Improving customer metrics in a subscription based businesspublications.lib.chalmers.se/records/fulltext/181965/181965.pdf · the PPGB companies means to retain their customers. It

Improving customer metrics in a subscription

based business A study of a company within the pre-packed grocery bag industry

Master of Science Thesis in the Master Degree Programmes

Entrepreneurship and Business Design and Management and Economics

of Innovation

DOUGLAS HAEGER

GABRIELLA NILSBY

Department of Technology Management and Economics

CHALMERS UNIVERSITY OF TECHNOLOGY

Gothenburg, Sweden, 2013

Report No. E2013:102

Improving customer metrics in a subscription based business

A study of a company within the pre-packed grocery bag industry

DOUGLAS HAEGER

GABRIELLA NILSBY

Supervisor: Magnus Eriksson

Department of Technology Management and Economics CHALMERS UNIVERSITY OF TECHNOLOGY

Gothenburg, Sweden, 2013 Report

Acknowledgement Thisthesisistheresultfromtheworkperformedbytheauthorsduringthespringsemesterof2013.

Firstofall,wewouldliketoexpressourgratitudetoallinterviewrespondentsfortheirtimeandvaluableinsightstheyhaveprovidedtothisreport.Furthermore,wewouldliketothanktheemployeesatGUHoldingforcontributionwithdata,commentsandinput.Finally,wewouldliketoexpressaspecialthankstooursupervisorMagnusEriksssonatGothenburgUniversityforhisencouragement,guidanceandsupportthroughouttheprocessofwritingthisthesis.

DouglasHaeger&GabriellaNilsbyGothenburg,June2013

1

Abstract ThisreportstudiesthePre‐PackedGroceryBag(PPGB)industryandhowthesee‐commercecompaniescanmakeuseofaswellasimprovecustomermetrics.Themajorityofcompaniesinthisindustryuseasubscription‐basedbusinessmodelthatenablestheuseoftwokeycustomermetricsnamely,ChurnandCustomerAcquisitionCost(CAC).Bynotactivelyusingthesemetricsthecompaniesmightbemissingimportantinformationandmakeunderinformedmarketinginvestmentdecisions.Thepurposeistodescribeandanalysehowane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,caninacostefficientwayimprovetheirCACandChurn.Furthermore,giveimplicationsabouthowmanagingCACandChurncansupportdecision‐makingprocessesregardingmarketinginvestments.

ToimproveCACthefirststepistomapthecompany’smarketingprocessestoseewhichmarketingmediachannelsthatismostcost‐efficient.Themostefficientchannelsareonlinemarketingastheytargetthecustomersthatareinthebuyingprocessandprovidethecustomerwithadirectlinktothebuyingplace.ToimproveChurnitisimportanttoimprovecustomerloyaltyandoneofthedriversofloyaltyisrelationshipcommitment.Thisisinturndividedincalculativeandaffectivecommitment.ImprovingthesecommitmentswillimprovecustomerretentionandhenceChurn.Calculativecommitmentiscreatedthroughswitchingbarriersandaffectivecommitmentiscreatedthroughthecustomer/firminteractionpointsandaimstodevelopemotionaltiesanddirectrelationships.Tosupportthemarketinginvestmentdecisionsathirdmetric,CustomerLifetimeValue(CLV),ispresented.ThismetricisbasedonCACandChurnandshowsthelong‐termprofitabilityofacustomer.Incorporatingthesemetricsintoarecurringrevenuemodelafirmcanforecasttheirfuturefinancialperformance.Thereforethismodelcanbeausefultoolfordecisionmaking‐processesregardingmarketinginvestments.

Thereportprovidesevaluationsofmarketingmediachannelsfore‐commercecompaniesandsuggestionsofalternativechannelsthatgeneratelowCACareprovided.OnlinemediachannelsarerecommendedasmostsuitableforacompanytoimproveCAC,becausetheyarecheaperandprovidebettertargetingthanalternativemedia.ThequalitativecontentanalysisprovidesanoverviewofthePPGBcompaniesmeanstoretaintheircustomers.ItisshownthatthelevelsofcalculativecommitmentdiffersamongthePPGBcompaniesandthatLinasmatkasseisthemostsuccessfulcompanyinthisarea.Affectivecommitmentdoesnotseemtobeprimaryfocusintheirretentionstrategiesandsuggestionsformeasurestocreatethiscommitmentisprovided.Finally,therecurringrevenuemodelissuggestedasagoodwaytoimprovethereliabilityofmarketinginvestmentsdecisions,sinceitprovidesagoodunderstandingofhowthecustomermetricsareaffectedbythesedecisions.

2

Table of content

1.Introduction.....................................................................................................................41.1.Background...........................................................................................................................41.2.Problemformulation.........................................................................................................51.3.Purpose...................................................................................................................................71.4.Researchquestions.............................................................................................................81.5.Reportstructure..................................................................................................................81.6.Limitation...............................................................................................................................9

2.Method............................................................................................................................102.1.Researchmethods.............................................................................................................102.1.1.Firstresearchquestion.........................................................................................................102.1.2.Secondresearchquestion....................................................................................................102.1.3.Thirdresearchquestion.......................................................................................................11

2.2.Researchprocedure.........................................................................................................122.3.Ensuringquality.................................................................................................................14

3.Theoreticalframework.............................................................................................163.1.Twokeycustomermetrics.............................................................................................163.2.CAC..........................................................................................................................................173.3.Churn......................................................................................................................................193.4.Financialperformanceanddecision‐makingprocesses.....................................243.5.Summaryoftheoreticalfindings.................................................................................26

4.Empirics..........................................................................................................................284.1.CAC..........................................................................................................................................284.1.1.MatkasseAB..............................................................................................................................284.1.2.MarketingactivitieswithlowCAC...................................................................................31

4.2.Churn......................................................................................................................................354.2.1.Linasmatkasse.........................................................................................................................364.2.2.Middagsfrid................................................................................................................................374.2.3.Mathem.se..................................................................................................................................384.2.4.MatkasseAB..............................................................................................................................404.2.5.Members.com...........................................................................................................................414.2.6.Milkandhoney.se......................................................................................................................43

4.3.Recurringrevenuemodeltosupportdecision‐makingprocesses..................434.3.1.TestingtheRecurringRevenueModel:AnexampleofChef&Friend..............44

5.Analysis...........................................................................................................................485.1.CAC..........................................................................................................................................485.2.Churn......................................................................................................................................515.3.Recurringrevenuemodel...............................................................................................55

6.Discussion......................................................................................................................576.1.CAC..........................................................................................................................................576.2.Churn......................................................................................................................................626.3.Recurringrevenuemodel...............................................................................................67

7.Conclusion.....................................................................................................................69

3

7.1.Suggestionsforfurtherresearch.................................................................................71

8.ListofReferences........................................................................................................72

4

1. Introduction

Thissectionshouldprovideanunderstandingofwhythisreporthasbeenwritten.Firstthebackgroundispresentedtocreateasettingfortheproblemformulation.Theproblemformulationisfollowedbythepurposeofthereportandfinallytheresearchquestionsarepresented.Conceptsthatmayneedtobeclarifiedaremarkedwithanasterisk(*)andthedefinitioncanbefoundinAppendixI.

1.1. Background

Inthisreportthedefinitionofapre‐packedgrocerybag(PPGB)isapre‐composedbagofgrocerieswithmatchingrecipes,sufficientforacertainnumberofdinners.Furthermore,thegrocerybagisorderedonline,fromane‐commerce*

companyinthePPGBindustry,byenteringasubscriptionforeachoreveryotherweekandgetsdeliveredtothecustomer’shome.

Theindustryofpre‐packedgrocerybagswasfoundedaround2007whenMiddagsfridbegantheirbusiness.Theindustryisinanearlystageofitslifecycleandthecompetitorsareswarmingthemarket.Since2007thebusinessofpre‐packedgrocerybagshasincreasedinpopularity,especiallyinthelargercities.2011theproductbecameChristmaspresentoftheyear,whichisrecognitionofitspopularitybytheSwedishconsumers(SvenskHandel,2011).TheconceptwasfoundedinSwedenandisnowspreadingacrossEuropeandtheU.S(Moskin,2013).Theonlinecommerceoffast‐movingconsumergoods(FMCG)representscirca350MSEK(0,5%)ofthetotalandisexpectedtogrowinthefuture.Mainlyduetothatyoungergenerationsaremorecomfortableandfamiliarwiththeonlinemarket(SvenskHandel,2011).

MatkasseABwasstartedin2010.Todaythecompanyprovidespre‐packedgrocerybagstocirca150subscribersintheGothenburgarea.Thenicheistoprovidepre‐cookedsauceswiththebagsthatGustavSvenssonhaspreparedbyhimself.MatkasseABofferfourdifferentsubscriptionproducts,eithertwoorfourmealsforfourdaysaweektobeprovidedeachweekoreverytwoweeks.Thecustomersareabletoendtheirsubscriptionorpauseitforanypreferredamountoftimewithoutbeingchargedadditionalfees.(Svensson,2013)

Themostcommonbusinessmodelinthisindustryisasubscriptionbasedbusinessmodel.Tofurtherelaborateonhowasubscriptionbasedbusinessmodelisdefinedthetermbusinessmodelshouldbeoutlined.Therearemanyauthorswhohavetriedthisandseveraldifferentmodelscanbeidentified.Rappa(2000)identifies29differenttypesofmodels,whichheordersinninecategories.Thisdemonstratesthediversityandcomplexitythatcanbe

*FinddefinitioninAppendix1

5

associatedwiththisterminology.InthisreportthedefinitionwillrelyonOsterwalder(2009,p.14),namely“Abusinessmodeldescribestherationaleofhowanorganizationcreates,deliversandcapturesvalue”.Osterwalder(2009)furtherpresentsthatthebusinessmodelcontainsninebuildingblocks;Customersegments,Valuepropositions,Channels,CustomerRelationships,Revenuestreams,Keyresources,Keyactivities,KeypartnershipsandCoststructure.

Asubscriptionbasedbusinessmodelismainlydistinguishedinthefifthbuildingblock,Revenuestreams.Thispartshouldstatehowthecompanywillgeneraterevenuefromthecustomersandcanbedividedintotwodifferentparts;Transactionrevenuesthataregeneratedfromaone‐timepurchaseandRecurringrevenues*thataregeneratedfromeitherrepeateddeliveryoftheproductorpost‐purchasecustomersupport(Osterwalder,2009).Thesubscriptionbasedbusinessmodeliswithinrecurringrevenuesandisgeneratedbysellingperiodicuseoraccesstoproductsorservices.Thecustomerisenteringintoaformalagreementwiththevendorforaperiodoftime,whichcreatesrecurringrevenues.Thisresultsinareduceduncertaintyduetothatthevendorknowsitscurrentactivemembers.Itfurthermoreassuresconstantrevenuesduringthecustomer’ssubscription.Thedirectdownsideisthatonemightloosecustomersthatonlywouldliketopayaone‐timefee(Sundelin,2008).

Foracompanywithasubscriptionbasedbusinessmodeltwokeycustomermetricsarecommonlyusedtomeasurethecompany’sperformance.ThesemetricsareChurnandCustomerAcquisitionCost(CAC)andtheyarerelatedtothecompany’scustomerbase*andsales.Churnisametricthatrelatestotheretentionofcustomersandmeasureshowmanycustomersthatleavesthefirmduringaspecificperiodoftime.CAC,asthenameindicates,measureshowmuchitcostsforthefirmtogetanewcustomer.Acompany’sdecisionsaffectthesemetricsandsimilarlythesemetricsaffectsthecompany’sdecision‐makingprocesses.Therefore,understandingandactivelyusingthemetricsiscriticalforthecompany’smanagerialdecisionsandtheperformanceofthefirm.(Guptaetal,2004)

1.2. Problem formulation

Intheearlyphaseforacompanyitishighlyprioritizedtoincreasethecustomerbaseaswithoutcustomers,thefirmhasneitherrevenuesnorprofits.Toattractnewcustomersthecompanyneedtoinvestinmarketingactivitieswiththeobjectivetocreateagoodcustomer‐firmrelationship.However,itisachallenge

*FinddefinitioninAppendixI

6

tounderstandwhichcustomerstoacquireandhowtoretainthem;hence,itisachallengetomanagetheallocationofmarketingexpenses*andbeabletojustifythesedecisions.(Guptaetal,2004)

Thefundamentalgoalofafirmistoincreaseprofits,notjusttoobtainnewcustomers,andthereforeusingeffectivemarketingactivities,meaninghighergeneratedvalueperinvesteddollar,iscritical.(Dacey,1997)Understandingthelinkbetweencustomer‐firmrelationshipandfinancialperformance*willsupportfirms’investmentdecisions.Thislinkcanbedescribedaswhatafirmcando(marketingactivities),whatcustomersdo,andhowthisaffectsafirm’sfinancialperformance.Marketingactivitiesandhowcustomersrespondcanbeunderstoodbyanalysingkeycustomermetrics.(Guptaetal,2004)

Customermetricscanbecategorizedasobservableandunobservablemetrics,whereobservablerelatestopurchaseorconsumptionofaproductorserviceandunobservablerelatestocustomerperception,attitudeandbehaviouralintentions.Economistsmeanthatunobservedconstructsarestatedpreferenceswhileobservedarerevealedpreferences.Unobservedmetricsrelatetoobservedmetrics,whicharedirectlylinkedtofinancialgains.Forinstance,ifacustomer’sperceptionofaproductispositiveitwillmostlikelyleadtoapurchase,whichtranslatesintoincreasedsalesandprofits.(Reinartzetal.,2005)Asitistheobservablemetricsthatgeneratefinancialimprovementtoacompanythesearethemetricsthatwewillfocusoninthisreport.KeyobservablemetricsareChurnandCustomerAcquisitionCost.(Guptaetal,2004)


7

Figure1Illustrationofrelationshipbetweenthefirm,customersandthefirm'sfinancialperformance.Compiledbytheauthors.

CACandChurnaremetricsthatmeasuresacompany’sfinancialperformanceandtogethertheyconstituteagoodbenchmarktohowwellthecompanyisperformingagainstitscompetitors.Therearefurthermoredifferentwaysforthecompanytoaffectthemetricsinordertoenhancethefinancialperformance;therefore,understandingtheroleofthesemetricsandhowtheycanbeimprovedbecomescritical.Therelationshipbetweenthefirm,customersandthefirm’sfinancialperformanceareillustratedinFigure1.(Guptaetal,2004)

AsMatkasseABprovidesasubscription‐basedproduct,managingCACandChurnisimportant,butiscurrentlynotapartoftheirdecisionmakingprocessesregardingmarketingactivities.Bynotactivelyusingthesemetricsitcanbethattheyaremissingimportantinformationandmakingunderinformedmarketingdecisions.Introducingthesemetricstothecompanywillbebeneficialforthemanagerialdecision‐makingprocesses.MatkasseABdon’tknowiftheyareoverorunderinvestingincustomeracquisitionorretentionorwhethertheseinvestmentsareeffective.TheyneednewcustomerstoimprovetheirfinancialperformanceandstrengthentheirpositiononthePPGBmarket.

1.3. Purpose

Describeandanalysehowane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,caninacostefficientwayimprovetheirCACandChurn.Furthermore,giveimplicationsabouthowmanagingCACandChurncansupportdecision‐makingprocessesregardingmarketinginvestments.

8

1.4. Research questions

1.Whichmarketingmediachannels*,suitableforane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,canlowerCAC?

StudyingtheliteraturewillprovideanunderstandingofthemeaningofCAC,whyitisimportantandhowcompaniestheoreticallycanaffectthemetric.Thiswillprovideaframeworkthatcanbeusedasabasisforanalysis.Nextstepwillbetofindmarketingmediachannelsthatarecostefficientandsuitableforacompanyinthementionedsituationbytalkingtoanexpertwithinthefield.Furthermore,theauthorswillevaluatemarketingmediachannelsalreadyusedbyaPPGBcompanyandassesstheirimpactoncustomeracquisition.CombiningtheseempiricaldatawillprovideacomprehensiveunderstandingofwhichmarketingmediachannelsthatshouldbeusedinordertolowerCAC.

2.Howcanane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,takemeasurestoretaintheirexistingcustomers,i.e.lowerChurn?

StudyingtheliteraturetounderstandwhyChurnisanimportantmetricandhowtoimproveitwillprovideaframeworkthatcanbeusedasabasisforanalysis.ByresearchingfourPPGBcompany’swebsitesitcanbeshownhowtheytakemeasurestoretaincustomers.Interviewingane‐commercecompanyfromanotherlineofbusinesswilladinsightsandmakeupforgoodanalysisanddiscussionregardinghowtolowerChurn.

3.HowcanacompanyincreasereliabilityofmarketinginvestmentdecisionsbyunderstandingtheimpactofCACandChurnonthefinancialperformance?

BasedonobtainedknowledgefromthetheoreticalframeworkandinsightsfrominterviewwithInvestmentmanager,buildaforecastingmodeltoseefuturefinancialresultsfrommarketinginvestmentsinmarketingactivitieswiththepurposeofimprovingCACandChurn.Themodelwillthenbetestedinafictitiouscasetodemonstratehowthemodelcanbeutilizedasatoolforsupportingmarketingdecisions.

1.5. Report structure

Thenextchapter,Method,describestheproceduretoachievethepurposeofthereport,i.e.howtheworkhasbeenstructuredandwhichresearchmethodsthathavebeenused.Themethodsvalidity,i.e.howfaritmeasureswhatitisintendedtomeasure,andreliabilityofthemeasurements,willbediscussed.

9

Followingchapter,Theoreticalframework,isareviewofthetheoriesthatareconsideredrelevanttothereport.Thesetheorieswillcreatetheoreticalframeworks,whichtogetherservesasastartingpointfortheempiricalandanalyticalchapters.

Theempiricalchapterwillpresenttheempiricalfindingsfromtherealitythestudyaimstoinvestigate.ThischapterisfollowedbytheAnalysis,wherethetheoreticalandempiricalfindingsareconnectedandanalysed.InthenextchapterDiscussion,theresearchquestionsareansweredsequentiallybydiscussingpreviousanalysis.Finally,Conclusionsofthereportwillbepresented.

1.6. Limitation

ThethesiswillfocusonimprovingthetwometricsCACandChurn,aswellas,describehowtheycanbemanagedtosupportdecision‐makingprocessesregardingmarketinginvestments.Thisfocusinchosenastheymainpriorityatthisstageistoincreasetheircustomerbase,hence,investinginvaluablemarketingactivitiesisrelevant.

CACandChurnareobservablemetricsthataredirectlylinkedtoapurchaseoftheproduct;therefore,thesemetricshaveanimpactonthefinancialperformanceofthecompany.Asunobservabledescribestheperception,attitudeandbehaviouralintentionsofthecustomers,suchmetricscannotbeutilizedasmeasurementoffinancialperformance.Therefore,unobservablemetricswillnotbeconsideredinthisreport.

UnobservablemetricsrelatestotheconceptofthePPGB;forinstance,theproductsofferedbythePPGBcompany.Asunobservablemetricsareoutsidethescopeofthisreport,MatkasseAB’sconceptofthePPGBwillnotbeconsidered.ThereasonforthislimitationisthatMatkasseABalreadyhavetakenseveralmeasurestoimprovetheconcept.

Whendeterminingtheimpactonthefirm’sfinancialperformancetheauthorswillusethefirm’sprofitsasameasureofthefinancialperformance.Theproductpriceisacriticalfinancialparameterforthecompanyandaffectsthecompany’sprofits.However,thisparameterwillnotbeconsideredinthethesisasMatkasseABdecidesonthepriceleveloftheirproducts.

ThethesiswilllimitthegeographicalaspecttotheGothenburgregion,asthisiswheretheanalysedcompanyMatkasseABisactive.

10

2. Method

Inthischapterofthereportitisdescribedhowtheworkhasbeenstructuredandwhichresearchmethodsthathavebeenused.Thechapterisdividedinthreeparts,namelyResearchmethods,ResearchprocedureandEnsuringquality.Thefirstsectionisfurtherdividedaccordingtothethreeresearchquestionsandbringsupthedifferentresearchmethodsthathavebeenapplied.Thesecondsectioncontainsadescriptionoftheresearchprocessandhowthiswasbuilt.Thethirdandfinalsectionisadiscussionwheredifferentaspectsofthequalityofthereportarebroughtupintermsofcredibility,transferabilityanddependability.

2.1. Research methods

Theresearchmethodsinthisreportisofaqualitativemannerandconsistsoftwomainmethodsforthecollectionandgenerationofdata,namelysemi‐structuredinterviewsandaqualitativecontentanalysis.Thefollowingsectionsdescribethemeanstakentoanswereachresearchquestion.

2.1.1. First research question

Thispartofthestudyaimedtoinvestigatewhichmarketingchannelsthatweresuitableforane‐commercecompany,withasubscriptionbasedproductandlimitedresources,tolowerCAC.ThiswasdonebystudyingwhatmarketingchannelsaremostusefultoattainalowCACandwhatmeasuresthatcanbetaken.NextstepwastomapthemarketingchannelsalreadyusedbyaPPGBcompanyandassesstheimpactonCAC.ThesetwofindingsformedthebasisforunderstandingwhatmediachannelsthatcanbeusedtolowerCAC.

TofindthemostusefulmarketingchannelstoattainalowCACasemi‐structuredinterviewwereconductedwithAndersKatzcampaignplanneratMediaView.TeodorAbreu,SalesRepresentativeatGroupon,wasalsointerviewedtogetmoreinformationaboutthe“deal‐of‐the‐day”marketingmediachannel.TomapthemarketingchannelsofaPPGBcompanyasemi‐structuredinterviewwiththefounderandCEOofMatkasseAB,weremade.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.

2.1.2. Second research question

ThispartofthestudyaimedtoinvestigatehowthePPGBindustryengagesinactivitiestoincreaseloyalty*,butmorespecific,howonecanengageinactivitiestobuildrelationshipcommitmentwithcustomers.Theauthorsalsoexaminedhowothere‐commercecompanieshaveengagedinactivitiestoincreaseloyaltyandcomparedwiththepreviousfindingsfromthePPGBindustry.Bystudying


11

howthePPGBindustrydoesthisandcomparingwithothere‐commercecompaniestheauthorshopedtopointoutimprovementpotential.

TofindhowthePPGBindustryretainstheircustomersaqualitativecontentanalysiswasusedbystudyingdocumentsassourcesofdata.Morespecifically,virtualdocumentsintheformofcompanywebpageswerestudiedtofindinformationabouthowthesecompaniesengageinactivitiestobuildloyaltywiththeircustomers.Fourdifferentcompanieswithinthisindustrywerestudied.Thethreebiggestactors,Linasmatkasse,Middagsfridandmathem.se,togetherwiththeGothenburgbasedPPGBcompany,MatkasseAB,constitutedthesampleforthecontentanalysis.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.

TheaimofthecontentanalysiswastoanalyseswitchingbarriersthatthecustomerswithinthePPGBindustryweresubjectedtoandhencerelatedtothesecondresearchquestion.Theaimofthecontentanalysiswassetduringtheliteraturestudyofthesecondresearchquestionrelatedtocustomerretention.Theliteraturestudyshowedthatswitchingbarrierswerepartlytheimprovementfocuswhentryingtobuildcustomerloyaltyandhenceincreaseretention.SinceallPPGBcompaniesaree‐commercebusinessesstudyingtheirwebsitesgavetheauthors’accesstoanalysetheexactsamesituationthatthecustomersinthisindustryhadandhencetheswitchingbarrierssubjectedtothem.Tofulfiltheaimofthecontentanalysisacodingschemewassetupandstructuredaccordingtothedriversofloyaltyandswitchingbarriershighlightedinchapter3,section3.2Churn,allinaccordancetoBryman&Bell(2011).Thiscodingschemewerethenusedtoconductthecontentanalysisandalsoservedasabasiswhenstructuringsection4.2.Churn.

Tofindhowothere‐commercecompaniesareimprovingloyaltytwosemi‐structuredinterviewswereconductedwithtwodifferentcompanies.OnewithAlbinJohansson,ProductManageratmembers.com,andonewithMaxSvärdh,CEOatmilkandhoney.se.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.

2.1.3. Third research question

ThispartofthestudyaimedtoinvestigatehowacompanycanincreasetheunderstandingofCACandChurnsimpactonthefinancialperformanceandhowthiscanbelinkedtodecision‐makingprocessesregardingmarketinginvestments.

Theinitialstepwastoobtainanunderstandingofhowtoimproveafirm’sprofitsbymanagingCACandChurn.ThenextstepwastobuildatoolinExcelthatcandemonstratehowthecompany’sprofitsareaffectedbyimprovingCACandChurn.

12

Toobtainanunderstandingofhowtoimproveafirm’sprofits,theliteraturewasstudied.Asemi‐structuredinterviewwithGregoryCarson,InvestmentmanageratGUHolding,wasalsoconducted.Carsonhasexperienceinforecastingrecurringrevenuesandgaveinsightsinhowtobuildaforecastingmodel,suitableforabusinesswithasubscriptionbasedbusinessmodel.BasedontheobtainedknowledgefromthetheoreticalframeworkandinsightsfromInvestmentmanager,aforecastingmodelthatcanbeusedasatoolforunderstandingtheimpactfromCACandChurnonafirm’sprofitswerebuilt.

Themodelwasthentestedwithafictitiouscasetodemonstratehowthemodelcansupportmarketinginvestmentdecisions.AfictionalcompanycalledChef&Friendispresentedwithacertainsetting.FivescenariosarethendemonstratedwhereCACandChurnarealteredtodemonstratehowCLVisaffected.Scenario1,withnoalterationsofthemetrics,Scenario2,withaCACdecreaseof10%,Scenario3,withaChurndecreaseof10%,Scenario4,withaCACdecreaseof20%andScenario5,withaChurndecreaseof20%.ThesescenarioswerechosentogiveanunderstandingofhowCACandChurnrelatetoeachother,howtheyrelatetoCLVandhowthismodelcanbeusedasatoolforevaluatingmarketingdecisions.ThedifferentalterationsofthemetricswillaffectCLVindifferentwaysandhenceprovidetheuserofthemodelwithinformationabouttheprofitability,intermsofCLV,ineachdecision.Thesetestsandthedifferentscenariosarepresentedinsection4.3.1.TestingtheRecurringRevenueModel:AnexampleofChef&Friend.

2.2. Research procedure

Somepartsoftheresearchprocedureshavebeenbroughtupintheprevioussectionandthissectionaimtofurtherelaborateonthissubject.

ThepurposeofthereporthasbeenformulatedwiththepurposeoffulfillingtherequestsfromMatkasseAB.Theinitialproblemidentifiedbytheconstituentwasreformulatedtogetherwiththeauthors,academiccontactsandbusinessadvisorsatMatkasseAB.Thisreformulationwasalsobasedonasubstantialliteraturestudyconductedbytheauthorsandresultedintheproblemidentification.Thisprocessresultedintheformulationofthepurposeandtheresearchquestions,whichhasbeenthefoundationandscopeofthereport.

Thetheoryhasbeenstudiedintwodifferentphaseswithtwodifferentpurposes.Intheinitialphasethefocushasbeentogetfamiliarwiththeproblemandgetabetterunderstandingofthebackgroundtotheissues.Nextstepwastodividetheresearchaccordingtothedifferentresearchquestionsandprovidetheoreticalframeworkstoassistwithstructuringoftheempiricsandfulfillingthepurposeofthereport.Eachresearchquestionservedasthebasisforthisprogressandtheliteraturestudyhasbeenorganizedaccordingly.Thesectionsintheliteraturechapterallresultsinaframeworkthatservedasabasisforthe

13

analysischapter(Chapter5)describedfurtherdown.Theuseofmultiplesourcestocreatetheframeworkshaspreventeduncertainopinionsfromsingleauthors.

Theempiricshavebeenbasedonaseriesofsemi‐structuredinterviewsandaqualitativecontentanalysiswherevirtualdocumentsintheformofwebpageswerestudied.Theempiric’schapter(Chapter4)hasbeenstructuredinaccordancetothethreeresearchquestionsusedinthisreport.

Theintervieweesforthesemi‐structuredinterviewsservedastheempiricalbasisforallresearchquestionsandwerechosenasfollows.AndersKatz,campaignplanneratMediaView,waschosenbecauseofhisexperienceinthemarketingbusiness.Hecouldprovidetheauthorswiththerelevantinformationaboutmarketingmediachannelsthatwereneededtoanswerthefirstresearchquestionaboutcustomeracquisition.Afterthisinterviewhadbeenconductedtheauthorsalsotriedtodiscussthesubjectofcustomerretention(thirdresearchquestion).AndersKatzrecommended,MaxSvärdhandAlbinJohanssonasgoodreferenceswhenstudyingcustomerretentionsincetheybothwereactivelyworkingwiththissubjectattheire‐commercebusinesses.TheintervieweeTeodorAbreuwasalsocontactedafterrecommendationfromAndersKatz.Hence,theseinterviewees(Svärdh,JohanssonandAbreu)weresampledthroughsnowballing,inaccordancetoBryman&Bell(2011).Theseinterviewsprovidedtheauthorswithrelevantinformationaboutcreatingloyaltywithcustomersandhencerelatingtothesecondresearchquestion.TheinterviewobjectGregoryCarsonwaschosenbecauseofhisinvolvementasbusinessadvisortoMatkasseAB,butalsoforhisbackgroundinfinanceandexperiencefromrecurringrevenuemodels.Thisinterviewprovidedtheauthorswithrelevantinformationabouthowtocreatearecurringrevenuemodel.

ThesamplechosenforthecontentanalysiswerethefourPPGBcompaniesMatkasseAB,Middagsfrid,Mathem.seandLinasmatkasse.MatkasseABwaschosenbecauseoftheirroleasconstituentsforthesubjectofthisreport.Middagsfrid,Mathem.seandLinasmatkassewerechosenbecauseoftheirsignificantsizesintermsofrevenueinthePPGBindustry.Allthesethreearethesolebiggestactorsonthismarketintermsofrevenue.Withthissampletheauthors’gotaccesstostudythebestpracticewithincustomerretentioninthePPGBindustry.Morediscussionabouthowthequalityoftheresearchmethodsusedinthisreporthasbeenensuredispresentedinthenextsectionofthischapter(2.3.Ensuringquality).

Theanalysishasbeenbasedonthefindingsfromtheempiricsandcomparedwiththetheoreticalframeworksfromtheliteraturestudy.Eachsectionintheanalysischapterhasbeenstructuredaccordingtothethreeresearchquestionsusedinthisreport.Sincechapter3Theoreticalframeworkandchapter4Empiricshasbeenstructuredthesameway,theanalysiswerebroughttogetherby

14

combiningthetheoreticalframeworksfromeachresearchquestionwiththeempiricalfindingsfromeachresearchquestion.Thetheoreticalfindingshasfurthermoreservedasabasisfortheprocessofgeneratingtheempiricaldata,hencetheanalysiswereconductedinastructuredmannerprovidingarichevaluationofthedifferentresultspresentedinthereport.

Toensureananalysisofhighqualitytheauthors’ownviews,ideasandotherinputhasbeenpresentedinthediscussion.Thiswasimportanttoprovideanobjectiveandcorrectanalysiscomparingthetheoreticalfindingswiththeempiricalfindings.Thediscussionhasalsobeenstructuredtofulfilthepurposeandanswertheresearchquestionssequentially.Theconclusionshavebeenbasedonallprogressfromthetheory,empirics,analysisanddiscussions.

2.3. Ensuring quality

Thisreporthassolelyusedqualitativeresearchmethods,suchassemi‐structuredinterviewsandqualitativecontentanalysisforthecollectionandgenerationofdata.Bryman&Bell(2011)statesthatthecriteriaofreliabilityandvalidityareanevidentqualityissueformostresearch,butespeciallyforquantitativeapproaches.Thegroundingofthesecriteriaisbasedonquantitativeresearch.Thereforesomeauthorsarguethatvalidityandreliabilityareinapplicableorinappropriateforqualitativeresearch.Insteadothercriteriashouldapplytoqualitativeresearch,suchascredibilityinparallelwithinternalvalidity(howbelievablearethefindings),transferabilityinparallelwithexternalvalidity(dothefindingsapplytoothercontexts)anddependabilityinparallelwithreliability(arethefindingslikelytoapplyatothertimes)(Bryman&Bell,2011).

Bryman&Bell(2011)statesthatqualitativecontentanalysisprobablyisthemostwidespreadapproachtothequalitativeanalysisofdocuments.Theyfurtherarguethattoensurethecredibilityanddependabilityofthefindingstheextractedthemesfoundbytheresearchersshouldbeillustratedbyquotationsorpictures.InthisreportpicturesofthefindingsarefoundinAppendixII.Bryman&Bell(2011)furtherstatesthatthisisespeciallyimportantstudyingvirtualdocumentssincewebsitescontinuouslyareupdatedandchanged.

Theinterviewshavemainlybeenconductedoverthephonebutalsoinpersonandallofthemhavebeencarriedoutinasemi‐structuredapproachinaccordancetothedescriptionofBryman&Bell(2011).Interviewguides(seeAppendixIV)werepreparedandthequestionswerelimitedtoonlyafewtoensurethattherespondentcouldanswerfreely.Theinterviewguidewithquestionswassenttotherespondentthreedaysinadvancewereadescriptionthepurposeoftheinterviewalsowasincluded.Thiswasdonetoensurethattherespondentwaspreparedtoanswerthequestionscorrectly.Thequestionswerenotaskedinanyspecificorderbutadaptedtotheanswersgivenfromthe

15

interviewee.Thiswasdonetogettheconversationflowing.Aftertheinterviewstheintervieweewasabletoseethetranscriptstoensurethattheanswerswasinlinewithherorhisactualopinion.AllthesemeasuresweretakentoensurethecredibilityoftheinterviewsinaccordancewithBryman&Bell(2011).Thecredibilityhasbeenfurtherenhancedbytriangulationofmultiplesourcesofdatafromtheresearchmethodsusedinthereportandthestudiedliterature.

Asqualitativeresearchinvolvesthedeeperstudyofasmallergroupqualitativeresearchtendtobeorientedtowardsaspecificsettingandcontext(Bryman&Bell,2011).TheseargumentsareapplicabletothisreportaswellandthefindingspresentedshouldnotbeviewedasconclusionsthatcanbegeneralizedbutarerathersolelyapplicabletothePPGBindustryandthecompaniesincludedinthestudy.Hence,thetransferabilitycouldbeviewedasratherweak.

Thedependabilitycriteriainvolvethedocumentationoftheresearchprocessandthatrecordsarekeptduringallstages(Bryman&Bell,2011).Inthisreportallinterviewtemplates,transcriptsoftheinterviewsaswellasthefindingsfromthequalitativecontentanalysishasbeensaved.Theproblemidentificationisspecifiedandtheselectionofresearchparticipantsaredocumentedandpresented.Hence,thedependabilityoftheresearchhasbeenconsidered.

16

3. Theoretical framework

Inthischapterofthereportthefindingsfromtheliteraturewillbepresented.CACandChurnwillbepresentedintwodifferentsectionswherethesemetricswillbedefinedandtheirroleascustomermetricswillbedescribed.Furthermore,theoreticalsuggestionsabouthowtoimproveCACandChurnwillbeprovided.Thiswillbefollowedbyasectionaboutfinancialperformanceanddecision‐makingprocesses.HereisCustomerLifetimeValue(CLV)introduced,ametricthatisbasedonbothCACandChurnandisakeyindicatorofafirm’sfinancialperformance.

3.1. Two key customer metrics

Foracompanywithasubscriptionbasedbusinessmodeltwokeycustomermetricsarecommonlyusedtomeasurethecompany’sperformance.ThesemetricsareCustomerAcquisitionCost(CAC)andChurnandtheyarerelatedtothecompany’scustomerbaseandsales,asillustratedinFigure2.CACmeasureshowmuchitcostsforthefirmtogetanewcustomer.Churnisametricthatrelatestotheretentionofcustomersandmeasureshowmanycustomersthatleavesthefirmduringaspecificperiodoftime.Improvingthesemetricswillincreasethecustomerbase,andhencesales.Toattractnewcustomersthecompanyneedtoinvestinmarketingactivitiesthatgeneratemanycustomerstoalowcostandtoretainexistingcustomersthecompanyneedtoinvestinmarketingactivitiesthatpreventcustomersfromcancellingthesubscription.(Guptaetal,2004)

Figure2CACandChurninrelationtothecustomerbaseandsales.Compiledbytheauthors.

Acompany’sdecisionsaffectthesemetricsandsimilarlythesemetricsaffectsthecompany’sdecision‐makingprocesses.Decidingtoinvestinaspecificmarketingactivitywillaffectthemetricsandifthemetricsareaimedtobeaspecificvalue,thiswillaffectthedecision‐makingprocessesregardingmarketinginvestments.Therefore,understandingandactivelyusingthemetricsiscriticalforthecompany’smanagerialdecisionsandtheperformanceofthefirm.(Guptaetal,2004)

17

3.2. CAC

CACstandsforCustomerAcquisitionCostandmeasuresthecosttogetanewcustomer.Manydifferenttermsareusedtodescribethismetric,suchasCostPerAction(CPA)andCostPerAcquiredAccount(CPAA);however,inthisreportwehavechosenthetermCAC.TocomputeCACtheentirecostofsalesandmarketingoveragivenperiodisdividedbythenumberofcustomersacquiredduringthatperiod.CACshould,asallothercosts,bekeptlowandweighedagainstthegeneratedvalue.Inasubscriptionbasedbusinessthismetricsmustnotbehigherthantheabilitytomonetizethosecustomers,meaningthetotalvaluethecustomerwillgeneratetothecompany.(Skok,2009)

CACcouldfurtherbeseenasameansofcontrollingmarketingexpensesandensurethatthefirmisnotspendingmoneyontermsthatarenotdrivingthebusiness(Larry,2013).AsCACisacostforthefirm,successfulinvestmentsinthismetricwillsavefutureexpensesandthereforimprovethefirm’sfinancialperformance(Gupta&Zeithaml,2004).WiththissaidafirmmustunderstandhowtoallocateexpensesinordertodrivedowntheCAC.

AccordingtoZohn(2003),mappingoutthecompany’smarketingprocessesandensurethatthemostcost‐effectiveresourcesareusedisafirststeptolowerCAC.Mostcompanieswillachieveamorelowcoststructureonlybyshiftingfromhigh‐costvoiceandprinttolow‐costonlinecommunication.Followingstepshouldbetoexamineeachmarketingactivity*fromacquisitiontoretentiontodeterminewhereequallyeffectivebutlessexpensiveresourcecanreplacetheexistingone.Marketingactivities,inthissense,relatestomarketingmediachannelsforreachingouttotargetedcustomer,whicharethedriversofCAC(Zohn,2003).

Howtoallocatemarketingexpensesacrossdifferentmediachannelsisaclassicproblemintoday’smultichannelenvironment.Inordertounderstandthisproblem,accordingtoReinartzetal.(2005)theindividualcustomershouldbethemeasuredobjective,becausepersuasioniscreatedattheindividuallevelandbecausemediaincreasinglycanbetargetedattheindividuallevel.Furthermore,marketingmediachannelscanbecharacterizedasmoreorlessinterpersonal,wherepersonalsellingcouldbearguedtobethemostinterpersonalsinceitoffertheabilityformessagecustomizationandallowsforpersonalrelationshipbuilding.Priorstudieshaveshownthatmoreinterpersonalchannelswillhaveagreaterpositiveimpactoncustomeracquisitionaswellascustomerretention.(Gupta&Zeithaml,2004)

18

Marketingmediachannelscanbedividedintothreecategorize:paid,owned,andearnedmedia,asillustratedinFigure3.Paidmediaincludestraditionaladvertising,suchasprint,television,directmail.Ownedmediaconsistsofpropertiesorchannelsownedbythecompany,suchascompanywebpage,Facebookfanpage*,mobileapps.Thethirdcategory,earnedmedia,aregeneratedwhenthequalityoruniquenessofacompany’sproductmakescustomerspromotethecompanyatnocostthroughexternalorownedmedia;forinstance,wordofmouth*,blogs,Twitter*(Edelmanetal.,2010).Eachmediaoffersdistinctiveadvantages.Paidmediaimmediatelyreachesouttoabroadaudience.Anownedmediagivesthecompanyconcretewaystoengagecustomers.Andearnedmediagivesthecompanyinsightinhowcustomersperceivethemaswellastheircompetitors(Smith,2010).Furthermore,paidandownedmediaarecostrelatedchannels,whileearnedmediaisproducedbyconsumesatnocost.Tocreatepaidmediathemarketingcompany*investinadvertisingcreation,placements,purchasinglogisticsandmanagement,whiletocreateownedmedia,investmentsarerelatedtocontent,technology,responseresources,andmanagement.(Edelmanetal.,2010).Thechoiceofmarketingmediachannelcanhaveahugeimpactontheoutcomeofamarketingactivity,asmarketingmediachannelshavevaryingcostefficiency,differenttargetgroupsandcancreatedifferenteffectsofbrandingorpromotion(Grönlundetal.,2010).

Ownedandearnedmediaisbecomingmoreandmorecommonlyusedbecauseoftheemergenceofsocialmedia*.Ownedisoftenlesscostlythantraditionalpaidmediaand,asalreadymentioned,earnedisproducedatnocost;therefore,thesechannelswellsuitablealternativesforloweringCAC(Sussinetal.,2013).AccordingtoSmith(2010)thebestwaytoworkwithmarketingmediachannelsistouseamixofthethree,whereeachchannelsupportstheothers(Smith,2010).Thispositiveeffectismoreandmoreachievablesincethethreemediachannelsincreasinglyinteractwitheachother,mainlyduetosocialmedia.Paidmediacanserveasfeedersintoownedmedia,wherecompaniescanofferamoreengagingexperienceandamoretargetedstreamofcontactwithcustomers.Furthermore,companiescan,throughbothpaidandownedmedia,encouragecustomer’stoe.g.“share”thingstheylikeandhenceproduceearnedmedia.Thisfanpromotionissometimesspontaneous,however,itisoftenencouragebygivingthecustomersanattractiveoffer,suchasrewardingforacquiringanothercustomerthroughrecommendation.Thus,paidandownedmediaeffortscangenerateearnedmediatothecompany.(Edelmanetal.,2010)


19

Figure3Categorizationofmarketingmediachannels.Compiledbytheauthors.

Onlinemarketingtargetsconsumersthatare“inthemoment”.Consumerswhorespondtoanadarealreadyinterestedintheproductandthereforeareconsideredtobeinthebuyingprocess.Thisisbeneficialasthoseconsumershavehighpotentialofpurchasingaproduct.(Baker,2005)

Paidonlinemarketingdramaticallyimprovesthechancethatpotentialcustomersfindthecompany’swebsite.(Heaphy,2011).WhenthecustomerissubjectedtoanadontheInternet,thatadcanleadthecustomerdirectlytothebuyingplace,wherethecustomercanordertheproduct.Thisincreasesthelikelihoodforanactualpurchase.ThedirectlinkbetweentheadvertisementandthebuyingplacecanonlybeachievedontheInternet.(Sauter,2009)

3.3. Churn

Churn,sometimesalsoreferredtoasattrition,isthemetricformeasuringtherateofcustomersleavingtheirsubscription.Hence,itisinanegativewaydirectlycorrelatedtothecustomerbaseandisusuallycalculatedmonthlybydividingthenumberofdefectingcustomersthatmonthbythenumberoftotalcustomers.Thestrategyforthismetricisofcoursetokeepitaslowaspossibletobeabletoretainthecustomerbaseandastablerecurringrevenuestream(Wileman,1999).

AnothertermthatisofimportancewhentryingtounderstandChurnisretention.Thisisthetermforpreservationofcustomersandhence,Churnisameasureoftheretentionrateorthecustomerloyalty(Livneetal.,2011).Havingalowrateofdefectingcustomersisgoodproofthatthecustomersareloyaltothecompanyandtheproductsandservicestheyareofferedregardlessofhow

20

smallthecustomerbasemaybe.Withanewproductonthemarketitisimportanttokeeptrackofthecustomerloyalty.IftheChurnratestartstoincreaseitismostlikelythatthecustomersaretakingtheirmoneyelsewhere(Gustavssonetal.,2005).

Havingasmallcustomerbaseitwouldbemorereasonabletotakeactionstoincreasethecustomerbaserathertoretainit.InabsolutetermsthecostofhavingaChurnrateoftwopercentisofcourselessforasmallercustomerbasethanforabiggerone.AlthoughmanagingthecustomerChurnwouldmakethegrowthofnewcustomersmorestablesincefewercustomersareleavingtheirsubscriptions.Furthermore,manystudieshaveshownthatthecostofretainingcustomersislessthanacquiringnewones(Claude,2000)(Huson,1996).Claude(2000)statesthatitcouldbeasmuchas10timesmoreexpensive.

TounderstandwhatmeasuresthatcanbemadetoaffecttheChurnrateandkeepitaslowaspossibleitisimportanttounderstandthedriversofthismetric.Theretentionofcustomersisdependingontheirloyaltytowardstheproductsorbrandandthedriversofcustomerloyaltycanbedividedintotwobigsegments,namelycustomersatisfactionandrelationshipcommitment.Theformeraredefinedastheoverallevaluationoftheproductsorservicesbuiltupovertimeandthelattercaninturnbedividedintotwosmallerparts,namelyaffectivecommitmentandcalculativecommitment.Calculativecommitmentisthemorerationalone,asortofeconomic‐basedcommitment,createdbylackofotherchoicesordifferentkindsofswitchingbarriers.Affectivecommitmentisthesofteronethatdevelopsthroughtheamountofexchangeandpersonalinvolvementthecustomerhaswiththefirm,whichdevelopsahigherleveloftrustandcommitmentintherelationship.Theseformsofcommitmentmakesthecustomersstaywiththecompanyandrepurchaseproductsorservicesevenwhenthesatisfactionislow(Gustavssonetal.,2005).

Oneimportantdifferencebetweenthetwodriversisthatcustomersatisfactionismorebackwardlookingandrelationshipcommitmentismoreforwardlooking.Customersatisfactionisbuiltupovertimeandmeasurestherelationshipuptodate,whereasrelationshipcommitmentisameasureofthestrengthoftherelationshipandthecommitmenttoproceedfurther(Gustavssonetal.,2005).

21

Figure4Demonstrationofdriversofretention/loyaltyandimprovementfocustoaffecteachdriver.Compiledbytheauthors.

TolowerChurnandincreaseretentiontherearedifferentactivitiestopursuedependingonwhatdrivesloyalty.Ifcustomersatisfactionisthedriverthereshouldbemeasurestakentoimproveproductorservicequalityorofferabetterprice.Ifhoweverrelationalcommitmentisthedriver,focusshouldbespentonbuildingmoredirectrelationshipstoyourcustomersorcreatingswitchingbarriers(Gustavssonetal.2005).Figure4demonstratesthedriversofloyaltyandtheimprovementfocustoaffecteachdriver.

Menon&O’Connor(2007)arguesthataffectiveandcalculativecommitmentarefundamentallylinked.Sinceaffectivecommitmentiscreatedandfosteredduringepisodesofinterpersonalinteractionsintherelationshipbetweenthecustomersandthefirmitisnotpossibletohaveaffectivecommitmentwithoutfirstensuringsomeextentofcalculativecommitment.Thereforethepresenceofcalculativecommitmentshouldbeviewedasaplatformonwhichtobuildaffectivecommitment.Besidesthatcalculativecommitmentisaprerequisiteforaffectivecommitment,itisalsoarguedthatthepresenceofaffectivecommitmentwillincreasecustomercalculativecommitment(Menon&O’Connor,2007).

Effectiveinterpersonalinteractionsaredrivenbytheassertivenessandaffiliationthatisdemonstratedduringtheinteractionsintherelationshipbetweenthecustomersandthefirm.Hence,tobuildaffectivecommitmentwiththecustomersitisnecessarytolookattheinteractionpoints(i.e.directrelationships).Theseinterpersonalcommunicationchannelsmustthereforebethefocuswhentryingtoimprovetheaffectivecommitmentwithcustomers(Menon&O’Connor,2007).

22

Calculativecommitmentiscreatedanddrivenbythecustomers’perceptionofhigh(contractualorfinancial)switchingbarriers,customerswitchinginertiaorthelackofalternativechoicesonthemarket.Hence,itisthecustomers’inconvenienceordifficultytoswitchthatmakescalculativecommitmentoccurandtomanagecalculativecommitmentafirmmustbuildswitchingbarriers(Menon&O’Connor,2007).

WhentryingtoimproveChurnitisimportanttoconsiderwherethefirmoperatesitsbusiness.ForcompanieswithanInternetbasedbusinesstheimportanceofswitchingbarriersbecomeevenmoreevidentandunderstandingtheelectronicenvironmentsurroundingthecompanyisavital.IncontrasttoothermoretraditionalenvironmentstheInternetdecreaseswitchingbarriersandthereareforemostthreereasonsforthis.Firstbecauseofitstransparentnature,whichisfurtherenhancedbycustomers’useofsmartpriceagents(e.g.pricerunner.se,etc.),second,becauseoftheabsenceofphysicaldistancebetweencustomers,suppliersandcompetitorsandthirdbecauseofthelackofpersonalcustomer‐firmrelationships(Wirtz&Lihotzky,2003).

InteractionwithcustomersislimitedtothefirmsownedmediasuchaswebpageandFacebookfanpage.Thelackofinterpersonalinteractioninwebbasedbusinessesmeansthatitisdifficulttobuildanaffectivecommitmentintherelationshipanddevelopemotionaltieswithacustomer.Hence,buildingcustomerswitchingbarriersbecomesanevenmoreimportantpartofretentionmanagementwhenhavinganInternetbasedbusiness.Itisalsoapparentthatimprovingcustomerretentionismoredifficulttoachieveinanenvironmentwherethereisgreattransparencyandcompetitorsisonlyaclickaway(Wirtz&Lihotzky,2003).

TherearefivetypesofswitchingbarriersthatcanbederivedfromanInternetbasedfirm,asillustratedinFigure5;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts(orcontractualcosts).Transactioncostsarethecoststhatarisefromstartinganewrelationshipwithafirmandinvolvelossoffinanciallyquantifiableresources,suchasonetimefeese.g.depositorinitiationfee.Inaddition,switchingmayinvolvereplacementofco‐assets(assetsconsumerhaveboughtthatiscompatiblewiththespecificproduct).Learningcostsprimarilyinvolvesexpensesoftimeandeffort.Thesecostsoccurwhenacustomerneedstofamiliariseandcreatethesamecomfortandfacilitywiththenewe‐storeaswiththeoldone.Onceconsumersbecomefamiliarwithane‐store*,theymightbeunwillingtochangetoanother,particularlyiftheyhavespenttimeandefforttocustomisethesitetotheirspecificrequirements.AccordingtoBalabanisetal.(2004),onlineshoppersdo

23

sticktothesamee‐storetosavetimeandefforttoavoidlearninghowtouseanewsitewithnewlayout.Relationalcostsmeansifacustomerfeelsemotionaldiscomfortwhenswitchingtoanewprovider.Thisemotionaldiscomfortcanappearwhenacustomerdon’ttrusttheproviderorfeelinsecurewhenpurchasingaproduct.Trustmaybemoreimportantonlinethaninphysicalstoresascustomersoftenhavetopayinadvanceandthereareuncertaintieswhetherorwhentheproductwillbedelivered.Furthermore,customersmightfeelinsecurewhenprovidingpersonalandcreditcardinformationonline.AneffectofriskforInternetfraud*maybethatcustomershavetorelyonasmallnumberoftrustedproviders.Conveniencebarrierarethecostsassociatedtothecustomer’slossorlackofflexibilitywithalternativesuppliers.Forexampleifacustomerhascertainneedsorareusedtospecificroutinesthatothersupplierscannotordonotoffer.Artificialcostsarecreatedthroughdeliberateactionsbythefirm,suchasloyaltyprogramsandcontractualbarriers.Suchactionscreateeconomicbenefitsforstayingwithaprovider,asconsumersmayloseaccumulatedpoints,discount,orbenefitsthatarenotaffordedtonewcustomers.Hence,creatingincentivesforthecustomertostaywiththeprovider.Similarswitchingbarrierscanbecreatedbycontracts,whenacustomersignsacontractcommittinghim‐selftobeliableforthecompanyandbuyfromthefirmforaperiodoftime,e.g.contractuallyboundtothecompanyuntilapredetermineddate(Pei‐Yu&Hitt,2002)(Balabanisetal.,2004)(Burnham,2003).

Figure5Demonstrationofswitchingbarrierstobuildcalculativecommitment

Aloyaltyprogramaimstoencourageacustomertostaywithafirm,throughtheofferingofhardandsoftbenefits.Hardbenefitsarethosethatincurfinancial


24

coststothefirm,forexamplebyofferingmerchandise,whichhelpbuildcredibilityandcustomerattention.Softbenefitsshouldtrytobuildasenseof“specialstatus”withthecustomerbyofferingspecialinformationandrecognition.Thisleadstoadeeperandmorelong‐termloyaltycomparedtothehardbenefits(Balabanisetal.,2004).

Implementingaloyaltyprogramisacommonwaytoencouragecustomerstocomebackandbuymore.Asuccessfulloyaltyprogramidentifies,connectswithandretainsthebestcustomers.AccordingtoMosier(1999)therearethreekeyelementsofeffectiveloyaltyprograms:personalization,emotionaltie,andsoftandhardbenefits.Personalizationmeansthattheloyaltyprogramshouldhaveatargetedmessagetothebestcustomersthatappealstotheirspecificneeds.Thecustomersmustperceiveavalueoftherewardandbesomethingthattheyfeelisusefulinsomeway.Withtherightoffercompaniescanacquirecustomersbutthatdoesnotnecessarilymeansthatthecustomersareloyal.Ifabetteroffercomestheymightswitchtoanothersupplierifthecompanyhavenotconnectedwiththecustomeremotionally.Therefore,itisimportanttocreateanemotionaltietothecustomersbymakingrewardsinteractive,timely,andexclusive.(Mosier,1999)Hardbenefitsaretangibleeconomicrewards,whilesoftbenefitsrepresenttheemotionalandrecognitionaspect.Mosier(1999)arguesthathardbenefitsattractcustomerstojoinaloyaltyprogram,whilesoftbenefitskeepthemthere.Exampleofhardbenefitscanbeanintroductiondiscount,premiumsforaccumulatedpoints,orreducedpriceforbuyingmoreproducts.Softbenefits,ontheotherhand,couldbetoprovideasenseofexclusivityforthecustomerorsendnoticeinadvanceforeventsorspecialpromotions.Themostsuccessfulloyaltyprogramsbalancethesetwotypesofbenefits.(Harris,2000)Implementingaloyaltyprogramcanbeperceivedasexpensiveforthecompany,however,asitismoreexpensivetoacquirenewcustomersthanretainingexistingones,thisinvestmenthaveashortpaybacktime.(Mosier,1999)

3.4. Financial performance and decision‐making processes

Importantfinancialinformationforabusinessispresentedinthecompany’sfinancialstatement,whichtypicallyincludesabalancesheet,incomestatement,andcashflowstatement.Thesestatementsareimportantwhendeterminingthefinancialperformanceofacompanyaswellaswhenmakingstrategicdecisions.(Hillieretal,2010)

Anothertoolthatisimportantforsupportingdecision‐makingprocessesisfinancialforecasting.Ithelpsmanagementtrackthecompany’sfinancialperformance;hence,itprovidesabasefordecision‐makingprocessesasmanagementcanseetheimpactfromadecisiononthefirm’sfuturefinancialperformance.(Whitfield,2011)

25

Thetermrevenuemeansincomereceivedfromsalesofgoodsorservicesoveraspecificperiodoftime.Revenuecanbefoundatthetopofanincomestatementandrevenuegrowthisakeyperformanceindicatorforinvestorsandshareholders.(Whitfield,2011)Asubscriptionbasedbusinessmodelgeneratesrecurringrevenuesascustomersarecontractedforaperiodoftime.Besidesreduceduncertaintyasthesupplierknowsitscustomers,thisalsoimprovesthepredictabilityofthefuturerevenuestreams(Sundelin,2008).Thelevelofpredictabilitycanbefurtherimprovedwithfinancialforecastingthattrackrecurringrevenues.AccordingtoSwanson(2008),thebestforecastsarebasedonagoodunderstandingofhistoricaltrendscombinedwithfuturescenariosderivedfromadetailedanalysisofknownfactorsthatcanaffectrevenuesandcosts.

FinancialforecastingcanpredicttheinflowofrevenuesoveraspecificperiodoftimewithrespecttohowmanynewcustomersthecompanyacquiresaswellashowmanyexistingcustomersthatChurn(SaasOptics,2012).Theforecastprovidesaclearvisibilityoffuturerevenuesandhenceclearpictureofthebusiness.Measuringrecurringrevenuesgivesareflectionofthestateofthebusinessanddecisionscanbemadebasedonhowtomaximizetherevenuegrowthsandprofitsofthefirm.Itispossibletotrackannualrecurringrevenues;however,itismoresuitabletotrackmonthlysincethenumberscanchangedramaticallyfrommonthtomonth.(Cowan,2012)

CACandChurn,togetherwithprofitgeneratedfromacustomer,willformathirdmetricrelevantformeasuringacompany’sfinancialperformance,Customerlifetimevalue(CLV).CLVisthelong‐runprofitabilityofacustomerandisdefinedasthediscountedcashflowsfromacustomeroveritsrelationshipwithafirm(Gupta&Zeithaml,2004).Inotherwords,tocalculatetheCLVitisnecessarytoprojectthenetcashflowsgeneratedfromacustomerovertimeandthencalculatethepresentvalueofthosecashflows(Berger&Nasr,1998).Asseeninequation1,thelifetime(1)ofacustomerisoneoverChurnresultingintheaveragemonthsthatacustomerstayswiththecompany.ThenusingthesumofalldiscountedprofitsfromacustomerandsubtractingtheCACwillresultinCLV(2).(Berger&Nasr,1998)

Equation1Formulasforthelifetimeofacustomer(LT)andcustomerlifetimevalue(CLV).

SinceCLVfocusesonthelong‐termprofitsmaximizingthismetricwillmaximizethelong‐termprofitsandfinancialperformanceofthefirm.Knowingwhat

26

profitsyourcustomersaregeneratingwillhelpbetterdecisionmakingaboutcustomerselection.Ingeneraldifferentcustomersaregeneratingdifferentamountofprofitstothefirmandoftenthe80‐20ruleisapplicable(80%ofacompany’sprofitsaregeneratedby20%ofitscustomers)andfurthermorethatsomecustomersdestroyvalue.(Gupta&Zeithaml,2004)MeasuringCLVshouldbeanimportantpartofmarketinginvestmentdecisions,suchasbudgetingacustomeracquisitionprogramandunderstandinghowtomaximizethemetricwillprovideabettersupportfortheallocationofmarketinginvestments,asthecompanywillunderstandwhichmarketingactivitiestoinvestin.(Berger&Nasr,1998)

3.5. Summary of theoretical findings

CACandChurncanbeimprovedbyinvestinginmarketingactivitiesthatcanimprovethedriversofthemetrics.Figure6illustratesanoverviewofthedriversofrespectivemetricaswellasimprovementfocusforthedrivers.InvestinginmarketingactivitiesthataffectthedriversinapositivewaywillimproveCACandChurnandhenceCLV.

AsCACisacost,loweringthiswillhaveapositiveimpactonthefirm’sprofitandhencefinancialperformance.Mappingoutacompany’smarketingprocessestoseewhichmarketingmediachannelthatismostcost‐efficientisafirststeptoimproveCAC.Marketingmediachannelscanbecategorizedaspaid,owned,andearnedmedia.Eachmediachanneloffersdistinctiveadvantages,astheyhavevaryingcostefficiency,differenttargetgroupsandcancreatedifferenteffectsofbrandingorpromotion.Onlinemarketingtargetscustomersthatareinthebuyingprocess;hence,ittargetscustomersthathavehighpotentialofpurchasingaproduct.Furthermore,onlinemarketingdramaticallyimprovesthechancethatpotentialcustomersfindthecompany’swebsiteasitenablesadirectlinkbetweentheadvertisementandthebuyingplace,whichincreasesthelikelihoodforapurchase.

TolowerChurnandincreaseretentionbuildingrelationalcommitmentisimportant.Thiscouldbedonebybuildingmoredirectrelationshipstocustomers(affectivecommitment)orcreatingswitchingbarriers(calculativecommitment).CreatingswitchingbarriersisanimportantpartofretentionmanagementwhenhavinganInternetbasedbusiness,asthereislackofinterpersonalinteractioninweb‐basedbusinesses.Itisthereforedifficulttobuildanaffectivecommitmentintherelationshipanddevelopemotionaltieswithacustomer.TherearefivetypesofswitchingbarriersthatcanbederivedfromanInternetbasedfirm;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts(orcontractualcosts).

27

Figure6IllustrationofthedriversofCACandChurn,aswellasimprovementfocusforthedrivers.Compiledbytheauthors.

Financialforecastingcansupportdecision‐makingprocessesasitprovidesaclearpictureofthecompany’srevenuegrowthandprofitsasaresultofaspecificdecision.MaximizingCLVcanimproveafirm’sprofitandasCLVisdependentonthecustomermetricsCACandChurn,thesemetricsarecriticaltomanage.UnderstandinghowtomaximizeCLVwillalsosupportdecision‐makingprocesses,asthecompanywillunderstandwhichmarketingactivitiestoinvestin,inordertoimproveCACandChurn.

28

4. Empirics

ThischapterofthereportwillpresenttheempiricalfindingsthataredividedintoseparatesectionsforCAC,ChurnandRecurringrevenuemodel.TheCACsectionisintroducedwithadescriptionofMatkasseAB’salreadyperformedmarketingactivities.ThisisfollowedbysuggestionsfromamediaplannerexpertatMediaViewofcostefficientmarketingmediachannels.TheChurnsectionpresentsthefindingsfromthequalitativecontentanalysisofthethreelargestPPGBcompaniesaswellasMatkasseAB.Thenmeasurestoretaincustomersarepresentedbasedoninterviewswiththee‐commercecompaniesMembers.comandMilkandhoney.se.ThesectionabouttheRecurringrevenuemodelpresentshowthemodelhasbeenbuiltfollowedbyasectionwherethemodelistestedtoshowhowitcansupportacompany’smarketinginvestmentdecisions.

4.1. CAC

ThefirstpartofthissectionwilldescribewhichmarketingmediachannelsthatMatkasseABalreadyhaveusedandthesecondpartwillpresentlowcostmarketingmediachannelsingeneralandhowthesecanbetrackedandtraced.

4.1.1. Matkasse AB

ThissectionisbasedonaninterviewwithGustavSvensson,thefounderandCEOofMatkasseAB,130403.

Sofar,MatkasseABhasperformedseveralmarketingactivities,mainlywiththepurposeofattractingnewcustomerstothebusinessbutalsotoretainexistingcustomers.Theyhaveusedbothpaid,earnedandownedmediachannelsforfulfillingthesetwopurposes.

Foracquiringnewcustomersfollowingpaidmediachannelshavebeenutilized(marketingmediachannelsaresummarizedinFigure7):

Directmailmarketing*:Svenssonhimselfhaspostedpromotionalmessagesincustomers’mailboxesandevengivenfreegrocerybagsforcustomerstotry.Hehavetargetedstreetswherehiscurrentcustomerslive,asneighboursmighthaveheardofMatkasseABandhenceareinterestedintryingthebag.Thismarketingactivityhasmoreorlessnotgeneratedanynewcustomers.

Googleadvertising:MatkasseABpurchasestheservicesearchengineoptimization*(SEO)fromanothercompany.Svenssonbelievesthatthisisthemaintrafficsourcethatgeneratesmostnewcustomers.Hefurtherbelievesthatbeplacedontopamongsearchresultsgeneratesmorecustomersthanadvertisinginthetopbarorsidebar,hence,itisabettermarketingmedia


29

channelthanGoogleAdWords(describedinsection4.1.2.2.GoogleAdWords).Therefor,MatkasseABonlyspendsasmallamountofmoney(around100SEK)permonthonGoogleAdWords.

Deal‐of‐the‐day*:ThemostrecentmarketingactivityMatkasseABhaveperformedisaLet’sDealcampaign.Let’sDealofferdealsofthedaytoconsumers,wheresuppliersgivesminimum50%discountontheirproducts.MatkasseABoffered100pre‐packedgrocerybagswithdinnerfor2persons.Thereasonforthelimitednumberofbagsisthatdeliveringtoomanybagsduringthesameperiodcanaffectthequalityofcurrentcustomers’bags.Thedealmeant50%discountofordinaryprice.OftheremaininggrossincomeLet’sDealcharges40%.Thedealsoldoutin3hand34minutes.Svenssonestimatesthat5‐6customerswillbedefinitivesubscribers,however,thisresultwillbemoreaccuratelyestimatedafterfourweekswhendeadlinefororderinghaspassed.Hefurtherarguesthatgenerating15newsubscribersfromthedealwouldbeagoodoutcome.

Socialmediaadvertising:MatkasseABdoesnotspendmuchmoneyonFacebook*advertising(notedifferencebetweenFacebookadvertisingandFacebookfanpage)ashebelievesthatitdoesnotgenerateanycustomersatall.However,hearguesthatitisagoodchannelforgeneratingbrandawareness.

Foracquiringnewcustomersfollowingownedmediachannelshavebeenutilized:

Socialmedia:MatkasseAButilizedFacebookandInstagram*asmarketingmediachannelsforreachingouttocustomersasitprovidesviralspread*.TheyhaveaFacebookfanpagewheretheydisplaythemenuforthecomingweek,includingimages,andannouncethelastdayforordering.Afteraweekhaspastcustomerscanvoteforthebestdishonthefanpage.Furthermore,theFacebookfanpageenablesthepossibilityforFacebookusersto“like”*and“share”*thefanpage;asaresult,thefanpagewillappearintheuser’snewsfeedandbevisibletohis/herfriends.Atthetimeofwriting,thereisacontestontheirfanpageencouragingcustomerstomaketheirownpizzaandtakepicturestouploadonFacebook.Thepicturewithmost“likes”winsadinnercookedbyGustavSvenssonworth5000SEK.ThepurposewiththiscontestistoincreasetheviralspreadofMatkasseAB.Furthermore,MatkasseABhaveanIntagramaccount,wheretheyuploadimagesofdishes,ingredients,eventsetc.SvenssonbelievesthatpeoplehavenotunderstoodInstagramwellenoughforittohaveanyeffect.


30

Figure7MarketingmediachannelsutilizedbyMatkasseAB.Compiledbytheauthors.

MatkasseABbelievesthatearnedmediachannels1,suchaswordofmouth,havegeneratedthemajorityofcustomerssofar.Asalreadymentioned,MatkasseABhasaFacebookfanpageandthisenables“share”and“like”features,whichcanbeconsideredasearnedmedia.MatkasseABalsooffersdiscountstocustomersgeneratesanothercustomerbyrecommendingtheproduct.Independentwebpagesratingpre‐packedgrocerybagsshowhighscoresforMatkasseABcomparedtocompetitors;theyarerankedasthebestPPGBinGothenburgatwww.matkasse.seandwww.matkasse.com.

MatkasseABtracktheirmarketingwithaStatscounter,aprogramforvisitoranalysisonthewebsites.TheyhavealsoinstalledGoogleanalyticsbutdonotuseityet.

MatkasseABdefineagoodcustomerasacustomerstayingatleast16weeksandpurchaseminimum9grocerybags.Thecriticalpointiswhenthecustomerbuystheirsecondbag,asthatiswhenthecustomerdecidesiftheywanttocontinueornot.Overall,Svenssonconsidershiscustomersbeingveryloyal;nevertheless,theyperformactivitiesforkeepingexistingcustomersaswellaswinningChurnersback.

Svenssonkeepstrackofhisbestcustomersandsometimesvisitsthemwithagiftorsendsagiftwiththeirgrocerybag.Furthermore,MatkasseABhasconsideredimplementingaloyaltyprogram,however,theybelievethatitisnotappropriateuntiltheyreachacertainnumberofcustomers.

31

1Earnedmediachannelsarenotillustratedinthepicture,asitisdifficulttocategorizeintospecificmediachannels.

Customersthathavepausedtheirsubscriptionreceiveane‐maileveryweek,includingthecomingmenu,withthepurposetolurethemtostartsubscribingagain.ForcustomersthathaveChurned,MatkasseABcallsorsendsane‐mailofferingthesameofferasfornewsubscribers.

MatkasseABmainlycommunicateswiththeircustomersviaSMS.Atdeliveryday,MatkasseABsendsSMSsaboutdeliverytimenotifyingwhichhourthebagwillbedelivered.Theywanttobeabletosendoutthesemessagesearliertoincreaseconvenienceforthecustomer.

4.1.2. Marketing activities with low CAC

ThissectionisbasedonaninterviewwithAndersKatz,130410,exceptfor”Deal‐of‐the‐day”,whichisbasedonaninterviewwithTeodorAbreu,130502.RecommendedmediachannelsaresummarizedinFigure8.

4.1.2.1. Online marketing is most cost efficient

AsMatkasseABisinanearlyphaseitishighlyprioritizedtoincreasetheircustomerbase.Thisobjectivecanbeachievedbymarketingthecompanythroughdifferentmediachannels,butasthefinancialresourcesarelimitedtheyneedtofindlowcostmediachannels.AccordingtoAndersKatz,CampaignPlanneratMediaView,themostcostefficientmarketingoptionsareonlinemarketing,whereyoupaylessthanfortraditionalmedia,suchasnewspaper,television,directmailmarketing,etc.andreachingmorecustomers.Furthermore,asallordersofprepackedgrocerybagsareplacedonline(e‐commerce),KatzsuggeststhatInternetistheplaceforadvertising.Thereisariskthatacompanymarketsiscompetitorswhen,forinstance,placinganadinanewspaper,sincethepotentialcustomermightonlyperceiveamessagesayingthattheconceptpre‐packedgrocerybagsareattractive,butthecompanybrandisignored.Itiseasiertocapturethepersonsexposedtotheadwithanonlineadass/hecanclickonitintheexactmomentitisexposedandthenbedirectlylinkedtothewebsiteandthebuyingplace.Katzbelievethatyoucanhavehighercontrolovermarketinginvestmentsinonlinemarketingasitiseasytomonitorandtrackwhichmediageneratedwhichvisitor/potentialcustomer.ForacompanyasMatkasseAB,AndersKatzrecommendstwomediachannelstouseformarketing,GoogleAdWordsandonlinebanneradvertising,asthesearebothexamplesofpaidmediathatarecostefficientandreachouttomanypotentialcustomers.

4.1.2.2. Google AdWords

GoogleAdWordsenablescreationofownadstogetherwithakeywordportfolioincludingkeywordsandphrasesthatrelatestothebusiness.Whenaperson“googles”onthosespecificwordstheadwillappearnexttothesearchresults.

32

AccordingtoKatz,thisisagoodalternativesincethemajorityofpeoplenowadaysknowabouttheconceptpre‐packedgrocerybagssoitisnotnecessarytomarkettheproductconcept,however,acompanywiththisproductneedtocreatebrandawarenesssopotentialcustomerschoosethatspecificsupplieroveranother.Themarketingcompanyalsohasthepossibilitytocreateanadwithaspecificcampaignorsomethingelsetheywanttocommunicate.ItisfurtherbeneficialsinceitactuallytargetspersonsthathaveactivelydoneresearchonGoogleaboutthespecificproductandaremostlikelyconsideringbeingacustomer,whichincreasesthechanceforturningavisitorintoacustomer.WhenusingGoogleAdWordsonecancontroltheadsoittargetsaspecificcustomer,bychoosingkeywords,region,timeforexposingthead(daysandhours),etc.

ForaGoogleAdcompaniespayperclick,meaningpayingaspecificamounteachtimeavisitorclicksontheadd.GoogleAdWordscanbeexpensiveforacompanyinthepre‐packedgroceryindustrysincethewordsrelatedtothebusinessarecompetitivekeywordsandwillthereforcostmoretoincludeintheportfolio.However,theycouldchoosewordsthataremorerelatedtotheuniquenessofthecompany,forinstancesaucesforMatkasseAB,whichmightbecheaperbutstillreachespotentialcustomerstothebusiness.Themarketingcompanycandecideexactlyhowmuchtheywanttopayeachmonth,i.e.maximumclicks,andhowtheamountshouldbedistributedoverdays.AndersKatz,estimatesthatitwillcostabout20000SEKpermonthforGoogleAdWordstogetafairshareofclicksandexposureaswellasattractivekeywords.

4.1.2.3. Online banner advertising

Themeaningofthesecondmediachannel,onlinebanneradvertising,isself‐explanatory.Basicallytherearetwowaystobuyanonlinebannerad.Onewayistodirectlycontactacompany,e.g.anewspaper,andrequestadvertisingspaceontheirwebpage.Themostattractiveoneshavealotofvisitorsontheirwebpageandcanthereforchargeanexpensivepriceforthead.Theotheralternativeistoutilizeasocalledadvertisingnetwork(annonsnätverk),wherethemarketingcompanycanbuyunsoldadvertisingspacefrompublishers,suchasAftonbladet,Göteborgs‐Postenetc.,inthenetworkforacheaperprice.AsforGoogleAdWordsitispossibletochoosewhereandwhenthebannershouldbeexposed,however,itcannotbecontrolledonwhichwebsiteitwillappear.

Utilizinganadvertisingnetworkis,asalreadymentionedacheaperalternativethanbuyingadvertisingspacefromaspecificpublisher.Thecompanypayfornumberofexposuresofthead,usingametriccalled“costpermille”,meaningthecostofthousandexposures.TheCPMforabannerisnormallywithintherange20–100SEK.

33

Banneradvertisingalsoenablesafeaturecalledretargeting*,meaningthattheadisexposedtopreviousvisitors.Whenapersonvisitsacompany’swebpage,dosomeresearch,andthenleavethesite,thisperson’scomputerIDwillberegisteredandremembered.Laterifthissamepersonvisitsawebpagewithintheadvertisingnetworks/hewillbeexposedtoanadfromtheownerofthefirstwebpage.Theintentionisthatthispersonwillberemindedofthecompanyanditsproductandreturntothewebpageandpurchasetheproduct.Thisisveryeffectivemarketingsincethecompanyknowsthatthetargetedcustomerhaspreviouslyvisiteditswebpage,hence,doneresearchabouttheproductsbutwithoutplacinganorder.Asthecustomerisretargetedtheywillgetareminderofbuyingtheproduct.Retargetingischeaperthanadvertisingonspecificpublishers’websites;however,itisnotpossibletohavefullcontroloverwheretheadwillbeexposed.Eveniflackingcontroloftheadvertisingspacethecompanywillknowthattheadwilltargetacustomerthatisinterestedinitsproductass/hehasvisitedthewebsitebefore.Retargetingcostsaround10to20SEKperexposure.

AndersKatzrecommendsacombinationofGoogleAdWordsandbanneradvertisingwithretargeting.ThenthecompanycangetcustomertovisityourwebpagewithAdWordsandthenretargetthemviatheadvertisingnetwork.

4.1.2.4. Facebook

InadditiontoAdWordsandbanners,Facebookisacostefficientmediachannel,whichcouldbearguedisamixtureofthetwo.InaFacebookadevenmoreparametersthanforaGoogleadcanbesetalongwithwhatisdesiredtoachievewiththead;forinstance,wherethepersonlive,age,interests.TheFacebookfeatures“like”and“share”*revealsalotofinformationabouttheusersinterest,whichisgreatinformationformarketingdecisions.AsforGoogleAdWordsthecompanypayperclickforaFacebookad.Itisalsopossibletopayextraforexposinga“statusupdate”inspecificcustomers’newsfeed,eveniftheyhavenotchosentofollowthespecificpage.Forinstance,thecompanycanwritesomethingaboutaproductorofferintheirstatusfieldandthenpayforthisstatustoappearinspecificperson’snewsfeed.CompaniescanalsocreateaFacebookfanpage,whichiscategorizedasownedmedia,wheretheycanupdatetheirfanswithinformation.Thisisalsobeneficialbecauseitenablesfansto“like”or“share”informationfromthepage,whichresultsinexposuretofriendsofthefan.Thistypeofearnedmarketingisveryeffectivemarketingaswordsfromafriendismorerelevantandreliablethananadanditisprovidedtonocost.


34

Figure8RecommendationofmarketingmediachannelssuitableforMatkasseAB.Compiledbytheauthors.

4.1.2.5. Effectiveness of the marketing media channels

Itisdifficulttomeasuretheeffectivenessofamarketingmediachannel,whichisimportantwhencomparingthemwitheachother.MediaagenciesuseametriccalledClickFreeRate*(CFR),whichmeasurestheproportionofpeopleexposedtotheadthatclicksonthead.ForGoogleAdWordstheCFRisusually3‐5%,whilebannersonlyhaveaCFRof0,5%.Themainreasonforthisisthatbannersareplacednexttootherinterestingmediasuchasnews,videos,etc.However,abannerisexposedmorefrequentlytoalowerpricesoeveniftheCFRislowmanypeoplehaveprobablyseenthead,whichisimportantforbuildingbrandawareness.OnecouldarguethatGoogleAdWordsgeneratemoreInternettraffictothewebsite,whilebannersincreasebrandawareness.Thetwomediasalsodifferinwhichpotentialcustomerstheytarget.AGoogleadtargetsapersonwhomyouareawarehaveactivelyhasdoneresearchonaspecificproduct/servicebysearchingonspecifickeywords.Thisenhancesthechangeofgettingthepotentialcustomertovisitthecompany’swebsiteandhopefullypurchaseaproduct.Usingbanneradvertisingitisimpossibletoknowhowfaraperson,theadisexposedto,isinthebuyingprocess.Facebookallowsforhugeamountofexposure,possiblyevenmoretargetedmarketingthanGoogleAdWordsandtoalowerprice;thisismainlybecausetheadcanbecustomizetoaveryspecifictargetgroupandhenceavoidirrelevantcustomers.Withthatsaid,


35

GoogleAdWordsandFacebookprovidesamoreaccuratetargeting,whilebannersincreasebrandawarenessandwithretargetingcanremindpotentialcustomerstovisitthewebsiteandfindoutaboute.g.currentdeals.

4.1.2.6. Track and trace media channels

Onlinemediaistotrackandtrace,whichissomethingKatzhighlyrecommendsthatcompaniesdo.Understandingwhichmediathatgeneratesthemostnewcustomersorvisitorstothewebsiteenablesoptimizedallocationofmarketingexpenses.Forinstance,letsaythatspending10000SEKonFacebookand10000SEKonGoogleAdWordsonemonthresultsin100newvisitorstracedtoderivefromFacebookwhileonly10newcomesfromtheGoogleAdWords.ShiftingpartoftheGoogleAdWordsbudgettoFacebookadvertisingthenshouldoptimizethedistributionofmarketingallocation.

GoogleAnalyticsisGoogle’sownstatisticalprogramthatgeneratesdetailedstatisticsaboutawebsite’strafficandtrafficsources,andmeasuresconversationsandsales.Theprogramprovidesreportsshowinghowvisitorusethesite,howtheyarrived(fromwhatsource),whichpartofthesiteareperformingwell,whichpartsaremostpopular,andsoon.Togetherallthisinformationwillprovideaverysoliddecision‐baseformarketingstrategies,e.g.allocationofexpenses,customizationofmarketingcampaigns,improvementofadvertiseperformance,etc.Furthermore,GoogleAnalyticsprovidesReturnonInvestment(ROI)analysisshowinghowmuchprofityouhavemadefrommarketingcomparetomarketingexpensesrelatedtothemarketingcampaign.(GoogleAnalytics,2013)

4.1.2.7. Deal‐of‐the‐day

AccordingtoAbreu,previousemployeeatgroupon.com,itisimportanttoemphasizethatgroupon.comisnotasaleschannel;itisamarketingmediachannel.Theirbusinessmodelworksasfollowing:themarketingcompanyofferstheirproducttoconsumerswithadiscount(groupon.comhaveaminimumdiscountlevelof60%).Oftheremaininggrossincomegroupon.com,orothersite,chargesaspecificpercentage(groupon.comcharges50%)forutilizingtheirmarketingmediachannel.Intheendsuchdealdoesnotgeneratemuchincome,Abreuargues.However,marketingongroupon.comisagoodwaytogetcustomerstotrytheproduct.Itisremarkablethatdeal‐of‐the‐daydoesnotenablestargetingaspecificcustomer

4.2. Churn

Thefirstfourpartsofthissection(“Linasmatkasse”,“Middagsfrid”,“Mathem.se”,“MatkasseAB”)willprovidetheinformationcollectedfromthequalitativecontentanalysisofvirtualdocuments.ResultsfromtheanalysisaresummarizedinTable1andpicturesofthefindingscanbefoundinAppendixII.Thefinaltwo

36

partsofthissection(“Members.com”,“Milkandhoney.se”)presentshowtwoe‐commercecompaniesstrivetoincreaseloyaltywiththeircustomers.

4.2.1. Linas matkasse

Linasmatkassestartedin2008andtheirturnover2011was312millionSEK,whichmakesthemthelargestPPGBcompanyinSweden.ThegrocerybagscanbedeliveredthroughoutSweden.Linasmatkasseoffersthreeproducts;original,inspirational,andchildfriendlygrocerybagandsomeadd‐onproductslikefruitbagandsnackbags.Thepriceperportionrangesbetween39–48SEK.Threewordsthatbestdescribetheconcept:tasty,healthyandquick.

4.2.1.1. Main page

OnthefrontpageofLinasMatkasse’swebsitevisitorsfindfivetabsinthetopmenu“Aboutus”,“Aboutthebags”,“Order”,“Contactus”andthefinaltab“Login”isforpresentcustomers,wheretheycanfindpersonalinformationregardingtheirsubscriptionof“LinasMatkasse”.Inthemiddleofthepagethereisabanner,whichstatesthatLinasmatkasseisthemostsoldPPGBinSweden(AppendixII–1).

4.2.1.2. Membership & subscription terms

Whenacustomerisregisteredasubscriptionhasstarted,whichmeansthatthenewcustomerhavetoterminatethesubscriptionhim‐selfifs/hewishes.Afterhavingregisteredthe“Login”pageareavailable.LinasMatkasserequires8daysnoticeinadvanceforbookingorcancellationofanorder(AppendixII–2).

4.2.1.3. Delivery

TheydeliverthebageachotherweekonMondaysorSundays,dependingonwhereyoulive,between17.00‐22.00.ResidentsinStockholm,Gothenburg,andMalmöhavetheoptiontoreceivethebageveryweek.Customerscannotchooseiftheywantdeliveriesevenoroddweekduetologisticalissues.Furthermore,LinasMatkassedoesnotofferthepossibilityforcustomerstopickuptheirbagthemselves(AppendixII–3).

4.2.1.4. The menu

Themenuandrecipesaresenttogetherwiththefoodbag,butcanalsobefoundonline,forregisteredcustomersonly,4‐5daysbeforedelivery.Acustomercanonlyseetherecipesfromtheirpreviousorders,notfromallgrocerybags.ForpotentialcustomersthatwanttotryaLinasmatkasserecipe,examplesofrecipescanbefoundonline(AppendixII‐4).

4.2.1.5. Contact

ContactchannelstoLinasMatkassearephoneandemail.Theircustomerserviceisopenduringofficehourswithextendedopeninghoursuntil22.00ondeliverydaysSundaysandMondays(AppendixII–5).

37

4.2.1.6. Member’s page/club

BecomingasubscriberofLinasmatkasseyouareautomaticallyamemberoftheircustomerclub“KlubbLina”.Customerscollectpointsforeveryordertheymakeandextrapointsiftheyrecommendtosomeonewhobecomesasubscriber.Theaccumulatedpointscanthenbeconvertedintopremiums,e.g.kitchenequipment,hotelnights,magazinesubscriptions,etc.Theoriginalbagisworth10pointsandthefirstpremiumstartsat20points.Recommendationsgeneratinganewcustomergenerate30points.Thevalidityofthepointsistwoyears.Customersbuyingmorethan16bagsayearbecomesapremiumcustomer,aso‐called“Toppkund”.Thisgivesthecustomersadditionalbenefits,suchasinitial20points,menuswithrecipesfromallgrocerybags,specialdealsonselectedproductsandafreemembershipof“LinasKomIForm”(AppendixII–6).

Asamemberof“KlubbLina”youcanalsojoin“LinasKomiform”wherecustomersgetaccesstovideoswithinstructionsfordifferentgymsessionsforimprovingstrengthandcardio(AppendixII–7).

Membersalsohaveanopportunitytopaymoreforthebagsand"extra”moneywillcontributetoLinasmatkasse’sprojectofgivingfoodtopoorfamiliesinKenya(AppendixII–8).

LinasMatkassefurthermoreprovidesamobilesoftwareapplication*(herebyreferredtoasanApp*)forsubscribers.Thereyoucanfindrecipestoorderedgrocerybagsandnutritionalcontentofthedishes.Furthermore,theaccumulatedpointsinKlubbLinaareshowedintheappandafeaturewherecustomerscan“checkin”onFacebookwhenreceivingabag.ThismeansthatamessagewillappearonthecustomersFacebookpageandhencebedisplayedtofriendsofthecustomers.ThisfeaturecangeneratemorepointtotheKlubbLinaaccount,aseachshareisworth1point.

4.2.2. Middagsfrid

MiddagsfridwasfirsttoenterthePPGBindustryinthesummerof2007.2011theyhadaturnoverof85MSEK.TheirdistributionreachesmostofSwedenandthebusinesshasalsoexpandedtoNorway,Denmark,GermanyandBelgium.TheyofferfourmainPPGB’sonelarge(4personsfor5days),onemedium(4personsfor3days),onesmall(2personsfor4days)andonechildrenfriendlyalternative(2personsforfourdays).Asidefromtheseofferingthereareadd‐onproductssuchasabreakfastbagandsnacks.Theaveragepriceperportionof


38

foodisbetween45and72SEK.Threewordsthatbestdescribetheconcept:tasty,healthyandquality.

4.2.2.1. Main page

ThefirstpagewhenenteringMiddagsfrid’swebsiteshowsfivemaincategoriesofnavigationallconnectedtothePPGBservice“Howitworks”,“Thebags”,“Menu”,“Aboutus”and“Order”.Throughthesetabsonecouldfindinformationabouttheirconcept,howandwheredeliveriesaremadeandordertheproductsonline.Certificationinsafee‐commerce(TryggE‐handel),whichisacertificatefromthirdpartyand“Best‐in‐test”awardsthattheyhavewonarepresentedonthetopofthepagealongwithlinkstovisittheirsocialmedia(AppendixII–9).

Clickingonthelink“Aboutus”revealsinformationaboutthecompanyandpresentsdifferentpricesandnominationsthatMiddagsfridhasreceivedduringtheyears(AppendixII–10).


Thereisnobindingtimewhenenteringintoasubscriptionandtopauseorendthesubscriptiononemustnotifythecustomersupportninedaysinadvance(AppendixII–11).

4.2.2.3. Delivery

DeliveriesthesecanbedoneSundayandMondaybetween17‐22inGothenburgandStockholm,andthesmallercitiesonlyhaveMondaybetween17‐22.Nootherdeliveriesarepossible(AppendixII–12).

4.2.2.4. Menu

Theirrecipesandmenu’sarepubliclyavailableonthewebsitefor3weeksinadvance.Oldrecipesarealsodisplayedfornon‐membersaswell.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(Appendix–13).

4.2.2.5. Contact

Customerservicesareavailableonthetelephone,chatandemailandopenduringregularofficehours.Theambitionistoanswerallemailsfromcustomerswithin24hourssortsofquestionsarewelcome(Appendix–14).


Whenenteringintoasubscriptiononegetsaccesstoamember’spage.Fromhereitispossibleloginandmanagetheaccount,choosedeliverytimesandpauseorterminatethesubscription.Allrecipesarealsoavailablefromthispage.

4.2.3. Mathem.se

Mathem.sewasstarted2009asanonlinegrocerystoreandlatercametoofferPPGB’sthefollowingyear.In2012theyhadaturnoverof65MSEK.Their

39

distributionrangeincludesStockholm,Uppsala,Gothenburg,Helsingborg,LundandMalmö.Theyofferarangeoffourdifferentproducts(allforfourpersons),oneoriginalbagfor3or5daysandoneecologicalbagfor3or5days.Asidefromthistheyofferallproductsthatareavailableinaregulargrocerystore.Theaveragepriceperportionoffoodisbetween38and57SEK.Threewordsthatbestdescribetheconcept:healthy,quickandeasy.

4.2.3.1. Main page

Onthefirstpagewhenreachingmathem.setheinformationisrelatedtothegeneralgrocerystorethattheyoperate.Clickingon“Matkasse”givesthefirstinformationabouttheirPPGBofferings.Displayedintheup‐rightcornerthereiscertificationforsafee‐commerce(clickingontheiconforsafee‐commercedisplaysthewholecertificatefromthirdparty)andarewardof“Bestfoodsite2012”fromInternetworld.Alsocustomerreviewsaredisplayedinthefirstview(AppendixII–15).


Orderingaproductcanbedonebothbyphoneandonline.Theorderwillautomaticallystartasubscriptionatmathem.sewithPPGBsbeingdeliveredeveryweek.Asubscriptionwithmathem.secanbeterminatedorpausedatanytime,butthismustbedoneeightdaysbeforedeliverybylogginginto“Mysite”(AppendixII–16).

4.2.3.3. Delivery

DeliveriesareavailablefromMondaytoFriday12.00‐22.00andthecustomercanchoosewhichhourbetweenthesetimesthattheywanttheirproductsdelivered(AppendixII–17).

4.2.3.4. The menu

Menu’sandrecipesareavailableanddisplayedonthewebpagefornon‐membersaswell.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(AppendixII–18).

4.2.3.5. Contact

Mathem.seprovidestwodifferentdirectphonenumbers,onetoorderandtheothertoreachcustomerservices.TheopeninghoursareMondaytoFriday08.00‐22.00and12.00‐22.00onSundays(AppendixII–19).


Whenorderingfrommathem.seyoucreateanaccountthatonecouldmanagethrough“Mysite”(Minsida).Onthismemberpageitispossibletolookatcurrentorders,createshoppinglistsandadministerdifferentaccountsettings.Thereisalsoabonussystemconnectedto“Mysite”wherethecustomerreceivesonepointforeachkronathattheyspend.Collecting2500pointswillresultina

40

bonuscheckof25SEKthatonlycanbespentbuyingproductsonthewebsite(AppendixII–20).

ThroughMysiteitispossibletobuydeliverychecks,whichenablesfreedeliveriesforatimeperiodofeitherthreeorsixmonths.Thechecksalsohavethreedifferentdenominationsbase,silverandgoldwheresilverandbasechecksarerestrictedtocertaindeliverytimesandgoldchecksarenot(AppendixII–21).

Theservicesthatmathem.seoffersarealsoavailableintheirfreeofchargemobileApp,whichisaccessibleforbothAndroidandiPhone.IntheappitispossibletobothpayandorderPPGB’sandaccessinformationthatisstoredinMysite(AppendixII–22).

4.2.4. Matkasse AB

MatkasseABwasstartedin2010bythechefGustavSvenssonand2012theyhadaturnoverof1,3MSEK.TheycandeliverintheGothenburgareaandmostofitssuburbs.Theproductsofferedareoneoriginalbagandonethatisfreefromgluten.Bothcanbeorderedforeithertwoorfourpersonsforfourdaysaweek.Asidefromtheseproductsitisalsopossibletoorderasnackbag.Thepriceperportionisbetween55‐73SEK.Theirnicheistoprovidepre‐cookedsaucesthatthechefhaspreparedhimself.Threewordsthatbestdescribetheconcept:nutritious,qualityandeasy.

4.2.4.1. Main page

Thereareeighttabspresentedonthemainpage“Home”,“AboutMatkasseAB”,“Aboutthebags”,“Order”,“Delivery”,“Contactus”and“Mypages”wherethecustomercanlogintothememberpage.Inthetopsectionofthepagetherearelinkstotheirfanpagesinsocialmedia.ThereisalsoinformationaboutwhythecustomerschoosetheirPPGBaccordingtoacustomersurveybyIntermetra,2013(AppendixII–23).


WhenorderingaPPGBitispossibletochoosewhethertobuyonePPGBorenterintoasubscription.Thesubscriptionscaneitherbeeveryweekoreveryotherweek.Thereisnobingingtimeintheagreements,buttoendorpauseyoursubscriptionthismustbemade5daysinadvanceonthemember’spage(AppendixII–24).

4.2.4.3. Delivery

DeliveriesaremadeonMondaysandcanbedeliveredtoworkplacesduring14.00to16.00andathome16.00‐22.00(AppendixII–25).

41

4.2.4.4. The menu

Menu’sandrecipesforthePPGB’sthatarestillofferedfororderareavailableonthehomepage.Morerecipescanbefoundonthemember’spage.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(AppendixII–26).

4.2.4.5. Contact

Thecompanycanbecontactedbyphoneduringofficehoursandotherwiseonemail(AppendixII–27).


WhenenteringintoasubscriptionwithMatkasseABonegetsaccesstoamember’spagewherethereisadditionalinformationabouttheproductseachweek.Theoldrecipesarealsoavailableandpicturesofthefoodthathasbeenorderedpreviousweeks.Itisfromthispagethatthecustomerscanpauseorendtheirsubscription(AppendixII–28).

Table1Overviewofresultsfromqualitativecontentanalysisofvirtualdocuments.

4.2.5. Members.com

ThissectionisbasedonaninterviewwithAlbinJohansson,130416.

Members.comisane‐commercecompanythatsellsclothesandaccessoriesthroughcampaignswith30‐80%discount.Theydiffersfromotherretailersonthemarketbecausetheyrunaclosedwebsite.Closedinthesensethatthecustomerneedstoapplyformembershipbeforetheycanviewthecontentand

42

startshopping.Thisisdonetocreateanexclusivefeelingwiththeircustomersandmakethemfeelchosen(Johansson,2013‐05).

Johanssonstatesthatonmembers.comtheycontinuouslyworkonbuildingrecognitionandawarenesswiththeircustomersbysellingwell‐knownbrandstodiscountedprices.Thiswillcreateaviralspreadthatisveryimportant.Whenthesitedeliversmeaningfulcontentitcreatesvaluetothecustomerands/hewillspreadthatinformationtotheirfriends.Sendingoutemailstoourcustomerswereawell‐knownbrandismarketedatadiscountalsocreatesviralspread.Eventhoughmanyofthereceiverswillnotcareaboutthatparticularbrandthiswillsendamessagetothecustomerthatmembers.comsellspremiumbrandstodiscountedpricesanditwillbevaluabletokeepvisitingthewebsiteandreceiveemailstobeofferedmorediscounts(Johansson,2013‐05).

Thebarrierbetweenofflineshoppingandonlineshoppingisdefinitelysmallertoday.Customersfeelmoresecureshoppingonlinethanbefore.Itisimportanttostayincontactwithyourcustomersandremindthemofthenewcampaignsandproducts.Members.comalsouseblogs*tocreatevaluefortheircustomersmakethemreturntothewebsite.Itcanbedifficulttocreatethisvaluebutwhenitsucceedsitisveryeffective.Thecustomerswillreturntothewebsitetoreadtheblogsandareatthesametimeexposedtothecampaigns.Thebloggerswriteabouttheproductsandgivefashiontipsbuttheyalsowriteaboutotherthingsliketraveling.Theaimistocreateanexperienceonthewebsite,wherethecustomervisitsthewebsiteformorethanjustshopping.ThiswillresultinanexperiencethatcreatesmorevaluethanjustshoppingonlineitcreatesclosenesstothecustomerthatotherwiseisdifficulttoachieveontheInternet.JohanssonfurtherstatesthatthereisanotherwebsitethatisparticularlysuccessfulatthisweretheCEOwritesablogandsendpersonalizedemailstothemembers.Thisgivesamorepersonalexperienceandprovidesthecustomerwithafacethatrepresentsthewebsiteandcreatestrust(Johansson,2013‐05).

ItisimportanttobeapartoffashionandthisisdonethroughtheblogsbutalsosocialmediaandmorespecificallytheFacebookfanpageandInstagram.Johanssonstatesthatmembers.comareveryactiveontheirFacebookfanpagewheretheyalmosthave30000likes.Heretheycommunicatewiththeircustomersthroughcampaigns,stylingtips,inspirationanddiscounts(Johansson,2013‐05).

Inactivecustomersreceiveemailsthatremindthemofmembers.com,whichalsocontainsspecialdiscounts.Othertimestheemailsaremorepersonalizedand


43

stateswhatthecustomerhaveboughtbeforeandhighlightssimilarproductsthatareoncampaignatthemoment(Johansson,2013‐05).

4.2.6. Milkandhoney.se

ThissectionisbasedonaninterviewwithMaxSvärdh,130419.

MilkandHoneyisaGothenburgbasedbusinessthatsellsclothesandaccessories.Theystartedin2006withbothaphysicalstoreandanInternetbasedstore.

Whenbuyingaproductfromthee‐storethecustomerscreateanaccountandbecomemembersintheircustomerclub.Thecustomercanalsobeofferedamembershipiftheyhavevisitedthesiteformorethan6times.Whenbeingamemberonecanlogontothemembersiteandviewyourordersandgetspecialinformationthatisnotsharedontheregularwebsite.Thisalsopresentsaspecialinterfacethatismorestructuredandadaptedtotheprofile.

Themembersreceiveemailstwotimesaweekwherecampaignsanddiscountsareoffered.Thisistocreateasenseofexclusivityforthecustomersincenooneelsegetsthesameoffers.Theemailscanalsoincludeinvitationstoeventsinthephysicalstorewherefood,mingleanddiscountedshoppingarecombined.Thenumberofcampaignsanddiscountsarelimited,becauseotherwisethecustomer’ssenseofexclusivityinthemembershipisruined.Theemailsalsoworkasareminderofthebrandandthestoretocreateawarenesswiththecustomers.Facebookisalsoagoodcommunicationchannelforbuildingawarenessaswellascloserrelationshipswiththecustomersandlesseffectiveforsales.

Milkandhoney.sehavealsoarrangedcontestfortheirmemberswheretheyareaskedtowriteashortmotivationtowhytheyarethebestcustomers.Thishasreceivedgoodresponseandactivatesthecustomertointeract.

4.3. Recurring revenue model to support decision‐making processes

Thepurposewiththerecurringrevenueforecastarethreefolded.Firstitprovidesaclearpictureoftherevenuegrowthinthecomingthreeyears.SecondthemodelenablesagoodunderstandingofhowCLVareaffectedifCACand/orChurnchange.ThisinturnhelpsmanagementunderstandhowtoallocatemarketinginvestmenttomaximizeCLV.(Carson,130311)

Therecurringrevenuemodelincorporateactualhistoricaldataand,basedonthatdata,assumptionsaremadetoforecastfuturescenarios.Themodelislinkedtothethreefinancialstatements:incomestatement,balancesheet,andcashflowstatement.ActualrevenuesarederivedfromtheincomestatementandtheforecastedrevenuesintheRRMareinputdatatotheforecastedincomestatement.Samelogicisappliedtothenumberofcustomers/ordersandthe

44

marketingexpenses.TheRRMismadeonaweeklyleveltogiveasaccurateforecastaspossible.(Carson,130311)

Differentparametersserveasdriversfortheactualandforecastingpart.AsseeninAppendixIII‐1,actualinputdataarenumberofnewcustomers,marketingexpensesandactualChurners.TheseinputdatageneratestheCAC,Churnrate(%),andthetotalnumberofcustomers.However,asseeninAppendixIII–2,intheforecastingpartCACandChurnrate(%)arethedriversgeneratingnumberofnewcustomers,actualChurners,andthetotalnumberofcustomers.Marketingexpensesisadriverintheforecastaswellasthisisthesteeringparameterthatmanagementwilladjustbasedontheirstrategicdecisions.(Carson,130311)

Asalreadymentioned,driversofactualsgeneratesCACandChurnrate(%).CACiscalculatedasmarketingexpensesdividedbynumberofnewcustomers.Churnrate(%)iscalculatedasactualnumberofChurnersdividedbytheaveragenumberoftotalcustomersduringthelastfourweeks(includingthecurrentweek).Intheforecastthesetwoparametersaredriversandbasedonhistoricaldataorexpectedvaluesduetochangedcircumstances.TheoutputdataintheforecastingpartarenumberofnewcustomersandactualChurners.NumbersofnewcustomersarecalculatedasthemarketingexpensesdividedbyCAC.ActualChurneriscalculatedastheChurnratemultipliedbytotalnumberofcustomers.(Carson,130311)

Averagerevenueperuserisalsoincludedcalculatedasthetotalrevenuedividedbytotalnumberofcustomers,toseehowthisisaffectedwhengeneratingdifferenttypeofcustomers.(Carson,130311)

Finally,customerlifetimevalue(CLV)isthekeymetricforthefirm’sfinancialperformance.CLViscalculatedasthediscountedsumoftheprofitsfromonecustomerduringthecustomer’slifetimeminustheCACforthatcustomer.Thelifetimeofacustomeris1dividedbytheChurnrate.Thediscountrate*isbasedonayearlyrateof5%,whichcorrespondstoabankrateatastableaccount.InputdataforCAC,Churnrateanddiscountratecouldbevariedtoseetheresultofcustomerlifetimevalue.Thisfeatureenablesthecompanytoseetheresultfromdifferentscenariosandhencemakeinvestmentdecisionsinaccordancewiththeirmarketingstrategy.(Carson,130311)

4.3.1. Testing the Recurring Revenue Model: An example of Chef & Friend

TodemonstratethefunctionsoftherecurringrevenuemodelafictionalcompanycalledChef&Friendispresentedinthissectionofthereport.Five


45

scenarioswillbedemonstratedwhereCACandChurnarealteredtodemonstratehowCLVisaffected.Scenario1,withnoalterationsofthemetrics,Scenario2,withaCACdecreaseof10%,Scenario3,withaChurndecreaseof10%,Scenario4,withaCACdecreaseof20%andScenario5,withaChurndecreaseof20%.ThesescenarioswillhopefullybringunderstandingtohowCACandChurnrelatetoeachother,howtheyrelatetoCLVandhowthismodelcanbeusedasatoolforevaluatingmarketingdecisions.ThedifferentalterationsofthemetricswillaffectCLVindifferentwaysandhenceprovidetheuserofthemodelwithinformationabouttheprofitability,intermsofCLV,ineachdecision.

Chef&Friendisasubscription‐basedbusinesssellingpre‐packedgrocerybagsinGothenburg.Thecompanyoffersafour‐personbagforthepriceof700SEK.Chef&Friendaimtoimprovethefirm’sfinancialperformancebymaximizingCLV.Theyhaveaweeklymarketingbudgetof10000SEKandneedstounderstandhowtheyshouldallocatethisbudgettoachievetheseobjectives.

Therecurringrevenuemodelprovidesatwoyearsforecast.Itisassumedthatthemarketingbudgetremainsunchangedoverthetwoyears,aswellastheChurnrateandCACbecomesfixedafterthemetricsareimprovedtoadesiredrate.Theyearlydiscountrateissetat5%,hence,aweeklydiscountrateof0,09%.AstheaimforChef&Friendistoimprovethefinancialperformanceofthefirm,thekeymetricisCLV.

Scenario1(Noalterations):Chef&Friendcurrentlyhave200customers.TheyhaveaChurnrateof5%andutilizedirectmailmarketingmediachannelswithaCACof500SEK.TestingthesedatafromChef&Friend'scurrentsituationintherecurringrevenuemodelgivesfollowingresult:

Table2ResultsfromScenario1.

IntheircurrentsituationCLVismeasuredtobe702SEK,asdisplayedinTable1.

Scenario2(CACdecrease10%):Chef&FriendhavedecidedtousetheonlinemediachannelGoogleAdWordsinsteadofdirectmailmarketingandhaveestimatedtheCACforthischanneltobe450SEK(decreasing10%).Churnrateof5%isstillremained.TestingthesenewdatafromChef&Friend'sintherecurringrevenuemodelgivesfollowingresult:

46


BydecreasingCACwith10%,CLVisforecastedtobe822SEK,whichisa17%increasefromScenario1,asdisplayedinTable2.

Scenario3(Churndecrease10%):ThemarketingmanagerofChef&Friendarguesthatinsteadofspendingtimeandefforttochangemediachannelfromdirectmailmarketing,themarketingbudgetshouldbeinvestedindecreasingtheChurnrate.ThemarketingmanagerusetherecurringrevenuemodeltoseepotentialresultsfromdecreasingChurnto4,5%(decreasing10%)andremainCACat500SEK.


BydecreasingChurnwith10%,CLVisforecastedtobe898SEK,whichisa28%increasefromScenario1,asdisplayedinTable3.

Scenario4(CACdecrease20%):ThemarketingmanagerdecidestocomplementGoogleAdWordswithonlinebanneradvertisingandretargeting.ThiswouldprobablydecreaseCACevenmore.Todothis,allmarketinginvestmentswillbeallocatedtodecreasingCAC;hence,Churnwillremainat5%.ThenewCACisestimatedtobe400SEK(decreasing20%).Followingresultsareachievedwhentestingthedataintherecurringrevenuemodel:


BydecreasingCACwith20%,CLVisforecastedtobe956SEK,whichisa36%increasefromScenario1,asdisplayedinTable4.

Scenario5(Churndecrease20%):AsthemarketingmanagernoticethatdecreasingChurnratehavemoreimpactonCLVthanCAC,hedecidestotryafinalscenariowhereheonlyallocatesthemarketingbudgettodecreasingChurn,

47

withthepurposetohaveaChurnrateof4%(decreasing20%).Followingresultsareachievedwhentestingthedataintherecurringrevenuemodel:


BydecreasingChurnwith20%,CLVisforecastedtobe1186SEK,whichisa69%increasefromScenario1,asdisplayedinTable5.

TogetaclearviewofhowCLVisaffectedofdifferentmarketingdecisions,themarketingmanagercomparestheresultfromthescenario2,3,4,and5inagraph(seeFigure9).

Figure9ThegraphdemonstratestheeffectonCLVwhenCACandChurndecrease.

*Thiscolumnpresentsthepercentagechange,ofthemetrics,basedonScenario1.

48

5. Analysis

Inthischaptertheliteratureandempiricalfindingsareanalysed.Itisdividedintothreedifferentparts,CAC,ChurnandRecurringrevenuemodel.

5.1. CAC

BoththetheoreticalframeworkandKatzsuggestthatonlinemarketingismorecostefficientthantraditionalmarketing,suchasprints,directmail,television,ascompaniespaylessformarketingactivitiesandreachouttomorecustomers.KatzfurtherarguesthatInternetistheplaceforadvertisingforcompanieshavingthebuyingplaceonline.Thereasonforthisisthatthelinkbetweenadvertisingandthebuyingplaceisminimized;asaconsequence,thelikelihoodforapotentialcustomertobecomeanactualcustomerincreases.Thisstatementisalsosupportedinthetheoreticalframework.Katzfurtherdiscussesthatanotherimportantfactorwhendecidingwhenandwheretotargetthecustomeriswhereinthebuyingprocessthecustomeris.Thisisbecause,thefurtherintotheprocessacustomeris,andthemorelikelyitisthats/hepurchasestheproduct.Thetheoreticalframeworkstatesthatonlinemarketingtargetsconsumersthatarealreadyinterestedintheproductsincetheyhaveactivelydoneresearchabouttheproductorsimilarproductandarethereforeconsideredtobeinthebuyingprocess.

Furthermore,onlinemarketingenableshighercontroloverthemarketinginvestmentsasitiseasytomonitorandtrackwhichmediageneratesmostvisitorstothewebsite.Thisinsightsupportsdecision‐makingprocessesregardingchoiceofmarketingmediachannel.Accordingtothetheory,evaluatingwhichmediachannelsthataremostefficientenablesoptimizedallocationofmarketingexpenses;therefore,themarketerscanensurethattheyspendthemoneyonactivitiesthataredrivingthebusiness.

Thetheoreticalframeworksuggeststhatmappingoutthecompany’smarketingprocessestoensurethatthemostcostefficientmarketingactivitiesareusedisafirststepforloweringCAC.MatkasseABhasuntilnowutilizedbothpaidandownedmediachannelsaswellasmanagedtogeneratepositiveearnedmedia.Furthermore,accordingtothetheoreticalframeworkitisidealtocombinethethreetypesofchannels,whereeachchannelsupportstheother.Forinstance,advertisingonFacebook,whichisapaidmediachannel,enablesalinkbetweentheadandthecompany’sFacebookfanpage,whichisownedmedia.Thetargetedcustomermightthenvisitthefanpageand“like”it;hence,theFacebookfanpagewillbeexposedforotherFacebookusers.Thisactivitygeneratesearnedmediatothecompany.

5.1.1. Matkasse AB’s paid, owned, and earned media channels

49

ThepaidmediachannelsMatkasseABhaveutilizedaredirectmailmarketing,searchengineoptimization(SEO),anddeal‐ofthe‐day,asillustratedinFigure10.

Thedirectmailmarketingprocesseshaveinvolvedpostingflyersandofferingfreegrocerybags.Incontrasttoonlinemarketing,thelinkfromreceivinganadinthemailboxtogoonlineandpurchasetheproductislong.AccordingtoKatz,thereisariskthatthepotentialcustomerdoesnotmakeapurchaseifthislinkistoolong.Furthermore,Svenssonclaimsthatwhenusingthismediachannelitisdifficulttoknowiftherightcustomeristargeted,asthereislackofinformationaboutthecustomers’need.Eveniftheyapproachacertainregion,itisstilluncertainifthepersoniseveninterestedintheconcept.Referringtotheargumentoftargetingcustomersfarintothebuyingprocess,thisuncertaintymightresultintargetingwrongcustomersthatarenotyetinthebuyingprocess.

Katzhighlightsanotherriskwithmarketingtoofarfromthebuyingplace.PotentialcustomersthathavenotshownanyinterestinPPGBmightonlyperceivetheadasinformationaboutPPGBconceptandignorethecompanybrand.Asaresult,whentheydecidetosubscribetheymightorderfromanothersupplier.Thus,marketingtoofarfromthebuyingplaceinvolvesariskthatthecompanymarketsitscompetitors.

AsMatkasseABhaveutilizedSEOtheyappearamongthetophitsonGooglewhensearchingforPPGBinGothenburg.SvenssonbelievesthatthisisMatkasseAB’smainsourceforgeneratingInternettraffictothewebsite.Thismediachannelisclosetothebuyingplaceaswhencustomerclicksonthelinktheyaredirectlyforwardedtothewebsitewheretheycanordertheproduct;hence,thelikelihoodthatthepurchaseiscarriedoutincreases.SinceSEOgeneratesvisitorsthathavedoneaGooglesearchaboutPPGBtothewebsite,ittargetsconsumersthatareactuallyinterestedintheproductandthereforearealreadyinthebuyingprocessofaPPGB.AccordingtoboththetheoryandKatz,thisfactorincreasesthelikelihoodofacquiringanewcustomerasittargetspeoplewithhighpotentialofpurchasingaproduct.

ThemostrecentmarketingactivityMatkasseABhavedoneisaLet’sDealcampaign.AccordingtoAbreu,Let’sDealisagoodwaytogetcustomerstotrytheproduct,however,thereisnocontroloverwhichcustomersthedealtargets.Thislackofcontrolcontradictsthetheoryabouttargetingtherightcustomerswithhighbuyingpotential.WithaDeal‐of‐the‐dayadvertisingthereisariskthatthebuyersonlypurchasethedealbecauseofthecheappricewithoutanyintentiontostartsubscribing.

Regardingownedmediachannels,MatkasseABhaveaFacebookfanpageandanInstagramaccount.Accordingtothetheoreticalframework,ownedmediaisbeneficialascompaniescanengagetheircustomersthroughthemedia.MatkasseABengagestheircustomersby,forinstance,allowingthemtovotefortheir

50

favouritedishoftheweekand“like”or“share”postwiththeirFacebookfriends.Furthermore,MatkasseABarrangescontestsforvisitorswiththepurposeofgeneratingviralspread.Katzarguesthatthistypeofmediaispreferableasitallowsforuserstotelltheirfriendsaboutthecompany/product.Thistypeofgeneratedearnedmediaisveryeffectiveaswordsfromafriendaremorerelevantandreliablethananadanditisprovidedatnocost.Accordingtothetheoreticalframework,utilizingmediachannelsthatsupportanotherchannelisidealandthisissomethingthatispossiblewithaFacebookfanpage.

EarnedmediaaboutMatkasseABhasalsobeengeneratedthroughratingwebsites,whereMatkasseAB,asasupplierofPPGB,hasachievedtopscore.AccordingtoSvensson,themajorityofhiscustomersareveryloyalandsatisfiedwiththeproduct,whichsupportsthegoodreputation.MatkasseABrewardscurrentcustomersforrecommendingtheconcepttoanotherpersonthatbecomesacustomer,which,accordingtothetheoreticalframework,isawaytoencouragecreationofearnedmedia.

5.1.2. Additional suggestion of media channels with low CAC

Inadditiontoalreadyusedmediachannels,KatzrecommendsGoogleAdWords,onlinebanneradvertising,andFacebookadvertising,asillustratedinFigure10.LikeSEO,GoogleAdWordstargetscustomersthatarefarintothebuyingprocess,asitappearsonthetoporsidebarwhensomeonedoesaGooglesearchonspecifickeywords.GoogleAdWordsalsoenablesadirectlinkbetweenadvertisingandthebuyingplace.AccordingtothetheoreticalframeworkandKatz,boththesefactorsincreasethelikelihoodofacquiringnewcustomers.KatzfurtherarguesthatGoogleAdWordsgenerateslotoftraffictothecompany’swebsite,whichisanotherexampleofwhenamediachannelsupportsanother(paidsupportsowned).Finally,withGoogleAdWordsthecompanycanhavecontrolovertheirCACastheycandecidehowmanyclickstheywanttopayfor;therefore,Katzsuggeststhisalternativeforacompanywithlimitedfinancialresources.

AsforGoogleAdWords,onlinebanneradvertisingmeansaminimizedlinkbetweenadvertisingandthebuyingplace.However,itcannotbecontrolledonwhichwebsitetheadwillappear.Toincreasethecontrolofwhichcustomerstotargetandtominimizethelinkbetweenadvertisingandbuyingplaceevenfurther,Katzrecommendsutilizingtheretargetingfeature.Astheadthenonlywillbeexposedtocustomersthathavealreadyvisitthewebsiteitensuresthatcustomerthatarefarintothebuyingprocessaretargeted.Besidestargetingtherightcustomer,theadbecomesareminderforalreadyinterestedcustomers,whichincreasesthelikelihoodforpurchase.

Toperformevenmoretargetedadvertising,KatzsuggestsutilizingFacebookadvertising.Facebookusersrevealinformationaboutinterest,maritalstatus,

51

age,genderetc.,ontheirprofiles.Suchinformationcanbeutilizedbymarketingcompanieswhenselectingwhichcustomerstotarget.Withthisinformation,Facebookadsallowsfortargetingcustomersthatarefarintothebuyingprocess.Thisenablesaminimizedlinkbetweentheadvertisementandthebuyingplace,whichincreasestheprobabilityforapurchase,hence,fulfilsthepurposeofloweringCAC.

Figure10Categorizationofutilizedmarketingmediachannels,aswellasadditionalsuggestionsofmarketingmediachannels.Compiledbytheauthors.

5.2. Churn

Theresultsfromthequantitativecontentanalysiscanbecategorizedintodifferentswitchingbarriers,inaccordancewiththeliterature.TheseresultsareanalysedbelowandFigure11summarizestheanalysis.

Asstatedintheliteraturerelationshipcommitmentbetweenthecompanyandtheircustomersisadriverofloyaltyandhenceanimportantpartofmanagingretention.Therelationshipcommitmentisdividedintwoparts,theaffectivecommitmentandthecalculativecommitment.Toimproveaffectivecommitmentitisnecessarytoimprovethedirectrelationshipwithcustomers,becausethisrelationshipcouldcreateemotionaltiestothecustomers,whichisanimportantfactorwhenbuildingaffectivecommitment.Thisisdonethroughtheinterpersonalinteractionsbetweenthefirmandthecustomeraswellastheaffiliationandassertivenessofthisrelationship.However,calculativecommitmentisaprerequisiteforaffectivecommitmentsoensuringcalculative

52

commitmentisvital.Calculativecommitmentisdrivenbythecustomer’sinabilityorinconveniencetoswitchtoanothersupplier.Thefirmcanaffectthiscommitmentthroughbuildingswitchingbarriers.Theliteraturefurtherpresentsfivemainswitchingbarriers;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts.

Theliteraturestatesthatlearningcostsoccurwhenthecustomerneedstofamiliarizeandgetaccustomedtoanotherwebsite.Itinvolvesexpensesoftimeandefforttolearnanewlayoutandstructureofawebsite.ThePPGBcompaniesinthestudyhavewebsitesthatarequitesimilar,thestructureisclearandthelayoutisalsoalike.Thereisnoproblemtonavigatethroughthepagesaswellasfindinformationandthecontentisclear.

Theliteraturesuggeststhatrelationalcostsarisewhenthecustomerfeelsemotionaldiscomfortwhenswitchingtoanothersupplier.Whenthecustomerdon’ttrusttheproviderorfeelsinsecureaboutthepurchase.Thisisevenmoreevidentwhenshoppingonlinebecausethecustomerhavetopayinadvanceanddonotknowwhetherorwhentheproductsarrive.ThequalitativecontentanalysisshowthatMiddagsfridandmathem.sedisplayscertificationsfromthirdpartyaboutsafee‐commerceontheirmainpage,whileMatkasseABandLinasmatkassedoesnot.Someofthecompaniesalsodisplaypositiveopinionsfromtheircustomersurveysandsomeofthempresentprizesandawardnominationsthatpresentthecompanyas“Bestintest”or“Themostsoldbag”.

StudyingthesubscriptiontermsofthePPGBcompanies’websitesshowedthatnoinitialfeesorco‐assetswerenecessarytostartasubscription.Allsubscriptionscouldbepausedorendedatanytime;however,thecustomersmustgivenoticeinadvance.Asstatedintheliteratureframeworktransactioncostsarederivedfromcoststhatarisetostartanewrelationshipwithanothersupplierorthereplacementofco‐assets.Contractualbarriersarisewhenthecustomerarecontractuallyboundtoasupplierforapredeterminedperiodoftime.NoneofthePPGBcompaniesapplycontractualbarrierstotheirsubscriptions.

Theliteratureframeworkstatesthattheconveniencecostsarisewhenthecustomersareaccustomedtoacertainroutineorservicethatothersuppliersdonotoffer.Thelackofflexibilitywithotherprovidersmakesitconvenientforthecustomertostaywiththesupplier.ThestudyshowedthatthecustomersfromLinasmatkasseandMiddagsfridcanchoosefromtwodifferentdeliverydaysbutitisnotpossibletospecifytheexacttime.MatkasseABhasdeliveriesonMondayandcanprovidetheexacthouroftimeonedayinadvancebytextmessagesoverthephone.Mathem.sehavethemostflexibledeliverieswherethecustomercanchoosefromallweekdaysandspecifyexacthourofdelivery.

53

Accordingtotheliteraturetrustissuesmayarisefromthecustomer’suncertaintythattheproductwillmatchexpectationsorwhens/hefeelsinsecureaboutthepurchase.AllPPGBcompaniesinthestudyexceptfromLinasmatkassepresentsthemenusinadvance.Theytreattheirrecipesassomethingexclusivefortheircustomersandtheonlywaytogetholdofthemenuistobuyagrocerybag.Thismeansthatthecustomersdonotknowwhattheyarebuyinguntiltheyreceivetheproduct.

Thequalitativecontentanalysisshowsthatallcompaniesinthestudyhavetelephoneservicesandemailaddresses,bothintheformofcustomersupport.Mathem.sealsohaveorderingserviceprovidedbytelephonewherethecustomerscancallinandmaketheirorders.Theliteratureframeworkstatesthatbuildingaffectivecommitmentisdonethroughtheinterpersonalcommunicationchannelsthatarepresentintherelationshipbetweenthecustomerandthefirm.Allinteractionmustdemonstrateaffiliationandassertivenesstobeeffective.

AllPPGBcompaniesinthestudyhaveamemberpagethatthecustomersgetaccesstowhentheypurchaseasubscription.MatkasseABandMiddagsfridhaveverysimplememberpageswherethecustomerscanlookatandmanagetheirsubscriptionsbyaccessingupcomingdeliveries,oldorders,recipesfromearliergrocerybagsandpersonalinformation.Theliteraturestatesthataloyaltyprogramshouldbuildincentivesforthecustomertoreturnthecompanyandbuymoreproducts.Theincentivesarebuiltintheformofrewardsthatthecustomersreceivewhenrepurchasingtheproduct.Theserewardscouldbehardbenefits,resultinginafinancialcostforthecompany,orsoftbenefits,byofferingspecialinformationorrecognition.

ComparedtoMatkasseABandMiddagsfrid,Mathem.sehaveasomewhatmoreadvancemembersareaontheirwebsite,whichcould,accordingtotheliterature,beviewedasaloyaltyprogram.ThebonussystemgivesthecustomersonepointforeachspentSEK.Thesepointscanthenbeexchangedforcashthatcanbeusedwhenshoppingatmathem.se.2500pointscanbetradedfor25SEK,whichgivesthecustomer1%inreturnfortheirpurchases,henceafinancialcostforthecompanyandanartificialbarrierforthecustomer.Furthermore,thecustomerscanbuydeliverychecksthroughtheirmembersite.Thesechecksenablesfreedeliveriesforatimeperiodofthreeorsixmonths,hencethecustomercanonlysavemoneyafteracertainamountofdeliveries.S/hemustordermoreproductstoutilizethetimeoffreedeliveriesthatthechecksenable;hence,thisbuildsincentivesforthecustomertocontinuebuyingproducts.

Asstatedintheliteraturepersonalization,alongwithemotionaltieaswellashardandsoftbenefits,aretheelementsforcreatinganeffectiveloyaltyprogram.Inaccordancewiththis,thestudyofLinasmatkasse’sloyaltyprogram“Klubb

54

Lina”hasbothsoftandhardbenefits,personalizationaswellasemotionaltie.HardbenefitsarecreatedthroughthepointsthatthecustomerscollectwhentheypurchasePPGB’sandwhichtheylatercanconverttopremiums.Thepremiumsareallrelatedtofoodandcookingandshouldthereforeberelevantforthecustomers,whichcouldaccordingtotheliteraturebeviewedassomeextentofpersonalization.WhenhavingboughtacertainamountofPPGB’sthecustomerscanreachanewlevelwithintheloyaltyprogramcalled“Toppkund”(Topcustomer).Asa“Toppkund”yougetmorebenefitsthanaregularcustomerintheformofspecialdealsonselectedproductsandallrecipesfromthedifferentPPGB’sthatLinasmatkasseoffers,whichcreatessoftbenefitsforthecustomer.

Theemotionaltieiscreatedthrough“Linaskomiform”,afitnessprogramformembersin“KlubbLina”,and“Kenyakassen”wherethecustomersareabletodonatemoneytoaprojectthatdeliversfoodtopoorfamiliesinKenya.BoththeseprogramsprovidethecustomerswithasenseofaffiliationbetweenthemandLinasmatkasseandhence,alsocreateanaffectivecommitment.

Figure11ResultsfromqualitativecontentanalysisofPPGBcompaniescategorizedintoswitchingbarriers.Compiledbytheauthors.

Theconceptofmembers.comisbuiltuplikealoyaltyprograminaccordancewiththeliterature.Thewebsiteisclosedinthesensethatonlymembersgetaccesstoit,whichissoftbenefitsthroughexclusivity.Beingamemberallowsforaccesstodiscountsandcampaigns,whichisafinancialcostforthecompanyandhencehardbenefitsforthecustomer.

Members.com’sideaofcreatinganexperienceforthecustomerswhenshoppingatthewebsiteisbuildinguparelationshipbetweenthecustomerandthecompanywhichisdifficulttoachieveontheInternet.Creatingmorevaluethanonlyshoppingthroughblogs,fashionadviceandothertipswillresultinclosenesstothecustomer.Milkandhoneyhavethebenefitofaphysicalstore

55

wheretheycaninvitecustomersformingle,foodandshopping,whichcreatessimilaremotionaltieswiththecustomers.Buildingstrongerrelationshipswiththecustomerswill,inaccordancetotheliterature,buildaffectivecommitmenttothefirm.Creatinganemotionaltietothecustomersisnecessarytopreventthemfromswitchingsupplierandisapartofloyaltyprogramsasartificialbarriers.Furthermoretheinteractionpointsforane‐commercebusinessislimitedtoitsownedmediasuchasthewebpageandsocialmedia,asrelationshipcannotbebuiltface‐to‐face.Hence,buildingemotionaltiesandcloserelationshipswiththecustomersisdifficult.

Theliteraturestatesthatofferingcustomersreducedpriceforbuyingmoreproductsareexamplesofhardbenefitscreatedthroughtheloyaltyprogram.Bothmembers.comandmilkandhoney.seremindcustomersthathavenotvisitedthesiteforaperiodoftimewithemailscontainingdiscountstocreateincentivestocomeback.

5.3. Recurring revenue model

Accordingtothetheoreticalframework,financialforecastinghelpsmanagementtrackfinancialperformanceofthefirmandthetheorysuggestssuchtoolassupportfordecision‐makingprocesses.Inaccordancewiththetheory,thepurposewiththerecurringrevenuemodel,builtbytheauthors,isfirsttoprovideaclearpictureoffuturerevenuegrowth,secondtounderstandhowCLVisaffectedbychangesinCACorChurn,andthirdtoserveasatoolforsupportingmarketinginvestmentdecisionsformaximizingCLV.

Furthermore,thetheorystatesthatafinancialforecastshouldbebasedonhistoricaltrendscombinedwithfuturescenariosderivedfromfactorsthatcanaffectrevenuesandcost.CACandChurnarebothfactorsthataffectrevenuesandcostsandhenceareincorporatedinthemodel.Inaccordancewiththetheory,themodeltakesintoaccounthistoricaldataandforecastsfuturescenariosbasedonchangesinCACandChurn.Therecurringrevenuemodelisfurtherlinkedtothefinancialstatements(incomestatement,balancesheet,andcashflowstatement),asthey,accordingtothetheory,compriseimportantdatafordeterminingacompany’sfinancialperformance.

InthemodelthemetricsCAC,Churn,andCLVarecalculatedasstatedinthetheory.CLVincorporatesCACandChurn;hence,CLVisaffectedbychangesinthesemetrics.ThetheoryfurthersuggeststhatmaximizingCLVwillmaximizethefirm’sprofits;hence,understandinghowtomaximizeCLViscriticalinordertoimprovethefirm’sprofits.AsthemodelenablestestingonhowdifferentCACandChurnratesaffectsCLVthiscanbeausefultooltolearnhowtomaximizeCLV.IfthecompanyaimsforacertainvalueofCLV,utilizingthemodelwillprovideaninsightofwhichvaluesofCACandChurnaredesired.AsCACandChurncanbeimprovedbymarketinginvestments,resultsfromtestsinthe

56

modelcansupportdecision‐makingprocessesregardingmarketinginvestmentsasitgivesanunderstandingofwhichmarketingactivitiestoinvestin,inordertoachievedesiredvaluesofCACandChurn

TheexampleofChef&FriendshowsthattheChurnratehasmoreimpactthanCAConCLV,whichcanbeexplainedbythefollowingreasoning.TheChurnratemeasuresthetimeacustomerstayswithaspecificsupplierandthistimelengthwillincreaseastheChurnratedecreases.Thisresultcanalsobeunderstoodfromtheformula,asthelifetimeiscalculatedas1dividedbytheChurnrate;therefore,smallchangesinChurnaffectthelifetimeofacustomerinasubstantialway.AsCLVisthediscountedcashflowsfromacustomeroveritslifetime,increasingthelifetimeofacustomerwillobviouslyincreaseCLV.Thetotalcashflowfromacustomerisaccumulatedovertime;however,CACisafixedamountthatiswithdrawnfromthetotaldiscountedcashflowfromacustomer.

ThetheoryclaimsthatCACmustneverbehigherthanthetotalvaluethecustomerwillgeneratetothecompany;hence,itmustneverbehigherthanthesumofalldiscountedprofitsfromacustomer.ThisstatementisconfirmedbytheCLVformulaasitiscalculatedasthesumofalldiscountedprofitsfromacustomerafterCAChasbeensubtracted;hence,ifCACishigherthanthesumofalldiscountedprofitsCLVwillbenegative.IfCLVbecomesnegativeduetoahighCACthisindicatesthatthemarketinginvestmentshouldnotbemade.TherecurringrevenuemodelenablestestingtheresultonCLVfromaspecificCACandthisknowledgeisusefulforacompany’sdecision‐makingprocessesregardingmarketinginvestments.

57

6. Discussion

Inthischapterofthereportdiscussionsarebroughtupbasedonthepreviousanalysis.Theaspectsofthefindingsarepresentedandtheresearchquestionsareansweredsequentially.

6.1. CAC

Toanswertheresearchquestion“Whichmarketingmediachannels,suitableforane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,canlowerCAC?”thealternativesofmediachannelsmustbeevaluatedchannelbychannel.FindingmarketingmediachannelswithlowCACmeansfindingalternativesthatarecheapandgeneratemanynewcustomers.Togeneratemanynewcustomersthemediachannelmustnotonlytargetmanycustomers,itmusttargettherightpersonwithhighestpotentialtobecomeasubscriberofaPPGBcompany.SuchpersoncouldbearguedissomeonethatisthepersonisinthebuyingprocessofaPPGB.Itcouldfurtherbecontendedthatthelikelihoodforapersontobecomeasubscriberisaffectedbythelengthofthelinkfrombeingexposedtoanadandthebuyingplace.

Itisdifficulttosaywhetherdirectmailmarketingisacheapmediachannelornot,asitdependsonwhichmaterialisdistributedandthetimerequiredfortheprocess.However,itisinterestingtodiscussdirectmailmarketing’seffectonfulfillingthepurposeofgeneratingnewcustomers.

Itcouldbeconsideredimpossibletotargetasmanycustomersasonlinemarketingwithdirectmailmarketingasittakesmoretimeandefforttodistributetheadvertisingmaterial.Furthermore,asitisdifficulttoknowtheneedofthepersonreceivingthead,itisariskthatthewrongpersonistargeted.Thisisofcourseariskwithalmostanymediachannel;however,asthereachislimitedonecouldarguethatitisevenmoreimportantthattherightcustomeristargeted.Ontheotherhand,evenifitismorelikelytogetanewcustomerwhentargetingacustomerthatalreadyisinthebuyingprocess,therecanalsobepotentialcustomersthattheconceptissuitableforbuttheyarenotawareofitorneedmoreinformationaboutit.Onlyfocusingontargetingcustomerfarintothebuyingprocesscanresultinneglectingvaluablecustomers.However,intheearlyphasewhereMatkasseABis,withtheobjectivetoincreasethecustomerbase,pickingthelowesthangingfruit,meaningthecustomerswithhighestpotentialofbecomingacustomerwouldbethemostsuitableoption.Finally,asthePPGBindustryhasfewwell‐knownplayers,theseplayers,besidesmarketingthemselves,mightalsomarketthePPGBconcept.Hence,peoplewillbemoreawareoftheconceptovertimeandcomefurtherintothebuyingprocess.

Asthelinkfromadexposuretothebuyingplacecouldbeconsideredlongwithdirectmailmarketing,theprobabilityofacustomeractuallybuyingtheproductafterreceivingtheaddecreases.Thetargetedpersonmightbeinterestedin

58

tryingtheconceptofPPGBbut,becauseofthelonglinktothebuyingplace,doesnotfulfilthebuyingprocess.AsMatkasseABisrelativelynewonthemarkettheriskofmarketingacompetitorswhenplacinganadfarfromthebuyingplacecouldbehigh.Ifthereceiveronlyperceivesthemessageabouttheconceptandnotthebrand,theymightchooseoneofthemostwellknownsupplierswhenorderingaPPGB.

SEOhaveresultedinMatkasseABappearingamongthetophitsonGoogle.WithSEO,thelinkfromadexposuretobuyingplaceisshortasiftheviewerclicksonthelinks/heisdirectlyforwardedtoMatkasseAB’shomepage.IfSvensson’sstatementthatthisisthemaintrafficsourceistrue,itisparticularlyimportanttocontinueworkwithSEO.

SEOiscertainlyamediachannelthattargetstherightcustomersasitonlyappearstothemwhomhavedoneaGooglesearchonkeywordrelatedtothePPGB,whichindicatesthattheyareinterestedintheconcept.Ifacustomerknowsabouttheconceptandisinterestedintrying,theywillmostlikelydoaGooglesearchonPPGBinthespecificcityandclickonthelinktooneofthetopones.Asthelinktopurchaseaproductisshort,thelikelihoodtogenerateanewcustomerishigh;therefore,beingontopofthelistwillimprovethelikelihoodsofgeneratingmoresubscriberstoMatkasseAB.

Advertisingthroughadeal‐of‐the‐daychannelasLet’sdealisapreferablealternativeforgettingcustomerstotrytheproductasitensuresthatacertainamountofpersonswillpurchasetheproductwithinalimitedperiodoftime.However,itseemstobeasmallpercentageofthosecustomersthatcontinueswiththeresubscriptionafterwards.Thereasonforthiscouldbethattheywerenotsatisfiedwiththeproduct;however,asMatkasseAB’scurrentcustomersseemstobereallysatisfied,themainreasonisprobablythatittargetscustomersthatonlypurchasesbecauseofthegooddeal.Thiscouldbeconsideredasthedisadvantagewiththismediachannelasitisimpossibletotargettherightcustomers.

TheFacebookfanpageengagescustomersbutmaybemoreimportantly,itencouragescustomerstocreateearnedmediaby“liking”and“sharing”posts.AgoodexampleofthisisthecurrentcontestthatMatkasseABarrangesfortheircustomers.Towinthepricecustomersmustuploadapictureofadishandthepicturewithmost“likes”willwin.ThiswillcreateviralspreadoverFacebookandvisibilityofMatkasseAB’sbusinesstoFacebookfriendsofthecustomer.ThisviralspreadoccurstonocostforthecompanyhenceisconsideredtobeamediachannelwithlowCAC.However,viralspreaddoesneithermeanthattherightcustomeristargetednoristhelinktothebuyingplaceshort,therefor,thismediachannelcannotbearguedisdirectlylinkedtogeneratingmanynewcustomers.Ontheotherhand,onecanassumethatwordsfromafriendismore

59

reliablethananadandhenceviralspreadcanhaveapositiveimpactonpotentialcustomerstobecomeactualcustomers.

Ithasalreadybeenarguedthatearnedmediaisbeneficialasitisgeneratedtolowornocost,aswellas,itprovidesreliablemarketingofthecompany.Earnedmediacouldalsoimplydamagingconsequencesifthewordsaboutthecompanyarenegative.AsforMatkasseAB,theirconceptseemstobeveryappreciated;hence,generatedearnedmediaisveryvaluableandshouldbeencourage.Givingrewardforrecommendation,asMatkasseABdoes,isagoodwaytocreateadesirablewin‐winsituationforthesupplierandcurrentcustomers.

Additional suggestion of media channels with low CAC

ThemarketingcompanypayperclickforaGoogleadandcansetamaximumtotalcostforthead;therefore,GoogleAdWordscouldbeconsideredasacheapmediachannel.Asthecompanycanthemselvesdecideexactlyhowmuchtheywanttopay,thismediachannelwouldbesuitableforacompanywithlimitedfinancialresources.

GoogleAdWordscanfurtherbeconsideredveryeffectiveasitcantargetaspecificcustomer.Choosingtherightkeywords,timefordisplay,region,etc.,enableslotofcontroloverwhichtypeofpersontheadtargets.Thus,itispossibletotargetpersonsfarintothebuyingprocess.IfapersonmakeaGooglesearchincludingoneofthechosenkeywordstheGoogleAdcanappearinthetoporsidebar,areasintendedtomaketheadmorevisible.However,theuppermostsearchhitis,withSEO,directlyunderthetopbarandcouldbearguedisasvisibleastheGoogleAd.

GoogleAd,justasSEO,enablesashortlinkfromtheadexposuretothebuyingplaceasjustbyclickingontheadthepersonisforwardedtothecompany’swebsite.Iftheaddescribesacampaignthatthepotentialcustomerperceiveasappealing,onecouldarguethatthispersonisevenfurtherintothebuyingprocesswhenclickingonthead,astheyknowexactlywhattheyshallbuywhentheyvisitthewebsite.

ThefactthatthecompanyhavelimitedfinancialresourcesalsosupportKatzsuggestionofbecomingapartofanadvertisingnetwork,asitisacheaperalternativethanregularonlinebanneradvertising.Eventhoughitcannotbecontrolledwheretheadwillbeexposed,thereareseveralotherparametersthatenablesomecontroloverwhichcustomertheadtargets.Theretargetingfeaturecouldbearguedisthemostspecifictargetedadvertising,astheadisexposedtopeoplethathavealreadyvisitthesite,hencearefurtherintothebuyingprocess.Astheyobviouslyhavethoughtaboutbecomingacustomer,remindingthemwithanadisprobablyveryeffective.Iftheyrevisitthesiteafterbeingexposedtothead,theywillmostlikelymakeapurchase.Baseonthisreasoning,

60

retargetingcouldbearguedisagoodwaytolowerCACasitischeapandtargetsthecustomerwithhighestbuyingpotential.

Facebookadvertisingisagoodmediachannelasitcantargetevenmorespecificcustomers.AsforGoogleAdWords,companiespayperclick;however,itcanbeconsideredacheaperalternativeasthespecifictargetingeliminatesirrelevantcustomersthatpotentiallywouldclickontheadevenifnotinterestedinbuyingtheproduct.Ontheotherhand,Facebookadvertisingappearsontheusershomepagewhethertheyhaveactivelydoneresearchforitornot.Evenifthemarketingcompanyknowsthatthetargetedpersonissuitablefortheconcept,thepersonisnotfocusingonPPGBwhentheadappearsandisthereforenotsusceptibletoadvertising.

AstheFacebookadappearsonsocialmedia,thiscangenerateearnedmediaforMatkasseABthroughthe“like”and“share”features.Thisisagoodexampleofwhenonemediachannelsupportsanother,whichisideal.Asalreadymentioned,MatkasseAB’sreputationisverypositive;hence,increasedearnedmediaisadvantageousforMatkasseAB.

TobeabletofindthemediachannelswithlowestCACitiscriticalthatthecompanyunderstandtheeffectoncustomeracquisitionofeachmediachannel,asthemediachannelswithlowestCACarethemediachannelsthatgeneratemostnewcustomerstothelowestprice.Withthatsaid,itiscriticaltotrackandtracethemarketingactivitiesasitcanprovideaclearpictureofwhichmediageneratingwhichcustomers.Suchinsightwillsupportdecision‐makingprocessesregardingwhichmediachanneltochooseinordertoachievethebestoutcome,inthiscase,thegreatestnumberofnewcustomerstothelowestcost.Foracompanywithlimitedfinancialresourcestheimportanceoftrackingmarketingactivitiescouldbeevenmoreemphasized.Ifthecompanyrealisesthattheyspendmoneyonamediachannelthatdoesnotgenerateanynewcustomerstheycanreallocatetheirmarketingexpensestooptimizetheoutcome.

Tosumup,forane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,themostsuitablemediachannelsthattargetsthepersonwithhighestbuyingpotentialtoalowcost,areonlinemediachannels.Therefore,itissuggestedthatMatkasseABcontinuestoinvestinSEOandmaintaintheirFacebookfanpage.Tocomplementtheircurrentmarketingstrategy,itisfurthersuggestedtoinvestmentsinmarketingthroughGoogleAdWords,onlinebanneradvertisingincombinationwithretargeting,andFacebookadvertising.ThissuggestionissummarizedinFigure12.

61

Figure12Recommendationofmarketingmediachannelsthataresuitableforane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources.

Inordertooptimizetheallocationofmarketingexpenses,utilizingaprogramtotrackandtraceeachmarketingactivityishighlyrecommended.Asalreadymentioned,trackingandtracingmarketingactivitieswillprovideaninsightinwhichmarketingactivitythatgeneratesmostnewcustomerstoalowcost;hence,itprovideaninsightinwhichmarketingactivityshouldbeutilizedtolowerCAC.Suchknowledgehelpsthecompanyunderstandhowtoallocatetheirmarketingexpenses.

Accordingtothetheory,CACcanbeseenasameansofcontrollingmarketingexpensesandensurethatthefirmisspendingmoneyonactivitiesthataredrivingthebusiness.Ifthefirmexchangeamarketingactivitytoanother,thechangeinCACwillgiveanindicationoftheeffectivenessofthenewmarketingchannel,i.e.ifCACislowerthanbeforethiscouldindicatethatthenewmarketingactivityismoreefficient,intermsofgeneratingnewcustomerstolowcist,thanthepreviousone.However,CAC,asitisdescribedandanalysedinthisreport,doesnottakeintoaccounttheselectionoftargetedcustomersandcanthereforebemisleading.Somecustomerswillgeneratemorevaluetothecompanyifthey,forinstance,staylongerasacustomerorpurchasemoreproducts,whileothercustomerswillonlypurchaseonce.ThevalueofCACwillbethesameasitonlycalculatesthenumberofnewcustomers,whethertheywillgeneratehighvalueornot.Therefore,theCACshouldbeanalysedinrelationtothevalueeachnewcustomerwillgenerate(notethatCLViscalculatedas

62

averagecustomerprofit)tobeasufficientmetrictorelyuponwhenmakingdecisionsregardinginvestmentsinmarketingactivities.Inotherwords,relyingtoomuchonCACthatdoesnotincorporatethevalueeachnewcustomerwillgeneratecaninvolveariskofinvestinginthewrongmarketingactivities.

6.2. Churn

Toanswerthesecondresearchquestion,Howane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,cantakemeasurestoretaintheirexistingcustomers,i.e.lowerChurn,itisimportanttounderstandthedriversofloyalty.Thisreporthasfocusedonrelationalcommitmentasadriverofloyalty.Hence,affectiveandcalculativecommitmentisstudied,firstbyhowthisisdoneinthePPGBindustryandsecondifthereissuggestionsfromothere‐commercebusinessesthatcanbeusefultoimplement.FollowingthisstructureitisfirstdiscussedwhichcommitmentsthatexistsandwhyinthePPGBindustry,seconddiscussionisabouthowtwoothere‐commercecompaniesdotobuildthesecommitments,whichendsupinsuggestionsaboutwhichmeasuresthatcanbetaken.

ThequalitativecontentanalysisshowedthatallPPGBcompanieshavesimilarproductstooffertheircustomersandtheirconceptsarealsoalike.Whencomparingthethreewordsthatbestdescribethecompanynoneofthesewordsareuniquebutatleastoneothercompanywoulddescribetheirconceptwiththesameword.Linasmatkasse:tasty,healthyandquick.Middagsfrid:tasty,healthyandquality.Mathem.se:healthy,quickandeasy.MatkasseAB:nutritious,qualityandeasy.ThisshowsthatthePPGBcompaniesareverymuchalikeandthatitwouldbedifficultforthecustomerstodistincttheiroptionswhenresearchingthemarket.Thisgivesimplicationsthatswitchingtoanothersupplierareeasyandthatmanagingretentionthroughbuildingrelationshipcommitmentwiththeircustomersbecomevital.

ThequalitativecontentanalysisshowedthatthePPGBcompanieswebsitesaresimilar.Hence,theyareeasytolearnandinteractwithandthelearningbarriersforcustomersarelow.Thisimplicatesthatthecustomerswonthaveproblemstolearnanewwebsitewhenswitchingsupplier.

Twoofthecompaniesinourstudy,mathem.seandMiddagsfrid,arecertifiedinsafee‐commercebythirdparty.Thefactthattheypayforthisservicewouldimplythattherestillisarelationalcostintermsofsecurityissueswiththecustomersthatneedstobedealtwith,whiletwoofthecompaniesinthestudydonotseethisasaproblem.Certificationsfromthirdpartaresafetymeasuresforthecustomertoeasebuyingdecisionsandkeepthetheirtrust.ThereareimplicationsthatthePPGBcompanieswanttocreateasenseofsafetyandsecurityontheirwebsites.

63

Themembershipandsubscriptiontermsisthepartwherecompaniescouldreallyaffecttheircustomersandbuildartificialbarriersintheformofcontractualbarrierstomakecustomersstaywiththeirsubscriptions.Havingtime‐basedsubscriptionsduringanamountoftimewouldsecurerecurringrevenuesandprovidesafeincomesfortheproviders.However,noneofthecompaniesofferssubscriptionsthatbindthecustomerovertime.Thisisofcoursepreferableforthecustomerssincetheycanpauseorterminatethecontractatanytime,whichcouldimplybuildingtrustandsecuritywiththem.Sincethesetypesoftermspresentnocontractualcostsforthecustomersthecompaniesmissopportunitiestobindtheircustomerstosubscriptionsovertime.Bycreatingmonetaryincentivesforthecustomerstheymightbewillingtobindthemselvescontractuallyovertime,whichnoneofthecompanieshavetriedtooffer.

Therearehoweversomecontractualbarriersintermsofhowmanydaysnoticethecustomermusthavetopauseorendthesubscription.Thiscouldcreateirritationwiththecustomersthattheyhavetoplanmorethanaweekinadvancewhetherornottheywanttheproducts.Hence,theirtrusttowardsthecompanyandtheproductscouldalsobedamagedandrelationalcostsdecline.

Itcouldbebeneficialtohaveaflexibledeliveryschedule.Customersthatareaccustomedtochoosingtheirdeliverytimemightstaywiththatprovidersincenooneelsecanofferthesameflexibility.Theyhavecreatedaconveniencebarrierwiththeircustomersthatmakethemstayduetootherwiselossofflexibility.ThiscouldalsobethecasewithMatkasseAB’sdeliverynotificationsthroughSMS.Ifthecustomerisaccustomedtobeprovidedwithacertainserviceandnootherprovideronthemarketcansupplythesametypeofservicethiscreatestheconveniencebarrier.

Linasmatkasseisnotprovidingtheirrecipesinadvance.Notknowingwhatwillbedeliveredcanbecomeatrustissuewiththecustomersincetheirinsecurityofthepurchaseincreasesandrelationalcostsarelowered.Furthermore,itmightbemoreconvenienttoswitchtoanothersupplier.However,ifthemenuispresentedinadvanceandthecustomerdoesnotliketherecipesofthatmenutheyarefreetopausethesubscription.Sothereisatrade‐offbetweeninformingthecustomerofitspurchase,whichmightbuildrelationalcosts,anddisclosesallinformation,whichmightresultinapausedsubscription.

SinceitismoredifficulttointeractwithcustomerswhenhavinganInternetbasedbusinesscomparedtoaphysicalstoreitisimportantthattheavailableinteractionworksandthattherightsignalsarecommunicatedtothecustomers.Onlyhavingemailorchatfunctionswilllimittheinteractionpointsandhencelimitthedevelopmentofaffectivecommitmentwiththecustomers.Thephonecontactcouldbuildtrustwiththecustomersandcreaterelationalcostswith

64

themwhenswitchingproviders,butbecauseallPPGBcompanieshavethisservicethecostsarenoteffective.Mathem.sealsoprovidesphoneorderingservice,whichcertainpeoplemightfindpleasant.Havingsomeonetotalktoandaskaboutadvicewhenchoosingamongthedifferentproducts.Italsoprovidesanotherinteractionpointonwhichtobuildaffectivecommitmentthroughdemonstratedassertivenessandaffiliation.Itisimportantthattheservicepeoplemanagingthephonecallswiththecustomersareservicemindedandseekstoassistthecustomerinanyway.Ifthecustomerperceivesthecommunicationasunpleasanttherelationshipandemotionaltietothecompanycouldbedamaged.

Anotherinteractionpointwiththecustomersisthroughthepeoplewhodelivertheproduct.Againthemoodandinteractionbetweenthecustomerandthesepeoplearevitaltorestoreorbuildrelationshipsandemotionalties.Thisinteractionmightbetheonlycommunicationthatthecustomerhaswiththecompanyanditisthereforevitalthatitdoesnotdamagetherelationshipbutratherbuildsitup.

BothLinasmatkasseandmathem.sehasamobileappthatisavailableforsubscribers.Thishasthepotentialofbecominganewcontactchannelbetweenthecompaniesandthecustomers,wheretheycancreatevaluablecontentthatincreasesaffectivecommitmentandawarenesswiththecustomers.AnotherformofcommunicationiscreatedthroughtheAppwherethecompaniescansendpushnotifications*tothecustomers.Utilizingthischanneltocreatesomethinginterestingandthatcreatesvaluewillstrengthentherelationshipbetweenproviderandcustomer.

Themember’spageorclubsiswherethecompaniesreallycanbuildartificialbarriersthroughloyaltyprogramsandloyalcustomerdiscounts.Mathem.sehaveexploitedtheirmemberclubinareasonablygoodway,butthecompanythatstandsoutwhenitcomestoartificialbarriersisLinasMatkasse.Theyhavethewholespectraofasuccessfulloyaltyprogramprovidingbothhardandsoftbenefits,personalizationandemotionalties.

CalculativeandaffectivecommitmentdoesexistinthePPGBindustryandsomeofthecompaniesarebetteratretentionmanagementthanothers.Whenitcomestocalculativecommitmentandswitchingbarrierstherearerelationalcosts,throughtrustandsecurityissues,artificialbarriersthroughloyaltyprogramsandconveniencecoststhroughthecustomersperceivedlackofflexibilitywithotherproviders.Therearehowevernoorverylowpresenceoflearningandtransactioncostsaswellastheotherpartofartificialbarriersthatiscontractualbarriers,asillustratedinFigure13.Sincecalculativecommitmentisaplatformonwhichtobuildaffectivecommitmentitisimpliedthatthereis

65

affectivecommitmentwiththecustomersaswell.Asarguedbelowtheseimplicationsarehowevernotthatstrong.

Figure13EachswitchingbarriersdegreeofpresenceontheanalysedPPGBcompanies’websites.Compiledbytheauthors.

TheaffectivecommitmentcouldbeconsideredasweakwithinthePPGBindustrysincemostoftheinterpersonalcommunicationsarethroughcustomerservicesbytelephoneandemail.Thiscanhardlybeenoughtocreateanemotionaltietothecustomersandstrengthentherelationship.AnewinteractionpointarehoweverbuiltthroughApps,whichsomeofthecompanieshavereleased.Usingthesechannelstocreatefurthervaluetothecustomerscouldproveimportantwhendevelopingaffectivecommitment.

Thee‐commercecompaniesintheclothingbusinesshaveusedinterestingstrategiestoimprovetheaffectivecommitmentwiththeircustomers.HavinganInternetbasedbusinessmakesitdifficulttocreatecloserelationshipswiththecustomersanddevelopemotionalties.Howeverbothmembers.comandmilkandhoney.sehavetriedtoachievethisindifferentways.

Members.comhavetriedtocreateashoppingexperienceforthecustomerswheretheyvisitthewebsiteforotherreasonsthanonlyshopping.Usingblogsthatwriteaboutfashionadvice,stylingtips,travelingorother,forthecustomer,relevantcontentwillhopefullycreateaninterestofthesitethatotherwisewouldnotexist.Whenthisinterestisachievedwiththecustomertheywillhopefullydevelopacloserrelationshiptothewebsiteandthecompany.

Milkandhoney.sehavethebenefitofcomplementingtheironline‐basedstorewithaphysicalstore.Theyinvitemembersoftheircustomerclubtoeventsinthephysicalstorewherethepeoplecanmingle,haveasnackandshopatthesametime.Thisisanexampleofutilizingphysicalinteractionswiththecustomerstocreateacloserrelationshipwiththemandthecompany.

66

ThesecompaniesattempttocreateaffectivecommitmentwiththeircustomersissomethingthatthePPGBindustrylack.Therefore,theyshouldtrytolearnfromtheseexamplesandapplysimilarretentionstrategiestoachievestrongerandmoredirectrelationships.

Summinguptherecentdiscussion.TheliteratureframeworksuggeststhattoimproveChurnandincreaseretentionitisimportanttoincreasethecustomerloyalty.Themostinterestingdriversofloyalty,arguedinthisreport,iscalculativecommitmentandaffectivecommitment.ThePPGBcompanieshavesomecalculativecommitmentwiththeircustomersthroughswitchingbarriers.OfthefivedifferentbarriersthatarepresentedinthisreporttheartificialbarriersaretheonesthatthePPGBcompaniescantakeactivemeasurestoaffecttoincreasetheloyaltywiththeircustomers.Linasmatkassearethebestexamplefromthequalitativecontentanalysisincreatingthesebarriersthroughtheirloyaltyprogram.Hence,otherPPGBcompaniesshouldstudythisexamplewhentheywanttoincreaseswitchingbarriersandimproveChurn.Contractualbarriersaretheotherimprovementareawhenincreasingcustomerloyaltythroughcalculativecommitment.ThisisamoredelicateareaforthePPGBcompanies.Therearenocontractualbindingtimewhenenteringintoasubscription.IfthiswerecreatedbyaPPGBcompanyasanactiontoincreasecalculativecommitment,theupsidewouldbemorepredictablerevenuessincethecustomerswouldbecontractuallyobligedtobuyproductsforanamountoftime.ThedownsidewouldbethatthecustomersmightchooseanotherPPGBcompanythatdoesnothavecontractualbarrierswiththeirsubscriptions.Whethertheupsidesaremoreappealingthanthedownsidesaredifficulttoimply,butifthecustomerscouldgetsomemonetaryincentivestoenterintoabindingagreementforaperiodoftime,intheformofcheaperproductsthismightbeanattractiveidea.Creatingartificialbarrierstoincreasecalculativecommitmentandhence,customerloyaltybyworkingwithloyaltyprogramsandcontractualbarriersarethedefinitesuggestionsforthePPGBcompanies.

TheotherimprovementareaforthePPGBcompaniesisaffectivecommitment,whichiscreatedthroughmoredirectandcloserrelationshipwiththecustomers.Thee‐commercecompaniesstudiedinthisreportaremoresuccessfulinthisareathanthePPGBcompanies.Therefore,thePPGBcompaniesshouldtakemeasurestocreatemoreaffectivecommitmentthroughstudyingtheexamplesgiveninthisreport.Thereareforemosttwodifferentsuggestionsofactionsthatarerelevanttocreatemorevalueforthecustomersthanjusttheproducts.First,makingthecustomervisitthewebsiteforotherreasonsthanonlyshopping.Deliveringcookingtipsandadviceonhowtobeabetterchefcouldforexamplehavethiseffect.Second,creatingcloserandmoredirectrelationshipswiththecustomers,byforexamplearrangingeventswherethefirmandcustomerscanengageinphysicalinteractionscouldbeasuccessfulwayofachievingthis.

67

Managingthesebarrierswillbebeneficialforthechurnrate,butevaluatingthemeasurestakenisnoteasy.Itisdifficulttodeterminehowbeneficialitwillbeandhowtotrackandtraceinvestmentsmadetoaffectchurn.Manymarketinginvestmentswillprobablyhaveapositiveeffectonchurnrate,butitwouldbedifficulttotracewhatspecificinvestmentthatgavetheimprovement.IfaPPGBcompanyweretoimplementaloyaltyprogramandcontractualbarrierswiththeirsubscriptionsitwouldbeproblematictoseehoweachinvestmentaffectedthechurnrate.Insteadthecompanywouldhavetomaketheseinvestmentssequentiallytotracetheimpactonthechurnrate.Thisisoneoftheweaknesseswiththismetric.

Itisfurthermoredifficulttoknowwhichcustomersthatreacttowhichactivities.Somemightlovetheideaofaloyaltyprogramthatgivesdiscountsorotherincentives.Thesetypesofactivitiesmightnotaffectothercustomersatall.Itwouldbemostbeneficialtofindswitchingbarriersthatcouldcontributetoapositiveretentionwiththebroadestrangeofcustomers.Tomakeaproperevaluationofthisitwouldbenecessarytoinvolvethecustomersinasurveyofsomekind.

6.3. Recurring revenue model

Theshortanswertotheresearchquestion“HowcanacompanyincreasereliabilityofmarketinginvestmentdecisionsbyunderstandingtheimpactofCACandChurnonthefinancialperformance?”isarecurringrevenuemodel,asaRRMprovidesaclearpictureofhowCACandChurnaffectsCLV,hence,thecompany’sprofits.Arecurringrevenuemodelcanbedesignedinvariousways;however,thefocuswillbeonthespecificmodelpresentedinthisreport.

ThefundamentalsoftherecurringrevenuemodelarethatCACandChurnareinputdataintothemodelandCLVisoutputdata.Thismeansthatdifferentscenarios,basedonchangesinCACandChurn,canbetestedandresultindifferentvaluesofCLV.AsCLVisdefinedasakeymetricformeasuringafirm’sfinancialperformanceasitmeasuresthefirm’sprofits,themodelenablesanunderstandingoftheimpactonCLVfromdifferentCACand/orChurnrates.Withthefundamentalgoalofincreasingafirm’sprofits,onecouldarguethatmarketinginvestmentdecisionsshouldbemadebaseduponwhichmarketinginvestmentresultinhighestCLV.MarketinginvestmentsindifferentmarketingactivitieswillhaveavariousimpactonCACandChurnandwillinturnhavevariousimpactonCLV;therefore,understandingtheserelationshipswillhelpmanagementunderstandwhichmarketingactivitiestoinvestin.Withthatsaid,usingtherecurringrevenuemodelpresentedinthisreportwillincreasethereliabilityofmarketinginvestmentsdecisionsbyenablinganunderstandingoftheimpactofCACandChurnonCLVandthefirm’sprofits.

68

InthecasestudyofthefictitiouscompanyChef&FriendscenarioswithvariousvaluesofCACandChurnaretestedintherecurringrevenuemodel.ThisstudydemonstratestheabilitytoseetheeffectonthecustomerbaseandCLVfromCACandChurn.However,therearesomeuncertaintiesthatneedtobespecifiedtogetmorereliableresults.

TheRRMisnotmorereliablethanthedataitisbasedon,hence“garbageingarbageout”isimportanttoconsider.WhenevaluatingtheeffectonCLVfromCACandChurnonemustconsiderthesizeoftheinvestmentforimprovingeachmetric.Assumingthataspecificmarketinginvestmentwouldimprovebothmetricsequallyisnotrealisticastherearevariousmarketingactivitiestoperformandeachmarketingactivitywillgeneratedifferentresults.

ToachieveamorereliableresultfromthemodeltheCACandChurnvaluesmostincorporatemoreparameters,suchasCACforspecificmarketingmediachannelandimprovementinChurnfromaspecificswitchingbarrier.Togetthisdata,onemustgoonestepbackwardsandevaluateeachspecificmarketingactivityovertimeandperformthemarketingactivityseveraltimes.Forinstance,createaFacebookadonemonth,e.g.December,mightgeneratealotofcustomers;however,anothermonth,e.g.Julymightnotgenerateanycustomersatall.InDecember,peoplemightpurchasetheproductasagiftforfamilyandfriendswhileinJulymostpeoplehavevacationandthereforeaPPGBisnotsuitableforthemoment.Howtheadisdesignedwillforsurealsohaveanimpactontheeffectasitmighttargetdifferentcustomers.Whatistryingtobesaidisthatthereareseveralparametersthatcaninfluencetheeffectfromanadandthemarketingactivitymustthereforebeperformedseveraltimesinordertoobtainareliableaveragevaluetoutilizeinthemodel.

69

7. Conclusion Thisreporthashighlightedtheimportanceofcustomermetricsandhowtoimprovethem.Themetricsarehelpfultomanagethecustomerbaseofandrelatetotheacquisitionandretentionofcustomers.SinceCACandChurnprovidesinformationaboutthedevelopmentofthecustomerbasetotheonemakingdecisionsaboutmarketinginvestments,thesemetricsarevitalwhentryingtoaffectcustomerbase.

Theindustryofpre‐packedgrocerybagsisacurrentareawithine‐commerce,butithasnotbeenthatwidelystudied.Thisreportcontributestotheunderstandingofcustomermetricswithinsimilarindustriesofe‐commerceandsubscriptionbasedbusinessmodels.Manystudieshavebeenmaderegardingcustomermetrics,butnotexclusivelywithinthespecificcontextthatthisreportiscontributingto.Aqualitativestudy,likethisone,israrelygeneralizabletoawidercontext,aswillbeconcludedfurtherdowninthischapter.

Forane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,itisimportanttoutilizemediachannelswithlowCAC,inordertoincreasetheircustomerbaseinacostefficientway.ThisreportevaluatesmarketingmediachannelsandcontributeswithsuggestionsofthealternativesthatcouldbesuitabletoachievealowCAC.

ThemainconclusionisthatonlinemediachannelsisthemostsuitableforaPPGBcompanyinthedescribedsituation,asonlinemediachannelsaremostoftencheaperandenablesmorespecifictargetingthantraditionalmediachannels.Itisfurtheremphasizedthatonlinemediachannels,comparedtotraditionalmediachannels,increasethelikelihoodofacquiringanewcustomer,asthelinkbetweenadvertisingandthebuyingplaceisminimized.Toincreasethelikelihoodofacquiringacustomerevenfurther,itissuggestedtoutilizemediachannelsthattargetspotentialcustomerthatarealreadyinthebuyingprocessofsubscribingtoaPPGB.

Theimportanceoftrackingandtracingthemarketingactivitiesisalsohighlightedinthereport.Understandingtheeffectofeachmarketingactivitywillsupportdecision‐makingprocessesregardingchoiceofmediachannelandenableoptimizedallocationofmarketingexpenses.Itisimpliedthatvariousmarketingactivitieshavedifferentoutcome,intermsofcostefficiency,andmarketingexpensesshouldbeallocatedtotheactivitiesthataremostcostefficient,hence,resultinlowestCAC.Trackingandtracingthemarketingactivitieswillthereforeprovideavaluableinsightforoptimizingcompany’sallocationofmarketingexpenses.

CreatingcalculativecommitmentthroughswitchingbarriersshouldbeanimportantpartofthePPGBcompanies’retentionstrategies.Thisreport

70

highlightstheabsenceoflearningbarriers,transactioncostsandcontractualbarriers.Otherbarrierssuchasrelationalcostsandconveniencecostsarepresent.TherearealsoimplicationsthatthePPGBcompaniescouldlearnfromeachotherregardingtheartificialbarrierofaloyaltyprogram.Linasmatkasseisthesinglemostprominentcompanyinthisareaaccordingtoourstudy.

Asuccessfulretentionstrategyshouldalsoincludemeasurestocreateaffectivecommitmentwiththecustomers.Thisiscreatedthroughthecustomer/firminteractionpointsandaimstodevelopemotionaltiesanddirectrelationships.SincetheinteractivecommunicationchannelsarerestrictedontheInternetthisisdifficulttoachieve.However,thetwoe‐commercecompaniesinterviewedinthisreporthaveshowedcreativeattemptstoachieveaffectivecommitment,whichshouldbestudiedbythePPGBcompanies.

Usingarecurringrevenuemodeltoforecastafirm’sfinancialperformancecanincreasethereliabilityofmarketinginvestmentdecisions.ThemodelprovidesagoodunderstandingofhowCLVisaffectedifCACand/orChurnareimproved;hence,themodelprovidesatoolforthemanagementdecision‐makingprocessesregardingmarketinginvestments.

Thefindingspresentedinthisreportarenottobegeneralizedtoawidercontextwithoutcarefulconsiderations.Aqualitativestudyinvolvesthedeeperresearchofsmallergroupsandisorientedtowardsaspecificsettingandcontext.Sincethisreporthasusedaqualitativeapproachforallfindingspresentedupuntilnowthisargumentisapplicablehereaswell.Therefore,allconclusionsarelimitedtoane‐commercebusinessandthecontextthatthesecompaniesactwithin.ThemediachannelsthatarerecommendedforloweringCACwouldbethemostgeneralfindings.Usingonlinemediachannelscouldbeasuccessfulmethodformoreeffectivemarketinginvestmentsincustomeracquisition.Theaspectofe‐commerceaswellashavingasubscriptionbasedbusinessmodellimitstherecommendationsregardingretentionstrategies.ThefactthattheempiricalfindingsarebasedonacontentanalysisfocusedoncompanywebsiteswithinthePPGBindustrymakestheserecommendationslimitedtodirectcompaniessolelywithinthisindustry.Therecurringrevenuemodelcouldbeusedasatoolformarketingdecisionswithinothere‐commercebusinesseswithsubscriptionbasedbusinessmodels.Therecurringrevenuesareaprerequisitefortheuseofthismodel.

AsstatedinthebackgroundthePPGBindustryisarelativelynewbusinessthathasgrowninpopularitytherecentyears.Rightnowtheacquisitionofcustomersaremostimportantbutasthebusinessevolvesitwillbemoreimportantwiththeothersideofmanagingthecustomerbasethatisretentionmanagement.Thebestcompaniesatdevelopingtheircustomerbasearetheoneswiththelargestrevenuesandstudyingthesewillgivesmalleractorsthepossibilityofexpanding

71

aswell.TherearemanycustomersthathavenotyettriedthePPGBconceptsotherearestillalotofgainstobeharvestedbyfocusingonattainingnewcustomers,buttherealwinnerswillbethosewhoactivelyinvestinbothsidesofthemanagementofthecustomerbase,namelycustomeracquisitionandretention.

7.1. Suggestions for further research

TheresearchhasstudiedhowmarketinginvestmentscanaffectCACandChurn,andbasedonthathowCACandChurnaffectCLV.Thefirstparthasresultedinsuggestionsofmarketingactivitiesthatcanbeperformedtoimprovethemetrics.Thesesuggestionsarequalitativeanddonotinvolvequantitativedata,suchasCACforaspecificmarketingactivityorsizeofamarketinginvestmentforloweringChurntoadesiredlevel.Forthemodeltobemoreaccurateandrealisticthesedataisneeded.Therefore,suggestionsforfurtherresearcharetoquantifyproposedmarketingactivitiesinmonetaryterms.Incorporatingsuchdataintotherecurringrevenuemodelwillprovideamoresoliddecision‐baseformarketinginvestments.

Furthermore,itwouldbeinterestingtoinvestigatemoreabouttherelationshipbetweenthetwometricsandhowtheyaffecteachother.Basedonthatresearchitcouldbeofinteresttodiscusstwomatters:First,howtobalanceinvestmentsindriversofcustomeracquisitionversusretentioninordertomaximizethefirm’sprofits.Second,ifitisaspecifictimewhenitismoreimportanttofocusononemetricratherthantheother.Forinstance,whentheindustryisrelativelynewitcouldbemoreimportanttofocusonacquiringnewcustomersratherthanretainingexisting,inordertogetalargemarketshare.

Finally,thisstudyhasstudiedrelationshipcommitmentinthePPGBindustryinthelevelofthefirm.FurtherresearchonswitchingbarriersinthePPGBindustryfromacustomer’sperspectivewouldcontributewithanadditionalanglewhenbuildingasuccessfulretentionstrategyforaPPGBcompany.

72

8. List of References Articles

Baker,C.(2005)WeighingOnlineMarketing’sBenefits.MultichannelNews,vol.26,iss.21,pp.91.

Balabanis,G.,Reynolds,N.,Siminitras,A.(2004)Basesofe‐storeloyalty:Perceivedswitchingbarriersandsatisfaction.JournalofBusinessResearch,vol.59,iss.2,pp.214‐224.

Berger,P.,Nasr,N.(1998)Customerlifetimevalue:Marketingmodelsandapplications.Journalofinteractivemarketing,vol.12,iss.1,pp.17‐30.

Burnham,T.,Frels,J.,Mahajan,V.(2003)Consumerswitchingcosts:atypology,antecedents,andconsequences.AcademyofMarketingScience,vol.31,iss.2,pp.109.

Claude,B.(2000)CombatingcustomerChurn.Telecommunications,vol.34,iss.3,pp.83.

Dacey,J.(1997)SavvyMarketingforCPAs.ThePracticingCPA,vol.21,iss.6,pp.3.

Gupta,S.,Zeithaml,V.(2004)CustomerMetricsandTheirImpactonFinancialPerformance.MarketingScience,vol.25,iss.6,pp.718‐739.

Gupta,S.,Lehmann,D.R.,Stuart,J.A.(2004)ValuingCustomers.JournalofMarketingResearch,vol.41,iss.1,pp.7‐18.

Gustavsson,A,Johnson,M.,Roos,I.(2005)Theeffectsofcustomersatisfaction,relationshipcommitmentdimensionsandtriggersoncustomerretention.TheJournalofMarketing,vol.69,iss.4,pp.210‐218.

Harris,E.(2000)Recognize,Reward,ReaptheBenefits.SalesandMarketingManagement,vol.152,iss.9,pp.109.

Heaphy,J.(2011)HowFabricatorsCanBenefitfromOnlineMarketing.Kitchen&BathDesignNews,vol.29,iss.10,pp.64.

Huson,Stephen(1996)Thefallofthevaluedcustomer.CellularBusiness,vol.13,iss.5,pp.22.

73

Livne,G.,Simpson,A.,Talmor,E.(2011)DoCustomerAcquisitionCost,RetentionandUsageMattertoFirmPerformanceandValuation?JournalofBusinessFinanceandAccounting,vol.38,iss.3‐4,pp.334‐363.

Menon,K.,O’Connor,A.(2007)Buildingcustomers’affectivecommitmenttowardsretailbanks:TheroleofCRMineach’momentoftruth’.JournalofFinancialServicesMarketing,vol.12,iss.2,pp.157‐168.

Mosier,A.(1999)KeepingCustomers.Incentive,vol.173,iss.9,pp.160.

Moskin,J.(2013)Everythingbutthecook.NewYorkTimes,pp.D1.

Pei‐Yu&Hitt(2002)MeasuringswitchingcostsandthedeterminantsofcustomersretentioninInternet‐enabledbusinesses:Astudyoftheonlinebrokerageindustry.InformationSystemsResearch,vol.13,iss.3,pp.255.

Reinartz,W.,Thomas,J.,Kumar,V.(2005)BalancingAcquisitionandRetentionResourcestoMaximizeCustomerProfitability.TheJournalofMarketing,vol.69,iss.1,pp.63‐79.

Sauter,J.(2009)Conversionrate:Onlinemarketing’sHolyGrail.TheDailyRecord.

Smith,D.(2010)BrandMarketingOnline:Paid,Owned,Earned–IsaWebsiteAloneSufficientforaBrandOwnedMediaPresence?MarketingWeeklyNewspp.102

Swanson,C.(2008)Long‐termFinancialForecastingforLocalGovernments.GovernmentFinanceReview,vol.24,iss.5,pp.60.

Wileman,A.(1999)What’sacustomerworth?ManagementToday,pp.95.

Wirtz,B.W.,Lihotzky,N.(2003)CustomerretentionmanagementintheB2Celectronicbusiness.LongRangePlanning,vol.36,iss.6,pp.517‐532.

Zohn,J.(2003)CustomerAcquisitionCost–AKeyMarketingMetric.NationalPetroleumNews,vol.95,iss.4,pp.37.

Whitfield,R.,Duffy,A.(2011)Extendedrevenueforecastingwithinaserviceindustry.InternationalJournalofProductionEconomics,vol.141,iss.2,pp.505‐518.

Books

Bryman,A.,&Bell,E.(2011).BusinessResearchMethods.NewYork:OxfordUniversityPressInc

74

Hillier,D.,Ross,S.,Westerfield,R.,Jaffe,J.,Jordan,B.(2010)Corporatefinance.Europeanedition.UnitedKingdom:McGraw‐HillEducation(UK)Limited.

Osterwalder,A.,Pigneur,Y.,Clark,T.(2009)BusinessModelGeneration:AHandbookforVisionariesGameChangers,andChallengers.Hoboken:JohnWiley&Sons,

Thesis

Grönlund,E.,Carlberg,H.(2010)Bortabra,menhemmabäst–Enundersökningavegnaochköptamedier.Stockholm:Handelshögskolan.

Reports

Cowan,D.(2012)MeasuringHighGrowth,RecurringRevenueBusinesses.Report:BessemerVenturePartners.Pdf:http://www.bvp.com/sites/default/files/measuring_growth_businesses_with_recurring_revenue.pdf

Edelman,D.,Salsberg,B.(2010)BeyondPaidMedia:Marketing’sNewVocabulary.Report:McKinseyQuarterly

Sussin,J.,Sarner,A.(2013)TopUseCasesandBenefitsofSocialforCRM2013.Report:GartnerGroup.

SvenskHandel(2011).Matpånätet‐Utvecklingenavdensenskadagligvaruförsäljningenpåinternet.Pdf:http://www.svenskhandel.se/Documents/Rapporter/2011/Mat‐pa‐natet‐2011.pdf

Websites

GoogleAnalytics(2013)Gaininsightthatmatter. http://www.google.com/analytics/features/index.html(130501).

Larry,K.(2013)CostPerAction–LearnMoreAboutCostPerAcquisitionMarketing.WordStream.http://www.wordstream.com/cost‐per‐action(130326).

Rappa,M.(2000)BusinessModelsontheWeb.ManagingtheDigitalEnterprise.http://www.ecommerce.ncsu.edu/topics/models/models.html(130213).

SaasOptics(2012)Howtocalculatemonthlyrecurringrevenueforamonthlysubscriptionbusiness?CalculateMRR‐MonthlySubscriptions.http://www.saasoptics.com/SaaS‐opedia/saas‐opedia/how_to_calculate_MRR‐

75

monthly_subscriptions/how_to_calculate_MRR‐monthly_subscriptions.html(130517).

Skok,D.(2009)StartupKiller:theCostofCustomerAcquisition.ForEntrepreneurs.http://www.forentrepreneurs.com/startup‐killer/(130315)

Sundelin,A.(2008)Subscriptionbasedbusinessmodels.TheBusinessModelDatabase.http://tbmdb.blogspot.se/2008/12/subscription‐based‐business‐models.html(130212)

Interviews

Carson,Gregory.Investmentmanager,GUHolding.Interview,130311.

Katz,Anders.Campaignplanner,MediaView.Phoneinterview,130410.

Svärdh,Max.CEO,Milkandhoney.se.Phoneinterview,130419.

Johansson,Albin.Productmanager,Members.com.Phoneinterview,130416.

Svensson,Gustav.FounderandCEO,MatkasseAB.Interview,130403.

Abreu,Teodor.SalesRep,Groupon.Phoneinterview,130502.

76

Appendix I ‐ Definitions Definitionofwordsusedinthereport

Word Definition

App See”Softwaremobileapplication”

Blog AdiscussionorinformationsitepublishedontheInternetthatiscontinuouslyupdatedwith“posts”.Theblogoftenregardsaspecificsubject,butthisisnotalwaysthecase.

ClickFreeRate(CFR) RelatedtomarketingontheInternetandmeasurestheproportionofpeopleexposedtotheadvertisementthatclicksontheadvertisement.

Customerbase Thegroupofcustomersorconsumersthatabusinessserves.

Deal‐of‐the‐day Ane‐commercebusinessmodelthatoffersproductsatadiscountforaperiodoftime,often24to36hours.

Directmailmarketing Communicationsentfromthefirmtothecustomerviathepostalserviceorotherdeliveryservice.

Discountrate Therateusedtodiscountafuturemonetaryvaluetothevalueoftoday.

E‐commerce ElectroniccommerceisanindustrywherethebuyingandsellingofproductsandservicesisdoneovertheInternet.

E‐store AnelectronicstoreintheformofawebsitewhereproductsorservicesissoldontheInternet.

Facebook Anonlinesocialnetworkingservice,whereuserscancreatepersonalprofilesandaddotherusersasfriends.Usersinteractonthewebsiteanduploadpictures.Userscanalsopersonalizetheirprofilebyliking(“like”)andsharing(“share”)othersinformationontheirprofile.

Facebookfanpage ApartofFacebookwherecompaniescancreatefanpagestocommunicatewiththepeoplewho“like”

77

theirfanpage.

Financialperformance Theprofitabilityofafirm

Instagram Anonlinesocialnetworkingservice,whereuserstakepictures,applyfiltersanddisplayontheirprofiles.Otheruserscan“like”andcommentonthepictures.ThepicturescanalsobesharedthroughFacebookandTwitter.

Internetfraud TheuseofInternetservicestocommitfraud.

Loyalty(customerloyalty)

Thecustomerspreferenceforaparticularfirmorproductandthecommitmenttorepeatpurchaseofthatparticularfirmorproduct.

“like”(Facebook) See“Facebook”.

Marketingactivity Activitieswiththepurposetomarketthecompanytocustomersorpotentialcustomers.

Marketingcompany Thecompanywhousesmarketingtoattractnewcustomers.

Marketingexpenses Expensesrelatedtomarketingactivities.

Marketingmediachannels

Mediumusedtoreachcustomersandpotentialcustomers,suchasnewspapers,television,directmail,etc.

Mobilesoftwareapplications

Softwareapplicationsdesignedtorunonsmartphones,tabletcomputersandothermobiledevices.

Pushnotifications Messagescommunicatedtomobiledevicesthroughmobilesoftwareapplications.

Recurringrevenue Revenuesgeneratedfromrepeateddeliveryofaproductorservice.

Retargeting Itisanonlinemarketingfeaturetargetingspecificcustomersthathasvisitedawebsitebefore.Theadvertisementistargetedtobeexposedtopreviousvisitorsofawebsite.

78

Searchengineoptimization

Theprocessofaffectingtheresultsgeneratedbyasearchenginetogetbettervisibilityintheresultlist(Higherranking).

“share”(Facebook) See“Facebook”.

Socialmedia Socialmediareferstothemeansofinteractionsamongpeopleinwhichtheycreate,shareandexchangeinformationandideasinvirtualcommunitiesandnetworks.

Twitter Anonlinesocialnetworkingservicethatenablesuserstosendandreadtext‐basedmessagesofupto140characters.

Viralspread(marketing) Marketingtechniquethatusessocialnetworksandothertechnologiestoproduceawarenesswithcustomersandothermarketingobjectivesthroughself‐replicatingviralprocesses.CanbedeliveredbywordofmouthorenhancedbythenetworkeffectsoftheInternet.

Wordofmouth Unpaidformofpromotion,wheresatisfiedcustomersspreadpositivemessagesofacompanyorproduct.

79

Appendix II – Screenshots from qualitative document analysis

AppendixII‐1

AppendixII‐2

AppendixII‐3

80

AppendixII‐4

AppendixII‐5

AppendixII‐6

81

AppendixII‐7

AppendixII‐8

AppendixII‐9

82

AppendixII‐10

AppendixII‐11

AppendixII‐12

AppendixII‐13

83

AppendixII‐14

AppendixII‐15

AppendixII‐16

84

AppendixII‐17

AppendixII‐18

AppendixII‐19

85

AppendixII‐20

AppendixII‐21

AppendixII‐22

86

AppendixII‐23

AppendixII‐24

AppendixII‐25

AppendixII‐26

87

AppendixII‐27

AppendixII‐28

88

Appendix III

AppendixIII‐2

AppendixIII‐1

89

Appendix IV – Interview guides

InterviewguideusedtointerviewAlbinJohanssonandMaxSvärd

Skulledukunnaberättaliteomföretagetochdinrolldär?

Varförtrorduatterakunderkommertillbakatillerhemsida?

Varförtyckerdudetärviktigtattarbetamedattökalojalitetenhoserakunder?

Hurgörniförattbyggalojalitethoserakunder?

Harnispecifikastrategierförattbyggalojalitethoserakunder?Varförharnidetochvadärsyftetmeddessa?

Vilkaaktivitetergörniförattföljadessastrategier?

Hurutvärderarnidessaaktiviteter?

Hurgörniförattmätalojalitetenhoserakunder?

InterviewguideusedtointerviewGustavSvensson


Vadharnigjortförmarknadsföringsinsatserhittillsförgenereranyakunder?

Hurkommunicerarnimederakunder?

Hurarbetarnimedsocialamedier?

Hurföljerniupperamarknadsföringsinsatser?

Hurgörniförattmätahureffektivaeramarknadsföringsinsatserär?

Hurföljerniupparbetetmedatteffektiviseraeramarknadsföringsinsatser?

Hurgörniförattbyggalojalitethoserakunder?

InterviewguideusedtointerviewAndersKatz


HurskulledurekommenderaettföretagattsänkaCAC?

90

Vadfinnsdetförmediakanalerattanvändasigavnärmanmansomettföretagmarkandsförsig?

Vilkaavdessaskulledusägaärmestkostnadseffektivaochvarför?

Vadärfördelarnarespektivenackdelarnameddessamediakanaler?

Hurkanmansomföretagblibättrepåattföljauppochutvärderasinamarknadsföringsaktiviteter?

Hurskullenirekommenderaettföretagattmätaeffektivitetenisinamarknadsföringsinsatser?

InterviewguideusedtointerviewTeodorAbreu


HurfungerarenGrouponkampanj?

VilkatyperavföretagväljerattgöraenGrouponkampanj?

VarförväljerföretagattgöraenGrouponkampanj?

VarförskulledurekommenderaGrouponsommarknadsföringskanal?

HurutvärderarmanenGrouponkampanj?