View
229
Download
0
Category
Preview:
Citation preview
7/27/2019 Marketing Effectiveness Metrics
1/39
RWS, IIFT
7/27/2019 Marketing Effectiveness Metrics
2/39
The Control Process
What do we want to achieve?
What is happening?
Why is it happening?
What should we do about it?
7/27/2019 Marketing Effectiveness Metrics
3/39
Types of Marketing Control
Annual plan control
Profitability control
Efficiency control
Strategic control
7/27/2019 Marketing Effectiveness Metrics
4/39
7/27/2019 Marketing Effectiveness Metrics
5/39
Annual Plan Control
Goal Setting
Performance Measurement
Performance Diagnostics
Corrective Action
7/27/2019 Marketing Effectiveness Metrics
6/39
Tools for Performance Analysis
Sales Analysis
Market Share Analysis
Marketing Expense to Sales
Financial Analysis
Market Based Score-card
7/27/2019 Marketing Effectiveness Metrics
7/39
Market Share
Percentage of a market accounted for by aspecific entity
Unit market share
Revenue market share
Relative market share
Share of category
7/27/2019 Marketing Effectiveness Metrics
8/39
7/27/2019 Marketing Effectiveness Metrics
9/39
Market Share
Brand Development Index (I)
= [Brand sales to group (#)/Households in Gp(#)][Total brand sales (#) /Total Households (#)]
How well the brand is performing within specific group of customerscompared to average performance among all consumers
Purpose- To understand relative performance within specified
consumer groups
7/27/2019 Marketing Effectiveness Metrics
10/39
Market Share
Category Development Index
= [Category sales to group (#)/Households in Gp (#)][Total category sales (#) /Total Households (#)]
The index can also be calculated for customers, accounts, &businesses instead of H.holds
(retailers share of category sales (%) / Retailers share of market (%)
7/27/2019 Marketing Effectiveness Metrics
11/39
Penetration
Market Penetration (a)
Brand Penetration (b)
Penetration share (b/a)
Customers who have purchased the brand (at least once in a
given period)/Customers who purchased a product in the
category (at least once in a given period))
7/27/2019 Marketing Effectiveness Metrics
12/39
Share of Requirements
SOR= Brand Purchases (#, Rs)Total category purchases by brand buyers (#, Rs)
(% of customers needs in a category that are served by a given brand or product)
Purpose- To understand source of market share in terms of
breadth and depth of consumer franchise & in terms of
relative category usage
7/27/2019 Marketing Effectiveness Metrics
13/39
Heavy Usage Index
HUI= Av total purchases in category by brands cust.(#,$)Av total purchases in category by all cust. for thatcategory (#,$)
Purpose- to define and measure if a firms customers areheavy users
7/27/2019 Marketing Effectiveness Metrics
14/39
Decomposing Market Share
Market share (%)
= Penetration share (%)
x Share of Requirements (%)
x Heavy Usage Index (I)
7/27/2019 Marketing Effectiveness Metrics
15/39
Decomposing Market Share
Market Share=
No. of customers for brand A
No. of customers for category
XQty of brand A purchased by Brand As customers
Qty of category purchased by Brand As customersX
Av. Qty of category purchased by brand As customers
Av Qty of category purchased by all customers
7/27/2019 Marketing Effectiveness Metrics
16/39
Decomposing Market Share
Market Share=No. of customers for brand A
No. of customers for category
XQty of brand A purchased by Brand As customers
Qty of category purchased by Brand As customers
X
Qty of category purchased by Brand As customersNo. of customers for brand A
X
No. of customers for category (all customers)
Qty of category purchased by all customers
7/27/2019 Marketing Effectiveness Metrics
17/39
Metrics for CustomerSatisfaction
Customer satisfaction
Willingness to recommend
Willingness to search
7/27/2019 Marketing Effectiveness Metrics
18/39
7/27/2019 Marketing Effectiveness Metrics
19/39
Profitability Analysis
Relative profitability of
Different Channels
Product
Territories
Customers
Activity/Territory based costing
Profitability with full cost and Profitability
with direct & traceable costs
7/27/2019 Marketing Effectiveness Metrics
20/39
Metrics for CustomerSatisfaction
Customer satisfaction
Willingness to recommend
Willingness to search
7/27/2019 Marketing Effectiveness Metrics
21/39
A new look at ROMI
ROMI= LCV1- LCV0
Marketing Expenditure
LCV1= Lifetime Customer Value in Period 1
LCV2= Lifetime Customer Value in Period 2
7/27/2019 Marketing Effectiveness Metrics
22/39
Customer Lifetime Value
How much is a current customer worth to the firm ?
(over the lifetime of the customers relationship with the firm)
Customer Lifetime Value (CLV) =
Net profit over the Customers lifetime
discounted to the present
(Net Profit= customer margin less the costs of
acquiring and serving the customer)
7/27/2019 Marketing Effectiveness Metrics
23/39
Information needed to calculate CLV
1.Current contribution margin from customer
2.Projected future contribution margin from customer
3.Probability of the customer sticking with you-
and expected duration of staying with you
4.Costs to acquire, serve and retain customer
5.Your organizations discount rate
7/27/2019 Marketing Effectiveness Metrics
24/39
Customer Profitability &
Lifetime Value
Example- Direct catalogue retailer of books
Cost of sending a catalogue = Rs 5
Cost of database per contact = Rs 2
Response rate = 4%
Acquisition Cost per customer
=Total cost of sending cataloguesResponse rate
= 7/0.04= Rs 175
7/27/2019 Marketing Effectiveness Metrics
25/39
Direct Catalogue Book Retailer
Example
Frequent buyers-No. of purchases p.a = 2
Margin per purchase = Rs100/-
Retention rate = 75%
No. of times p.a, catalogues sent to a frequent buyer= 12
Occasional buyers-
No. of purchases p.a = 1Margin per purchase = Rs 160/-
Retention rate = 50%
No. of times p.a, catalogues sent to an occasional buyer= 4
Di t C t l B k R t il
7/27/2019 Marketing Effectiveness Metrics
26/39
Direct Catalogue Book Retailer
Example
Lifetime value
calculation
Frequent Buyers Year 1 Year 2
Acquisition cost 175 0Margin (annual) 100*2=200 100*2=200
Survival ratio 100% 75%Cost of mailing catalogues 5*12=60 5*12=60
Total expected profit percustomer 200-60=140 0.75*(200-60)=105
Cum. profits per customer net
of acquisition costs 140-175=-35 105+ (-35)=70
http://localhost/var/www/apps/conversion/tmp/scratch_3/lifetime%20val%20of%20freq%20vs%20occassional%20buyers.xlshttp://localhost/var/www/apps/conversion/tmp/scratch_3/lifetime%20val%20of%20freq%20vs%20occassional%20buyers.xlshttp://localhost/var/www/apps/conversion/tmp/scratch_3/lifetime%20val%20of%20freq%20vs%20occassional%20buyers.xlshttp://localhost/var/www/apps/conversion/tmp/scratch_3/lifetime%20val%20of%20freq%20vs%20occassional%20buyers.xls7/27/2019 Marketing Effectiveness Metrics
27/39
Occasional Buyers Year 1 Year 2
Acquisition cost 175 0
Margin (annual) 160*1=160 160*1=160
Survival ratio 100% 50%
Cost of mailing catalogues 5*12=60 5*4=20
Total expected profit per
customer 160-60=100 0.5*(160-20)=70
Cum. profits per customer net
of acquisition costs 100-175=-75 70+ (-75)=-5
7/27/2019 Marketing Effectiveness Metrics
28/39
An approach to CLV
T= time horizon for calculation, i.e no. of years out to estimate the value ofthe customer
m=net cash flow per period (if active); i.e-recurring margin from thecustomer (will include cost of serving & retaining customer)
r= retention rate (1-churn rate)
d= organisations discount rate (or WACC)
AC= acquisition cost
m * rt
(1+d)t- AC
T
t=0
CLV =
7/27/2019 Marketing Effectiveness Metrics
29/39
Simple CLV with Infinite Horizon
If you assume :Margin,Retention Rate, Discount Rate fixed across periods
An infinite time horizon (i.e. letting T )
The equation simplifies to:
CLV =
m
1 r + d
- AC
7/27/2019 Marketing Effectiveness Metrics
30/39
Average retention (churn) rate across some set ofcustomers
Infinite horizon model assumes no changes inretention rate, discount rate, or margin over time
Assumes that we know the retention probability(ignores customer purchase context)
One customer (not a segment)
Discount rate is using firms WACC
Good when an approximation is sufficient
Simple model with many assumptions:
7/27/2019 Marketing Effectiveness Metrics
31/39
Example CLV
Customer Acquisition Cost (AC) (Rs300)
Customer Acquisition Revenue: Rs 100
Customer Acquisition Costs: Rs 400
Customer Recurring Margin (M) Rs1000/yr Margin from products/ services: Rs 1200
Cost to service and retain: Rs 200
Retention Probability (r) 75%
Time Horizon (T) 3 Years
Cost of capital (d) 10%
7/27/2019 Marketing Effectiveness Metrics
32/39
With Infinite Time Horizon
CLV =m
1-r+d-AC
CLV =1000
1-.75+.1
- 300 = Rs 2557
7/27/2019 Marketing Effectiveness Metrics
33/39
Driving Lifetime Value
The main ways a co. can drive lifetime valueof its customers are:
Increasing retention
Attracting switchers
Increasing customer profitability
Increasing share of wallet
7/27/2019 Marketing Effectiveness Metrics
34/39
Impact of Increased Retention on LifetimeValue
Cost of Capital = K = 10% or 0.10
Lifetime Value of Customer (100% Retention)
= (300 thsd/0.1)200k
= Rs 2,800 thsd
Lifetime value of customer (80% Retention)
= (300 thsd/(0.1+0.2)200k
= Rs 800 thsd
Lifetime Value of Customer (70% Retention)
= (300 thsd/(0.1+0.3)200k
= Rs 550 thsd
7/27/2019 Marketing Effectiveness Metrics
35/39
Simple CLV as a tool for strategic choices
Which marketing approach will be more effective?
Should we try to increase retention rate or getcurrent customers to buy more?
On which customers (or segment) should we focus?
When should we firea customer?
How should our sales force prioritize their time (withcurrent or potential customers)?
What new market opportunities should weinvestigate?
7/27/2019 Marketing Effectiveness Metrics
36/39
Customer Management at Cisco Systems
Challenge- spur double digit year to yeargrowth for a 20+ billion organisation
Key questions for customer analytics Which cos have we sold to and not sold to
What is Ciscos total potential of existing
marketplace
Can we identify over and under penetratedaccounts
7/27/2019 Marketing Effectiveness Metrics
37/39
Cisco customer value segmentation
Jackpots Nuggets
Lemons Acorns
Total category
spend (by each co
in IT & telecom)
Customer spend with Cisco
Hi
Lo
Lo Hi
National level, sales area level, account
level
7/27/2019 Marketing Effectiveness Metrics
38/39
Once You Know What a Customer is Worth
.. you need to look at-
What actions will:
1. Increase the lifetime value of your customers
(get current customers to spend more, stay longer)
1. Enable you to acquire new profitable customers
(by meeting the needs of the market better)
7/27/2019 Marketing Effectiveness Metrics
39/39
Stages of CustomerRelationship
Attract
& Create
Broaden
&
Deepen
Defend
&
Harvest
Stage 1 Stage 2 Stage 3
Value, Brand , Relationship
Recommended