Data for Marketing Analytics - Pennsylvania State University · 2016-01-29 · MKTG 521, Spring 2016 1 Data for Marketing Analytics Measuring Value for Customers Objective Value Observed/Behavioral

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

[email protected]

www.arvind.info

mailto:[email protected]

Measuring Customer Value


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.


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


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


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.


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


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/


An Example Value Calculation

Measuring Behavior-Based

Customer Value



Criterion Objective


Based


Conjoint/ Tradeoff?



High Low Medium Low









Medium High Low



Yes No Yes No





Data Everywhere Marketers Dream or Nightmare?


Complex

Unstructured

Data

Traditional

Structured

Data

Growth in Non-Traditional Data

Source: IDC report, As the Economy Contracts, the Digital Universe Expands (May 2009)




Raw Data Needs Formatting

For Human Use


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) …….


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



Criterion Objective


Based


Conjoint/ Tradeoff?



High Low Medium Low









Medium High Low



Yes No Yes No





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


Measured Value From Survey

Average Importance Ratings

6.2

7.1

6.5

5.7

1 5 9

Price

Quality of Food

Location

Décor


Another Example of Stated and Derived Importance


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.


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


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


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


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


Value of Customers

Anyone can measure the number of seeds in an apple. How to measure the number of apples in a seed?

-- Anon


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

…..


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


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.


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


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)


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.

……


“Loyalty” Effects of Credit Card

Rewards Programs


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!


What Got You Here

Won’t Get You There

Documents

Data for Marketing Analytics - Pennsylvania State University · 2016-01-29 · MKTG 521, Spring 2016 1 Data for Marketing Analytics Measuring Value for Customers Objective Value Observed/Behavioral