Gaining Competitive Advantage through Engagement Strategy© Dr. V Kumar Gaining Competitive...
Transcript of Gaining Competitive Advantage through Engagement Strategy© Dr. V Kumar Gaining Competitive...
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Gaining Competitive Advantage through
Engagement StrategyISB Customer Behavior & Branding PGPpro
V. Kumar, PhDRegents’ Professor,
Richard and Susan Lenny Distinguished Chair & Professor of Marketing, Executive Director, Center for Excellence in Brand & Customer Management,
and Director of the Ph.D. Program in MarketingJ. Mack Robinson College of Business, Georgia State University, Atlanta GA
andChang Jiang Scholar, HUST, Wuhan China.
Fellow, Hagler Institute for Advanced Study, TAMU, College Station, TX Senior Fellow, Indian School of Business, India
Introduction to Customer Engagement Value FrameworkDay 1 – Session 1
April 21, 2018 DelhiApril 28, 2018 Hyderabad
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Path to Profitability
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Operational
Excellence
Relationship
Marketing
Brand
EquityProfitability
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Why Manage Customer Relationships?
• To understand customers’ needs even before they know them themselves.
• Decreasing customer churn by increasing customer satisfaction.
• Motivating customers to initiate revenue-generating contracts.
• Increasing the likelihood of the ‘right response’.
• Use technology to improve customer service.
• Enable greater customer differentiation.
• Attract customers through more personalized communications.
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CRM in Real World……
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Winning with Big Data
Fall 2012 MIT Sloan Management Review
According to surveys conducted in 2013 by Match.com, nearly 1/3 of singles reported dating someone they met online. The dating services industry has performed increasingly well since 2010. Revenue gains averaged 4.8% per year reaching $2.2 billion in 2014. Over the past three years, Match.com has seen more than a 50% increase in revenue, with more than 1.8 million paid subscribers in its core business.
Match.com has a group of data scientists who are continuously improving a series of more than 15 matching algorithms.
“The unique thing about Match.com is that we have billions of data points from the last 17 years to analyze.”
-- Match.com President Mandy Ginsberg
IBISWorld 2014 Industry Report
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Winning with Big Data – Following the trends
In 2014, 3.1 million new
Match.com users listed “coffee
& conversation” as an interest
on their profile. Following
popular demand, the company
partnered with Starbucks “to
create new, interactive ways for
our members to meet and
share their love for the almighty
bean.”
The new “Meet at Starbucks”
feature on the site allows
members to instantly send
another member a coffee date
invite with a click.
In celebration of love, Match.com and Starbucks
invited people around the world to participate in
the World’s Largest Starbucks Date.
On February 13, 2015, participating Starbucks
locations featured a special menu. “Be sure to
grab a date and head over to Starbucks to take
part in this record-breaking event!”
blog.match.com/match-starbucks-the-perfect-blend
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Winning with Big Data
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October 2012 Harvard Business Review
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Case Study
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THE POWER OF HABITS
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How Customers’ Habits Impact Firm’s Profits?
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Humans are creatures of habit.
About 45% of our daily activities are governed by habits (Quinn & Wood 2005).
Habits are powerful drivers of recurring behavior and are known
to override customers’ intentions to act otherwise
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Firms’ marketing policies are typically directed at influencing customer behavior.
However, marketing policies can backfire if customers’ underlying habits (that
eventually drive behaviors) are ignored.
JC Penney Co. eliminated its heavily advertised sales and
discounts and shifted the marketing policy to everyday low pricing.
Underestimated the strength of its customers’ promotion purchase
habit and lost $985 Million in sales over one year (WSJ 2013).
Firms have always focused on purchase habits. Can there be other consumption
habits that can significantly impact firm’s bottom line?
If so, what are those ‘consumption’ habits? Can a firm’s marketing
policies impact formation of different consumption habits?
To what extent do these habits impact the firm’s bottom line?
Power of Customer Habits
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BIG DATA
In-store transactions, online purchases, email click-through data over 4 years,
1500+ customer characteristics, qualitative survey data,
0.46 million customers, 96 million rows x 1644 columns
Key Finding # 1: Customers’ habits are Multidimensional.
Purchase Habit
Return Habit
Promotion HabitLow Margin
Purchase Habit
Measure of Habit Strength : A customer will have a relatively high level of habit strength when he/she
exhibits a high frequency of recurring behavior that is temporally consistent
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Key Finding # 2: The four habitual behaviors are relatively
independent of one another and not correlated with the extent to
which a customer is loyal to a firm.
Inter-correlation of habitual behaviors
Return Habits
Promotion Habits
Low Margin
Purchase HabitsPurchase Habits
-0.10***
0.20***
-0.12***
0.12***
-0.01***
0.03***
Note: *** p<.001
Correlation coefficients range from -0.12 to 0.20 between the four habitual behaviors
indicating that the habits are not highly inter-correlated within the same individual.
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Key Finding # 3:
Customer habits have a significant impact on firm’s bottom line.
The aggregate effect of habit on profit across 0.46 million customers over 4 years shows that:
Purchase habit and Promotion habit positively impact the firm’s bottom line by $58 Million.
Return habit and Low Margin Purchase habit negatively impact the firm’s bottom line by $119 Million.
Impact on Firm’s Bottom Line % Change
Purchase Habit $ 54 Million + 10.4%
Return Habit $ 58 Million - 11.5%
Promotion Habit $ 4 Million + 0.8%
Low Margin
Purchase Habit$ 61 Million - 12.0%
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The Customer Lifecycle - Where should be we looking?
• As businesses shift from a product-centric focus to a customer-centric focus, the
customer lifecycle has emerged as a framework to describe the stages over time of
the relationship between a customer and a business.
•Measurement/Forecasting•ROI•Shopping Basket
•Measurement•Prediction•Purchase Sequence•Enrichment•Customer Loyalty Programs
•Forecasting•Prevention•Win back
Acquisition Retention Attrition
Value
TimeToday
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Customers Progress Through Lifecycle Stages
New
Customers
Universe of
Customers Prospects Responders
Retained or
Repeat
Customers
High Value
High Potential
Low Value
Winback
Former
Customers
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How Do You Determine When a Customer Becomes a ‘Former’ Customer?
Situations:
1. The regular catalog customer who doesn’t make a purchase for several years.
2. The credit card customer who stops using the card, but doesn’t close the account.
Are they still customers – or are they former customers?
To really hold on to your customers, you need to build loyalty
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Lifetime Duration – Profitability Association
Short Long
Lifetime Duration
High
Low
Lifetime Profit
In reality, is this relationship observed?
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Association of Profitability and Longevity of Customers
Source: “The mismanagement of customer loyalty”, W. Reinartz & V. Kumar, Harvard Business Review
percentage of customers
Corporate service 20%providerGrocery retail 15% Mail-order 19% Direct brokerage 18%
High profitability
Lowprofitability
Short-termcustomers
Long-termcustomers
percentage of customers
Corporate service 30%providerGrocery retail 36%Mail-order 31%
Direct brokerage 32%
percentage of customers
Corporate service 29%providerGrocery retail 34%Mail-order 29%
Direct brokerage 33%
percentage of customers
Corporate service 21%providerGrocery retail 15%Mail-order 21%Direct brokerage 17%
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Are we targeting the right customer?
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0
5000
10000
15000
20000
25000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
Cu
sto
me
r P
ro
fit ($
)
Month
Customer 1 (Segment II)
Customer 2 (Segment III)
Today
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What Drives Profitable Customer Loyalty?
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Exchange Characteristics
– Customer’s spending level –
Share of Wallet
– Cross-buying behavior
– Focused buying behavior
– Average Interpurchase Time
– Merchandise returned
– Ownership of loyalty instrument
– Mailing efforts of the company
– Majority Product category
Customer Heterogeneity
–Age
–Spatial Location
–Income
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Designing the Right Loyalty Programs
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A Paradigm shift from a Product Centric approach to…
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….a Customer-centric approachProduct-Centric Approach Customer-Centric Approach
Management Dimension
Manage products Manage customers
FocusFocus business on products
that are most profitableFocus business on customers
that are most profitable
Selling Approach
How many customers can we sell this product to?
How many products can we sell to this customer?
Decision Orientation
Marketing decisions based on historic measures or
past value of profitability
Marketing decisions based on forward-looking
measures or the customer lifetime value metric
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How can firms attain profitable growth in a Customer-Centric
Approach?
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Customer Engagement!
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“30 Minutes or Less” Delivery Guarantee PolicyStarted in 1990’s. It is swearing off quick service. But its research found out that customers actually associate slower order-to-delivery times with better quality. - MSNToday
Create Discussion Areas and Topics via Social Media Sites
To Engage with Customers?
Over 18.5 million fans on Domino’s Facebook page
Domino’s Australia is promising 30 minutes to Answer to Customer Feedback
On Facebook Messenger, according to their track record, Domino’s “typically answers right away”
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Game of Thrones has an average viewership of 30 million worldwide for its season 7, a record.
HBO Now App downloaded half a million times in the first week following season 7 premiere.
Has GoT mastered customer engagement?
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6.69 million followers on Twitter, much higher than other megahits such as Breaking Bad (1.24 M) or House of Cards (2.07 M)
IMDb has a dedicated page
Facebook Live Event where canons of fire slowly melt a block of ice revealing season opening date –watched concurrently by 142,000 viewers
It has a Fandom Wiki site where fans interact
Create Discussion Areas and Topics via Social Media Sites
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Conceptual Approach to Measure CEV
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• Total value provided by customers to the firms through their (a) purchase transactions with the firm, (b) ability to refer other customers to the firm, (c) power to positively influence other customers about the firm’s offerings , and (d) knowledge about the firm’s product/service offerings in providing a feedback to the firm.
Customer Engagement Value (CEV)
Customer Lifetime Value (CLV)
Net present value of future cash flows
from a customer over his/her lifetime with
the company
Customer Referral Value (CRV)
Quantifiable measure of the type, quantity,
& effectiveness of paid referrals that an individual customer provides to others
Customer Influence Value (CIV)
Monetary value of customers’ social
media influence on other acquired customers and
prospects
Customer Knowledge Value (CKV)
Value a customer adds to the firm through his/her
feedback
Firm and Competitive Actions
Customer Behavior / Attitudes / Network Metrics
Source: Kumar, V. (2013), “Profitable Customer Engagement: Concepts, Metrics & Strategies”, Sage Publications.
Customer Brand Value (CBV)
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