Marketing Management Session 3-4: Consumer, Company, Competitor I PPT PDF

Marketing Management Session 3-4 Consumer, Company, Competitor I Prof. Wenbo Wang Group Final Project + Presentation Form a group of 6 members Group members are required to sit together Group members have to be from the same class section Submit your group...

Marketing Management Session 3-4 Consumer, Company, Competitor I Prof. Wenbo Wang Group Final Project + Presentation Form a group of 6 members Group members are required to sit together Group members have to be from the same class section Submit your group member list thru Canvas-assignment-group formation Form Group under “canvas-assignment” Research Credit Earn 3 research credits (worth 3% of the grade). This can be done through participation in 3 marketing experiments (of 1 hour each) OR by completing 3 research assignments. Details are on the instruction manual on Canvas (under “files” - “research credit”) If you choose to do research assignments, you will need to email [email protected] yourself for details. Please do not contact me or TA since your research assignments will be evaluated by the department, not me or TA.  Framework What is my 3C Business? CUSTOMER COMPANY COMPETITION BUSINESS STRATEGY Where do I want to go? SEGMENTATION TARGETING POSITIONING STP MARKETING STRATEGY How do I get there? PRODUCT PRICE PROMOTION PLACE MARKETING MIX/PLAN 4P Customer: a roadmap to understand customers Understand Customers Firms’ Valuation Value to Customers of Customers Needs/ Wants Lifetime Value of a Customer Decision Making Process Acquisition Costs of a Customer How to influence Decisions Customer Retention - Economics of Loyalty - Loyalty Programs  Needs vs. Wants NEED WANT A lack of something requisite, To have a strong desire for desirable, or useful something Occurs when a person feels A felt need shaped by a physiologically or person’s knowledge, culture psychologically deprived of and context (derived from basic necessities, such as a need) food, clothing and shelter. Difficult to create Can be influenced Marketing usually does not create a need, but shapes wants. Marketers can help consumer discover their pre-existing “needs”. Seek Business Opportunities from Shaping/Creating Wants What else we can provide to satisfy the same want? Age: 20 Need Want Opportunity HUNGER THIRST SAFETY LOVE Needs are Hierarchical How are Needs motivated?  Maslow’s Hierarchy of Needs: People are motivated to satisfy a need only after more basic needs are satisfied Maslow’s Hierarchy of Needs – level 1 Maslow’s Hierarchy of Needs – level 2 Maslow’s Hierarchy of Needs – level 3 Maslow’s Hierarchy of Needs – level 4  Maslow’s Hierarchy of Needs – level 5 Maslow’s Hierarchy of Needs: People are motivated to satisfy a need only after more basic needs are satisfied  What are the limitations of Maslow’s conceptualization of the hierarchy of human needs? Conflict between needs? Compromise lower order needs to satisfy higher order ones: starving artists Satisfy Multiple Levels of Needs Can products designed for “lower level” needs satisfy “higher level” needs? Just Do It Your potential, our passion 16  What are the limitations of Maslow’s conceptualization of the hierarchy of human needs? Cultural differences – importance of different needs  What are the limitations of Maslow’s conceptualization of the hierarchy of human needs? Multiple selves What are the limitations of Maslow’s conceptualization of the hierarchy of human needs? Consumers may not know/realize what they need Do people know well what they really want/need? “It’s really hard to design products……. A lot of times, people don’t know what they want until you show it to them.” – Steve Jobs, BusinessWeek, May 25 1998  Marketing Research vs. Gut Feelings “How much marketing research was conducted for the ipad?” “None. It isn’t the consumers’ job to know what they want” Henry “If I asked my customers what they want, they Ford simply would have said a faster horse” Gut Feelings… “I think there is a world market for maybe five computers” - Thomas Watson, IBM Chairman in 1943 “Gut feelings” and projection bias Consumers may not think like you! “Educated guesses” / gut feelings can be wrong; difficult to forecast the future Will get back to this issue in the marketing research session On AI-push platforms like TikTok, consumer need is learned by AI, What kind of content can go viral? 24  3.5 Billion installations across 150+ countries. Most Popular Overall App Downloaded Globally since 2021 users spend > 1.5 hr per day 3.5 billion RMB adverting revenue per week in 2021 in China 25  Mr. Sunshine: 27million+ followers Daily life category Mr. Sunshine attracted 7 million followers in 14 days 26 Content marketing in the age of AI What consumers want to see? What AI wants to see?  Algorithmic logic of AI push content on Tiktok 抖音AI推送算法邏輯 Short video Objective of AI To make viewers addicted -Maximize online hours How to achieve the objective? Push videos to matching viewers How to tell if the content 4+1 feedback metrics matches with viewers? (video completion rate, like, share, comment)+search How to prioritize the content Compare similar content around the same pushed to viewers? time against the metrics above, and prioritize the best performers 短視頻算法 AI目標 讓人上癮 最大化在線時長 如何實現目標 把視頻內容推給匹配的人 如何判斷內容與人是否 4+1項反饋指標 :（完播率，點讚， 匹配 轉發，評論） + 搜索 如何決定某內容是否給 與同賽道、同時段的內容，比較上 予更高推送優先順序 述指標，優勝劣汰 What about guide or even “brainwash” customer’s need? 1: Firms may use data base to guide customer’s need by showing things that consumers are supposed to like and filtering things that consumers are assumed to dislike. The long term consequence is that consumers are “brainwashed” in the sense that they are told, by marketers but not by themselves, what they really need 2: Filter bubble: How Google “brainwash” consumers! TED talk http://www.youtube.com/watch?v=B8ofWFx525s 29 Netflix documentary The social dilemma https://www.youtu be.com/watch?v=u aaC57tcci0 Today’s Agenda Understand Customers Firms’ Valuation Value to Customers of Customers Needs/ Wants Lifetime Value of a Customer Decision Making Process Acquisition Costs of a Customer How to influence Decisions Customer Retention - Economics of Loyalty - Loyalty Programs  A Map of Consumer Behavior Marketing and Other Stimuli What Is in Consumer’s Black Box?! Purchase Product Choice timing Consumer’s Response Brand Choice Purchase Dealer Choice amount How Do Consumer Make Decision? (I) Use Reasonings (think as if she/he is rational) Many decision rules (not covered in this class) that maximize utility as a rational decision maker.  The Consumer Decision Marking Example: how does a rational consumer chooses a PC? Evaluate Product/Brand Alternatives Product Attributes (What are the relevant features to me?) Choice Set (What is a set of options I am interested in?) Evaluate Product/Brand Alternatives Product Attributes (What are the relevant features to me?) Choice Set (What is a set of options I am interested in?) Attribute importance (How important is each attribute to me?) Belief on choice options (What is my perception of the performance for each option on each attribute?) Importance Attribute Importance Belief on how well each alternative performs Example: Addition of utilities rule Importance Attribute Importance Belief on how well Dell performs  Dell’s evaluation = 0.1x6 +0.4x8+0.1x2+0.2x6+0.1x10+0.1x8=7  HP’s evaluation= 0.1x4+0.4x10+0.1x2+0.2x10+0.1x4+0.1x6=7.6  Do this evaluation for each brand in the choice set 36 Example: Addition of utilities rule (cont’d) Importance 7 5.8 7 7.6 5 6.8 Evaluate all the brands and choose the one of the highest evaluation, HP How Do Consumer Make Decision? (I) Use Reasonings (think as if she/he is rational) Many decision rules (not covered in this class) that maximize utility as a rational decision maker. Addition of utilities rule Evaluation for brand k =  (Importance x Belief) Evaluationk = i (ei bki ) How important the How well the brand (k) attribute (i) is performs on attribute (i) How Do Consumer Make Decision? (II) Use Intuitions Representativeness: judge a thing based on stereotypes such as where it comes from, how it looks. Representativeness is about similarity and association. - “If it looks like a dog and smells like a dog then I’ll think it’s a dog” - “IMB is a great brand, so its new product must be good!” - “Justin Bieber is a bad dude, so his music cannot be good!” Availability: judge a thing based on how easy it comes to your mind (memory). - “I don’t know which perfume to buy, and I will just buy the first brand whichever comes to my mind” Using intuitions is faster but may lead to mistakes. Consumer Behaviors can be Influenced by Factors like culture, income, age External marketing activities  4P’s 40 Grocery Store Example: Behaviors Can be Influenced by Store Layout ? ? ? ? ? ENTRANCE EXIT Modern Day Grocery Store Layout Why frequently bought items (eggs, milk, bread) in the back?  How far shoppers walk  Greater “incidental” purchases Why the grocery cart?  Often determines the amount you shop Begin with flowers, fruits？  Physiologically (see/feel/smell) sensitized shoppers buy more High-Profit items on right side of aisle (usually in the frond-end area)  Manipulate traffic direction  Easier to reach (most people are right handed)  Shoppers shop with a budget; let the budget goes to high-profit items (Thanks to Kenneth Chan from L09) Kid’s food like Cocoa Puffs on lower shelf  Children’s eye-level  Emerging way of tracking shoppers: RFID  PathTracker® data on shopping paths are collected by Sorensen Associates using RFID (Radio Frequency Identification) technology  Consideration Purchases Entrance Checkout Eye Movement + Neural Activity Tracking 45 Facial Expression Tracking Their emotion: Positive Or Negative Hand out the Starbucks case today (online materials) Starbucks Delivering Customer Service Under canvas-files-case study materials 48  Your Case Assignment You are required to read thru the case and think about all the assignment questions Case discussion on Feb 15. Oral assignment, no need to submit write-up. Your performance will be considered in your grade for the “individual participation” part. It is your job to organize your thoughts and express them in an audience-friendly manner. I will call you to answer questions or discuss your thoughts in the class This case will also be covered in the quiz. Case Assignment Question 50 Why case study is the most popular method in business school? Real life business Case Task/problem/puzzle-orientated Where to go (strategy) Orientation same What to do (plan or plans) Evaluate plans Good enough vs. optimal plan Information for Info from all sources Have to decide what info is most same decision making relevant and useful People Team work with people you same know or do not know Team and individual evaluation Pace Always a deadline, meetings, same (4 cases a discussions day at Harvard) Fast, efficient Results Unknown before implementation unknown Tips for you Think beyond the surface problem  Put yourself as consultant, a customer, and as the company as a whole  Only as a customer, you lose the big picture  Only as the company, you get lost because of the conflicts among the company’s insiders and conflicts between business partners and the company. Think logics  Why it is a problem? The causes of the problem? Big picture?  Why_____ matters? Matters to whom?  How does ____ affect 3C, STP?  Think about feasibility Wrap up: What Did We Learn today? Wrap up What is promotion and place? Needs & wants Maslow’s Hierarchy of needs and its limitation Multiple selves, gut feelings for unknown needs, brainwash Consumer decision making: reasoning and intuition Terms you should know place, need & want, Maslow’s Hierarchy of Needs reasoning and intuition Next session Understand Customers Firms’ Valuation Value to Customers of Customers Needs/ Wants Lifetime Value of a Customer Decision Making Process Acquisition Costs of a Customer How to influence Decisions Customer Retention - Economics of Loyalty - Loyalty Programs  Marketing Management Session 3-4 Consumer, Company, Competitor II Prof. Wenbo Wang Reminder Submit your group information 56  The marketing framework What is my Business? CUSTOMER COMPANY COMPETITION BUSINESS STRATEGY Where do I want to go? SEGMENTATION TARGETING POSITIONING MARKETING STRATEGY How do I get there? PRODUCT PRICE PROMOTION PLACE MARKETING MIX/ PLAN Today’s Agenda Understand Customers Firms’ Valuation Value to Customers of Customers Needs/ Wants Lifetime Value of a Customer Decision Making Process Acquisition Costs of a Customer How to influence Decisions Customer Retention - Economics of Loyalty - Loyalty Programs Lifetime Customer Value Lifetime Customer Value (LCV)  The present value of the profit stream that the company would have realized if the customer had not defected prematurely.  Example: Lifetime for one baby using diaper is about 30 months. LCV is all the value a company can get from this 30 months period. Why loyal customers are more profitable? 60  Economics of Loyalty Why Loyal Customers Are More Profitable 70 Acquisition Costs 60  The cost of acquiring a new customer (direct sales, 50 mail, telemarketing, etc.) Annual Customer Profit 40  There will also be some maintenance costs 30 20 10 0 -10 1 2 3 4 5 6 7 8 Year -20 Credit Card Example Acquisition Costs: Citibank Credit Card Example Method: Direct Mail (i.e. applications sent to you by mail) Cost = $1.50 / unit Typical Mailing List = 300,000 addresses A market research agency estimated that approximately 2% of prospects usually respond to direct mailings. The agency further estimated that 66.7% of those who responded to direct mail usually qualify. About 80% of those who qualify would usually become a card customer.  Citibank: What is the cost of acquiring a customer? Direct Mail Take-1 Bind-Ins Prospects 300,000 2,000,000 3,000,000 Response Rate 2% 1.5% 1% No. of Responses 6,000 30,000 30,000 % Qualified 66.7% 33.3% 33.3% Qualified Prospects 4,000 9,990 9,990 % Converted 80% 80% 80% Customers 3,200 7,992 7,992 “Effective” Rate 1.1% 0.4% 0.3% Cost per Prospect $1.50 $0.25 $0.15 Total Cost ($) 450,000 500,000 450,000 Cost per Customer $140.55 $62.56 $56.32  Citibank: What is the cost of acquiring a customer? D Mail Take-1 Bind-Ins D Sales Total Prospects 300,000 2,000,000 3,000,000 30,000 5,330K Response Rate 2% 1.5% 1% 50% No. of Responses 6,000 30,000 30,000 15,000 % Qualified 66.7% 33.3% 33.3% 66.7% Acquisition Qualified Prospects 4,002 9,990 9,990 Cost of 10,005 contacting all prospects Cost per Customer = % Converted 80% 80% No. of customers 80% 80%obtained Customers 3,202 7,992 7,992 8,004 27K “Effective” Rate 1.1% 0.4% 0.3% 27% Cost per Prospect $1.50 $0.25 $0.15 $18K/person Total Cost ($) 450,000 500,000 450,000 225,000 1,625K Cost per Customer $140.55 $62.56 $56.32 $28.11 $59.77  Citibank Problem with Direct Mail Direct Mail Prospects 300,000 Response Rate 2% No. of Responses 6,000 % Qualified 66.7% Qualified Prospects 4,002 Cost per = Cost of Contacting All Prospects % Converted 80% Customer No. of Customers Obtained Customers 3,202 “Effective” Conversion Rate 1.1% Cost per Prospect $1.50 Total Cost ($) 450,000 Cost per Customer $140.55  Citibank: lower cost of selling to existing customers (Direct Sales) Direct Mail Take-1 Bind-Ins Direct Sales Total Prospects 300,000 2,000,000 3,000,000 30,000 5,330K Response Rate 2% 1.5% 1% 50% No. of Responses 6,000 30,000 30,000 15,000 81K % Qualified 66.7% 33.3% 33.3% 66.7% Qualified Prospects 4,002 9,990 9,990 10,005 ≈34K % Converted 80% 80% 80% 80% Customers 3,200 7,992 7,992 8,004 ≈27K “Effective” Rate 1.1% 0.4% 0.3% 27% Cost per Prospect $1.50 $0.25 $0.15 $7.50 Total Cost ($) 450,000 500,000 450,000 225,000 1,625K Cost per Customer $140.55 $62.56 $56.32 $28.11 $59.77  Economics of Loyalty Why loyal customers are more profitable? 70 60 Acquisition Costs Annual Customer Profit 50  To get one customer, you have to target many. 40 30  The cost of acquiring a new customer (direct 20 sales, mail, telemarketing, etc.) is therefore very 10 high. 0 -10 11 2 3 4 5 6 7 8 Year -20  Economics of Loyalty Why loyal customers are more profitable? 70 Base Profit 60  The profit margin that a company earns from an average customer Annual Customer Profit 50 40  Stable over the years 30 20 10 0 -10 1 2 3 4 5 6 7 8 -20 Year  Economics of Loyalty Why Loyal Customers Are More Profitable 70 Revenue Growth 60  Retained customers increase purchase quantities over time Annual Customer Profit 50 40  Increases over the years 30 20 10 0 -10 11 2 3 4 5 6 7 8 -20 Year  Economics of Loyalty Why Loyal Customers Are More Profitable 70 60 Annual Customer Profit 50 40 30 20 10 0 -10 11 2 3 4 5 6 7 8 Year -20 Operating Costs (Cost Saving)  Existing customers cost less to serve than new ones  Existing customers have better knowledge  Economics of Loyalty Why Loyal Customers Are More Profitable 70 60 Annual Customer Profit 50 40 30 20 10 0 -10 11 2 3 4 5 6 7 8 -20 Referrals Year  Favorable word-of-mouth  Increases over the years  Economics of Loyalty Why Loyal Customers Are More Profitable 70 60 Price Premium Annual Customer Profit 50 Referrals 40 Cost 30 Savings 20 Revenue Growth 10 Base Profit 0 -10 11 2 3 4 5 6 7 8 Acquisition Cost Year -20 Price Premium  Loyal customers are less price sensitive  Increases over the years (relatively slowly)  Why loyal customers are more profitable? Acquisition Cost Base Profit Revenue Growth Cost Savings Referrals Price Premium 73 Loyalty Programs Typical format: - “buy x time (or earn y points) and get one cheaper or for free” - example: credit card, store card, hotel, airlines - airline: fly 10 times, you get 1 free ticket Very popular, but competition is heavy. Many people belong to multiple loyalty programs Optional reading: “Your Loyalty Program is Betraying You.pdf ” under “Canvas – file– optional readings” The logics for loyalty programs What is the psychological reason for loyalty programs? --- Need to complete (an experiment in 1920s) --- A mouse runs faster and faster when it is close to a cheese  The logics for loyalty programs Do loyalty programs really lock in customers? --- airline: fly 10 times and you get 1 free ticket. Is the customer still loyal after he gets the free ticket? --- why 10 times? Is 5 times a better loyalty program? What about 30 times? --- The lock-in dilemma  Before redeem the ticket, customers are somehow locked in because of sunk cost.  Lock-in (loyalty) are decided by how many flyings you have to have in order to get a free ticket.  A too short lock-in time window (e.g., “fly 5 times get 1 free ticket”) does not really lock in customers in long run  A too long lock-in time window (e.g., “fly 30 times get 1 free ticket”) make the loyalty program not attractive to customers at all! 76 The logics for loyalty programs How can loyalty programs help the company predict a customer’s Share of Wallet (SOW)? my spending on firm A My SOW at firm A = my spending on the category My credit card my credit card spending at citibank SOW at citibank = my credit card spending at all banks  Share of Wallet (SOW) project for Citibank’s question: How to estimate SOW of it’s own customers? Difficulty: Citibank only knows customer spending at Citibank but does not know customer spending at other banks (category spending) $70 time $??? Other banks $??? $??? $??? $??? time Share of Wallet (SOW) project for 1: How to estimate Citibank’s SOW for each customer? 2: What can Citibank improve on if it knows its customer’s SOW at citibank How to estimate Citibank customer’s SOW? The idea: 1: Assume category spending frequency is stable over the target period. 2: “Impute” the “missing” purchase incidents.  How to estimate Citibank SOW for each customer? Key assumption: credit card consumers spend on regular basis 1): Use a repeated purchase model to predict spending (when and how much) at other banks $70 time All banks including Citi Other banks How to estimate Citibank SOW for each customer? 2): Survey a sample of customers, ask them to submit transaction record at other banks 3): Use data in 2) to test whether the model prediction in 1) is correct ---- 85% correct ---- use this method to predict SOW for 2 million Citibank users 82 A low category spender. Value on category : $40 per year $10 time $20 time $10 time How valuable is this customer? Low value customer to Citibank  A high category spender ($170) but low SOW at Citi (10/170) $10 time $130 time $30 time How valuable is this customer? Currently low value but potentially high value. An ideal customer to acquire A high category spender. Value: $170 per year on category $120 time $20 time $30 time How valuable is this customer? High value customer to Citibank Share of Wallet: If Citibank knows his customers’ SOW, then…. 1: Assess the “true value” of its own customer (spending at your own company, category spending) 2: Drop the unwanted (low SOW and low category spending) 3: Retain good existing customers (high SOW and high category spending) 4: Acquire promising customers (low SOW but high category spending) 5: Develop targeting promotion for the three types of customers in 2-4. 6: Early detection of customer defection 7: Other industries: airlines, stores, hotels, online dating  Deal with Not Loyal / Loyal Customers When are loyal customers bad to you?  Cost structure (e.g., credit card). Some customers always pay back in time (meaning negative profit for the firm). Those customers, if loyal, are cost burden to the firm. When are non-loyal customers good to you?  Drive low-profit customers to your competitors (The enemy’s enemies are friends) so that those customers become cost burden to your competitors.  This session What is my 3C Business? CUSTOMER COMPANY COMPETITION BUSINESS STRATEGY Where do I want to go? SEGMENTATION TARGETING POSITIONING STP MARKETING STRATEGY How do I get there? PRODUCT PRICE PROMOTION PLACE MARKETING MIX/PLAN 4P Company The big question: how do you see yourself/company? One of the popular tools: SWOT Analysis http://www.youtube.com/watch?v=9n-erTzwu8I (from 1:01 to 3:25) Strength Weakness Opportunity Threat 89 Company - SWOT: Internal Company - SWOT: External Competitors The big question: how to identify your competitors? Serving the same customers Satisfying same/similar needs / wants Competitors can be from Your own industry (BMW, Audi) or similar industry (taxi, mini-bus, MTR) Your partners (iPhone, carrier, content provider) 92  Apple’s competitors Product level competitors Samsung Nokia Carrier (e.g., PCCW, AT&T) Upstream suppliers: Final screen, battery, shell… Apple’s iPhone Apps product (e.g., Foxconn) Content (music, movie, book) Value-chain level When analyzing competition, think about competitors both on product level and value chain level. Value chain: a business chain that receives raw materials as input, add value to the raw materials through various processes, and sell final products to customers. Why stock market price for Apple falls (Sep 2012 – Jan 2013)? Samsung is not the only competitor that drives down Apple’s stock market price, but also China Mobile! Sep 14-21, iPhone 5 Mid-Dec, iPhone 5 End of Jan (453$) global launch(702$). launched in Mainland (530$) 94 Case discussion next session Starbucks Delivering Customer Service