Transcript Marketing Principles MKTG 101

Module 11
Creating Customer Value
Through The Internet
Orientations in the History
of American Business
What’s Next?
From mass production, to segmentation,
to niche marketing, to customization, is
there a next step?
Multiple markets residing within individual
customers.
Co-opting Customer
Competence
C.K. Prahalad and Venkatram
Ramaswamy
2000
“Customers are part of the enhanced
network; they co-create and extract
business value. They are
collaborators, co-developers, and
competitors.”
“The competence that customers
bring is a function of the knowledge
and skills they possess, their
willingness to learn and
experiment, and their ability to
engage in an active dialogue.”
Examples of Companies Drawing
on Customer Competencies
 Microsoft
Had customers test a beta version of Windows
2000.
Sought feedback on features and attributes.
Ironed out bugs.
Added value by customers: $500 million.
Cisco
On-line service that gives customers open
access to its information, resources, and other
customers.
Customers end up solving problems encountered
by other customers.
Examples of Companies Drawing
on Customer Competencies
 Medical field
Patients research causes and treatments of
diseases.
Patients and doctors engage in active dialogue.
Patients and doctors collaborate to develop
treatment plans.
“…the more knowledgeable customers become,
the more likely they are to shape their heath care
regimen.”
Harnessing Customer Competence
Identifying and defining the competencies of
one’s own company is a tremendous challenge.
Trying to do the same with the competencies
of one’s top suppliers and then integrating
those competencies further complicates
matters.
How does a company harness the
competencies of millions of customers?
Encouraging Active Dialogue
Dialogue with customers is a dialogue of
equals.
Companies no longer have the monopoly on
information access.
Engaging these customer in productive
dialogue requires richer and subtler forms of
exchange.
Mobilizing Customer Communities
Concept of “brand communities” and “subcultures of
consumption” have existed for 10-15 years.
The Internet has facilitated the formation of selfselecting virtual communities.
The “power” of such communities derives from the
speed with which they can be mobilized.
Companies that can tap into (and facilitate the
dynamics of) these communities will have an
advantage.
Co-creating Personalized
Experiences
Customers do not simply buy a product, they
buy an experience or bundle of experiences.
Customers increasingly want to shape the
experiences themselves.
Personalization and customization are distinct.
Managing the Personalized
Experience
Managing Multiple Channels of Experiences
Managing Variety and Evolution
Shaping Customers’ Expectations
Final Point – Customers as
Competitors
More well-informed customers, are in a sense,
competitors.
With much of the same information available
to them, customer have more power.
More willing (and demanding) to negotiate
terms.
Beyond Online Search:
The Road to Profitability
Ming Zeng, Werner Reinartz
WORLD INTERNET USAGE AND POPULATION STATISTICS
Internet
Usage,
Latest
Data
Usage
% of
Worl
d
Usage
Gro
wth
2000
2007
Population
( 2007 Est.)
Population
% of
World
933,448,292
14.2 %
33,334,800
3.6 %
3.0 %
638.4%
3,712,527,624
56.5 %
398,709,065
10.7 %
35.8 %
248.8%
Europe
809,624,686
12.3 %
314,792,225
38.9 %
28.3%
199.5 %
Middle East
193,452,727
2.9 %
19,424,700
10.0 %
1.7 %
491.4 %
North America
334,538,018
5.1 %
233,188,086
69.7 %
20.9%
115.7 %
Latin America
556,606,627
8.5 %
96,386,009
17.3 %
8.7 %
433.4 %
34,468,443
0.5 %
18,439,541
53.5 %
1.7 %
142.0 %
6,574,666,417
100.0 %
1,114,274,426
16.9 %
100.0 %
208.7 %
World Regions
Africa
Asia
Oceania / Australia
WORLD TOTAL
Penet
ration
Growth of E-Commerce
65% of U.S. online users now use the
Internet to shop.
2006 online retail sales = $95 billion
2010 online retail sales = $144 billion
2006: 27% of total retail sales influenced
by the Internet.
2010: 50% of total retail sales influenced
by the Internet.
Online Search vs. Online Transactions
Category
Online Search (%)
Online
Transactions (%)
Mortgages
56
1.5
Insurance
44
0.4
Real Estate
42
1.5
New Cars
41.5
1.5
Used Cars
25
N/A
Luxury Goods
20
0.5
Grocery
19
0.18
Beauty
N/A
1.7
Furniture
N/A
0.1
Home Imp.
N/A
0.1
Consumer Decision-Making Process
Search
The Internet has greatly enhanced the efficiency
and effectiveness of this stage of the consumer
decision-making process.
Advantage of Internet limited by the extent to
which information search is an important factor
in consumer decision making.
Search
Perceived Risk-Perceived purchase risk is the
degree of loss in the event of a wrong choice.
Frequency of purchase-Search is also unlikely
with familiar, repeated purchase, when
customers make decisions based on their prior
experience.
Functional vs. Value Expressive-Functional
products are bought for their physical
performance, whereas value-expressive are
bought for social image or for sensory
enjoyment.
Evaluate
High Touch vs. Low Touch Products-High touch
product has to be evaluated with multiple senses
whereas low touch products usually only require
the senses of sight and sound.
High Info. Content vs. Low Info. Content- This
aspect describes the degree to which product
evaluation is based on physical vs. informational
attributes.
Evaluate
Demand on Consumer Expertise- Successfully
choosing among product alternatives requires
differing levels of consumer expertise.
Expertise-is the understanding of the attributes
in a product and knowledge about how various
alternatives stack up on these attributes.
Internet is currently much less effective in
providing expertise than in providing information.
Transact
Transaction is the process of agreeing
contractually on the purchase, paying for
it, and receiving physical delivery.
All three transaction elements are
necessary.
Internet excels at the contract agreement
and payment but is limited on delivery.
Transact
Central Driver - Does the consumer derive
value from the transaction process itself?
B2C e-commerce business models have
paid little attention to this aspect.
Purchase as a Process vs. Purchase as
an End.
Non-Compensatory
Hypothesis – One stage in the consumer
decision making process cannot be
effectively compensated for by another
stage in the sequence.
Is this true?
Business Models
Navigator Model – Portals such Yahoo,
AutoByTel.
Product Originator – Sony, Dell, Land’s End,
Citicorp
Expertise Provider- Consumer Reports, Bizrate,
and Zagat
Transaction Facilitator – Paypal,
TrueSpectra,Western Union, Advisor Central,
Paypal
Logistic Operator – UPS, FedEx, 7-Eleven
(Japan)
Conclusion
Success depends on how well companies
can match their business model with the
real value added of the Internet to their
customers.
Previous hype of B2C commerce may
have been due to the immense
improvement in effectiveness of the
information search, however such
efficiency gains cannot drive every product
category online.
Discussion questions
What assumption does the authors’
definition of e-commerce success rest on?
Is this realistic?
A Framework for Customer
Relationship Management
Russell S. Winer
What is CRM?
The application of technology to learning
more about each customer and being able
to respond to them one-to-one.
Treating each customer with empathy and
sensitivity.
An expensive way to learn what otherwise
might have been learned by talking to
customers for five minutes.
What is CRM?
The application of technology which
combines online capabilities and off-line
personal interactions which allow a
company to establish, nurture, and sustain
long-term customer relationships (Winer).
Getting to know each individual customer
through detailed customer information that
allows for better target marketing (Kotler).
Create a Database
Analysis
Customer Selection
CRM Model
Customer Targeting
Relationship Marketing
Privacy Issues
Metrics
Creating a Database
Transactions
Customer contacts
Descriptive information
Response to marketing stimuli
Data should be overtime
The more extensive the information on each
customer, the greater the likelihood of creating a
meaningful customer relationship.
Analyzing the Data
Limitations of analyzing according to
customer segments.
LCV: Lifetime customer value
Market basket analysis
Clickstream analysis
Selecting Customers
What criteria should be used?
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Highest purchase rates?
Greatest brand loyalty?
Most profitable?
Specified level of ROI?
Caution in deselecting – can lead
to unhappy ex-customers and
negative WOM.
Target the Customers
Mass-media promotions: TV, Radio, or print
advertising, poorly suited to CRM.
Direct marketing: telemarketing, direct mail
and email, direct sales.
New mantra: “1-to-1” Marketing or using
Internet to facilitate individual relationship.
Are these methods effective? What
developments need to occur for more
effective CRM communications?
Relationship programs
Relationship develops based on the
program, not the medium of
communication.
Overall goal of relationship program:
deliver higher level of customer
satisfaction.
Frequency/
Loyalty
Programs
Customer
Service
Customization
Customer
Relationship
Management:
Satisfaction
Rewards
Programs
Community
Building
Metrics
Shift from company-centric (profitability, market
share) to customer-centric measures in the
evaluating the success of products and services.
Web-based and non-web based measures:
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Customer acquisition cost
Conversion rates
Retention rates
Same customer sales rates
Loyalty measures
Customers share
Current Success of
CRM Programs
Less than 30% of CRM-adopting
companies achieve expected returns.
Causes of CRM program failure:
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Organizational change (29%)
Company politics (22%)
Lack of understanding of CRM (20%)
Poor planning (12%)
Lack of CRM skills (6%)
Budget problems, software problems, bad
advice, other (all less than 4% each).
Strategic Suggestions
Do not invest until there is a culture of
CRM; the company is customer-centric.
Don’t target customers, empower
customers.
Rely on information from customers, not
about customers.