6. How do we create customers?
– Identifying customer needs
– Designing goods and services that meet those needs
– Communicate Information about those goods and
services to prospective buyers
– Making the goods or services available at times and
places that meet customers’ needs
– Pricing goods and services to reflect costs,
competition, and customers’ ability to buy
– Providing for the necessary service and follow-up
7. How do we create VALUE?
Identify the needs in the marketplace
Find out which needs the organization can profitably serve
Design goods and services that meet those needs
Developing a marketing mix that will convert potential
customers into actual customers
Providing for the necessary service and follow-up after the
service
10. From transaction-based marketing to relationship
marketing…
Transaction–based marketing (Simple exchanges)
Relationship marketing
– Lifetime value of a customer
– Converting new customers to advocates
13. Three Levels of Relationship Marketing
Characteristic
Level 1
Level 2
Level 3
Primary bond
Financial
Social
Structural
Degree of
customization
Low
Medium
Medium to high
Potential for
sustained
competitive
advantage
Low
Moderate
High
14. Building long term relationship is
important…. But,
We need to determine which consumers we want this relationship
with!!
– Target Market
– ―Costly‖ Consumers:
• Difficult to attain
• Difficult to retain
15. Customer Relationship Management (CRM)
The combination of strategies and tools that drive
relationship programs, re-orientating the entire
organization to a concentrated focus on satisfying
customers
16. Strategies for Building Customer Relationships
Affinity Programs
– a marketing effort sponsored by an organization that
solicits responses from individuals who share common
interests and activities
– Example: Credit Card ILUNI FEUI
17. Strategies for Building Customer Relationships
Frequency Marketing
– frequent-buyer or user marketing programs that reward
customers with cash, rebates, merchandise, or other
premiums
– Examples: Garuda Frequent Flyer, Matahari Club Card
18. Strategies for Building Customer Relationships
Database Marketing
– software that analyzes marketing information, then
identifies and targets messages toward specific groups
of potential customers.
– Examples: Telco operator (Telkomsel, Satelindo, etc)
19. Strategies for Building B2B Relationships
Strategic alliance
– a partnership formed to create a competitive
advantage
– These more formal long-term partnership
arrangements improved each partner supply-chain
relationships and enhance flexibility
– Example: SkyTeam (Garuda with other airlines e.g.
Etihad)
20. Strategies for Building B2B Relationships
Electronic Data Interchange (EDI)
– involves computer-to-computer exchanges of
invoices, orders, and other business documents.
Vendor Managed Inventory (VMI)
– is an inventory-management system in which the
seller–based on existing agreement with a buyer–
determines how much of a product is needed.
21. Strategies for Building B2B Relationships
Database Marketing
– software that analyzes marketing information, then identifies and
targets messages toward specific groups of potential customers
22. Evaluating Relationships
Lifetime Value (LTV)
– Refers to the net present value of the potential revenue
stream for any particular customer over a # of years
– Starts with current purchase activity then extrapolates to
include potential additions from cross-selling, upgrades,
total ownership, etc.
23. The Value of Customer Retention
On average, it is more costly acquire a new customer rather
than retain an existing one.
Customer retention ensure higher profit margin.
Voluntary spending to maintain relationship.
26. Five Different Levels of Relationships (I)
Basic. The company salesperson sells the product,
but does not follow up in any way.
Reactive. The salesperson sells the product and
encourages the customer to call whenever he or
she has any questions or problems.
Accountable. The salesperson calls to the customer
a short time after the sale to check whether the
product is meeting customer expectation.
27. Five Different Levels of Relationships (II)
Proactive. The salesperson or other in the company
phone the customer from time to time with suggestions
about improved product use or helpful new product.
Partnership. The company works continuously with the
customer and with other customers to discover ways to
deliver better value
28. Case for discussion
Perusahaan Listrik Negara (PLN) CEO acknowledges the importance of
relationship marketing to improve the quality of their services.
a.
b.
Does it necessary for PLN to adopt relationship marketing?
If yes, until which level of relationship?
30. The Marketing Challenge: The
Relationship Marketing Solution
Time Horizon.
Market Segmentation.
Product or Service Design.
Market Research.
Marketing Communications.
Customer Service.
Pricing.
31. Time Horizon
The time horizon available for marketers to achieve results in
many companies has shrunk: investors and financial
managers have dramatically reduce the time frame available
for building revenue.
Marketing which remain focused on transaction rather than
relationship is time consuming.
The marketer will have two roles:
To identify the customer base with which the firm is to
maintain and deepen relationship;
To champion the changes needed within the company for
this to happen.
32. Market Segmentation
Marketers need to accept the fact that market
segmentation no longer exist the way they were
taught: there are no more market segments, just
individual customers.
In B2B marketing this approach is well known. In
B2C marketers have focused more on segmentbased marketing principles.
Increasing competition push companies to
differentiate products or services, but this
strategy become more and more expensive.
34. Product or Service Design
Customers are not equal – they want different
things in different amount at different time - and
the profit derived from each will vary.
The key challenge for the marketer is to identify
the core strategic value that will be derived to the
customer and the elements that customer can
change.
37. Market Research
Market research can take more time than the
marketer has available. Current research
findings may actually be dealing with yesterday's
issues.
Now marketers need to devise knowledge systems
to learn more about individual customer so that
firms can create the value each customer wants.
38. Marketing Communications
Previously, marketers relied on broadcasting
their message (one way communication). No
longer.
Today the marketer has opportunity to
communicate with individual customer according
to the media each prefer.
The challenge for the marketer is to apply
technology to facilitate this relevant, timely,
personalized and customized communication.
40. Customer Service
The old adage is that the customer is always
right: make customers happy when they
complain, engage then positively, offer
restitution.
When customer complain, it is a signal of a
broken process somewhere in the business.
41. Pricing
Customers want to participate in decisions
regarding the value they receive and the price
they pay.
Give them a standard offering and they will
expect to pay a single price.
Offer them options in the product and they will
want some more than others, and will pay more
for these.
42. Group Exercise
Think about pricing strategy that can be used to build relationship with
consumer, in each of the following product category:
–
–
–
–
–
Automotives
Clothing retailer
Online store
Restaurant
Airlines
51. Customers as Assets
―Intangible assets are hard to see and even
harder to fix a precise value for. But a widening
consensus is growing that the importance of
(intangible) assets – from brand names and
customer lists … – means that investors need to
know more about them.‖
- New York Times -
52. Valuing High Growth Businesses
Traditional finance approach
– P/E ratio
Marketing approach
– Customer Lifetime Value (CLV)
54. Customer Lifetime Value
Customer Equity – total of discounted lifetime values of all the firm’s
customers
Value – customers’ assessment of utility
Brand – customers’ assessment of image
Relationship – customers’ willingness to stay
with brand
55. How much are you, as a customer,
worth over your university lifetime?
Rp8,000,000 at Kantin FE over your years in
univ, not Rp10,000 per visit
Rp1,000,000 at the 21 Cineplex Margocity
during your years in univ, not Rp25,000 per
visit
Rp5,600,000 on KRL tickets during your years
in univ, not Rp3,500 per trip
Rp4,000,000 on Ojek over your years in
univ, not Rp5,000 per trip
56. Customer Lifetime Value
CLV
r
m
1
m
r
: Contribution margin
r
i
: Retention rate
•
i
The percentage of total customers minus customers who end their
relationship with a company in a given period
: Discount rate,
•
•
The cost of capital used to discount future revenue from a
customer.
The current interest rate is sometimes used as a simple (but
incorrect) proxy for discount rate.
57. Customer Lifetime Value
Lifetime value of a
customer
mtr
LV
t 0
(1
Margin Multiple
t
i)
Lifetime value with
constant margins
LV
r
m
1
i
r
t
r
1
Retention
Rate (r )
60%
70%
80%
90%
10%
1.20
1.75
2.67
4.50
i
r
Discount Rate (i)
12%
14%
1.15
1.11
1.67
1.59
2.50
2.35
4.09
3.75
57
16%
1.07
1.52
2.22
3.46
64. Exercise 3
Sehat Sentosa Gym
Sehat Sentosa Gym requested your consulting services in order to
make an investment decision that could boost their revenue.
65. Sehat Sentosa Gym
Calculate the gym’s CLV for the next 5 years.
Here is some information about the Gym’s
customer value:
– Annual membership fee is $300
– The average member spends $100 a year at the
gym—café, nutrition, drinks, snacks, etc - 40% of
which is COGS
– 80% rejoins in the following year
– Discount rate is 10%
66. CLV for 5 years
Year 1
Revenue
COGS
Gross Profit
Probability of
being active
Actual Profit
Present Value
of Profit
Year 2
Year 3
Year 4
Year 5
67. One year profit per customer is $360
One Year
Revenue
$400
COGS
$40
Gross
Profit
$360
How many years should we consider?
The norm is 5 years since any time longer, the assumptions could
change
68. We can calculate the value looking into the future
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$400
$400
$400
$400
$400
COGS
$40
$40
$40
$40
$40
Gross Profit
$360
$360
$360
$360
$360
Total customer value: $360 * 5= $1800
Two problems
• Profits earned in 5 years are less valuable than profits today
• Customers may not be around in 5 years
69. Only 80% of customers return next year
(retention rate)
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$400
$400
$400
$400
$400
COGS
$40
$40
$40
$40
$40
Gross Profit
$360
$360
$360
$360
$360
Probability
of being
active
100%
80%
64%
51%
41%
70. Only 80% of customers return next year
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$400
$400
$400
$400
$400
COGS
$40
$40
$40
$40
$40
Gross Profit
$360
$360
$360
$360
$360
Probability
of being
active
100%
80%
64%
51%
41%
Actual
Profit
$360
$288
$230
$184
$147
71. The club discounts future cash flow at 10% per
year
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$400
$400
$400
$400
$400
COGS
$40
$40
$40
$40
$40
Gross Profit
$360
$360
$360
$360
$360
Probability of
being active
100%
80%
64%
51%
41%
Actual Profit
$360
$288
$230
$184
$147
Present Value
of Profit
$360
$262
$190
$138
$101
Total value = $1051
72. Managerial question
Sehat Sentosa Gym currently faces two options to boost revenue
– Option 1 is to invest $500,000 on membership reward to increase retention
rate by 10% (from 80% to 88%)
– Option 2 is to invest the same amount in the facility and increase annual
fee by 10%
Which option should the gym choose?
73. Instead of 80%
Consider 88%
Option 1 – higher retention rate
Year 1
Year 2
Year 3
Year 4
Year 5
Revenue
$400
$400
$400
$400
$400
COGS
$40
$40
$40
$40
$40
Gross Profit
$360
$360
$360
$360
$360
Probability of
being active
100%
88%
77%
68%
60%
Actual Profit
$360
$317
$279
$245
$216
Present Value
of Profit
$360
$288
$230
$184
$147
Total value = $1210
Increase = 15 %