Gaining Competitive Advantage through Engagement Strategy© Dr. V Kumar Gaining Competitive...

www.drvkumar.com© Dr. V Kumar

Gaining Competitive Advantage through

Engagement StrategyISB Customer Behavior & Branding PGPpro

V. Kumar, PhDRegents’ Professor,

Richard and Susan Lenny Distinguished Chair & Professor of Marketing, Executive Director, Center for Excellence in Brand & Customer Management,

and Director of the Ph.D. Program in MarketingJ. Mack Robinson College of Business, Georgia State University, Atlanta GA

andChang Jiang Scholar, HUST, Wuhan China.

Fellow, Hagler Institute for Advanced Study, TAMU, College Station, TX Senior Fellow, Indian School of Business, India

Introduction to Customer Engagement Value FrameworkDay 1 – Session 1

April 21, 2018 DelhiApril 28, 2018 Hyderabad

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Path to Profitability

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Operational

Excellence

Relationship

Marketing

Brand

EquityProfitability


Why Manage Customer Relationships?

• To understand customers’ needs even before they know them themselves.

• Decreasing customer churn by increasing customer satisfaction.

• Motivating customers to initiate revenue-generating contracts.

• Increasing the likelihood of the ‘right response’.

• Use technology to improve customer service.

• Enable greater customer differentiation.

• Attract customers through more personalized communications.

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www.drvkumar.com© Dr. V Kumar 4

CRM in Real World……


Winning with Big Data

Fall 2012 MIT Sloan Management Review

According to surveys conducted in 2013 by Match.com, nearly 1/3 of singles reported dating someone they met online. The dating services industry has performed increasingly well since 2010. Revenue gains averaged 4.8% per year reaching $2.2 billion in 2014. Over the past three years, Match.com has seen more than a 50% increase in revenue, with more than 1.8 million paid subscribers in its core business.

Match.com has a group of data scientists who are continuously improving a series of more than 15 matching algorithms.

“The unique thing about Match.com is that we have billions of data points from the last 17 years to analyze.”

-- Match.com President Mandy Ginsberg

IBISWorld 2014 Industry Report

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Winning with Big Data – Following the trends

In 2014, 3.1 million new

Match.com users listed “coffee

& conversation” as an interest

on their profile. Following

popular demand, the company

partnered with Starbucks “to

create new, interactive ways for

our members to meet and

share their love for the almighty

bean.”

The new “Meet at Starbucks”

feature on the site allows

members to instantly send

another member a coffee date

invite with a click.

In celebration of love, Match.com and Starbucks

invited people around the world to participate in

the World’s Largest Starbucks Date.

On February 13, 2015, participating Starbucks

locations featured a special menu. “Be sure to

grab a date and head over to Starbucks to take

part in this record-breaking event!”

blog.match.com/match-starbucks-the-perfect-blend

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Winning with Big Data

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October 2012 Harvard Business Review


Case Study

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THE POWER OF HABITS


How Customers’ Habits Impact Firm’s Profits?

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Humans are creatures of habit.

About 45% of our daily activities are governed by habits (Quinn & Wood 2005).

Habits are powerful drivers of recurring behavior and are known

to override customers’ intentions to act otherwise


Firms’ marketing policies are typically directed at influencing customer behavior.

However, marketing policies can backfire if customers’ underlying habits (that

eventually drive behaviors) are ignored.

JC Penney Co. eliminated its heavily advertised sales and

discounts and shifted the marketing policy to everyday low pricing.

Underestimated the strength of its customers’ promotion purchase

habit and lost $985 Million in sales over one year (WSJ 2013).

Firms have always focused on purchase habits. Can there be other consumption

habits that can significantly impact firm’s bottom line?

If so, what are those ‘consumption’ habits? Can a firm’s marketing

policies impact formation of different consumption habits?

To what extent do these habits impact the firm’s bottom line?

Power of Customer Habits

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BIG DATA

In-store transactions, online purchases, email click-through data over 4 years,

1500+ customer characteristics, qualitative survey data,

0.46 million customers, 96 million rows x 1644 columns

Key Finding # 1: Customers’ habits are Multidimensional.

Purchase Habit

Return Habit

Promotion HabitLow Margin

Purchase Habit

Measure of Habit Strength : A customer will have a relatively high level of habit strength when he/she

exhibits a high frequency of recurring behavior that is temporally consistent

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Key Finding # 2: The four habitual behaviors are relatively

independent of one another and not correlated with the extent to

which a customer is loyal to a firm.

Inter-correlation of habitual behaviors

Return Habits

Promotion Habits

Low Margin

Purchase HabitsPurchase Habits

-0.10***

0.20***

-0.12***

0.12***

-0.01***

0.03***

Note: *** p<.001

Correlation coefficients range from -0.12 to 0.20 between the four habitual behaviors

indicating that the habits are not highly inter-correlated within the same individual.


Key Finding # 3:

Customer habits have a significant impact on firm’s bottom line.

The aggregate effect of habit on profit across 0.46 million customers over 4 years shows that:

Purchase habit and Promotion habit positively impact the firm’s bottom line by $58 Million.

Return habit and Low Margin Purchase habit negatively impact the firm’s bottom line by $119 Million.

Impact on Firm’s Bottom Line % Change

Purchase Habit $ 54 Million + 10.4%

Return Habit $ 58 Million - 11.5%

Promotion Habit $ 4 Million + 0.8%

Low Margin

Purchase Habit$ 61 Million - 12.0%


The Customer Lifecycle - Where should be we looking?

• As businesses shift from a product-centric focus to a customer-centric focus, the

customer lifecycle has emerged as a framework to describe the stages over time of

the relationship between a customer and a business.

•Measurement/Forecasting•ROI•Shopping Basket

•Measurement•Prediction•Purchase Sequence•Enrichment•Customer Loyalty Programs

•Forecasting•Prevention•Win back

Acquisition Retention Attrition

Value

TimeToday

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Customers Progress Through Lifecycle Stages

New

Customers

Universe of

Customers Prospects Responders

Retained or

Repeat

Customers

High Value

High Potential

Low Value

Winback

Former

Customers


How Do You Determine When a Customer Becomes a ‘Former’ Customer?

Situations:

1. The regular catalog customer who doesn’t make a purchase for several years.

2. The credit card customer who stops using the card, but doesn’t close the account.

Are they still customers – or are they former customers?

To really hold on to your customers, you need to build loyalty

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Lifetime Duration – Profitability Association

Short Long

Lifetime Duration

High

Low

Lifetime Profit

In reality, is this relationship observed?

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Association of Profitability and Longevity of Customers

Source: “The mismanagement of customer loyalty”, W. Reinartz & V. Kumar, Harvard Business Review

percentage of customers

Corporate service 20%providerGrocery retail 15% Mail-order 19% Direct brokerage 18%

High profitability

Lowprofitability

Short-termcustomers

Long-termcustomers


Corporate service 30%providerGrocery retail 36%Mail-order 31%

Direct brokerage 32%


Corporate service 29%providerGrocery retail 34%Mail-order 29%

Direct brokerage 33%


Corporate service 21%providerGrocery retail 15%Mail-order 21%Direct brokerage 17%

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Are we targeting the right customer?

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0

5000

10000

15000

20000

25000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Cu

sto

me

r P

ro

fit ($

)

Month

Customer 1 (Segment II)

Customer 2 (Segment III)

Today


What Drives Profitable Customer Loyalty?

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Exchange Characteristics

– Customer’s spending level –

Share of Wallet

– Cross-buying behavior

– Focused buying behavior

– Average Interpurchase Time

– Merchandise returned

– Ownership of loyalty instrument

– Mailing efforts of the company

– Majority Product category

Customer Heterogeneity

–Age

–Spatial Location

–Income


Designing the Right Loyalty Programs

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A Paradigm shift from a Product Centric approach to…

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….a Customer-centric approachProduct-Centric Approach Customer-Centric Approach

Management Dimension

Manage products Manage customers

FocusFocus business on products

that are most profitableFocus business on customers

that are most profitable

Selling Approach

How many customers can we sell this product to?

How many products can we sell to this customer?

Decision Orientation

Marketing decisions based on historic measures or

past value of profitability

Marketing decisions based on forward-looking

measures or the customer lifetime value metric

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How can firms attain profitable growth in a Customer-Centric

Approach?

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Customer Engagement!

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“30 Minutes or Less” Delivery Guarantee PolicyStarted in 1990’s. It is swearing off quick service. But its research found out that customers actually associate slower order-to-delivery times with better quality. - MSNToday

Create Discussion Areas and Topics via Social Media Sites

To Engage with Customers?

Over 18.5 million fans on Domino’s Facebook page

Domino’s Australia is promising 30 minutes to Answer to Customer Feedback

On Facebook Messenger, according to their track record, Domino’s “typically answers right away”

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https://mba.broad.msu.edu/files/2013/01/Dominos-Pizza-150x1501.jpg

https://mba.broad.msu.edu/files/2013/01/Dominos-Pizza-150x1501.jpg

http://www.google.com/url?q=https://itunes.apple.com/us/app/facebook/id284882215?mt=8&sa=U&ei=CPY1U7eJC4fh0gHMoYHQDw&ved=0CDIQ9QEwAg&usg=AFQjCNEjR8jrGLR8tbBl6ZypLMOB3IzVsg

http://www.google.com/url?q=https://itunes.apple.com/us/app/facebook/id284882215?mt=8&sa=U&ei=CPY1U7eJC4fh0gHMoYHQDw&ved=0CDIQ9QEwAg&usg=AFQjCNEjR8jrGLR8tbBl6ZypLMOB3IzVsg


Game of Thrones has an average viewership of 30 million worldwide for its season 7, a record.

HBO Now App downloaded half a million times in the first week following season 7 premiere.

Has GoT mastered customer engagement?

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6.69 million followers on Twitter, much higher than other megahits such as Breaking Bad (1.24 M) or House of Cards (2.07 M)

IMDb has a dedicated page

Facebook Live Event where canons of fire slowly melt a block of ice revealing season opening date –watched concurrently by 142,000 viewers

It has a Fandom Wiki site where fans interact

Create Discussion Areas and Topics via Social Media Sites


Conceptual Approach to Measure CEV

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• Total value provided by customers to the firms through their (a) purchase transactions with the firm, (b) ability to refer other customers to the firm, (c) power to positively influence other customers about the firm’s offerings , and (d) knowledge about the firm’s product/service offerings in providing a feedback to the firm.

Customer Engagement Value (CEV)

Customer Lifetime Value (CLV)

Net present value of future cash flows

from a customer over his/her lifetime with

the company

Customer Referral Value (CRV)

Quantifiable measure of the type, quantity,

& effectiveness of paid referrals that an individual customer provides to others

Customer Influence Value (CIV)

Monetary value of customers’ social

media influence on other acquired customers and

prospects

Customer Knowledge Value (CKV)

Value a customer adds to the firm through his/her

feedback

Firm and Competitive Actions

Customer Behavior / Attitudes / Network Metrics

Source: Kumar, V. (2013), “Profitable Customer Engagement: Concepts, Metrics & Strategies”, Sage Publications.

Customer Brand Value (CBV)

Gaining Competitive Advantage through Engagement Strategy© Dr. V Kumar Gaining Competitive...

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