Tag: Marketing Metrics

Marketing Using ‘Customer Lifetime Value’ & ‘Customer Equity’

Posted on by The University Marketing Blog

In the previous blog, customer profit was discussed which is relevant to the past tense of customer’s behaviour. Customer Lifetime Value (CLV) is concerned with “the present value of the future cash flows attributed to the customer relationship” (Bendle et al., 2016, p159).

Essentially, by gathering information about a customer’s behaviours we can reflect on the information and cash flows associated with the customer to provide an insight and estimation of the future value they might bring to the company.

Calculating CLV becomes extremely simple in contractual situations given the predetermined nature of the contract’s agreements but can provide a good element to planning for future cash flow.

The difference between CLV and Customer Equity (CE) is that CLV is concerned with a customer on an individual level while CE provides a measurement of the value of all customers (Bendle et al., 2016).

CE is another element that can increase the accuracy of financial standings and would, at the bare minimum, compliment the current processes in nearly any organisation.

References:

Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey

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A Marketing View of ‘Customer Profit’

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It seems rather obvious and sometimes assumed…

Customers who result in more value for a company with less efforts and/or costs are far more desirable. Something many company’s fail to do is segment the customers based on the status or level, this allows them to be treated appropriately.

Bendle et al. (2016) categorises these categories into the following 3 tiers:

Top tier customers can be rewarded but this must be done carefully to prevent any impact on their status as a top-tier customer.

Second tier customers are the second category and these customers need to be nurtured and grown which will undoubtedly take investment.

Third tier customers are undesirable and cost far more than their return in value and should not be chased by any means.

We can define Customer Profit (CP) as the ‘difference between the revenues earned from and the costs associated with the customer relationship during a specified period’ (Bendle et al. 2016).

This involves a large amount of guess work for two reasons on both sides of the equation. First, calculating the cost allocated to an individual customer is very hard to calculate but if a consistent method such as Bendle’s et al. (2016) Activity Based Costing can be applied, this will provide some useful data.

On the other side of the equation, calculating revenue is also difficult as the monetary revenue is one thing but if that customer recommends the brand to their friends this adds further value.

While theoretically, the concept of customer profit is very useful the application is very difficult and the practical uses for the concept seem to lie in the tiered status of customers to allocate resources appropriately.

References:

Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey

Critical Success Factors for Marketers

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Critical success factors are identified by McDonald et al. (2014) as factors that represent important customer needs. Unlike qualifying factors, these are not expected to simply survive but they are really important to the target market.

Improvement on areas identified as critical success factors result in gaining a competitive advantage in the market, the flow on effect from this is an increase in market share. Marketers need to fully understand the critical success factors in their target markets and be able to track the performance of their (and ideally their competitors’) market offerings appropriately (McDonald et al. 2014).

When identifying critical success factors, McDonald et al. (2014) identifies some areas to consider:

  • Consumer needs that are met and unfulfilled
  • The varying importance of the critical success factors
  • Expected performance levels and how well company is meeting them
  • Performance in comparison to competitors
  • Customer perception and points of competitive advantage

To put it simply, McDonald et al. (2014) summarises critical success factors as ‘winning through differentiation against key competitors’. There are some steps that can be be taken by marketers when it comes to using critical success factors:

  1. Provide a clear description
  2. Identify relevant metrics (measurements)
  3. Identify where information comes for these metrics
  4. Rank CSF in order of importance
  5. Identify current performance
  6. Set a SMART goal for improvement
  7. Know the benchmark set by competitor in the market

McDonald, Malcolm, Peter Mouncey & Stan Maklan (2014) Marketing Value Metrics: A new metrics model to measure marketing effectiveness. Kogan Page: London.

Qualifying Factors for a Marketer Meeting Customer Needs

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When assessing what is seen as a qualifying factor, it must first be defined. McDonald et al. (2014) defines it as the factors customers expect to be delivered by all organisations in the market. It is looked at as the bare minimum to survive in a market.

Qualifying factors are required to deliver value for the customers. Marketers should look to determine what the threshold is for customers as to not exceed this by significant amounts. The reason being that exceeding this qualifying factor threshold may not hold much, if any return on investment for an organisation.

The purpose here can be seen as reducing dissatisfaction instead of increasing satisfaction as that is more of a measure for critical success factors.

This is a dynamic measurement and a method that can constantly measure the expected and achieved performance levels in an organisation is required to address and gaps in the expected results.

To enhance the accuracy of these measurements/factors, a clearly identified target market is also required and a pre-determined threshold for the gap of expected and achieved performance levels must also be established. This allows definitive actions to take place and a specific time and removes any delay in the decision process.

References

McDonald, Malcolm, Peter Mouncey & Stan Maklan (2014) Marketing Value Metrics: A new metrics model to measure marketing effectiveness. Kogan Page: London.

Marketing Metrics for Customer Feedback

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Customer feedback is essentially their perception of the product or service you offered, it can be influenced by their expectations but the measurement is taken proceed their consumption of your offering.

These metrics indicate how happy the customer was with the organisation’s market offering. Bendle (et al. 2016) include customer satisfaction, willingness to recommend, net promoter score in their customer feedback metrics.

Customer Satisfaction

Is expressed as a percentage that reflects how many customers had their expectations exceeding the pre-determined satisfaction goals (Bendle et al. 2016). A high satisfaction percentage can be a good indication of future purchase while any dissatisfaction may bring to light issues that may need to be addressed. There can be some issues with accuracy as there is with any survey data.

Willingness to Recommend

As it may sound, this metric reflects the customers who indicate they would recommend the product/service to family of friends and is collected through survey data (Bendle et al. 2016). It is hard to measure the flow on effect but it does reflect a higher level of loyalty and word-of-mouth marketing can be extremely effective.

Net Promoter Score (NPS)

This is an additional means of measuring willingness to recommend. This is a relatively simple means that compares the scores of respondents with 9-10 in contrast with those scoring 6 or below to come out with a net score. The end percentage, if positive reflects a good level of satisfaction but 0% can simply mean equal advocates and negative respondents. The other flaw to this measure is the inability to indicate causes of poor satisfaction and simply diagnoses when it occurs (Bendle et al. 2016).

References:

Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey

The Importance of Loyalty in Marketing Metrics

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Bendle (et al. 2016) looks at loyalty as being more of a broad concept then a specific metric marketers seek to measure.

There are some key metrics that must be considered when attempting to measure loyalty. These include share of requirements, willingness to pay a premium, willingness to search, repurchases and purchase frequency (Bendle et al. 2016.

Loyalty is important as an indicator for future business and the higher the level of loyalty is a reflection that the company will be likely to receive future revenue from this customer. Bendle (et al. 2016) raises the dynamic nature of loyalty and given the highly competitive nature of most markets now, if a company fails to meet the changing needs of their customers, the new entrants are constantly evolving to threaten customer loyalty.

Willingness to search is considered the ‘acid test’ for loyalty but to accurately collect the data to build this metric can be difficult. It is defined as the percentage of customers who would wait to buy a brand that is (temporarily) unavailable rather than buy an alternative brand. This could involve the customer going through a different medium to purchase their preferred brand or purchasing the minimum amount of their lesser preferred brand until they can again access their preference.

Loyalty is a key aspect for marketers to consider when measuring the success of their brand, a high level of loyalty in customers can be a great indicator for a sustained competitive advantage and future success. Marketers must always ensure they are meeting their customer’s needs as the threat of a substitute or new entrant are constantly evolving in the competitive environment that exists in most markets today.

References:

Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey

Key Marketing Metrics for Awareness

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As previously discussed on the blog, metrics can be used to measure just about anything, or at least attempt to. Bendle’s work identifies four main metrics that are used to measure the idea of awareness and the method of collecting all of them is through the quantitative means of surveys.

Awareness

Is the most common term and an umbrella term for the whole area or marketing metrics. This is regarding whether the customer has ever heard of the brand or if they know it exists. It is crucial as you will provide different offerings to someone who has never heard of your brand compared to a 10-year loyal customer.

Top of Mind

This metric attempts to measure how relevant the brand is to the target market, an example would be surveying the first thought of grocery shops and if the response is Woolworths, they are the brand that is ‘top of mind’ for that customer. When data is collected from a whole target market a clear picture can be painted about competitors and where you may stand amongst the competition. This metric is however criticised as the measurement is often influenced by the most recent brand interaction and perhaps not their preferred choice.

Ad Awareness

This seeks to measure performance of marketing efforts around a specific ad. It is most commonly measured as a percentage of the targeted population to help improve future marketing efforts by identifying what aspects may have worked best.

Knowledge

Bendle states this as not being a formal metric but it still remains an important aspect that measures a deeper level of awareness. This metric seeks to measure the customers knowledge beyond just the name or any surface informations. It can be a useful metric to see if a company vision statement or CSR efforts are being communicated around a market.

References:

Bendle, NT, PW Farris, PE Pfeifer & DJ Reibstein (2016) Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, 3rd edition. Pearson: New Jersey

The Risks of Poor Strategy for Marketers in a New

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To put it simply, these risks occur when the promise of a strategy does not deliver as it is planned prior to implementation. McDonald (et al. 2014) categorises the major concern into five areas.

Target Market Risk

This can be caused as a result of poor research or poor segmentation and increases in the likelihood of occurring if the target market is not homogenous or doesn’t have a key common characteristic.

The risk is that the target market is wrongly identified and understood and the offering wither doesn’t reach this segment or is not offered the product/service correctly.

Proposition Risk

This is the risk of your offering not being purchased due to being poorly communicated or being a service/product with little to no demand.

This risk can be reduced by offering a differentiated product to different segments as opposed to one mass offering that may come across as too generic for a consumer to proceed to purchase.

SWOT Risk

This is an analysis tool that identifies the companies Strengths and Weaknesses as well as the external Opportunities and Threats. If this is done poorly, the risk is that the company may offer a product that doesn’t utilise a strength or it may miss an opportunity.

A thorough analysis can reduce the risk of a strategy by correctly seeing the best area to enter a market by utilising organisational strengths.

Uniqueness Risk

Similar to proposition risk, but if the strategy is similar to a direct competitor, there is an increase risk of failure or reduced profit margin. This applies to the product as well, there must be some differentiating factor to make the product stand out from the rest to minimise the risk of strategy not being as successful.

Future Risk

The risk that your strategy fails to take into account the trends in the market. While it can be impossible to predict the future trends to 100% accuracy, research can allow a strategy to identify potential risks and opportunities that may arise and allow room to adapt to these. This can be the key to gaining and sustainable competitive advantage.

References:

McDonald, Malcolm, Peter Mouncey & Stan Maklan (2014) Marketing Value Metrics: A new metrics model to measure marketing effectiveness. Kogan Page: London.

Profit Risks Marketers Must Consider in a New Market

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When entering a new market or segment there is always the calculations for expected return on investment. These risks are centred around that ROI being as high as anticipated and the causes for it.

Profit Pool Risk

This risk occurs when the potential profit pool in a market is reduced as a result of a reaction to the strategy you implement. If stronger competitors react and match your strategy with their own, they can severely limit your ability to profit in the segment. There may be multiple competitors all fighting for market share that can all react to the new market conditions and effectively shut you out.

Competitor Impact Risk

While similar to profit pool risk, this risk is focused towards a single competitor. If you enter a market with a strategy that targets a very similar market to one competitor and they react effectively, they alone can prevent your success. A good example of avoiding this would be Fitbit entering the wearable technology market but not directly competing with a powerhouse like Apple.

Internal Gross Margin Risk

This occurs when a company underestimates the costs of production and distribution which results in their end profit margin being very slim and having no room to drop to match a competitor’s price.

Profit Source Risk

Due to a competitors reaction, your profit margin may be reduced when you have to price match. Entering a market with the intention on taking market share purely from the market leader who will in turn be able to beat you on pricing the majority of the time.

Other Cost Risks

Costs that may not be immediately obvious might add up to more than expected and reduce you ability to make any significant returns on investment. This can be prevented by careful calculations of all extra costs and being realistic with these numbers to avoid optimistic disappointments.

References:

McDonald, Malcolm, Peter Mouncey & Stan Maklan (2014) Marketing Value Metrics: A new metrics model to measure marketing effectiveness. Kogan Page: London.

The Main Risks When Entering a Market

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When entering a market, there are several factors that contribute to the success of a product or brand. McDonald (et al. 2014) identifies five significant risk factors to take into account when entering a market with a particular increase in risk when less is known about the market

Product Category Risk

This risk is essentially the entire product strategy may be smaller than what your calculations allowed for. This would not be as big of a risk with a product diversification as the history of the product will give you the insights to understand the category.

For this reason, this risk becomes significantly greater when implementing or releasing a new product when there is an element of unknown about the category’s size.

Segment Existence Risk

While someone self explanatory, the risk of this category is that the target segment you have chosen is smaller than you initially thought or doesn’t really exist at all. With a smaller segment comes less profit, especially if your production is built around catering for a large segment.

Sales Volume Risk

Similar to the above risk, if the segment is smaller than anticipated, sales will be fewer. For some products to be profitable they must sell in large quantities, these products are what will be impacted my by this risk. More comprehensive research can provide a risk reduction to manage with this.

Forecast Risk

This risk focuses on market growth. If you plan for the market to experience significant growth and it reaches maturity early, this can be the demise of a product or brand. While research can help in reducing this risk, history may not paint the most accurate picture for future predictions.

Pricing Risk

This risk occurs when the pricing levels in the market are lower than initially calculated. As a result you will have to reduce price to remain competitive but most likely reducing profit margin as well, it becomes lear how this can be detrimental to a company.

References

McDonald, Malcolm, Peter Mouncey & Stan Maklan (2014) Marketing Value Metrics: A new metrics model to measure marketing effectiveness. Kogan Page: London.