Marketing Performance

Marketing PerformanceIntroduction

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Customer is the source of all cash-flowsImportance of marketing performance - Reason number 3

“Without customers, you do not have a business, you have a hobby”

Return On Customers, Peppers and Rogers.

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Characteristics of successful marketing companies

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Customer centric Management maturity

Companies that are really customer centric• Monitor customer needs and get

insights in behaviors• Are loyal to their customers so

that the customers are loyal to the company

• Do not build exit barriers

They also• Measure marketing activities in

terms of impact on the bottom-line

• Identify leading indicators• Develop integration programs• Are very good in the

implementation of coordinated initiatives (sales, marketing, customer service, and possibly other departments)

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The building blocks for optimizing your marketing investments

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Business objectives

Metrics

Commercial Efficiency

Value Capturing model

Marketing Strategy

Marketing Drivers

Customer Equity

Marketing Value

CustomerValue

Skill Development, Better Process, Better Tools

Metrics

Source: THOM interpretation of Marketing Dashboard, Marketing by the dashboard light, P. LaPointe, 2005

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Striving for commercial efficiency will lead to a number of benefits

• It aligns marketing objectives to the company’s financial

objectives through the selection of critical metrics and sharing

of results

• It creates organizational alignment within marketing and it

clarifies the relationship between marketing and other

corporate functional areas.

• It establishes direct links between spending and profits.

• It creates a learning organization that makes decisions on hard

facts supplemented with experiential intuition.

• It creates transparency in marketing’s goals, operations and

performance, creating stronger alliances outside the

departments.

• It promotes accountability

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A return to focus, simple process discipline and attention to only the most important goals should be paramount.

Business objectives

Metrics

Commercial

Efficiency

THOM’s Model

Marketing Strategy

Marketing Drivers

Customer Equity

Marketing Value


Metrics

Business objectives

Metrics

Commercial

Efficiency

THOM’s Model

Marketing Strategy

Marketing Drivers

Customer Equity

Marketing Value

THOM’s Model

Marketing Strategy

Marketing Drivers

Customer Equity

Marketing Value


Metrics

Source: Marketing by the dasbhoard light by P. Lapointe and own experience @ THOM

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Integration and consistencyValue creation model

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Bu

sin

ess O

bje

cti

ves

Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness

Perception &Reputation

Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour

Environmental and Competitive Scan

Tangible Action Plans

Deep Channel & Customer Insights

Marketing Drivers

Products / Technology

Services

Communication

Purchase Process &Experience

RelationshipBuilding

ChannelManagement

Price Positioning

Segmentation & Targeting

Positioning

Scope

Marketing Strategy

Business Paradigms

Value Proposition Value Creation Value Capturing

CLV

ROC

Customer Value

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The model integrates 2 perspectives

The competitive perspective

• Comparing your position from relative measures: price premium and market share

• Giving the opportunity to compare the evolution of the relative positions over time

The financial perspective

• CLV is the NPV of all cash-flows generated by your customer base

• CLV creates insights in actual profit contribution

Price Premium

Market Share

Marketing Value

CLV

ROC

Customer Value

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Combining CE(1) with MV(2) will result in the strategic options to increase marketing value capturing capacity

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Marketing ValueLow High

MissedOpportunities

Vulnerableposition

(1) Customer equity(2) Marketing value

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Strategic options to increase value capturing capacity depend on a brand’s position

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Sales Conversion

ConsolidateProtect

Prioritize

Drive Brand Equity

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This approach provides a useful measurement indicator for marketing efficiency

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MEI =

Marketing Efficiency Indicator

Marketing Value

Marketing Investments

Marketing Value

Price

Premium

Market

Share

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Calculation of the marketing value in an efficient way

Marketing Value = Price Premium x Volume

How much value marketing generates

(driven by what consumers are willing to pay & measured by market share & price premium)

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Marketing Value

Price Premium = 3 possible definitions

1) The average price of the brand x minus the average of the average prices of the three lowest priced brands

2) The average price of the brand x minus the lowestprice in the market

3) The average price of the brand x divided by the lowest price in the market

�� The right formula has to be used in accordance to the company analyzed. As an example, with the third formula, private labels, which are often the lowest price in the market, could be taken into account.

Price

Premium

Market

Share

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This approach provides a useful measurement indicator for marketing efficiency

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MEI = Marketing Value

Marketing Investments

This will allow us to calculate the required value creation when we increase our marketing investments:

MEI = ∆ Marketing value / ∆ Marketing Investments

means

∆ Marketing value = MEI x ∆ Marketing Investments

Marketing Value

Price

Premium

Market

Share

Marketing PerformanceCompetitive Perspective

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Customer equity: What does it mean? Value creation model

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Bu

sin

ess O

bje

cti

ves

Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms


CLV

ROC

Customer Value

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How customers feel How customers behave

Customer equity is a logical gradation of perceptions and behaviors

Market Share Aided

Awareness

Preference Spontaneous Awareness

Consideration Top of Mind

Recommend

Buy

More

Buy

Buy

Again

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Bu

sin

ess O

bje

cti

ves

Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms


Marketing Value: What does it mean? Value creation model

CLV

ROC

Customer Value

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MEI formula: example for a brand with a price premium

Brands Volume (units sold)

Price Price premium ($)

Marketing value

A 100 9 4 400

B 50 5 0 0

C 50 8 3 150

D 120 7 2 240

E 50 6 1 50

Total 370 840

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The table has been built by using the second definition of the price premium.

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MEI formula: example for a brand with a price discount


Price Price premium ($)

Marketing value

A 100 9 1,8 180

B 50 5 1 50

C 50 8 1,6 80

D 120 7 1,4 168

E 50 6 1,2 60

Total 370 538

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The third definition of the price premium gives other figures:

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Let’s consider Brand A for further investigation


Price ($) Price premium ($)

Marketing value

A 100 9 4 400

B 50 5 0 0

C 50 8 3 150

D 120 7 2 240

E 50 6 1 50

Total 370 840

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Let’s consider Brand A for further investigation



Marketing value

A 100 (25%) 9 4 400 (48%)

B 50 5 0 0

C 50 8 3 150

D 120 7 2 240

E 50 6 1 50

Total 370 840

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MEI formula: usage (1)

Imagine that brand A considers to increase its marketing investments and desires to maintain its current MEI level:

•Marketing Investments ($):Last year = 1000 This year = 1200

•MEI (%):Last year = 400/1000 = 40% = current objective

We know that: MEI = ∆ Marketing value / ∆ Marketing Investments

means


As a result, ∆ Marketing value = 0,4 x 200 = 80. TARGET MEI THIS YEAR = 480.

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This calculation seems to be easy but many more factors have to be taken into account. Hence, a good structure is needed in order to make successful analyses.

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Imagine that brand A considers to decrease its marketing investments and desires to maintain its current MEI level:



We know that: MEI = ∆ Marketing value / ∆ Marketing Investments

means


As a result, ∆ Marketing value = 0,4 x (-200) = -80. NEW TARGET = 320.

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This calculation seems to be easy but many more factors have to be taken into account. Hence, a good structure is needed in order to make successful analyses.

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Imagine that brand A considers to decrease its marketing investments and desires to maintain its current MARKET POSITION, it will need to INCREASE the MEI TARGET:



MEI last year = 40%; new target for this year = 50%

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What are the leverages to improve the MEI? (see marketing drivers)

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Application of MEI formula for a low cost companyFictitious data for a flight Brussels-Barcelona

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Volume (seats)

Price Price premium (*) x 100

Marketing value (€)

British Airways

50 69 230 11500

KLM 30 90 300 9000

Ryan Air 60 (MS=43%)

30 100 6000 (share in MV =23%)

Total 140 26500

(*): The third definition of the price premium has been used.

The analysis of Marketing Value year on year and the evolution of the difference between Volume and Marketing Value in terms of percentage of the total gives insights but it stays very limited…

�� MEI calculation is much more useful to make comparisons with other actors of the market

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Volume (seats)

Price premium (*) x 100

Marketing value (€)

MEI (%)

British Airways

50 230 11500 20 (hypothesis)

KLM 30 300 9000 25

Ryan Air 60 (43%) 100 6000 (23%) ?

Total 140 26500


As Ryan Air is a low cost company, its marketing costs must by definition be lower than traditional airways companies. By how much?

-In order to be competitive, Ryan Air should at least have 20% as MEI. It means that its investments should amount to a maximum of 30 000 euros (6000 : 20%)

-If Ryan Air will become more efficient than the two other players in marketing, marketing investments should be less than 24 000 euros. (6000 : 25%)

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MEI calculation should be done year on year in order to:

-Analyze the evolution of MEI for the other actors of the market:

• By how much does it change?

• What are the drivers of the changes in MEI: Marketing Value (Price premium or Volume?) or the amount of Marketing Investments?

-Understand your own MEI evolution:

• Is it improving or not?

• What are the drivers of the changes in MEI: Marketing Value (Price premium or Volume?) or the amount of Marketing Investments?

�� For a low cost company, the focus should be put on the amount of investments made in Marketing.

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Analysis year on yearIllustration



Marketing value

Investments MEI (%)

A 100 9 4 400 1000 40

135 9 4 540 1200 45

117 10 5 585 1245 47

C 50 8 3 150 600 25

67 7 2 134 582 23

55 7 2 110 550 20

E 50 6 1 50 250 20

56 6 1 56 224 25

63 6 1 63 210 30

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Note: The table has been built by using the second definition of the price premium. The lowest price of the market is 5 $ for the three years.

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VisualizationAnalysis year on year

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0

5

10

15

20

25

30

35

40

45

50

0

200

400

600

800

1000

1200

1400

Year 1 Year 2 Year 3

Investments (A)

Investments (C)

Investments (E)

MEI (A)

MEI (C)

MEI (E)

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Depending on your situation in the model, the commercial actions will be different

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Consolidate/improve

Drive customer equity

Boost Brand Building

Drive sales conversion

Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning

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An example: The communication driver will be different within each quadrant

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•ATL / PR << BTL / Trade communication•Media close to the shops to drive trade relationships•Focus on product specific values

•ATL / PR >> BTL / Trade communication•SOV >>>> market share•Sponsoring should be part of media mix•Focus on brand values

Marketing valueLow High

Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning

Illustrative

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An example: The channel management driver will be different within each quadrant

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• Identify route causes for “not being

pushed harder by the trade”

• Coverage issue?

• Quality issue?

• Brand image issue?

• Margin issue?

• Focus on relevant & differentiating

relationship drivers

• Drive partnerships capabilities

• Train & educate trade to support the brand image• Focus trade incentives on ‘providing the right brand stories to the consumers’• Select channels with positive impact on brand image• Build brand equity without losing existing channel support


Brand Drivers


Services

Communication



ChannelManagement

Price Positioning

Illustrative

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Cu

st o

mer E

qu

ity

Low

High

Marketing

valu

e capturing

MissedOpportunities

MissedOpportunities

Vulnerableposition

Vulnerableposition

Fair

Optim

al

Drilling down is keyExample: identifying optimal communication efforts

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Market Share Aided

Awareness

Preference Spontaneous Awareness

Consideration Top of Mind

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Understanding where to put the moneyConcept – let’s discuss

Aided Awareness

Spontaneous Awareness

Top of Mind

Preference Market Share

A 98 80 40 30 40

B 96 85 10 5 20

C 97 90 20 18 10

D 96 75 15 14 30

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0,816 (1)

0,885

0,927

0,781 0,200

0,117

0,500 0,750

0,500

0,900

0,933 2,142

0,555

4,000

1,333

0,222

(1) A value between 0.8 and 1.2 is considered as appropriate

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Cu

st o

mer E

qu

ity

Low

High

Marketing

valu

e capturing

MissedOpportunities

MissedOpportunities

Vulnerableposition

Vulnerableposition

Fair

Optim

al

Drilling downPricing

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Recommend

Buy

More

Buy

Buy

Again

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Analysis of price positioning

Pricing Opportunity Framework : Own brand price evolution vs. total market & main competitors

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Pricing Evolution

(Market = cut off)

Low High

Consolidate price structure

Price increase potential

(Price Check-up)

Huge potential Price increase potential

(Mix check-up)

>1 (high value)

<1

*: Brand Index= Market share in value divided by Market share in volume

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Analysis of price positioning

Pricing Opportunity Framework: In search for the balance between opportunity and risk

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Price Elasticity*Low High

Potential(low risk)

Category level

Dangerous(no pricing opportunity)

Huge potential(low risk)

Category level

Careful, but act

Model level

*: Price Elasticity= Change in Price divided by Change in Market Share

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Hard and soft measures: definitions

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Hard KPI’s are related to sales actions from trial offers to customer retention. It is tangible.

Soft KPI’s are related to ideas, feelings and perceptions in the mind of the customer from awareness to preference and conviction. It is intangible

Awareness

Knowledge

Consideration/Liking

Preference/Conviction

Trial

Purchase

Loyalty

Soft

measures

Hard

measures

MINDSET

BEHAVIOUR

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Awareness & Knowledge Consideration/Liking

• Brand Awareness (Do you know?)

• Unaided Brand Awareness • Slogan Recall • Campaign Penetration • Ad Awareness • Awareness of Other Marketing

Tools

• Spontaneous Awareness

• Top of Mind

• Beliefs (What do you think of?)

• Knowledge (What do you know?)

• Brand consideration• Brand relevance• Brand credibility

• Likeability (usually on a qualitative rating scale)• Q Score (familiarity and appeal)

Preference/Conviction

• Purchase Intentions

• Brand Equity Metrics

• Willingness to recommend

• Revenue generation capabilities of brand

• Customer satisfaction

Soft measures are related to Customer equityHere some examples

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How to measure brand equity?Brand equity is included in the main components of customer equity

There are three main methods:

• Customer Mindset measurement

Trying to determine Awareness, Likeability, Preference, Loyalty, Q score, etc

• Product-Market level measurement

Related to the results of the product on the market (price premium)

•Financial measurement

Looking at the financial value of the brand if it would be sold on the market.

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Source: Tim Jans, De meting van Brand Equity, Universiteit Hasselt, België, 2008

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How to measure brand equity?Example mobile phones

Brand Equity Index (score out of 100) could be divided into five main components equally weighted in the total:

•Loyalty (20%):

- Price Premium (10%)

- Satisfaction (10%)

•Perceived quality/ Leadership (20%):

- Perceived quality (10%)

- Leadership (10%)

•Differentiation (20%):

- Perceived value (5%)

- Personality (5%)

- Organization (5%)

- Differentiation (5%)

•Brand Awareness (20%)

•Market Value (20%)

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Source: Tim Jans, De meting van Brand Equity, Universiteit Hasselt, België, 2008

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Net promoter score

46%

35%

Net promotor score = 11(46% - 35%)

F. Reichheld, Bain & Company: The best way to measure loyalty is just to ask people one simplequestion: “Would you recommend us to a friend?”� One single measure will not be sufficient to measure loyalty☺ Simple metric to follow-up on evolution in time

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Zoom on qualitative measurement: net promoter score

NPS: The Good

Clients want simplicity and they want action. They don't have time to quibble about theory and minutia. When it is all too common for companies to overload on numbers and facts, the search for meaningful minimalism is to be applauded.

NPS: The Bad

The question (Would you refer a friend?) is irrelevant in many situations and industries. Besides, it doesn’t get at root causes and there are serious concerns about its biased wording.

- NPS Response Bias: Research in other industries has shown that the most satisfied customers (including patients and clients) are the ones most likely to respond to surveys, leading to artificial inflation of satisfaction ratings.

- NPS Question Bias: The NPS question presupposes a positive response

- NPS Question Validity: The Net Promoter question is by nature close-ended, and these types of questions have various benefits and disadvantages: They are easier for measurement purposes but force a binary choice on the respondent, when the actual answer might be somewhat grey or open-ended.

Source: http://www.customersatisfactionstrategy.com/pdf/whitepaper-NPScore.pdf

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Net Promoter Score versus Customer satisfaction IndexPro’s and Con’s

On one side of the ring is the tag team of Fred Reicheld, ”father” of the Net Promoter System (NPS) concept and Satmetrix Systems, implementer of NPS-based survey systems. On the other side of the ring in the red trunks, we find Claes Fornell, ”father” of the American Customer Satisfaction Index (ACSI) and ForeSee Results, implementer.

Let’s start by handing out some awards to the teams:

-Best marketed: Net Promoter (Reicheld is very good at sharing his concept — and in writing compelling books about it)

-Easiest to use: Net Promoter (many studies show that CEO’s believe it)

-Most mature: Satisfaction (The ACSI has been tracking data since about 1994 and satisfaction has been around as long as I can remember)

-Most quantitative: Satisfaction

-Sexiest: Net Promoter

Net Promoter has gained a lot of momentum over the last few years as many large companies have adopted it. The methodology is pretty straightforward: ask people if they’d recommend your firm. Based on their response, they get categorized as a Promoter, Detractor, or neither. You take the percentage of Promoters and subtract the percentage of Detractors and that leaves you with a Net Promoter percentage.

The American Customer Satisfaction Index uses customer interviews as input to a multi-equation econometric model. The ACSI model is a cause-and-effect model with indices for drivers of satisfaction on the left side (customer expectations, perceived quality, and perceived value), satisfaction (ACSI) in the center, and outcomes of satisfaction on the right side (customer complaints and customer loyalty, including customer retention and price tolerance).

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Source: http://experiencematters.wordpress.com/

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Net Promoter Score versus Customer satisfaction IndexPro’s and Con’s

Using industries Reicheld cites as exemplars of Net Promoter, the research fails to replicate his assertions regarding the “clear superiority” of Net Promoter compared with other measures in those industries.

Net Promoter is not the “ultimate” measure for a customer relationship. Then again, neither is satisfaction. But companies are better off when they have more satisfied than dissatisfied customers and more Promoters than Detractors.

Main recommendations:

-Don’t expect any single measure to be eutopia

-Focus on one measure to build alignment

-Evolve your metrics over time

-Look at other metrics such as Customer Advocacy. So, in the purple trunks is Customer Advocacy, the perception that the firm does what’s best for customers, not just what’s best for its own bottom line. We strongly recommend that financial services and healthcare firms take a very close look at this measure.

The bottom line: Don’t get too caught up in determining the winner of this battle. Just make sure that you do something and are prepared to learn and evolve over time.

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Source: http://experiencematters.wordpress.com/

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Trial Purchase

• Trial • Prospect Lifetime Value • Average Acquisition cost • Average new appointments

generated per sales rep• New Account cycle time• Number of leads to be

generated to achieve revenue goal

• Number of Customers • Recency• Customer profit • Customer Lifetime Value • Purchase Habits • Unit Margin/Margin (%) • Contribution per unit• Contribution Margin (%) • Break-Even Sales Level • Target Volume/ Target

Revenues• Net profit • Return on Sales • Return on Investment • Payback • Net Present Value • Internal Rate of Return• Market Share • Brand Development Index• Penetration Share • Share of Requirements

Re-purchase/Loyalty

• Retention rate • Average retention cost• Loyalty • Repeat volume • Year-on-Year Growth • Compound Annual Growth Rate• Opportunity success rate• % of sales lost• % of returning customers• Involuntary customer churn• Voluntary customer churn

Hard measures are related to Marketing ValueHere some examples as well

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Logo client

Marketing PerformanceFinancial Perspective

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Agenda

2. Measurement tools: from basics to predictive

- Pareto

- RFM Analysis

- Marketing ROI at campaign level

- Customer Lifetime Value

- Marketing ROI on CLTV

- Return on Customers

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Nominal value and relative performanceHigh-level view on 2 different groups of metrics

There are two main types of measurements regarding return on investments (ROI):

- As an absolute value (€ or time):e.g.: NPV, CLTV, Payback period, RFM, etc

- As a delta (%):e.g.: ROI, ROA, Marketing ROI, ROC, etc

�� The focus will be put on RFM Analysis, Customer Lifetime Value,

Marketing Return on Investments and Return on Customers

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Who are the customers with the highest value?

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0

200

400

600

800

1000

1200

1400

1 9 17 25 33 41 49 57 65 73 81 89 97

Revenue

Revenue

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0%

20%

40%

60%

80%

100%

120%

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99

Cumulative

Cumulative

Who are the customers with the highest value?

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Same exercise can should be done with profit

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RFM: What does it mean?

RFM is a method to determine the value of a customer or group of customers where:

R = Recency �� the time since the last purchase was made

F = Frequency �� the number of purchases made during a time period

M = Monetary Value �� the dollar value of the purchases made

-Categories for each variable have to be defined by applying business rules or using data mining techniques

-Once it is done, customers are assigned a ranking number of 1,2,3,4, or 5

(with 5 being highest) for each RFM parameter

-The three scores together are referred to as an RFM "cell" . The database is sorted to determine which customers were "the best customers" in the past, with a cell ranking of "555" being ideal.

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http://www.answers.com/topic/recency-frequency-monetary-value http://searchdatamanagement.techtarget.com/sDefinition/0,,sid91_gci751219,00.html

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Focused

OneShot

Hopper

StockPiler

Commuter

Silver Golden

Nugget

# Art / Visite

1-24

25+

# Art /

Visite

Fréquence

1-2 3-6 7-15 16+

Visits / Trim

Dépenses /

Trim

€ / Trim

Variance on RFM - example major retailer in B

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Managing clients differently, according to their value and their behavior

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priorité

Max

Bons/V

isite

Fréquence

visite/trim

Total

Bons/trim

Reward

strat %

Diriger

strat %

Reward/B

ons/trim

Diriger/bons

/trim

GOLDEN récompenser 2,5 31 78 75% 25% 58 20

SILVER récompenser 3 11 33 75% 25% 25 8

COMMUTER orienter 3 10 31 25% 75% 8 23

HOPPER fréquence 4 5 20 25% 75% 5 15

STOCKPILER orienter 3 5 15 25% 75% 4 11

ONESHOT fréquence 4 2 8 75% 25% 6 2

FOCUSED orienter 3 2 7 25% 75% 2 5

NUGGET orienter 1 20 20 0% 100% 0 20

Bons

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RFM: limitations

The focus is only put on profitable existing customers, it leads to two risks:

•over-marketing to the most attractive RFM segments

•negligence of other segments that would be profitable if developed properly.

The method is backward oriented and:

•assumes that customers are likely to continue behaving in the same manner

•is too much descriptive so no forecasts related to consumers’ behaviors are possible

There is no reference to the acquisition and to the retention of existing customers…

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http://www.answers.com/topic/recency-frequency-monetary-value http://www.dbmarketing.com/articles/Art149.htm http://en.wikipedia.org/wiki/RFM

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Marketing ROI at campaign levelBasic formula

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ROI =

( (Acquisition (#) – Churn (#)) * Margin (€) ) - Investment

Investment (€)

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Direct Marketing

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• Number of pieces you are mailing or e-mailing: 100.000 ex.• Total program costs: 5.000€• Response Rate: % of responses expected: 5%• Purchase Rate: % of responses expected to make purchases: 3% • Average profit per sale: 2.5 € (NPV of future cash profit)

ROI = ?

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Direct Marketing

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ROI = 100.000 x (5%) x (3%) x 2.5

5.000- 1

375 / 5.000 - 1=

- 92.5%=

• Number of pieces you are mailing or e-mailing: 100.000 ex.• Total program costs: 5.000€• Response Rate: % of responses expected: 5%• Purchase Rate: % of responses expected to make purchases: 3% • Average profit per sale: 2.5 € (NPV of future cash profit)

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ROI as a decision making toolDirect marketing

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Campaign A• Number of contacts targeted: 500.000 • Response rate: % of responses expected: 1,0%• Marketing investments 290.000€• Incremental customer value per sale: 75€

Campaign B•Campaign A •+ additional 25€ incentive (additional discount voucher for customers who buy) will increase response with 0,6% to 1,6%

Would you go for the additional incentive

(campaign B)?

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ROI as a decision making toolDirect Marketing

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• Number targeted

• Sales conversion rate

• Number of sales

• Marketing investment

• Cost per sale

• Incremental customer value (ICV) per sale

• Net profit

• Net ROI

Direct mail

Direct mail +

25€ offer

500.000

1.0%

5.000

290.000€

58€

75€

375.000€

29.3%

500.000

1.6%

8.000

490.000€

61€

75€

600.000€

22.4%

Difference

3.000

200.000€

3€

225.000€

6,9%

Presentation1

– Draft –

CLTV is nothing else than the NPV of all the profits from a customer during its lifetime.

60

Presentation1

– Draft –

Customer Lifetime Value: What does it mean?

CLTV takes three factors into account:

Hence,

CLTV = Revenues – Cost of Acquisition – Cost of Retention – Cost-to-Serve

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms ,

61

CustomerValue (€)

Get Keep Increase

Acquisition(#)

Loyalty(time)

Presentation1

– Draft –

Choosing the discount rate for NPV

Different perspectives are possible, but

• The minimum rate should never be lower than the WACC (Weighted Average Cost of Capital, taking into account the different financing sources)

• The capital needed for the project should return as much as if invested in an alternative initiative

• The rate should be much higher if the initiative is a risky one

62

Presentation1

– Draft –

Choosing the calculation methodology: 3 option

63

Fully allocated profit:

• Profit is calculated per customer or per customer group.

• Pre-requisite: costs can be allocated per customer or per customer group. What about investments, fixed structure costs…

Marginal contribution per customer:

• Gross margin per customer: what is left when all variable costs have been deduced from revenue?

• Which means: what does the company lose in value that it cannot save in costs when the customer has left

Free cash flows

• Here meant as Net Income – Capital Expenditure (direct costs)

• Still 2 options: fully allocated or marginal

In practice: marginal free cash flow is the most pragmatic one – no capital and depreciations reconciliation, no discussions on indirect costs

Presentation1

– Draft –

Example

64

P&L Customer x

Revenue 1000000 5000

Service costs 50000 250

COGS 250000 1000

GROSS MARGIN 700000 3750

Campaign (Acquisition) 10000 100

COS 25000 150

NET MARGIN 665000 3500

Overhead costs 250000 ?

Depreciation 100000 ?

EBIT 315000

Financial costs 15000 ?

EBT 300000

Tax 100000 ?

NET PROFIT 200000

Fully

Allo

cate

d P

rofit

Marg

inal

Contr

ibution

Fre

e C

ash

Flo

w

Presentation1

– Draft –

What is the value of my customers?Example (1)

65

Y1: turnover/customer

35 000

Y2: turnover/ customer

45 000

Annual cost/year 30 000

Year # of clients

Retention rate

Total revenue (millions)

Variable costs

Gross margin

NPV at 5%

1 1000 60% 35 000 000 30 000 000 5 000 000 5 000 000

2 600 65% 27 000 000 18 000 000 9 000 000 8 571 429

3 390 70% 17 550 000 11 700 000 5 850 000 5 306 122

4 273 75% 12 285 000 8 190 000 4 095 000 3 537 415

5 205 78% 9 213 750 6 142 500 3 071 250 2 526 725

6 160 79% 7 186 725 4 791 150 2 395 575 1 876 996

7 126 80% 5 677 513 3 785 009 1 892 504 1412 216

8 101 80% 4 542 010 3 028 007 1 514 003 1 075 974

9 81 80% 3 633 608 2 422 405 1 211 203 819 790

10 65 80% 2 906 887 1 937 924 968 962 624 602

Total 34 998 498 30 751 268

CLTV/ customer

30 751

Presentation1

– Draft –


66


35 000


45 000


Year # of clients

Retention rate


Variable costs

Gross margin

NPV at 5%

1 1000 70% 35 000 000 30 000 000 5 000 000 5 000 000

2 700 75% 31 500 000 21 000 000 10 500 000 10 000 000

3 525 80% 23 625 000 15 750 000 7 875 000 7 142 857

4 420 83% 18 900 000 12 600 000 6 300 000 5 442 177

5 349 88% 15 687 000 10 458 000 5 229 000 4 301 911

6 307 89% 13 804 560 9 203 040 4 601 520 3 605 411

7 273 90% 12 268 058 8 190 706 4 095 353 3 056 015

8 246 90% 11 057 453 7 371 635 3 685 818 2 619 442

9 221 90% 9 951 707 6 634 472 3 317 236 2 245 236

10 199 90% 8 956 537 5 971 024 2 985 512 1 924 488

Total 53 589 438 45 337 537

CLTV/ customer

45 338

Retention rate increased by 10% (1000 new customers acquired)

Presentation1

– Draft –


67


35 000


50 000


Year # of clients

Retention rate


Variable costs

Gross margin

NPV at 5%

1 1000 60% 35 000 000 30 000 000 5 000 000 5 000 000

2 600 65% 30 000 000 18 000 000 12 000 000 11 428 571

3 390 70% 19 500 000 11 700 000 7 800 000 7 074 830

4 273 75% 13 650 000 8 190 000 5 460 000 4 716 553

5 205 78% 10 237 500 6 142 500 4 095 000 3 368 967

6 160 79% 7 985 250 4 791 150 3 194 100 2 502 661

7 126 80% 6 308 348 3 785 009 2 523 339 1882 954

8 101 80% 5 046 678 3 028 007 2 018 671 1 434 632

9 81 80% 4 037 342 2 422 405 1 614 937 1 093 053

10 65 80% 3 229 874 1 937 924 1 291 950 832 802

Total 44 997 997 39 335 024

CLTV/ customer

39 335

Cross-selling(turnover increased by 10%)

Presentation1

– Draft –


68


35 000


50 000


Year # of clients

Retention rate


Variable costs

Gross margin

NPV at 5%

1 1000 70% 35 000 000 30 000 000 5 000 000 5 000 000

2 700 75% 35 000 000 21 000 000 14 000 000 13 333 333

3 525 80% 26 250 000 15 750 000 10 500 000 9 523 810

4 420 85% 21 000 000 12 600 000 8 400 000 7 256 236

5 349 88% 17 430 000 10 458 000 6 972 000 5 735 882

6 307 89% 15 388 400 9 203 040 6 135 360 4 807 215

7 273 90% 13 651 176 8 190 706 5 460 470 4 074 687

8 246 90% 12 286 058 7 371 635 4 914 423 3 492 589

9 221 90% 11 057 453 6 634 472 4 422 981 2 993 648

10 199 90% 9 951 707 5 971 024 3 980 683 2 565 984

Total 69 785 918 58 783 383

CLTV/ customer

58 783

Revenue and Loyalty (retention and turnover increased by 10%)

Presentation1

– Draft –

“A simpler approach”: the margin multiple

CLTV = m ( r )

1+i-r

- m = margin or profit from a customer per period (e.g. a year)

- r = retention rate (decimal or percentage)

- i = discount rate (decimal or percentage)

- (r/1+i-r) = margin multiple

69

Source: Sunil Gupta and Donald R. Lehmann, Managing customers as investments, Wharton School Publishing, University of Pennsylvania, 2005

Presentation1

– Draft –

The margin multiple: example

m ( 0.8 ) = 2.67

1+0.1-0.8

- m = margin or profit from a customer per period (e.g. a year)

- r = retention rate 80%

- i = discount rate 10%

70


Presentation1

– Draft –

“A simpler approach”

Assumptions:

• Margins remain constant over time

• Customer retention rate is also constant

• CLTV is estimated over an infinite time horizon (even at 80%

retention, a customer is almost 90% ‘used up’ after just ten years.)

71


Presentation1

– Draft –

“The margin multiple”

Retention rate

10% 12% 14% 16%

60% 1,20 1,15 1,11 1,07

70% 1,75 1,67 1,59 1,52

80% 2,67 2,50 2,35 2,22

90% 4,50 4,09 3,75 3,46

Discount rate

“For most companies, the multiple is in the range of 1 to 4.5!”


72

Presentation1

– Draft –

Customer Lifetime Value

Retention rate

10% 12% 14% 16%

60% 1,20 1,15 1,11 1,07

70% 1,75 1,67 1,59 1,52

80% 2,67 2,50 2,35 2,22

90% 4,50 4,09 3,75 3,46

Annual margin 100,00 €

Retention rate

10% 12% 14% 16%

60% 120 € 115 € 111 € 107 €

70% 175 € 167 € 159 € 152 €

80% 267 € 250 € 235 € 222 €

90% 450 € 409 € 375 € 346 €

44,44%

50,00%

68,75% 63,64% 59,38% 55,77%

Discount rate

Discount rate


73

Presentation1

– Draft –

More sophisticated financial ROI calculation

74

CLTV

# customers

SME

Corporate

Legend

Situation t0 Launch t1No Launch t1

2 marketing initiatives• SME retention & upsell program• Corporate acquisition program

Get

Keep

Increase

CLTV

Σ ∆ (# retained cust. - # lost cust. + # new cust.) x ∆ CLTV - Investment

Marketing ROI = Investment

GetKeep Increase

Presentation1

– Draft –

3. Financial ROI calculationThe formula is easy, the execution is not

• Think incremental

- Think in delta and make impact measurable

• Look at impact per segment

- immense difference in CLTV per segment

• Don’t use ROI as the only criteria

- Prioritize marketing activities in line with strategy

75

Tips

Key Challenges

• Isolating Cause & effect

- Think in control & test group when setting up the measurement. Check competitive action

- Use data mining tools to detect correlations

• Estimating the long term financial impact of Brand Value

- Use historical data to estimate long term effect of Brand Value

- Make simple hypothesis & adjust

Σ ∆ (# retained cust. - # lost cust. + # new cust.) x ∆ CLTV - Investment

Marketing ROI = Investment

GetKeep Increase

Logo client

Customer loyalty and ROMI

Presentation1

– Draft –

To define customer loyalty a distinction is to be made between loyal behavior and a loyal attitude

A customer who stays, is doing repeat purchasesin the same retail store, renews his contract with his service provider… is seen in many companies as a loyal customer

HOWEVER this does not mean these customers are truly loyal !!

They might leave once situation changes!

THEREFORE loyalty is to be defined as:

Commitment to continue using a product or service, despite situational influences and marketing efforts of competitors which make it more attractive to switch providers

77

Behavioral loyalty

Attitudinal loyalty

Source: Klantenloyaliteit, Marnix Bügel; definition Olivier 1997

Presentation1

– Draft –

Focus on customer loyalty management has evolved over the past decades

-Managing customer satisfaction as a driver for loyalty

-Measurement of defection rates and root causes

-Launch of frequent flyer miles-programs

-Churn prediction modeling

-Concept of points- and discount programs implemented in various industries (retail, telco, FMCG…), with varying results

-Partnerships & coalition programs

-Increasing number of programs threatens relevance of traditional loyalty programs

-Shift from ‘points’ scheme to ‘club’ programs with no rewards other than special recognition and individual communication

Source: Journal of Targeting, Measurement and Analysis for Marketing 2004, Marketing NPV 2005, Mc Kinsey Quarterly 2002

1970s

1980s

1990s

>2000

Presentation1

– Draft –

But what is customer loyalty? There are multiple definitions in marketing literature

“Real loyalty happens when you have captured both customers’ heads and their hearts:

The head wants to know that you offer outstanding value, features, pricing

The heart wants to feel things like “this company knows me, understands me, cares about me, and shares my ideals” “

Transactional, contractual, functional, emotional loyalty

Inertial, deliberative, emotive loyalty

F. Reichheld, Bain &

Company

Marketing NPV

Mc Kinsey Quarterly

Presentation1

– Draft –

80

Satisfaction does not necessarily grow loyalty

Impact on loyalty

DissatisfiedMerelysatisfied

Level of customersatisfaction

Delighted

Source: Ipsos Loyalty, Marketing Leadership Council 2004

There is a correlation between satisfaction and loyalty

But satisfaction is an insufficient solo condition to loyalty

• “65%-85% of customers who defect say they were satisfied with their supplier” (F. Reichheld)

• For an average of 75% satisfied customers, a company will typically have 30% loyal customers

• HABITUAL USERS will switch as soon as competition offers interesting promo

• INERT RESIDENTS may switch if competition’s offer is worth the effort, or giving better return than switching cost

loyaltists

defectors

Presentation1

– Draft –Through value lies not only in a focus on the key purchasing criteria, but also in divestments of “over-delivered” criteria...

Blue ocean strategy:• Which of the factors that the industry takes for granted should be

eliminated? • Which factors should be reduced well below the industry’s standard? • Which factors should be raised well above the industry’s standard?

• Which factors should be created that the industry has never offered?

Where do you want to excel in?

Source: W. Chan Kim - Blue Ocean Strategy; Instigate Group - Strategy training

Presentation1

– Draft –

Loyal behavior is driven by two dimensions:switching barriers & level of involvement, involvement is important for driving loyal attitude

82

Source: ThoM analysis of McKinsey Quarterly 2002 & Marketing NPV 2005

High

Low

Low High

CONVINCEDLOYALISTS

Loyal by identifying with

the brand

INERTRESIDENTS

Loyal because they are locked in

or switching is “not worth the

effort”

DELIBERATIVECONFIRMERS

Loyal by consciously re-confirming their

brand choice upon purchase

HABITUALUSERS

Loyal by making an un-deliberate same choice out

of habit

In

vo

lvem

en

t

= P

erceiv

ed

em

oti

on

al,

so

cia

l o

r

fun

cti

on

al ris

ko

f sw

itch

ing

Switching barriers

= perceived effort, cost, time to switch

/ frequency of transactions

Increased loyal

attitude and behavior

Increased loyal behavior

Two directions

Presentation1

– Draft –

Level of involvement & switching barriers vary per sector and product

83

Source: ThoM analysis of McKinsey Quarterly 2002 & Marketing NPV 2005

High

Low

Low High

CONVINCEDLOYALISTS

INERTRESIDENTS


HABITUAL USERS

In

vo

lvem

en

t

= P

erceiv

ed

em

oti

on

al,

so

cia

l o

r

fun

cti

on

al ris

ko

f sw

itch

ing

Switching barriers

= perceived effort, cost, time to switch / frequency of transactions

Presentation1

– Draft –

Loyalty drivers are different for each individual, and experiences need to match expectations

Each individual will have specific motivations and drivers influencing attitudinal loyalty

84

Loyalty drivers

Source: Klantenloyaliteit, Marnix Bügel

Trust

Satisfaction

Quality of competitive alternatives

Investment in relation

Loyalty

+

+

+

-

Expectations

Experiences

Presentation1

– Draft –

Loyalty increases the lifetime value of a company’s customer base

85

Profitability

Loyal customers aremore open to up- and

cross-selling

Lifetime

Retention effect

Number of customers

Loyal customers tend torefer more, e.g. via member

gets member actions

Lifetime Value


Presentation1

– Draft –

Loyalty increases the lifetime value of a company’s customer base

Annual customer

profit

Financial benefits of customer loyalty

Source: Marketing NPV 2005

• Loyal customers are more susceptible to up and cross-selling• Cost saving by retaining customers rather than acquiring them• Happy loyal customers are likely to be brand ambassadors• Customer loyalty can be associated with lower price elasticity

86

Revenue growth

Cost savings

Acquisition

Base profit

Legend:

Referrals

Price premiums

Presentation1

– Draft –

Loyalty as a growth strategy also impacts the value capturing model

87


Sales Conversion

ConsolidateProtect

Prioritize

Drive Brand Equity

Positive correlation: customer

equity drives loyal attitude

Increased loyal behavior impacts

captured marketing value

Two directions

Presentation1

– Draft –

88

Bu

sin

ess O

bje

cti

ves

Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms


CLTV

ROC

Customer Value

Main loyalty instruments are brand positioning and marketing drivers

Presentation1

– Draft –

89

Bu

sin

ess O

bje

cti

ves Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms

Value Proposition

Value Creation

Value Capturing

CLTV

ROC

Customer Value

Loyalty instruments: brand positioning

Positioning

Positioning on benefits and target groups impacts• Expectations > trust• Affinity with brand

Presentation1

– Draft –

90

Bu

sin

ess O

bje

cti

ves Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms

Value Proposition

Value Creation

Value Capturing

CLTV

ROC

Customer Value

Loyalty instruments: quality of product, and serviceas experienced by customers

Product

Perceived quality of product impacts• Trust• Satisfaction

Service

Customer experience during interactions with company impacts• Trust• Satisfaction

Presentation1

– Draft –

91

Bu

sin

ess O

bje

cti

ves Price Premium

Market Share

Marketing Value

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms

Value Proposition

Value Creation

Value Capturing

CLTV

ROC

Customer Value

Loyalty instruments: loyalty actions versus loyalty programs

Loyalty actions

Ad hoc marketing actions with as purpose to improve loyalty (repurchase rate, visit frequency, contract prolongation…)

Loyalty programs

Are a set of activities that are communicated to customers in advance, with pre-defined rules

Presentation1

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92

Loyalty- and retention management have a different objective…

Source: ThoM analysis

GROW

KEEP

GET

Long term

Aims atretaining customers and increasing customer value

Throughbuilding sustainable relationships

Short-Medium term

Aims atreducing and preventing churn, retaining customers

Throughfixing the basics, and lock-in systems

High

Low

Low High

CONVINCEDLOYALISTS

INERTRESIDENTS


HABITUALUSERS

Involvement

Switching barriers

Loyalty management Retention management

Focuses on increasingInvolvement

Primary dynamic is increasing switching barriers, secondary increasing involvement

Presentation1

– Draft –

93

… and focus on different customer groups


Build sustainable relationship with customers with a high potential(customer lifetime) value

Retain high & medium value clients with a high churn risk

High

Low

Low High

Customer value

Churn risk

Medium

Loyalty management Retention management

Presentation1

– Draft –

What aspects should be considered when managing customer retention & -loyalty?


-Assessment customer lifecycle & ‘moments of truth’ per segment

-Where is higher churn faced?

-What actions can be taken to reduce churn? To which clients?

-What % of churn reduction can be reached? ROI?

⇒ Quick fixes for ST churn reduction

⇒ LT plan for retention management

-What are the loyalty drivers?

-What are the objectives you want to reach?

-Which clients to target?

-Determine appropriate loyalty program

-Expected ROI from customer retention & development?

⇒ LT loyalty program

Retention management

Loyalty management

94

Presentation1

– Draft –

Customer lifetime management means having the right approach at each customer lifestage to improve CLTV

95

Profit

Time

Get!Acquisition

Grow!Development

Keep!Retention – Win back


Loyalty

Presentation1

– Draft –

In general, loyalty programs can be ranked on 3 axes: the reward-moment, required counteraction & customer initiative

No initiative

Immediate benefitPostponed

benefit

Transaction based

Not transaction based

Initiative

Direct Adv Program

Contest Program

Event Program

Relationship Program

Savings Program

Customer Adv Program


Reward-moment

Counteraction

Customerinitiative

Saving points for gifts via transaction

Direct discount Service related & other

advantages

Advantage won through contest

1

2

3

96

Event invitation Saving points for gifts via

initiative

Presentation1

– Draft –

Current programs mostly combine several features and we see a shift from ‘save’ to ‘relationship’ focus

No initiative

Immediate benefit Postponed benefit

Transaction based

Not transaction based

Initiative

Direct Adv Program

Contest Program

Event Program

Relationship Program

Savings Program

Customer Adv Program


97

Presentation1

– Draft –

Research shows that effectiveness of loyalty programs differs, direct advantage- and savings program being most effective

98


Score loyalty impact (Likert)

Dir

Ad

v P

rEffectiveness of loyalty programs

Rela

tio

nsh

Pr

Savin

g P

r

Co

nte

st

Pr

Even

t P

r

Cu

st

Ad

v P

r

Type ofprogram

No effect

Limited effect

Large effect

Rewards directly linked to transactions are more effective than any other reward

Customers are less motivated if they need to perform an initiative on top of transactional process

Immediate rewards are more effective than postponed rewards

Presentation1

– Draft –

According to research, program effectiveness is slightly different per industry: 4 industries tested

99


• Following overall trend in effectiveness

• Direct Advantage Program scores even relatively better

• Example Direct Advantage Program: AG

Financial

Clothing

Editing / media

Telco

• Shows different trend: Savings program more efficient than Direct Advantage Program

• Example Savings Program:


• Example: discount when renewing subscription


• Relationship program less effective than in general

• Example Savings program: TopStar &

Presentation1

– Draft –

In order to improve effectiveness of loyalty initiatives it is important to differentiate approach depending on customer value and needs

100

Value differentiation Needs based differentiation

80/20 rule: 20% of customers generate 80% of revenues⇒ Prioritize loyalty initiatives to- and adapt loyalty offers for high value clients⇒ Should be in line with general level of customer experience

% CLTV

% custbase

Product

Service

Loyalty action

Loyalty program

Presentation1

– Draft –

Loyalty is to be measured in different ways and for different objectives

101

Measuring effect of behavioral loyalty= MARKETING VALUE

Measuring attitudinal loyalty= CUSTOMER EQUITY

KEY QUESTIONS:What is ROMI of loyalty initiative? To what extent did it help reaching customer retention & –development?How did it evolve CLTV of customer base?

MEASURES - GENERAL:-CLTVMEASURES – SPECIFIC:-Retention target versus control group-Evolution of customer value before, during and after loyalty initiative

USE:Business case, ROMI

KEY QUESTIONS:How loyal do customers feel themselves towards our brand, product, service?What is driving their loyalty? Would they recommend us to others?

MEASURES - GENERAL:-NPSMEASURES – SPECIFIC:-Research on loyalty drivers, and score on each of these loyalty drivers versus competition

USE:Defining direction for loyalty instruments: branding, product, service, loyalty actions and -programs

Presentation1

– Draft –

Measuring effect of behavioral loyalty:CLTV customer lifetime value

Increased loyalty > Increased CLTV > increased profit

102

Net actual value of expected profit during customers’ lifetime

Value yr 1 + Value yr 2 + … + Value yr n

(1 + r) (1 + r)n-1

Why CLTV

Definition

Start – before initiative: After initiative:

-Current customer base -# extra customers

-Current profitability -profitability

-Current retention % -retention %

-Current referral % -referral %

How to measure impact of

loyalty initiative on

CLTV

Change in CLTV

Investment loyalty initiative

Presentation1

– Draft –

103

Measuring effect of behavioral loyalty:survivor modeling and other

Survivor modeling Other

# customers

Before

Time

During After

Survivor modeling

Group

Control

Target

Value of clients retained

- Changes in customer recency, frequency, monetary value; latency

- Price sensitivity

- Contract renewal rates, -profitability…

Presentation1

– Draft –

Measuring attitudinal loyalty:NPS net promoter score and other

Net promoter score

Net promoter score

46%

35%

Net promotor score = 11

(46% - 35%)

“Would you recommend us to a friend?”

- Attitudinal surveys on brand preference: ‘a brand I can trust, like’

- Qualitative research on brand drivers and quantitative tracking of performance on each of these drivers on a regular basis

Other

Logo client

Ichec program2010-2011

Segmentation

Presentation1

– Draft –

Where does it fit in the Value Creation Model?

106

Impact on all further strategy development: - Enables clear and focused brand/product positioning

- Provides guidelines to develop the marketing driver mix

Bu

sin

ess O

bje

cti

ves

Bu

sin

ess R

esu

lts

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen -dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms


Price Premium

Market Share

Marketing Value

CLTV

ROC

Customer Value

Presentation1

– Draft –

Segmentation: what does it mean?

• Segmentation is about identifying different groups of purchasers in a market in order to target specific products and services for each group or segment. By tailoring the offering (communication, product, channel, price) to different groups you are able to more precisely meet the needs of more customers and consequently to gain a higher overall level of share or profit from a market(1)

• Market segmentation is the process of splitting customers, or potential customers, in a market into different groups, or segments, within which customers share a similar level of interest in the same, or comparable, set of needs satisfied by a distinct marketing proposition(2)

• Marketing segmentation is the first step in the marketing triptych segmentation – targeting - positioning which enables companies to optimize their marketing strategies in relation to their core resources(3)

107

Source (1): www.dobney.com, market research and choice consultancy based in the UK

Source (2): Malcolm McDonald and Ian Dunbar, Market segmentation How to do it, How to profit from it, Elsevier Butterworth-Heinemann, Oxford, 2004.

Source (3): Definition inspired of Jean-Pierre Baeyens, Introduction to marketing, Solvay Business School, INGE3, Brussels, 2005.

Presentation1

– Draft –

Target marketing: What does it mean?

Target marketing is about selecting the segments that the organization is willing and able to service. Any given segment may be attractive in some way, but not able to be serviced due to the particular mix of capabilities within the organization(1).

Targeting involves concentrating marketing efforts on one or a few key segments determined after having broken down the market into homogenous segments based on pre-defined criteria(2).

Target marketing is defined as the detection of the market segments that are identified as being the most likely purchasers of a company’s products. […]. Targeting investigates specific segments in terms of how they should be approached to optimize their value for the company(3).

108

Source (1): http://gnomejournal.org/article/39/marketing-gnome-part-two-segmentation-targeting-and-positioning

Source (2): Jan Jacobs, The successful product marketing manager, LMS International September 2003, Leuven

Source (3): http://www.da-group.co.uk/main/s6/st72798.htm

Presentation1

– Draft –

What are the benefits of target marketing?

Specifically, the advantages of target marketing are that(1) :

•Marketing opportunities and unfilled ‘gaps’ in a market may be more accurately appraised and identified. Such gaps can be real (e.g. sweet, strong, harsh or mild) or they can be illusionary in terms of the way people want to view the product (e.g. happy, aloof, silly or moody).

•Market and product appeals through manipulation of the marketing mix can be more delicately tuned to the needs of the potential customer.

•Marketing effort can be concentrated on the market segment(s) which offer the greatest potential for the company to achieve its goals - be the goals to maximize profit potential or to secure the best long-term position for the product or any other appropriate goal.

109

Source (1): http://www.da-group.co.uk/main/s6/st72798.htm

Better targeting leads to better marketing performance (higher Marketing ROI and CLTV). Targeting means optimizing. Marketing investments are

focused on the profitable segment(s) to which the company is really able to deliver added-value.

Presentation1

– Draft –

Positioning

Positioning =

The place the product or service occupies in customers’ minds relative to competing products. It is typically defined by customers on the basis of important attributes.

The main benefits consists in:

- Finding and establishing your playing field.

- Clarifying your distinct ability to make an impact.

- Describing your organization—and building a clear public image—in relationship to your competitors

- Defining your character and how you want to be seen

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There exist 4 different ways to segment your customers

111

1. Descriptive segmentation schemes

2. Behavior based segmentation schemes

3. Attitudinal or Psychographic-based segmentation schemes

4. Value-based segmentation schemes

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112


-> segment customers based on who they are

•region of the world or country

•country size

•density of the area

•climate

Geographic variables

Demographic variables

•age

•gender

•family size

•family life cycle

•education

•income

•occupation

•socioeconomic status

•religion

•nationality/race

•language !

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113



-> segment customers based on how they behave

Behavioral variables

•benefit sought

•product usage rate

•brand loyalty

•product end use

•readiness-to-buy stage

•decision making unit

•profitability

•income status

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-> segment customers based on how they think (about the features of a product/service) and what they prefer

Advantage: gets an idea of the actual aspect of the product that will get customers to respond

Psychograhic variables

•personality

•life style

•value

•attitude

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4. Value-based segmentation schemes

-> segment customers based on how much worth they potentially hold for the organization

Value variables

•turnover

•profit (direct or net contribution)

•customer lifetime value (CLTV)

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– Draft –The basic models are the most currently used

116 Net Adjusted Index (%)

Company Specific Statistics

Psychological Customer Profile

Internal Financial Results

B2B C’ies only B2C C’ies only B2B&B2C C’ies

Geography

Customer Behaviour

Demographics

Operational Elements

Characteristics of Purchasing Department

77,9%

50,8%

46,2%

29,4%

24,8%

30,5%

31,7%

20,6%

44,7%

58,2%

58,2%

76,5%

51,2%

21,8%

20,0%

9,4%

76,1%

63,4%

47,9%

53,5%

28,2%

40,8%

32,4%

16,9%

Frequency of occurrence of criteria used amongst respondents using segmentation

Source: THoM Yearly Marketing Survey 2008

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Value-based segmentation

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Segmenting on value can be made on a yearly period or on the full customer life time

Value-based segmentation is the process of splitting the market into more homogenous groups by using quantitative criteria.

Static view of the model could be based on yearly figures of:

• Turnover

• Direct profit contribution

• Net profit contribution:

- Include direct contribution and indirect costs.

- Cost allocation by Activity-Based Costing (ABC) which is a costing model that identifies the cost pools, or activity centers, in an organization and assigns costs to products or services based on the number of events or transactions (cost drivers) involved in the process of providing a product or a service(1).

Dynamic view of the model is mainly based on the analysis of the Customer Lifetime Value (CLTV) on a complete period (from the acquisition till the last purchase) and enables to make forecasts for the other companies in the same pre-defined segment.

118

(1): www.valuebasedmanagement.net

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Two different ways to look at value: present vs. potential value

• Based on :

• Current turnover

• Current profit

119

Present value Value potential

• Based on :

• Market potential

• Product Market Share

Example: IT Example: Pharmaceutical

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Comparison of alternative segmentation models

120

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Segmentation strategies (e.g. banking sector)Pro’s and Con’s

121

Source: Council of Financial Competition, Checking Account Design by Life Stages, Corporate Executive Board, December 2006.

Segments Pro’s Con’s

Demographic Easy customer classification and marketing strategies

Behavior does not necessarily correlate with demographic data

Geographic Used to assess market for placement of ATM and for efficient management of branch staffing and service levels

Of limited use to product development and marketing strategies

Behavioral Past or current behavior is the best predictor of future behavior

Complex data collection and application process

Psychographic Understanding lifestyle and attributes can help banks enhance image or determine promotional strategies

Complex data collection and application process

Value Companies can focus greatest attention on customers creating greatest profits

Can result in poor service for lower profitability segments with a detrimental effect on the brand, and a fight for higher profitability customers

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Information actionability122

Inform

ation acquisition complexity

The more we increase our understanding of customer

values the more likely we are to develop successful marketing

strategies

Improving segmentation approaches is all about enhancing customer understanding

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Why needs-based segmentation goes beyond simple value-based segmentation…

Many companies view segmentation as dividing customers into:

- high value

- medium value

- low value

measuring the customer’s:

- gross contribution margin

- net contribution margin

because:

- the required information tends to be readily available

- the goal of attracting and retaining the highest value customers would logically have a high ROI

PROBLEM: This “value-based” segmentation assumes that all high-value customers have identical needs and preferences which is not the case most of the time

SOLUTION: “needs-based” segmentation will have far more impact on determining what combination of products and services will be required to create a compelling value proposition for different customer segments

123

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Combining value-based segmentation with behavioral or descriptive segmentations improves the likeliness to reach superior targeting and ROMI

124

Both approaches can be crossed and used simultaneously: • customer segmentation focuses on what can be offered• value based segmentation focuses on which customers are most profitable

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PricingTo grow clients’ top line, bottom line and the value

management capabilities

Ichec program2008-2009

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Where does it fit in the Value Creation Model?

Pricing is an important strategic issue because (1) it is a huge lever to increase profits and (2) it is related to other marketing mix elements such as product

positioning & features, channel decisions, and promotion.

Business Objectives

Business Results

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen -dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Business Paradigms


Price Premium

Market Share

Marketing Value

CLTV

ROC

Customer Value

126

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Achieving top line and profitable growth are among top five priorities of European CEO’s

Pricing plays a key role in achieving these priorities

Source: The Conference Board, “CEO Challenges 2007”, October 2007

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Pricing is a powerful lever to increase profits

128

Total Revenue = 100

Fixed Cost = 65

Reduce Variable Costs by 5%

Profit + 13%

Improved price realization of 5% generates 50% profit improvement*

Profit increase

Profit + 50%

Improve Price by 5%

Variable Cost = 25

Profit = 10

* Note: Assuming Average Fortune 500 Company

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Three inputs to strategic pricing exist and yet some companies price using just one…

Philosophy:Financial prudence ensures

that each unit of sale achieves a target return over its full

cost

(Finance & Accounting)

Costs Customers

Competition

129

Philosophy:Market demand requires that

pricing of products and services reflects what customers willing to

pay

(Marketing & sales)

Philosophy:Price to maintain or grow market share, short term focus, or

“me too” pricing

(Sales, Management)

Cost

Comp

Cust

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Costing: deciding on the most profitable activities

Step 1: Determine contribution margin

Step 2: Identify incremental costs

Step 3: Identify volume/price trade-offs

Step 4: Evaluate the market context to understand profit implications

130

Cost

Comp

Cust

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Contribution margin: variable & fixed costs

131

Total ContributionPer Unit = 3 €...............................

PriceEx. 10 €

Unit variable cost

Ex. 7 €

Unit SalesEx. 1,000

Fixed CostsEx. 1,500 €

Profits= 1,500 €

Total Contribution = Sales revenue – Total Variable Cost

Contribution Margin (%) = Total Contribution / Sales Revenue

ContributionMargin if sell 1000 units

= 3,000/10,000

= 30%

Company XYZ:

Cost

Comp

Cust

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Cost

Comp

Cust

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Identify relevant costs for pricing decision

133

- General & admin costs € 500 € 700

- Direct Fixed Costs € 1,000 € 1,400

- Direct Var. Costs€ 7,000 € 10,350

Costs

Revenues € 10,000

Units

Total Euros

Total Costs

€ 8,500 € 12,450

Profits € 1,500€ 1,550 (+3%)

1,000 = 1,500

€ 200

€ 400

€ 3,350

€ 4,000

+ 500

€ 0.5

€ 1

€ 7

€ 10

Euros per unit

€ 8.5

€ 1.5

1,000

€ 0.47

€ 0.93

€ 6.9

€ 9,3

€ 8.3

€ 1.0

Full cost

€ 14,000

Costs

Revenues € 10,000

At Company XYZ, there’s an opportunity to sell 500 more units at a price of € 8/Unit.For this, additional capacity is required at a cost of € 400 and admin costs would increase with € 200. Variable production costs would only be € 6.7 per unit….

€ 0.4

€ 0.8

€ 6.7

€ 8

€ 7.9

€ 0.1

+500 (Incremental)

Cost

Comp

Cust

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Identifying The Incremental Costs

134

Incremental costs: Cost of production for one additional unit

Variable cost: Cost of last produced unit NOT average variable cost

Fixed costs: Most seen as incremental BUT be careful of step changes…

Opportunity costs: The contribution foregone when an asset is used for one purpose instead of another

High Variable costs

High Fixed Costs

Opportunity Costs

Low CM

High CM

CM foregone (=left)

Drive Price

Drive Volume

Capacity Optimization

Cost Type Implications… Strategic Objective

Understanding How Costs Change with Changes in Sales is a Prerequisite to Managing Costs Strategically

Cost

Comp

Cust

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Cost

Comp

Cust

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Identify volume/price trade-offs: Breakeven analysis

Unit Breakeven Sales

136

Total ContributionPer Unit = 3.......................

PriceEx. 10

Unit variable

costEx. 7

Fixed CostsEx. 1,500

Unit Sales= 500

Break-Even

Break-Even Sales = Fixed Costs / Total Contribution per unit

% Breakeven sales change

Example

Current price: € 10.00Variable cost/unit: € 7.00Current Weekly Sales: 1,000 Units

How much would sales have to increase to make a 10% price reduction profitable?

Cost

Comp

Cust

-∆ Price%BE =

(CM + ∆ Price)

- (-1)%BE =

(3+ (-1))

= 50%

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Understand price elasticity

The number is a means to an end; it is only used to measure price sensitivity.

The higher the price elasticity, the more sensitive consumers are to price changes. A very high price elasticity suggests that when the price of a good goes up, consumers will buy a great deal less of it and when the price of that good goes down, consumers will buy a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on demand.

Price elasticity of demand = % change in demand / % change in price.

Price elasticity is defined as the percentage of change in quantity demanded as per the percentage change in price of the same commodity.

The formula is the following:

Source: http://ingrimayne.com/econ/elasticity/Elastic1.htmlhttp://economics.about.com/cs/micfrohelp/a/priceelasticity.htmhttp://en.wikipedia.org/wiki/Price_elasticity_of_demand

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Price elasticity and impacting factors

The price elasticity of demand for a particular demand curve is influenced by the following factors:

138

Availability of substitutes

Degree of necessity

Proportion of income

Time period considered

Permanent or temporary change

Psychological factors

the greater the number of substitute products, the greater the elasticity.

luxury products tend to have greater elasticity than necessities, but some luxury products are habit forming and can become "necessities" to some consumers.

products requiring a larger portion of the consumer's income tend to have greater elasticity and purchase of these products will be postponed more rapidly

elasticity tends to be greater over the long run because consumers have more time to adjust their behavior to price changes

a one-day sale will result in a different response than a permanent price decrease of the same magnitude.

decreasing the price from $2.00 to $1.99 may result in greater increase in quantity demanded than decreasing it from $1.99 to $1.98.

Source: http://ingrimayne.com/econ/elasticity/Elastic1.htmlhttp://economics.about.com/cs/micfrohelp/a/priceelasticity.htmhttp://en.wikipedia.org/wiki/Price_elasticity_of_demand

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Impact on pricing: literature versus actual impact

139

Literature on pricing Actual impact on pricing

Elasticity puts a cap on prices

• Price should be set according to the ideal trade-off between price and volume

• Pricing can not be put above a certain level because too much volume would be lost

Elasticity has a relative low impact on pricing

• There is no precise measurement possible of price elasticity in reality (only past data extrapolated)

• The ideal trade-off is not fixed: elasticity can be influenced by marketing, so no real cap exists

- E.g.: Communicating the value of a product to a customer, can increase willingness to pay

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Cost

Comp

Cust

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Market context and profit implications

Can you get the required volume change needed to be profitable?

Customer Considerations

• Customer value

• Customer power

• Customer groups

Competitive Considerations

• Competition’s cost structure

• Competition’s response

• Competition’s power

141

Costs Customers

Competition

Cost

Comp

Cust

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Competition

Sports Competition

• The more intense, the better

• Play as hard as you can

• Goal is to win, regardless of the

cost

Price Competition

• The more intense, the worse

• Weigh the cost of each

confrontation

• Goal is to profit, considering all

costs

Cost

Comp

Cust

142

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Competition: To act or not to act…

Too Costly

Cost Justified

Price Reaction is…

Weaker Neutral or Stronger

Competitor is strategically…

Modified from: The Strategy and Tactics of Pricing, 3rd Edition, Nagle and Holden, pg. 133g

If competitor initiates, do not match but target specific key competitor’s accounts for conversion with enhanced incentives

Illustrative Examples

Ignore Accommodate(Actively adjusting strategy to minimize impact of threat)

Attack Defend(Attempt to cause competitorto back off)

If competitor matches you, develop an accommodating strategy

Cost

Comp

Cust

143

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Competition

Tactic Examples

Non price Responses

Reveal your strategic intentions and capabilities

Offer to match competitors' prices, offer everyday low pricing, or reveal your cost advantage

Compete on quality Increase product differentiation by adding features to a product, or build awareness of existing features and their benefits. Emphasize the performance risks in low-priced options.

Co-opt contributors Form strategic partnerships by offering cooperative or exclusive deals with suppliers, resellers, or providers of related services

Price Responses

Use complex price actions Offer bundled prices, two-part pricing, quantity discounts, price promotions, or loyalty programs for products

Introduce new products Introduce flanking brands that compete in customer segments that are being challenged by competitors

Deploy simple price actions Adjust the product regular price in response to a competitor's price change or another potential entry into the market

Extract fromSHow to Fight a Price WarBy Akshay R. Rao, Mark E. Bergen and Scott Davis

Cost

Comp

Cust

144

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Customer: The End Goal…P

rice

Pa

idP

rice

Pa

id

Value ReceivedValue Received

highhigh

lowlow

lowlow mediummedium highhigh

mediummedium

Vulnerable –Sustainability of brand at stake

UnharvestedValue

Cost

Comp

Cust

145

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Customer

• Determine what features customers want

• Ask customers how they value features

• Set prices using natural, convenient metrics

• Vary prices to reflect willingness-to-pay

Customer Driven

• Determine what benefits customers seek

• Estimate objective value of benefits offered

• Create price metrics that reflect value received

• Justify prices to raise willingness-to-pay

Value-Based

Cost

Comp

Cust

146

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Recap – Best Practices

COSTING BEST PRACTICE:

• Understand the incremental costs of product/service elements, enabling company to profitably offer multiple product/service offerings at different price levels

• Understand which sales drive incremental capacity costs and which do not, enabling company to price to profitably recover capacity cost from the former, while pricing to drive incremental contribution from the latter

• Adjust non-negotiable price levels based on the ability to improve contribution from all customers who would qualify for that price level, not based on the value of an individual deal

COMPETITION BEST PRACTICE:

• Identify current/potential competitive advantages and capabilities that leverage those advantages

• Target customers (or jobs) that most value capabilities for profitable growth and focus your resource investments of service to those segments

• Anticipate and plan for changes in competitor and customer behavior that could threaten your competitive position in your target segments

• Collect and communicate competitive information to minimize the impact of negative-sum competitive confrontations

• Evaluate your competitive success by your ability to grow profits, not market share.

CUSTOMER BEST PRACTICE:

• Understand how the products and services that you sell generate value for customers (revenues or cost savings), noting particularly differences between the value delivered by you and by the competition

• Sell “value delivered”, not features, and grow markets by educating more customers on the value that your company can deliver

• Segment your market for pricing by offering different product/service bundles at different price levels to reflect differences in the value that you deliver.

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Value based pricing focuses on the entire Pricing Strategy Pyramid, not only on the price level

MISTAKEN BELIEF:

The price level is the only

cause of price resistance, Price

Level

and is, therefore, the only way to overcome it.

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You can unlock profitable growth by minimizing the gaps in the value waterfall

Profitable Growth Managing Margin

Most price

improvement

efforts only

focus here

Value Creation Gap

PriceStrategyGap

Price ExecutionGap

Value CommunicationGap

44

2

3

Potential

Value

Delivered

Value

Perceived

Value

Willingness

to Pay

Price

Paid

Opportunities to get

more from price

1

149

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From our experience, companies face many barriers to achieving higher price realization

150

Value-based pricing is about addressing these gaps to increase profitability

Target price Price realized

Organizational misalignment around pricing 11

Gaps in price execution and management (Unwarranted variance in field, reactive pricing,..)

22

Offer not aligned to different value requirements of segments or desired customer behaviors

33

Not effectively communicating value to change customer’s perceptions

55

44 Failure to drive and sustain value differential

150

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Organizational misalignment around pricingDiffering, and at times conflicting goals, relating to pricing within same company can limit the effectiveness of pricing strategies

151

President

MarketingFinanceR&D SalesBU

ManagerOperations

“Get me both higher market

share and profit . . . now”

“This is the best

product with the

best technology

on the market. It

should be worth

millions”

“This product

took years to

develop and our

prices need to

recapture this

huge investment”

“If we bundle in

more services we

can justify higher

prices and drive

market share”

“Customers are

saying our price

is too high and

competitors have

and lowered price”

“We are well

behind this

quarter. Let’s do

what it takes to

start driving

volume now”

“Special requests

from customers

are killing us. It’s

driving our costs

through the roof”

Pricing should be addressed strategically after finding common grounds and approaches on pricing and value management

11

Presentation1

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Price execution gaps: Unwarranted variance across pricingSophisticated customers use your discounting policies to gain unwarranted discounts

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

€0 €100,000 €200,000 €300,000 €400,000 €500,000 €600,000 €700,000 €800,000 €900,000 €1,000,000

Acceptableline

Sales revenues

Actu

al

dis

co

un

tResults

Outliers

22

Outliers

Outliers

152

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Price execution gaps: Unwarranted variance across pricingCompanies can decrease these gaps by managing pricing proactively

153

Example:

• End-of-quarter discounts

• Meeting competition

Reactive, exception-based price

management, drives prices down

Proactive, policy-based price

management ties pricing to value

Example:

• “Loyalty” discounts for high store share

• “On-line”, fast pay, low service discounts

Develop proactive policies that set proper customer expectations

22

153

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154

Offer is not aligned to different segments, value requirements or desired customer behaviors

High

Low

Receiv

ed V

alu

e

Segment Size

A B C D

Setting price here

S.leaves money on the table for these customers and communicates that value does not have to be paid forS

11

22

S.and misses growth opportunities by pricing these customers out of the market

33

• Offer configuration is necessary to serve all segments more profitably

• Differences in value can be captured with product variations or serviceaugmentation that creates natural fences between segments

33

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By tailoring the offer to customers needs, more value can be captured

33

Value-Based Segmentation Also Allows:• Identifying value drivers that inspire new, profitable products/services

• Removing cost where it is not valued

High

Low

Receiv

ed V

alu

e

Segment Size

A B C D

Offer #4Offer #4

Offer #1Offer #1

Offer #2Offer #2

Offer #3Offer #3

In this way you can capture value that would otherwise have been foregone…

11

Or secure business where you would have been too expensive…

22

And:

155

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Failure to sustain and drive differential value

156

Traditional way

Product

Price

Cost

Customers

Value

Value-based way

Reference

Value

€ 0,85 / kg

Next best

competitive

Alternative

internal

mixing costs

Less Defective

€ 0,08

Less WIP Scrap

€ 0,07

Positive

differentiation

Less Freight

€ 0,03

Fewer

Material Rejection

€ 0,05

Sustain differential advantage Drive differential advantage

Change approach for new product Change approach for new product development to ensure delivered valuedevelopment to ensure delivered value

e.g. IKEAe.g. IKEA

Change approach for new product Change approach for new product development to ensure delivered valuedevelopment to ensure delivered value

e.g. IKEAe.g. IKEA

Innovations sustain and expand differential value

Product

Price

Cost

Customers

Value

44

156

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Not effectively communicating value to change customer’s perceptions

157

Product Focus

“What do we offer?”

Application Focus

“Why should the

customer care?”

Customer Focus

“What is that worth?”

Revenue

Drivers

Cost

Drivers

Better product

dispersability creates

more complete

mixing that...

Our cleaner product

creates output

reliability which...

# reduces total raw

materials used,

decreasing input cost

by

# allows you to target

supply – sensitive

segments, generating

improved revenue of

€€ 0,0,06 / kg06 / kg €€ 0,10 / kg0,10 / kg

Concept

Better articulating value helps to change price perceptions and justifying price points

€ Value

Features

Benefits

Example Carbon Black Producer

Example

Carbon black particles

55

157

Logo client

Product Management

– Draft –

The Levels of Product

Expected Product

Source: Jan Jacobs, The Successful Product Marketing Manager, LMS International -Empowering Engineering Innovation, 29-30 September 2003, Leuven

– Draft –

The Value for: Metrics (KPI)

Value for:

• Market penetration

� Market share

� Share of wallet

� Usage

� Preference

� NPS

– Draft –

What is a Product?

A Product is anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need.

- Physical Objects

- Services

- Events

- Persons

- Places

- Organizations

- Ideas

- Combinations of the above


– Draft –

Product Features & Benefits

Features are product characteristics that deliver benefits; we buy products for their benefits.

Features are product characteristics

such size, color, capacity, functionality, design, hours of business, fabric content, etc.

Benefits answer the customer’s question: What’s in it for me?

This distinction is further illustrated in the following table:

A feature is. . . A benefit is. . .

• Physical size It’s small enough to fit in your raincoat pocket.

• A 75 horsepower motor A mower that takes the work out of yard work.

• Patented mattress spring design A restful night's sleep.


– Draft –

Product Features & Benefits : Differentiation

Products may be highly unique (specialty products) or virtually indistinguishable from competitors’ products (commodity products) and anything in between.

Specialty products are not necessarily better than commodity products, but they do require different marketing strategies.

A potentially important strategy for specialty products is differentiation.

A company differentiates its products when it sets them apart from the competitors’ products in the minds of customers.

Having a thorough understanding of how your product’s benefits compare to your competitors’ allows you to compete with them through differentiation.


– Draft –

Importance of the offered features and

benefits

HIGH

LOW

LOW HIGH

Satisfactionwith

current players

A methodology to determine a differentiating and relevant product or service proposition for a selected target group

Core : “need to have” Limited possibilities for differentiation

Nice to have

No differentiationand no relevance

Strong relevance and possibilities to differentiate

– Draft –

Strategies that are based upon features

Introducing- Being "the first" to offer a new product feature is a proven competitive

strategy. For example, being known as "the first" organic body lotion to have Vitamin E will position your company as a leader, at least for a while.

Improving/Modifying- Instead of being at the head of the pack with a totally new feature, you

might simply modify and/or improve your product’s features. "Improving" your product creates the impression that your company cares about satisfying its customers.

- Modifying product features is a strategy many businesses use to compete with a competitor who lowers their price. For example, if the maker of one organic body lotion lowers its price, the maker of another may add Vitamin E as a "new improved" feature but keep its price the same.

- Don’t forget that modifying features usually leads to changes in benefits. Stay on top of knowing the perceived benefits your product offers so you can communicate them in your marketing messages.

Grouping- Oftentimes, features are "grouped" into different product models—and

prices—starting with a basic model to a "fully loaded" model. - Automobiles, many electronic devices, even vacation packages offer a

variety of features to add to a basic product model. This can even be true of services.


Additional illustration : car manufacturer

The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.



1. Identify the components of the solution/service


2. Develop the offer


3. Relate products to customer needs

– Draft –

Emotional Benefits

Customer Benefits

Product Benefits

Product Attributes

Discovering your product's benefits

In groups of three, choose a product that youmarket today. Describe core features and move to

key product, customer and emotional benefits


– Draft –


To identify your product’s benefits, you must consider the customer’s viewpoint.

Besides putting yourself in your customers’ shoes mentally, talk to or survey them asking them to identify your product’s benefits. They might provide you with information you never thought about!

Look at who has purchased your product in the past. What does that customer profile tell you about your product’s benefits?

Going forward, you might set up a few systems to develop and track product benefits

Ask customers for suggestions for improvement.


– Draft –


Pay attention to customer complaints and prospect inquiries. Be open to what your customers say. Go so far as to train and reward employees for questioning customers and prospects to learn what they want and what they don’t like about your product. Analyze and learn from this input.

Watch your competitors. Do the changes in their product offerings suggest desired product benefits?

Why is it important to understand what my product’s features and benefits are? Understanding product features and benefits allows you to do such things as:

• Describe your products in a way that is most relevant to customers.

• Differentiate–explain how your product is different ("better") than the competition’s.

• Use a variety of pricing and positioning strategies effectively


Product and service decisions

IndividualProduct

Product Line

ProductMix

Product attributes :QualityFeatures StyleDesign

BrandingPackagingLabeling

Product supportProduct services

Product line width:Number of different product lines carried by company

Product line depth:Number of different versions of each product in the line

Product line consistency

Product line length:

Line stretching: adding products that are higher or lower priced than the existing line

Line filling: adding more items within the present price range


– Draft –

Positioning map highlights potential of Product Leadership

173

Emotional Aspirations

Functional Benefits

Low High

High

Eventually the product carries the

brand

Image Branding

Threshold Branding

Experience Branding

Functional Branding

Examples:

Kube Hotel

Marlboro

Benetton

Examples:

Bic

Lada

Examples:

Nike

Nokia

Apple

Examples:

Duracell

– Draft –

Positioning map also highlights differentiating potential of position

174

Emotional Aspirations

Functional Benefits

Low High

High

Focusing on product

development will differentiate Sorin CRM from

competitors

By adopting that approach you build

trust between yourself and your

customer

– Draft –

Managing the delivery

Consumers

Customer Experience

Products Channels

– Draft –

Portfolio planning : Boston Consulting Matrix

HOLD

DIVESTHARVEST

BUILD

Four alternative objectives can be pursued in order to balance the company’s portfolio.

The most appropriate ones are indicated…


– Draft –

Boston Consulting Matrix: example

i-Phone

Kodak film

Palm

– Draft –

Product portfolio Management: key considerations

• Strategic fit of product portfolio

• Portfolio products performance

• Coherence of product portfolio

• Balanced composition of portfolio and evolutions therein

• Synergies between products of product portfolio

• Opportunities for new product initiations

• Contribution of portfolio strategy to company mission and vision

• Respect of timings indicated in the portfolio plan

• Number of new products introduced in portfolio plan

178

– Draft –

Product portfolio Management: possible KPI’s

• Trial (first try)

• Repeat volume

• Penetration

• Volume projections

• Year-on-Year Growth

• Compound Annual Growth Rate

• Cannibalization Rate

• Brand Equity Metrics

• Conjoint Utilities

• Segment Utilities

• Conjoint Utilities and Volume projections

More general metrics:

• Unit Margin or Margin (%)

• Contribution per unit or Contribution Margin (%)

• Break-Even Sales Level

• Target Volume

• Target Revenues

179

Source: Paul Farris, Marketing Metrics: 50+ Metrics Every Executive should Master , Wharton School Publishing, 2006, New Jersey

– Draft –

Product Life Cycles

34%

Earlymajority

2.5 %

Innovators

Time of adoption of innovations by users

Earlyadopters

13.5%

34%

Latemajority

16%

Laggards

Product Life Cycles are based on the theory that consumers will adopt new innovations at various rates

Source: Marketing Management, Philip Kotler

– Draft –

Product Life Cycle Strategies

The Typical Product Life Cycle (PLC) Has Five Stages

• Product Development, Introduction, Growth, Maturity, Decline

• Not all products follow this cycle:

- Fads

- Styles

- Fashions

The product life cycle concept can be applied to a:

• Product class (soft drinks)

• Product form (diet colas)

• Brand (Coca Cola Light)


– Draft –

Five stages of the PLC


• Begins when the company

develops a new-product

idea

• Sales are zero

• Investment costs are high

• Profits are negative

Stage 1


Product development

Introduction

Growth

Maturity

Decline


• Low sales

• High cost per customer

acquired

• Negative profits

• Innovators are targeted

• Little competition


Product development

Introduction

Growth

Maturity

Decline

Stage 2


– Draft –

Marketing Strategies: Introduction Stage

Product – Offer a basic product

Price – Use cost-plus basis to set

Distribution – Build selective distribution

Advertising – Build awareness among early adopters and dealers/resellers

Sales Promotion – Heavy expenditures to create trial

Marketing Objectives : Create product awareness and trial


– Draft –

Targeting the right audience

186

Adaptors

Speed of adaptation

Early Adaptors

Early Majority

MainstreamLate majority

Laggards

• Rapidly rising sales

• Average cost per

customer

• Rising profits

• Early adopters are

targeted

• Growing competition


Product development

Introduction

Growth

Maturity

Decline

Stage 3


– Draft –

Marketing Strategies: Growth Stage

Product – Offer product extensions, service, warranty

Price – Penetration pricing

Distribution – Build intensive distribution

Advertising – Build awareness and interest in the mass market

Sales Promotion – Reduce expenditures to take advantage of consumer demand

Marketing Objectives : Maximize market share


• Sales peak

• Low cost per customer

• High profits

• Middle majority are

targeted

• Competition begins to

decline


Product development

Introduction

Growth

Maturity

Decline

Stage 4


– Draft –

Marketing Strategies: Maturity Stage

Product – Diversify brand and models

Price – Set to match or beat competition

Distribution – Build more intensive distribution

Advertising – Stress brand differences and benefits

Sales Promotion – Increase to encourage brand switching

Marketing Objectives : maximize profits while defending market share


• Declining sales

• Low cost per customer

• Declining profits

• Laggards are targeted

• Declining competition


Product development

Introduction

Growth

Maturity

Decline

Stage 5


– Draft –

Marketing Strategies: Decline Stage

Product – Phase out weak items

Price – Cut price

Distribution – Use selective distribution: phase out unprofitable outlets

Advertising – Reduce to level needed to retain hard-core loyalists

Sales Promotion – Reduce to minimal level

Marketing Objectives : reduce expenditure and milk the brand/product/service


– Draft –

Summary of marketing strategies for each phase of the life cycle

Strategic

Marketing

Objectives

Stimulate Stimulate

Primary Primary

DemandDemand

High

Build ShareBuild Share

High

Build ShareBuild Share

High to

Declining

Hold ShareHold Share

High to

Declining

HarvestHarvest

Reduce

Product

Product Line

Price

Channels

Communications

Quality

Improvement

Narrow

Skimming vs.

Penetration

Selective

Continue

Quality

Improvements

Broad

Reduce

Intensive

Rationalize

Rationalize

Reduce

Intensive

Concentrate on

Features

Hold Length of

Line

Hold or Slightly

Reduce

Intensive

No Change

Reduce

Length of

Line

Reduce

Selective


– Draft –

The framework can also highlight opportunities and threats…

Intro Growth Shakeout Maturity Decline

Market growth Moderate High Leveling Off Insignificant Negative

rate

Technical

change High Moderate Limited Limited Limited

product design

Segments Few Few - Many Few- Many Few-Many Few

Competitors Small Large Decreasing Limited Few

Profitability Negative Large Low Large for Low

high market-

share holders

Life cycle Stage Characteristics


– Draft –

• Product development -sales are zero, investment costs are high

• Introduction -profits do not exist, heavy expense of product introduction

• Growth –rapid market acceptance and increasing profits

• Maturity -slowdown in sales growth. Profits level-off. Increase outlay to compete

• Decline –sales fall-off and profits drop

The product life cycle linked to business performance

€


– Draft –

There are several (dis)advantages to Conjoint Analysis

196

Advantages Disadvantages

• Estimates psychological tradeoffs that consumers make when evaluating several attributes together

• Measures preferences at the individual level

• Uncovers real or hidden drivers which may not be apparent to the respondent themselves

• Realistic choice or shopping task

• Able to use physical objects

• Can be used to develop needs based segmentation

• Designing conjoint studies can be complex

• With too many options, respondents resort to simplification strategies

• Difficult to use for product positioning research because there is no procedure for converting perceptions about actual features to perceptions about a reduced set of underlying features

• Respondents are unable to articulate attitudes toward new categories

• Poorly designed studies may over-value emotional/preference variables and undervalue concrete variables

Note: Deloitte uses a Conjoint AnalysisSource: Wikipedia

– Draft –

Channel Management

– Draft –Business Objectives

Price Premium

Market Share

Marketing Value

Business Results

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Value Creation and Capturing Model

Customer Value

CLTV

ROC

– Draft –

Driver action planning – An example

• Identify route causes for “not being

pushed harder by the trade”

• Coverage issue?

• Quality issue?

• Brand image issue?

• Margin issue?

• Focus on relevant & differentiating

relationship drivers

• Drive partnerships capabilities

• Train & educate trade to support the brand image

• Focus trade incentives on ‘providing the right brand stories to the consumers’

• Select channels with positive impact on brand image

• Build brand equity without losing existing channel support


Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning

– Draft –

Benefits of working with channels?

• Enhanced reach in the market => Increase in revenues

• Lower cost of sale: Define ‘low cost’ routes to market and product/service configuration

capabilities of your channel

• Lower customer support cost: Integration and extension of service components

• Reduced time to market: Shorter product lifecycles

• Spread of risk

• Ability to meet customer purchasing preference

• Provide customers with industry specific expertise

• Local & physical presence (culture, language, …)

• Increased capacity to integrate multiple products : ‘One stop shop’ requirement

• (Street) visibility

– Draft –

Type of channels & influence on branding

Segmentation based on dominance of brands in customer decision taking

ResellerReseller

MegabrandMegabrand

Dependent Dependent

dealerdealer

Tied Tied

DealerDealerDirectDirect

Carrefour

Accenture

Most HP dealers

BMW

Caterpillar

Dell

Independent Independent

dealerdealer

PC dealer

Independent supermarkets

FranchiseFranchise

Sony Centre

Van de Velde (Marie-Jo)

Reseller ManufacturerDominant brand

– Draft –

What are key challenges in working with channels?

• Cost to recruit partners

• Gaining partner mindshare:

• Very hard to create loyal relationship and/or to ‘lock down’ your partners in preferential terms (i.e. legal implications)

• Delivering sales tools to partners

• Risk of partners selling competitive products

• Multi-channel complexity

• Reduced control over the sales process

• How to guarantee end-to-end quality in commercial process?

• Power of channels due to EU landscape (consolidation)

• Coordinating partner & vendor sales teams efforts

• Need for transparent guidelines & communication

• Positive confrontation in channel conflict situations

• Complex forecasting process

– Draft –

What are key challenges in working with channels?

• Loss of end customer contact

• Margin issues

• Need to adjust internal business processes

• Channel dependence

• Competitive pressure

• Direct or indirect sales conflict

• Business cannibalization

• Vendor doesn’t reach all segments

• Take over of distribution (by another vendor or competition)

– Draft –

Channel conflicts: key points

Conflict in a channel is inevitable, even desirable…

"Progress flows only from struggle."

Louis Brandeis, 1856-1941, U.S. Supreme Court justice

… if kept within bounds

"Contradiction should awaken attention, not passion."

Thomas Fuller, 1606-1661, Chaplain to Charles II

204

Source: Harnessing channel tension, Erin Anderson, INSEAD

– Draft –


Dual Distribution:

Base it on end-user behavior, not just your cost structure

• Reason should be transparent

• You can’t build walls around customers

• Above all, don’t base the channels on the current size of the business the customer does with you

205


– Draft –


Management should be the traffic officer: give the channels different spaces that the customer will respect

• Customers fall into natural segments

• Customers behave consistently, even on different purchasing occasions

• Large, growing markets

• Differentiated products

• Customers do their own buying

Where dual routes to market work poorly

• Customer segmentation is arbitrary

• Customers act one way for one occasion and another way on a different occasion

• Small, shrinking markets

• Commodity

• Buying groups dominate

206


– Draft –


Collaboration between channels can happen—but not without management effort

• Differentiate each channel’s offerings

• Rules of engagement, announced in advance and publicly enforced

• When two channels contribute to a sale, credit both of them

- Simple rules that are approximately correct in the long run—don’t negotiate each sale

207


– Draft –

Analysingenduser needs

Settingchannel

objectives

Identifymajor

alternatives

EvaluateMajor

alternatives

Channel Design Decisions

– Draft –

Channel Design Decisions

Step 1: Analyzing end user Needs• Cost and feasibility of meeting needs must be considered

Step 2: Setting Channel Objectives• Set channel objectives in terms of targeted level of

customer service• Many factors influence channel objectives

Step 3: Identifying Major Alternatives• Types of intermediaries

- Company sales force, manufacturer’s agency, industrial distributors

• Number of marketing intermediaries- Intensive, selective, and exclusive distribution

• Responsibilities of channel members

Step 4: Evaluating Major Alternatives• Economic criteria• Control issues• Adaptive criteria

– Draft –

Definition of successful partnerships in selling added value

210

Bêche J., La segmentation des portefeuilles distributeurs en B to B. Perspectives théoriques et opérationnelles, Revue française de gestion 2008/2, n° 182, p. 171-189.

– Draft –

In all industries, the success of added value sales through distribution is based on high fit partnership (1)2 leverages contributing to partnership

211

Strategic convergence Relational convergence

Strategic fit• Vision of management• Resources (IT, HR, Finance)• Skills (Sales, service)

Co-dependency• How much business does the vendor do with the distributor

• How much business does the distributor do with the vendor

Organizational fit• Sales structure• Incentives plan

Engagement• Interest in added value philosophy• Behavior aligned with intentions

Relational fit• Relationships between sales forces• Trust in mutual capabilities

Note: International researchSource: Jerome Beche – Dever Consultants, Paris

Performance in selling solutions

Academic model

– Draft –

Successful partnerships: final theoretical concept

212

Strategic fit

Co-dependency

Organizational fit

Relational fit

Strategic convergence with

the supplier

Organizational convergence with

the supplier

Inter-organizational

learning

High performance for complex sales


• Turnover• Market share (€)• Net profits•Number of existing or

new customers• …

Academic model

– Draft –

Different kinds of distributors to work with; some present high potential

213

Relational convergenceLow High

Partners


EnhancingRelationship

Developing skills

Academic model

FollowersAutonomists

Independents with high stake

– Draft –

Critical factors in partnerships

214

– Draft –

The most critical failings in many partnerships

1. Failure to quantify the value of opportunities

2. Failure to raise the opportunities to higher-level decision makers in both the supplier's and trade partner's organizations

3. Short term emphasis

4. Single-element business reviews (e.g. one product, one service)

5. Narrowly defined problems

6. Exclusive focus on cost

– Draft –

Key elements of a successful partnering team

Open, honest communication

Everyone working together

High standards and goals

Continuous communication

Willing to ask the "stupid"questions

Ability to admit mistakes

Continuous learning

Clear, common direction

Everyone "pulling their weight"

Partnering a high priority

Frequent team meetings

A fast start

Committed to deliveringbest effort

Meeting and exceedingdeliverables

Logic and in-depth quantification of

issues

Each presentation better

than the last

Concise, easy-to-understand

communications

– Draft –

Channel management impacts the value for the customer by mainly playing on the customer experience

Value for

a customer

Product Brand Relation

• Quality• Convenience

• Image•Attitude

• Service• Communication

Channel’s impact


Inspired by Sunil Gupta and Donald R. Lehmann, Managing customers as investments, Wharton School Publishing, University of Pennsylvania, 2005

• Tangibles• Intangibles


– Draft –

The right channel for the right value proposition

63

Value Proposition

Relational Power

Internet

Extranet

ATM

Call Center

Face-to-face

Zone of inefficiency

Zone of ineffectiveness

“Ca ne marche pas”

“C’est inefficace”

-

-

+

+

Example: financial services. Source: Pr. K De Wulf - Vlerick

– Draft –

High

Low

Low High

Delivered Added Value

Cost Required

The different types of channels could be mapped on these two axes

Internet

Telemarket-ing

Retail

Distributors

Sales rep’s

Value Added Partners

Direct Marketing channels

Indirect channels

Direct Sales channels

Source: Philip Kötler, Marketing Management

– Draft –

A strong knowledge of the characteristics (strengths and weaknesses) of each channel has to be developed

220

Audience Addressable Interactive Cost

Media (press, billboard, radio, TV…) Mass N X OO

Internet (site, banner, search, forum, social…)

Mass N (+/-)* XX OCC*

Mail (post, e-mail, in/out) Few Y XX O

Event (road show, seminar…) Few Y XX OC

Phone (in/outbound) One Y XXX OC

Extranet (portal with userID…) One Y XXX OCC

F2F (meeting, visit…) One Y XXX OOCC

•Cookies, IP addresses, Username…•O=Opex; C=Capex

– Draft –

Where to communicate

What to communicate

How to communicate

Three main steps are required to build a strong channel communication

Source: Telenet

– Draft –

Classification of POS


What to communicate

How to communicate

Source: Telenet

– Draft –

POS / POC MatrixP

OS

Cla

ssfi

cati

on

(based on sales)

POC Classification(based on external visibility)

AAA AA A B+ B-

High Sales (High internal Traffic)

Low Sales (Low internal Traffic)

High External Visibility Low external visibility

Source: TelenetPOC: Point of communication

– Draft –

POS / POC MatrixP

OS

Cla

ssfi

cati

on

(based on sales)

POC Classification(based on external visibility)

AMBASSADORSFULL KITINT & EXTTELENETSERVICECENTER

HIGH Internal VisibilityHIGH External Visibility

Medium Int. High External

Low Int. High External

High Int. Medium Ext.

Medium Int. Medium Ext.

Low IntMedium Ext.

Medium Int. Low Ext.

Medium Int. Low Ext.

Forget It

Probablydoesn’t

exist

AAA AA A B+ B-

Source: Telenet

– Draft –

Defining Guidelines


What to communicate

How to communicate

Source: Telenet

– Draft –

Objectives of Visibility

From a Sales Perspective

• Tell the consumers where to go. (« Here available »)

• Develop clients sales. (Help him sell)

• Develop clients goodwill. (Win-Win relation)

From a Marketing Perspective

• Develop brand awareness.

• Build image, communicate values.

• Communicate promotions.

Source: Telenet

– Draft –

Several factors will define guidelinesIDTV

• What kind of shop is it ? (PC Store, GSM, Brown Goods,…)

• What does it sell ? (Internet, Telefonie, IDTV, 2/3, 3/3)

• In which category is it ? (matrix)

• IDTV Distribution policy.

• IDTV Communication Strategy.

• Corporate Policy ?

• One brand ? Two brands ?

• How do they live together ?

• Where do we put the focus on ?

Source: Telenet

– Draft –

Defining Tools


What to communicate

How to communicate

Source: Telenet

– Draft –

Looking for efficient and qualitative POS communication.

« Smoke less but smoke better » Zino Davidoff

• We want communication not noise

• Less material, better material

• Placement guidelines to be defined : ex : Rather one great corner thanone small element in each corner…

• Try to get exclusivities on defined places

Go for « flexible standardization »

• Tailor-made, own initiatives,… create « noise », jalousy amongretailers,…

Prefer permanent material with « promotion carriers »

Set Rules

• Negociate presence

• Secure places through charters and fixed material

Control

Reward

Source: Telenet

– Draft –

Examples

Kits based on POS/POC Matrix

Amb. Large electric sign with own name Telenet Corner with PC desk. Amb.

"Raamomlijsting" (exclusive) Illuminated Totem

Doorhandle Counter Promo Holder

Open/Closed

Windmaster

High Electric Sign (Standard) Telenet Corner (Panels only) High

"Raamomlijsting" (exclusive on one window) Illuminated Totem

Open/Closed Counter Promo Holder

Windmaster

Medium "Raamomlijsting" (1 or 1/2) Illuminated Totem Medium

Open/Closed Counter Promo Holder

Windmaster

Low Windmaster Counter Promo Holder Low

EXTERNAL INTERNAL

Source: Telenet

– Draft –

Example Ambassadeur

telenet Huis X

telenet telenet

– Draft –

Example High

telenet

telenet telenet

– Draft –

Example Medium

telenet

– Draft –

Example Low

– Draft –

Key KPI’s to measure sales force and channel performance

• Sales Potential Forecast

• Sales Total

• Sales Force Effectiveness

• Break-Even Number of Employees

• Sales funnel, sales pipeline

• Out-of-Stocks

• Inventories

• Direct Product Profitability

• Gross Margin per channel

• Return on Inventory Investment

235


– Draft –

Additional KPI’s to monitor channel performance

• Number of partners per type

• Average Revenue per Distribution/Channel Partner

• Number of Distributors/Channel Partners that Account for 50% of Sales

• Sales growth (total and per partner)

• Average sales revenues or Net revenues (sales - commissions) per partner

• Number of subscriptions per partner

• Number of new subscriptions/Number of new users per partner

• Average users per subscription total and per partner

• Number of incoming leads per partner

• Number of calls generated per partner

• Number of migrated subscriptions to other partners (cannibalization rate)

• Lead conversion rate per partner

• Commissions per partner and per type of work / support delivered by partner

• Average commissions per partner (total and average)

• Fees of partner program to finance partner marketing activities

• Customer Service Quality per Distribution/Channel partner

236


Logo client

Increasing Marketing Communications Effectiveness

Busin

ess O

bje

ctive

s

Price Premium

Market Share

Marketing Value

Busin

ess R

esults

Customer Equity

Intention

Awareness


Preference

AcquisitionEngine

RetentionCommitment

Recommen-dation

Behaviour




Marketing Drivers


Services

Communication



ChannelManagement

Price Positioning


Positioning

Scope

Marketing Strategy

Communication is a major marketing driver of the Value Creation and Capturing Model

Customer Value

CLTV

ROC

Presentation1

– Draft –

The communications effectiveness pyramid

239

Awareness

Trial

Repurchase

Loyalty

MIN

DSET , ATTITUDE

BEHAVIO

UR

Interest

Recom

mendati

on

Knowledge

Desire

Preference

Conviction

Winning over the head

Winning over the heart

Win again & again & again & …

Presentation1

– Draft –

Communication Objective

Metric Influenced by

How to measure

Input from

Awareness“I see”

Top of MindSpontaneous awarenessAided awareness

Cross Media Effectiveness

Share Of Voice SOVCPM (cost/1000)Gross Rating Point GRPOpportunity To See OTS

CIMWebsite trafficQuanti research

Interest“I look again”

Stopping power Creative work Pre testPost test

Quali/Quanti copy testingDay after recall

Knowledge“I understand”

Information powerClarityCorrect Brand attribution

Creative work Pre testPost test

Desire“I like”

Conviction power (credibility, brand commitment, likeability)Recall

PositioningCreative work

Brand IdentityPre testPost test

Quali/Quanti

Preference“I prefer”

Evoked setCorporate reputation

Creative workGeneral corporate image

Image Tracker Quali and Quanti reputation study

Conviction“I choose”

Persuasion Creative work Pre testPost test

Buying Intention research

Action to self“I do”

TrialRepurchaseLoyalty

Call to Action impactClient Satisfaction

Coupon redemptionOrders, salesRepurchase (RFM)

Trade infoNielsen (FMCG)CRM, loyalty prg

Action to others“You do too”

Recommendation Client Delight Net Promoter Score Quanti research

240

Presentation1

– Draft –

Some important concepts

Average frequency (OTS – OTH)

An expression of the average number of times a particular campaign or advertisement will be seen or heard by an individual in the selected target audience for the campaign.

In visual media, the expression is synonymous with "average opportunity-to-see" (OTS) and in radio with "average opportunity-to-hear" (OTH).

Cost-per-thousand (CPM)

Cost-per-thousand is a way in which cost-efficiency can be expressed. It is a measure of audience delivered per unit of cost (eg a TV spot costing £1000 seen by 100,000 housewives delivers a cost-per-thousand of £1000/100 = £10.00). It is typically used in inter- or intra-media comparisons of cost-efficiency (usually abbreviated to 'cpt' - 'cpm' in some countries). Audiences may be general (eg 'All housewives') or highly specific (eg 'C1C2 males aged 15-44 who are regular readers of the Daily Telegraph').

Coverage

The coverage is the number or percentage of the target audience who see or hear it an ad.

GRP (short for Gross Rating Point) = Frequency x Coverage

Example: 19% of women aged between 18 and 39 watch the news at 1 pm; an ad is broadcasted 2x; 2X19%= 38 GRP

241

Presentation1

– Draft –

Advertising Research quick insights

Research can be conducted to optimize advertisements for any medium: radio, television, print (magazine, newspaper or direct mail), outdoor billboard (highway, bus, or train), or Internet.

Different methods would be applied to gather the necessary data appropriately. First, there are two types of research, customized and syndicated. Customized research is conducted for a specific client to address that client’s needs. Only that client has access to the results of the research. Syndicated research is a single research study conducted by a research company with its results available, for sale, to multiple companies.

Pre-testing / Copy Testing

Pre-testing, is a form of customized research that predicts in-market performance of an ad, before it airs, by analyzing audience levels of attention, brand linkage, motivation, entertainment, and communication, as well as breaking down the ad’s Flow of Attention and Flow of Emotion. Pre-testing is also used on ads still in rough form. Pre-testing is also used to identify weak spots within an ad to improve performance, to more effectively edit 60’s to 30’s or 30’s to 15’s, to select images from the spot to use in an integrated campaign’s print ad, to pull out the key moments for use in ad tracking, and to identify branding moments.

Post-testing / Ad Tracking

Post-testing studies can be customized or syndicated. Tracking studies provide either periodic or continuous in-market research monitoring a brand’s performance, including brand awareness, brand preference, product usage and attitudes. Advertising tracking can be done by telephone interviews or online interviews—with the two approaches producing fundamentally different measures of consumer memories of advertising, recall versus recognition.

242

Presentation1

– Draft –

Integrated Marketing Communications =360° Marketing CommunicationsBut what does it mean?

The American Marketing Association describes it as …

“a PLANNING process designed to assure that ALL BRAND CONTACTS received by a customer or prospect for a product, service, or organization are RELEVANT to that person and CONSISTENT over time”

•Planning �� develop the communication roadmap based on customer insights

•All brand contacts �� identify the Moments of Truth in the Customer Lifecycle, identify “hidden” communication moments

•Relevant �� which channels does the customer want you to use?

•Consistent �� using multiple communication channels means stepping up control & guarding consistency

243

Presentation1

– Draft –

Integrated Marketing Communications is more effective when senders transmit their message via channels and with attributes that receivers prefer(1)

244

Different views on attributes of successful B2C communications

Senders believe communications should be informative, appropriate (i.e., properly targeted), difficult to ignore, not annoying. They feel that purchase intentions will be raised if the communication is difficult to reject.

However, none of these attributes is seen as important by consumer receivers! They prefer communications to be enjoyable, entertaining and reliable.

More agreement as to which channels are most effective for B2C

The phone, email, SMS and door-to-door media all result in lower purchase intentions than mail (personal and generic), television, catalogs, radio, newspapers and magazines.

B-to-C senders believe that receivers might be more receptive to the newspaper channel, but receivers place newspapers as equivalent to all other mass media in terms of effectiveness.

(1): A Comparison of the Effectiveness of Marketing Communication Channels: Perspectives from Both Receivers and Senders, Peter J Danaher and John R Rossiter**, Department of Marketing University of Auckland, 2006

Presentation1

– Draft –

B2B MarCom also demonstrates a disconnect between senders and receivers(1)

245

Different views on view on attributes of successful B2B communications

Senders generally think that entertaining and not disruptive communication will be more effective. Business receivers agree that a communication should not be disruptive, but their preference is for acceptable and appropriate communications rather than entertaining ones. These differences between B-to-B senders and receivers can amount to quite large differences in downstream purchase intentions, and actual purchase. A comparison of predicted purchase probabilities when senders emphasize attributes that diverge from what receivers want results in 30 to 35% lower values of purchase intention.

Different views on media usage in B2B

Senders to the business segment often feel that newspapers and magazines are more effective, receivers do not agree. For B-to-B recipients, their purchase intentions are equivalent, and highest, for printed direct media and mass media. Email, telephone, SMS and door-to-door channels perform consistently the lowest.

(1): A Comparison of the Effectiveness of Marketing Communication Channels: Perspectives from Both Receivers and Senders, Peter J Danaher and John R Rossiter**, Department of Marketing University of Auckland, 2006

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Developing the ideal Media Plan and setting Media Objectives is about making trade offs

Budgets are not infinite, media planners will start by making a high level choice on the following objectives

ReachThe higher % we reach, the greater the volume opportunity

Frequency

The higher the frequency, the more likely the message will be noticed & remembered (minimum 3-5 times)

Continuity / duration

The more weeks of support, the less opportunity to forget the message

Examples – how would you rank objectives?1. Launch of new taste of high quality and high price pet food

within existing brand and existing broad portfolio2. Launch of spectacular offering of mass retailer: come and

collect products for free on day X

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Identifying reach objective – an example

Objective: generate 2.500 additional visits to shop

Assume 5% of target households (HH) will respond to advertising

Need to reach 50.000 HH (50k x 5% = 2.500)

Convert to % of total target, e.g. 100.000 HH in service area, need to reach 50% of target

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Developing media strategiesEvaluate & compare each media type against objectives and budget

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Reach

Vehicles

Frequency

Vehicles

Targetable

By Demographic

Group

TV

Magazines

Newspapers

Radio

Magazines

Targetable

By Geographic

Group

Outdoor

Local Radio

Local Radio

Local Media

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Media channel overkill jeopardizes effectiveness in B2C mainly

Receivers in the consumer segment are less likely to act on an offer from a particular channel if there is already a lot of material sent to them via that channel (e.g. TV clutter, e-mail clutter).

Senders of marketing communications via digital channels, where costs are lower, might be tempted to send more frequent communications. Clearly, this is likely to have a downstream negative impact on the response to the advertising.

By contrast, receivers in the business segment are more

likely to act on an offer if they already receive higher volumes from that channel. This could be interpreted as meaning that a business receiver does not see additional offers sent to them via high-activity channels as an impediment to consideration and action on future offers. Perhaps they have come to trust and become comfortable with channels where there is already quite a lot of business communication.

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Get into the brain of your receiver

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Left Brain Right Brain

uses logicdetail orientedfacts rulewords and languagepresent and pastmath and sciencecan comprehendknowingacknowledgesorder/pattern perceptionknows object namereality basedforms strategiespractical

uses feeling"big picture" orientedimagination rulessymbols and imagespresent and futurephilosophy & religioncan "get it" (i.e. meaning)believesappreciatesspatial perceptionknows object functionfantasy basedpresents possibilitiesimpetuousrisk taking

This theory of the structure and functions of the mind suggests that the 2 different sides of the brain control two different "modes" of thinking. Each of us prefers one mode over the other.

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Start with the conception of a clear briefing to a creative agency

Target group & relevant insights into the target group

Positioning of the brand / product / company

Single Selling Idea: what 1 thing does the target audience need to remember?

What is the expected outcome of the campaign?

What do you expect the target audience to THINK, to FEEL, to DO?

Background info on the company / brand / market / competition / …

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Why is the Single Selling Idea important?

Pick out 8 balls and throw them towards someone in 1 movement…

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How many will he be able to catch?

Right… if you’re lucky… 1

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Unless you’re a trained tennis ball catching dog ☺☺☺☺

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How to judge the effectiveness of Creative Work?We need to distinguish between the execution and the strategy behind the idea

Conclusions of studies(1) about the execution elements of creative work were non-conclusive, except for this:

“there is no magic formula for the creation of effective advertising”

“it is likely that the most important factor in effective advertising is the creative combination of many elements into a persuasive art form”

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(1): Ernst (1980), Stewart & Furse (1986), Garnard & Morris (1988), Stewart & Koslow (1989), Laskey et al (1994), Laskey, Fox & Crask (1995)

?

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It pays to look at the strategy behind the idea(1)

Results of the Laskey et al study

Conclusion:

• There is a difference in effectiveness of 2 main message types (informational versus transformational)

Effectiveness was measured in terms of

• Related recall (% consumers who remember seeing the ad)

• Key message comprehension (% consumers who remember key message point)

• Persuasion (shift in brand preference attributable to exposure to ad)

Typology on main message strategies

• Informational advertising

• Comparative (competition explicitly mentioned)

• USP (explicit claim of uniqueness)

• Pre-emptive ( testable claim of superiority based on attribute/benefit)

• Hyperbole (untestable claim of superiority based on attribute/benefit)

• Generic (focus on product class)

• Transformational advertising

• User image (focus on the user)

• Brand image (focus on brand personality)

• User occasion (focus on usage occasions)

• Generic (focus on product class)

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(1): Laskey, Fox & Crask (1995)

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Some things to consider while looking at Creative Work

Is there a BIG IDEA, or just a nice gimmick?

Does it have STOPPING POWER (capture attention/create impact) ?

Is the message EASY to UNDERSTAND? (Single Selling Idea)

Does it allow DECLINATION to different media types?

Is there a clear link with the BRAND (name but also positioning, pack shots, sound signature, identity, tone of voice)

Is it DIFFERENTIATING?

Does it have the EFFECTS on the target in line with the briefing?

Do people LIKE it?

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Importance of advertising likeability according toMillward Brown

40% of advertising effectiveness is explained by its liking score

Ad-liking correlates with Ad-recall/Awareness

Liking = 5 : 3% impact/100GRPs



Emotions

•Create attention

•Determine associations

Emotive advertising works best

One must understand what emotion is

•Not interfering with rational or opposite rational

•Determines the rational

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Increase Print Advertising Effectiveness

Does the headline ‘grab’ the reader? Ideally the headline is 9 words or less

(Ogilvy: high impact headline is read by x5 people)

Does the headline promise an important benefit?

(Ogilvy: ads with benefits are read by 4x more people)

Body copy long enough for useful information and proof of promise –but not too long!

Roper Starch Worldwide, database of + 2M print ads found that excessive copy reduces the effectiveness of ads and recommends copy of max 50 words or less

Increasing white space around the ad or headline increases effectiveness

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Increase Direct Marketing Effectiveness

Total response rates are less important than ROI calculation, consider things such as

•Number of buyers

•Cost per buyer

•Number of responses

•Cost per response

•Cost per Lead / per Order

•Lead-To-Sales Conversion

•Avg profit on order

•Expense-to-revenue ratio

Example of effectiveness DM:

American Direct Marketing Association 2007: ROI of DM in automotive - for every dollar spent in DM, 33.81 dollar gained

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Customer Experience

Ichec

2010-2011

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For a company, The Customer Experience is core to the brand positioning, mainly to sustain a premium positioning

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“Great customer experience and optimal results are achieved when the operational reality is aligned with the brand promise and business objectives”

An effective Customer Experience strategy is a key driver of:

•Strong brand image and differentiation building

•Brand preference: ensuring consumer choice over competitors

•Brand loyalty: ensuring repeat purchases

•Optimization of cost to serve per customer segment

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For the customers, the customer experience is “all interactions that he has with the Brand” : from seeing an advertising…. to purchasing more!

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Want to find

Find whereto buy

Buy& Pay

Get started& Use

Needhelp

RepurchaseOr exit

“Let’s take the example of a customer having seen a Wii advertising…”

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So, improving the customer experience will drive the “Customer Lifetime Value” by improving the way we get, keep and increase the customer value

CLTV = Revenues – Cost of Acquisition – Cost of Retention – Cost-to-Serve

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CustomerValue (€)

Get Keep Increase

Acquisition(#)

Loyalty(time)

Find & Buy

Get Started

Use BillingNeed Help?

Repurchase

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“We create happiness for children of all ages” Disney Resorts Brand Promise

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Processes, products and services

can be calibrated and structured H

� Length of queues

• Max 15 minutes

� Food quality standard

�Cleanness of alleys

• Cleaning tour every 50 minutes

• No paper

• So clean you could eat on the

ground

�H

Customer experience is not only a matter of standardized processes …

H customer experience is also a mindset for all employees

H but children are unpredictable

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Five building blocks for a pragmatic top down approach methodology

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Business strategy / Customer perception

match ?

Interactionidentified &

actions prioritized

Scenario building & implement

Monitor

Understand Brand positioning

Understand Brand values

Get Customer insights

The interactions process as part of CE

Define the aspirations per interactions

Build scenario’s

Implement

Measure

Define KPI’s per interaction

Prioritization

Turn KPI’s into business driversFinancials

CPM

ROMI

CEIdentify gaps

3

2

1

4

5

6

7

8

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Put yourself in the shoes of the consumer: gather customer insights data!

• Step 3 a: Customer insights can be generated through various opportunities:

• Economic value:

- Surveys

- Complaint registration

- Panel discussions

• Data mining techniques

- Registration of products and contracts

- Loyalty registration

• Step 3 b: Cluster the different Consumer Groups (segmentation) and deliver the right experience to the right Customer Group

• Usage, geo-marketing, distribution, satisfaction data

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The interaction process as part of the customer experience (step 4)

269

Products&

servicesPrice

Brand

COM

Channel

Want to find

Find whereto buy

Buy& pay

Get started& Use

Needhelp

RepurchaseOr exit

Products&

services

Relationship

Management

Lifestage

Motivationalsegmentation

Wallet

Interactions

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Let’s start from the customers, and define their aspirations (what they expect from the Brand) at all those “interactions points”

• Clear “go to action” in the ads

• Shops, Customer Services work flexible hours & have fast handling (low waiting time in shop and CS)

• Easy website

• Best in class product quality & usability

• Fast and easy configuration at installation (DIY)

•Clear installation communication•Short lead time & timeslot

• Quick activation process & provisioning

• Clear tariff structure• Clear product and service communication

• E.g. device compatibility (GPS, 3G,..)

• Broader channel accessibility

• CS flexible hours• Fast handling• Easy website• Self service in shops• Friendly & competent staff

• Automatic contract renewal

• Open billing platform (cross selling)

• Personalized direct marketing

He feels we like to taken care of him

He trustsus

He feels welcome

He feels reassured

He feelsrespected

• Friendly & competent staff

• Customer identification

• Clear installation communication at order intake

• Tariff structure clearly reflected in the invoice

• No billing errors

He feels right

• Usage is as intuitive as expected

• Promotions & advantages clearly expressed

• First time right highest possible rate

• Right product proposal (CRM)

Find & Buy

Get Started

Use BillingNeed Help?

Repurchase

RATIONAL

EMOTIONAL

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Prioritization of potential actions

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Motivational Segmentation

4

WHAT

Interactions

21

WHEN

Channels

4

THROUGH

Life stages

6

WHO

Value

6

WHO

12 096 potential actions!

Concept needs a human dimension, needs to be manageable for people

x x x

HOW =

x

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Prioritization according to relevant criteria

Through Customer Research (and Business strategy) we now have the data necessary to priorities the actions through a 3-phase approach. They are depicted in the following prioritization funnel:

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n = # of actions

1st criteria – Relevance to the Customer

2nd criteria – Customer Satisfaction

3rd criteria – Company Feasibility and/orRevenue Generator

x

y

z

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Prioritizing by customer relevance

This prioritization consists of multiplying the relevance ratings from the Customer Research to obtain an OMCE Relevance Score

For example, if as part of the Customer Experience exercise we wish to establish that the right service is offered through the right distribution channel and communicated through the right media, for each consumer group:

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Consumer Group 1

Consumer Group 2

A 7.1B 6.9C 4.4

Service Type Score

A 8.4B 5.1C 2.0

A 5.2B 8.5C 6.1

A 2.1B 4.0C 8.3

A 2.1B 4.0C 8.3

A 7.1B 6.9C 4.4

AxBxC 501AxCxB 173

…

AxCxA 495AxBxB 231

…

Channel Score Media Score

OMCE Relevance Score

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Prioritizing by customer satisfaction

We can now plot the OMCE Relevance score against Customer Satisfaction to determine the most urgent attention points:

274274

Satisfaction


Minimum LevelHigh

High

x

x

x

x

xx

x

x

x

x

DISREGARD

CONTINUE

INVEST

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Prioritizing by business priorities

Finally, we can filter the results to obtain the OMCE’s that most urgently require attention:

Satisfaction


Low High

High

x

x

x

x

xx

x

x

x

x

DISREGARD

CONTINUE

INVEST

Satisfaction


Low High

High

x

x

x

x

xx

x

x

x

x

DISREGARD

CONTINUE

INVEST

ABC 501ACB 173ACA 495

ABC 4259ACB 882

ACA 1251


OMCE Priority Score

Bus. Priority1-10

8.55.12.3

Value FromLoyaltyMargin

Volumes

Value For

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Turn KPI’s into business drivers (step 5)

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ACQUISITION LOYALTY

UPSELLING

Want to find

Find whereto buy

Buy& pay

Get started& Use

Needhelp

RepurchaseOr exit

DECREASE COST TO SERVE

KPI KPI KPI KPI KPI

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KPI’s

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Want to find

Find whereto buy

Buy& pay

Start& Use

Needhelp

RepurchaseOr exit

• Awareness

• Top of Mind

• Ad awareness

• Brand/product knowledge

• Attitude/Liking/

Image

• Perceived value for money

• Perceived quality

• Intentions

• Brand Preference

• # of shop visits related to billing

• # calls related to billing

• Share of e-Bill• # of bills sent par month per customer

• # settlement issues

• Market Share• Penetration• Volumes sold and margin calculation

• Sole Usage• Numbers of brands

purchased• Heavy usage index• Willingness to search

• Cross-selling rate• Up-selling rate• Margin• Volume sold• Churn rate while moving

• %billing issues when moving

• %movers needing a follow-up

• %movers filling a complaint

• %churn for win-back customers

• NPS• ACSI• Customer Advocacy

• Willingness to recommend

• Customer Satisfaction on explanations received

• % of issues solved through web/self-service

• % of reworked orders

• % DIY• % of support case

• Installation lead time

• Time slot size• % waste orders

• Per product: Availability, down time, dropped calls, quality of service, speed and usability

• Web site satisfaction

• Customer service easy reach

• POS coverage• POS Visibility• POS Availability

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Developing scenarios for the priority actions

• Step 6 & 7 : Based on the qualitative research collected during the Customer Research phase, and knowing which OMCE’s are prioritized, we can develop Scenarios to improve Customer Experience in the most relevant and feasible way.

This is applicable to each separate Customer Group, who will now each have a customized Scenario for their needs.

“Scenarios” include the following information:

- A description of the Customer Group and behavior

- Implicit guidelines

- Explicit guidelines

- Actionable recommendations

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How to measure pragmatically the impact of CE

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• Awareness: % of potential customers who recognize a brand

• Top of Mind: First brand that comes to mind

• Ad awareness: % of potential customers who recognize an add (could be aided), response rate to communication campaign

• Brand/product knowledge: % customers who demonstrate specific knowledge or beliefs about the brand

Awareness and Knowledge

• Attitude/Liking/Image: % of potential customers who agree with statements like: ‘this is a brand for people like me.’

• Perceived value for money: % of customers who agree with statements like: ‘this brand has usually good value for money’

• Perceived quality: quality perception compared to other product and services in the market

• Intentions: % of potential customers who agree with statements like: ‘It is very likely that I will buy this product

• Brand Preference

Attitudes/ Purchase

Intentions

• Number of new customers• Market Share• Penetration• Volumes sold and margin calculation

Acquisition

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• Sole Usage: The fraction of a brand’s customers who only use the branch in question

• Sole Usage percentage: Proportion of sole users to customer base

• Numbers of brands purchased

• Repeat rate: The % of customers in a given time period who are also customers in a subsequent time period

• Repurchase rate: The % of customers who repurchase the brand on a next occasion

• Churn rate

• Cross-selling rate and Up-selling rate

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Consumer Franchise and

category usage

Heavy usage index

= Average total purchases in category (#, €)/ Average total purchases in category by all customers

! This index does not indicate how heavily customers use a specific brand, only the category

The willingness to delay a purchase in order to not switch brands

= ‘Accept no subsitutes’Willingness to

search

Usage

• Usage in a year, month, week

• Relative usage: Usage of 1 brand compared to total usage in a given period of time

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• Concept introduced by Insites Consulting measuring the maturity of your company in delivering Customer Experience

• It is based on 4 elements: Understanding your customers, organizational alignment, moments of truth and brand consistency

• Individual measurement and benchmark comparisons based on internal evaluation

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Maturity index

IPA

• Importance – Performance analysis is a graphical and analytical tool for developing prioritization in improvements on attributes, be it store attributes, service attributes,…

• Questionnaires will determine the importance and satisfaction on each attribute and plotted on the graph

• The position of each attribute will determine the urgency of improvement

• This model is the input in the THoM methodology

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• Net promotor score, developed by Fred Reicheld, calculates customer satisfaction through 1 question “Would you recommend us to your family and friends”

• The advantage is the simplicity, but this also implies limited statistical significance

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NPS

(A)CSI

CxPI

• Customer Satisfaction Index is the main competitor to NPS

• It is constituted by multiple questionnaires and calculations are based on regression models

• The complexity of this model makes it easy to compare within sectors or industries, but not useful for individual use. The research has to be done by external sources

• CSI used by Electrabel

• The Customer Experience Index is developed by Forrester and gives the opportunity to make an overall view on Customer Experience of your company within the industry

• The methodology is based on 3 items: The usefulness, how easy it was to use or interact, and the way the customer felt during this interaction

Documents

Marketing Performance