6 7 8 9
Quality of food 1 2 3 4 5 6 7 8 9
Price 1 2 3 4 5 6 7 8 9
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Measured Value From Survey
Average Importance Ratings
6.2
7.1
6.5
5.7
1 5 9
Price
Quality of Food
Location
Décor
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Another Example of Stated and Derived Importance
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Conjoint Measurement: Deriving Value by Measuring Preferences/Choices
The basic assumption of Conjoint
measurement is that customers
cannot reliably express how they
value separate features of a
product in forming their
preferences. However, we can
infer the relative value by asking
for their evaluations (or choices) of
alternate product concepts through
a structured process.
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Product Option
Cuisine Distance Price Range
Preference Rank
1 Italian Near $10 2 Italian Near $15 3 Italian Far $10 4 Italian Far $15 5 Thai Near $10 6 Thai Near $15 7 Thai Far $10 8 Thai Far $15
Simple Example of Conjoint Measurement
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Simple Example of Conjoint Measurement
Product Option
Cuisine Distance Price Range
Preference Rank
1 Italian Near $10 8 2 Italian Near $15 6 3 Italian Far $10 4 4 Italian Far $15 2 5 Thai Near $10 7 6 Thai Near $15 5 7 Thai Far $10 3 8 Thai Far $15 1
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Example: Italian vs Thai = 20 – 16 = 4 util units $10 vs $15 = 22 – 14 = 8 util units
So “Thai” is worth $2.50 more than “Italian” for
this customer:
=𝟒
𝟖 𝟏𝟓 − 𝟏𝟎 = $𝟐. 𝟓𝟎
Can use this result to obtain value to customer
of service (non-price) attributes.
Measurement Via Forced Tradeoffs
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Overview of Conjoint-Based Decision Making
Perceptions
(Product
Attributes)
Customer
Preferences
Advertising
Customer
Characteristics and
Constraints (e.g.
Budget)
Revenue/
Profit
Market Share
Customer
Choices
Costs
Availability
Competitive
Offerings
We can also “reverse” the process by determining which product attributes maximize market share or
revenue.
Measuring Value of Customer
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Value of Customers
Anyone can measure the number of seeds in an apple. How to measure the number of apples in a seed?
-- Anon
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How to Place a Value on Our Customers?
Individual-level metrics
Satisfaction, i.e., more satisfied customers are more valuable
Loyalty/Referral/Advocacy
Customer Lifetime value (CLV)
…
Aggregate metrics (Collective value of our customers)
Net Promoter Score (NPS)
Overall customer satisfaction (e.g., www.theasci.org)
NPV/Customer equity
…..
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Customer Lifetime Value “present value of a stream of revenue a customer produces”
Focus on long-term relationship, not a single transaction
relationship value
cost savings
price premium
demand increase
base profit
acquisition cost Time
An
nu
al
Pro
fit
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Two Key Components of Customer Lifetime Value
Total Lifetime
Value of
Customer
Economic Value:
(Risk Adjusted) Revenue
Flow Less Cost-to-Serve
Relationship Value:
Reference
Referral
Learning
Innovation, etc.
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Economic Lifetime Value Calculation
(Anticipated) Cost to Serve Cash Flow
Discounted Profit Cash Flow
Risk Adjustment
Risk Adjusted Cash Flow
(minus)
Loyalty
(Anticipated) Revenue Cash Flow
Lowers?
Lowers
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Customer Relationship Value
Reference Accounts (Give us prestige, high credibility)
Referral Accounts (Give us high-quality leads)
Learning Accounts (Help us refine our offerings/ beta testers)
Innovation Accounts (Help us to develop new offerings)
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Objectives for CLV-Based Management
Reduce defection, i.e., Increase customer retention (Understand costs/benefits experienced by customers; meet competitive imperatives)
Improve customer selectivity (Focus more effort on high-value customers – who to serve? And, how to increase CLV – share of wallet?)
Boost cost efficiency (“A”, “B”, “C” customers? Do we know true costs of servicing different customers?)
Attempt to favorably alter the behavior of low-value customers.
……
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“Loyalty” Effects of Credit Card
Rewards Programs
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Managing Customer Portfolio Based on Value
Understand and measure
economic value
Opportunity cost?
Watch out
Customer Economic Value
Cu
sto
mer
Rel
ati
on
ship
Va
lue
Lo/Negative Moderate High
Lo/N
ega
tive
M
od
era
te
Hig
h
Keep it going!
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What Got You Here
Won’t Get You There