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Lecture 3
Empirical Marketing
| Question | Answer |
|---|---|
| What is customer dynamics? | - discrete life events - typical lifecycle with age - product learning effects - product lifecycle - changes in economy, government, industry or culture |
| What is customer lifetime value? | captures the contribution of each customer according to his or her expected migration path over the entire lifetime with the firm |
| What is the lifecycle approach? | uses stages of growth and their position in the lifecycle to determine customer preferences and their strategies pros: simple and easy to use cons: assumes all customers follow one curve, averages all customers and ignores causes of customer dynamics |
| What is customer segmentation? | Customers based on migration patterns pros: combines lifecycle and segmentation methods, matches strategy thinking and identifies temporally homogenous groups. cons: they are not perfectly homogenous and puts continuous change in discrete stages |
| What are the pros and cons of CLV? | Pros: - provides insights for AER decisions - supports customer centric culture - captures dynamic and heterogeneity Cons: - requires insight into future migration - requires detailed financial data |
| What are the different lifecycle approaches? | - customer lifecycle: how individuals change as they reach common milestones - product lifecycle: products go through 4 typical stages, introduction, growth, maturity and decline |
| Describe the introduction stage | - product just launched in the market, perceived as risky by customers - most relevant features are still unknown - high prices - seller focuses on finding new customers and promoting product trials |
| Describe the growth stage | -product gains acceptance in the market and sales expand quickly - users are more comfortable with the product and know the features they want - more focus on retaining customers and generating repeat sales -customers become more price sensitive |
| Describe the maturity stage | - product is widely accepted and growth begins to slow because fewer new users are available - market becomes competitive and some firms drop out - intense price competition reduces profits - some sellers focus on niche segments to avoid competition |
| Describe the decline stage | - destructive competition and customer dynamics leads to product decline - firms sales and profits decline - firms with higher cost and those without a unique advantage exit the market - market often consolidates with fewer suppliers |
| What is the customer dynamic segmentation approach? | - Evaluates existing customer's behaviors and needs to understand temporal differences - matches marketing action domains - often called the AER model due to capturing customers portfolio and expanding over time |
| Describe the 3 AER stages | Acquisition: first contact, before first purchase Expansion: up-sell to expand engagement with existing customers Retention: deals with customers who may migrate |
| What does lost customer analysis inform AER strategies? | identifies the cause of customer churn and work backwards to make sure customers don't leave again for the same reason |
| What is the 3 step process of the lost customer analysis? | 1. Set intervals for contacting lost customers to identify cause 2. if not in the firms main target segments firms could: - change acquisition criteria 3. If in the firm's target market, firms should - fix the problem - implement strategies |
| What are the 3 readily available customer behaviors? | - recency: time elapsed since last purchase - frequency: of purchases in the last period - monetary: purchases in last period |
| What is RFM analysis for segmentation? | The RFM variables put customers in rank ordered groups, based on their value in the past year. Using the profits generated from a test mailing, direct marketers then mail catalog only to the groups with an acceptable return on investment |
| Describe CLV analysis for varying profits across customers | - Beyond 80/20 rule: firms earn 150% of their profits from 30% of customers -CLV analysis: differences among existing customers, choose best customer -Annual earnings increase over a CLV from cross-selling - Some customers are more costly to retain |
| What is CLV analysis? | added value by an individual customer ( form of customer centric accounting where firms value is the sum of all its customers CLV) CLV= [(Mi-Ci)/(1-ri+d)]-AC |
| Describe CLV analysis | The future discount probability of a customer, it breaks down firm or product level profitability to the customer level, enabling customer centric approach |
| When do you use CLV analysis? | - to identify which customers are worth acquiring and retaining - to determine where to target marketing programs to maximize the firms return on marketing investments - to understand the true value of a customer to a firm |
| What are the 3 steps in the calculation profits of CLV? | 1) estimating the remaining customer lifetime according to the retention rates 2) forecasting net profits from the customer over the predicted lifetime 3) calculating the net present value of the future amounts |
| What are other empirical approaches for CLV estimation? | Advanced econometric machine learning models to predict individual-level behavior of customers RNN allow to accurately model seasonality and individual level differences |
Created by:
janasultan
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