Part Two

Foundations for Creating Value

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Part Two

Foundations for Creating Value Takes us to the business marketer’s engine room: an overview

of how to identify opportunities, strategic planning and assess the role of marketing in a learning organization

Chapter 5 - Market Opportunities

Chapter 6 - Marketing Strategy

Chapter 7 - Weaving Marketing into the Fabric of the Firm

Chapter Five

Market Opportunities:

Current and Potential Customers

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Generating B2B Opportunities

NEWMARKET OPPORTUNITIES

ACQUIRENEW

CUSTOMERS

DEVELOPA RESEARCH

PROGRAM

FIND OPPORTUNITIES WITH EXISTING

CUSTOMERS

DEVELOP MARKETS AMONG CURRENT

CUSTOMERS

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Develop Markets among Current Customers

• 80-20 rule: Generally, the “top” 20 percent of customers generates 80% of sales

• Existing customers are logical prime candidates for the firm’s new products because these customers (1) Know the company; (2) Are familiar with the firm’s service standards; (3) Are familiar with its dedication to quality; (4) Have experienced its technical capabilities

• The seller can “penetrate” these accounts and receive more of the dollars for little cost as compared to the cost of attracting a new, unfamiliar customer;

• The cost of recruiting new customers is greater than that of retaining existing ones should they be lost.

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Four step process of developing markets among current customers

1. Rate your best customers (Best Customers) – ideally, firms should allocate its marketing budget to service its best customers until marginal revenue equals marginal cost and marginal cost is rising

2. Maximize revenues through collaboration (Customer Maximization) – e.g., newspaper ad manager work with car dealer to develop special events.

3. Develop customer specific products (New Products) – Light and medium accounts should be a prime target for account penetration

4. Learn from your customer’s customers (Network Payoffs)

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Finding Opportunities with Customers

Four step approach:

1. Establish a formal feedback program with customer contact points (sales, support)

2. Develop databases – databanks, data warehousing and data mining

3. Compile decile reports

4. Develop customer research assistance program

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Customer Feedback

A formal feedback program: Empathic dialogue is active listening an identification with customer concerns, resulting in customer-centered communication and problem solving.

• The ability to listen actively and identify with customer concerns is at the core of empathic dialogue.

• Sympathy is feeling for another; empathy is feeling as another.

• These discussions require the seller to share his client’s knowledge, perceptions, hopes, and fears in order to offer solutions and/or point out opportunities.

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Customer Feedback

Sources for customer feedback and opportunity identification

- Marketing research firms

- Academic research

- The salesforce

- Public opinion surveys

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Databases

• Databanks created unprecedented volumes of information

• Data warehousing is the practice of storing all of the firm’s information on a centralized, centrally managed computer which may be accessed by authorized users firmwide; it amassed databases which grew both with the simple passage of time and the continual hunt for new, “useful” data.

• Data mining assists in sorting through this maze to identify data required for a specific project/use; Data mining is a logical outgrowth of databanks & data warehousing

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Decile Report

• A decile report orders the firm’s customers from best to worst, according to purchase volume for the period, summarized by tenths.

• Decile reports are used for:

1. Identifying the best accounts

2. Allocating promotional budgets

3. Focusing market research efforts

4. Targeting special promotions/rewards

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Acquire New Customers

Four step process for acquiring new customers:

1. Calculate your current customer’s lifetime value (LTV) to serve as yardstick for planning

2. Find customers in a new segment who “look like” your existing customers

3. Get into some new geographic territory

4. Modify existing products for new industries

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Developing Opportunities through Marketing Research

PURPOSE OF RESEARCHPURPOSE OF RESEARCH

ACHIEVED BY

1. CUSTOMER RESEARCH - through focus groups and surveys

2. INTERACTING WITH CUSTOMERS - through joint product

development and product testing (in Chapter 8, product development)

3. DEVELOPING ON-SITE VISITATION PROGRAMS – Cross-

functional teams may employ customer visits to gather information

while assisting customers in problem solving and/or identifying

opportunities

1

CUTOMER MANAGEMENT

2

ACQUIRE NEW CUTOMERS

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Focus Group (1)

• A small group of customers may be probed in depth about a specific topic or issue

• The moderator should be well-trained in the behavioral sciences; encourages discussion and interaction; tapes the session for after-detailed analysis; keep discussion “on topic”

• The focus group is best used to - generate ideas- gain insights into consumer needs- gain insights into consumer constraints- develop hypotheses about market opportunities

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Focus Group (2)

• Focus groups may accomplish all of the following: reveal a spectrum of customer motivations; suggest differences in usage patterns; provide closer contact with actual customers; simulate thinking about new products/services. Except provide quantitative results.

• It is not proper procedure for measuring market share potential and should not be used to forecast adoption rates

• Focus groups are popular because they are often supported by sophisticated databases; they can be conducted quickly and cheaply; they almost always yield surprising insights and some new ideas.

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Focus Group (3)

• Criticize focus groups- Focus groups are too small in size and geographically limited to

allow findings to be accurately projected onto the total market.- Attitudes, motives, meanings, emotions, and preferences are

difficult to convey and are interpreted by the moderator who is not necessarily correct.

- Still, focus groups can provide “insights” and ideas that can be subjected to further, more rigorous analysis as part of the total research effort.

- Indeed, focus groups are often considered exploratory research.

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Sample Survey

• Sample surveys may be administered by/through personal interviews, mail, telephone and the internet

• Personal interviews – If marketer needs to explain complex issues, probe in depth, or employ demonstration

• Mail questionnaires – must be short, clear, logically laid out, and easy to complete

• Telephone interviews – are comparatively easy to monitor; comparatively fast and inexpensive; more intrusive than mailed questionnaire; incapable of reaching all customers

• Online surveys – are remarkably fast and cost effective; capable of reaching large numbers of consumers; do not reach all populations; may suffer from privacy and/or virus concerns

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Customer Lifetime Value Analysis

• By estimating the present value of future customer streams, the firm can identify those customers to guard most heavily and cultivate most aggressively.

• This is useful in all phases of the marketing program.• Critique the LTV concept

- LTV is logical – as a concept- It is really a statistical estimate- It accuracy depends on subjectively selected historical data,

time horizons, discount rates, and anticipated account maintenance charges. These factors can, and will, change over time – and will not change uniformly across accounts

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17.3

$4,686$5,119$5,627 LTV/100 customers$ 649$ 769$ 919Acq+4$ 881$1,002$1,144Acq+3$1,222$1.331$1,455Acq+2$1,933$2.017$2,109Acq+1

NPV @ 20%NPV @ 10%NPV @ 10Discounting profits

Profit forecasts

Acq+1 [60 buyers ($90)]×.8 gr. profit–[100 accts×$20 service/acct] =Acq+2 [36 buyers ($90)+16 buyers ($60)] .8 gr. profit- [60 accts×$20+40 accts×$10] =Acq+3 [31.2 buyers($90)+9.6 buyers($60)+4.8 buyers($50)] .8 gr. profit- [52 accts×$20+24×$10+$24×$4] =Acq+4 [27.4 buyers ($90)+8.3 buyers ($60)+2.9 buyers ($50)+1.9 buyers ($50)]-

Exhibit 5-4 ScheduTrax Lifetime Value Analysis

8.3 9.616.0Customers 2.9 4.815.0

11.519.2$ 2$500.103

12.514.424.0$ 4$500.202

18.220.824.040.0$10$600.401

40.5

1.945.6

27.431.236.060.0100$90$200.600

4th Yr. after

acquisition

3rd Yr.after

acquisition

2nd Yr.after

acquisition

1st Yr.after

acquisitionAcquisition

PeriodAccount

Service CostsExpected $ Purchases

Purchase Probability

Yrs. since the Last Purchase

[45.6×$20+20.8×$10+14.4×$4+19.2×$2] =

Expected customer migrations following acquisition

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Market Segmentation

• To evaluate opportunities to acquire new customers, it is critical to segment the market in order to match company strengths with unmet or underserved customer needs.

• Traditionally, market segmentation has used customer traits, buying patterns, information needs, benefits sought, psychographic profiles, etc. into discrete clusters that may be attractive.

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Segmentation and Opportunity Analysis

IDENTIFY SEGMENTS THROUGH INDUSTRY CLASSIFICATION (SIC / NAICS)

CHOOSE YOUR INDUSTRY TARGETS

CHOOSE YOUR SPECIFIC COMPANY TARGETS BY:

1. HOW THEY BUY2. THE BENEFITS THEY SEEK3. MEMBERSHIPS IN PROFESSIONAL / TRADE

ORGANIZATIONS

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Criteria for Successful Segmentation

• SEGMENT MUST BE IDENTIFIABLE - enumerated and evaluated

+• SEGMENT MUST BE ACCESSIBLE - can be

reached by marketing activity+

• SEGMENT MUST BE SUBSTANTIAL - enough to justify efforts

Segments that satisfy all of the basic criteria for a “good” market are likely to be designed as a target market.

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Perceptual Mapping

• The customer’s mental picture of various products in the marketplace with regard to significant features/attributes may be graphically analyzed by perceptual mapping.

• An aid to segmentation, also an aid to positioning; may help identify new product opportunities; is used to group and discriminate among products.

• The basics of this technique should be discussed in marketing research course.

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Helpful / informative

D

C

A

B

Order processefficiency & accuracy

Reasonable price

After-sale service Rapid delivery

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