MKTG3501

WEEK 2 Marketing Strategy

Market Orientation & Performance
Dr Margee Hume
Margaret.Hume@business.uq.edu.au
TBA Colin Clark Building
Lecture 2: Market Orientation & Performance

DEMONSTRATE THE ROLE OF A STRONG CUSTOMER FOCUS

MARKETING PERFORMANCE METRICS:

CUSTOMER SATISFACTION, CUSTOMER RETENTION & PROFITABILITY

CUSTOMER LOYALTY MANAGEMENT

MARKET-LEVEL MEASURES OF PROFITABILITY

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 Kotlers strategy overview
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Product management-craft and manage your
product and position
Brand management- communicate what you
are all about YOUR PROMISE
MIND SHARE- EVOKED SET, HEART SHARE-
LOYALTY, SPIRIT SHARE-CSR
Customer management- manage your
customer and create value and
customer value is?- this is the focus of this
lecture.
Create, communicate and deliver value to a target market at a profit
 What are the key
+ points here?
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Co-creation is the new way of

marketing
Using collaboration and co-
creation to create and build
creation and brand co-creation
Create the Strategy and Structure
AND the structure and strategy
 Marketing strategy
Marketing considered a central business function
key component of business strategy
[Hunt & Madhavaram 2006]

Marketing strategy viewed as

Affecting decisions critical to generating and sustaining
competitive advantage
Significant role in firms overall business performance
[Day, Weitz and Wensley 1990]
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 Marketing metrics
Analytics: The measurement devices or data used to
create metrics.
Metrics: The specific measures of performance.

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 Customer focus
Customer focus Customer satisfaction Profitability

Short-term outcomes
enhanced performance metrics
higher customer satisfaction

Long-term outcomes
increased profitability
greater shareholder value

Often use marketing metrics which measure a wide

range of marketing performance and profitability
factors 6
 Building customer focus

Senior Mgmt Leadership

Employee Customer
Training
Customer Involvement

Customer Experiences
Customer Solutions
Customer Complaints

Customer Satisfaction
Customer Retention
Customer Loyalty

The 3 key drivers that

underlie a business with
a strong customer focus
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 Building customer focus example
Lets take a look at how Enterprise Car Rental manage its customer
focus using customer-focus behaviors and practices?

Customer Leadership
CEOs message: Satisfied is not good enough. Completely
satisfiedthats a big deal. A completely satisfied customer
is at least three times more likely to return than one whos
just satisfied.
Company promotions go to those managers whose rental
offices have above-average levels of customer satisfaction.
Enterprise trains its new personnel not only in its
procedures for renting vehicles to the public, but in the
companys philosophy of customer focus. 8
 Building customer focus example

Attention to the Voice of the Customer

Every month, Enterprise interviews a sampling of
customers from each of its rental offices to determine
the level of customer satisfaction.
If during a customer interview an employee is
mentioned by name, the next morning that employee
receives a copy of the customers comments.
If a customer mentions that the vehicle was dirty or
expresses any other dissatisfaction, the comment goes
to the manager of the office where the customer
rented it. 9
 Building customer focus example

Customer Metrics
The company measures customer
satisfaction with every customer
transaction and pays close
attention to the percentage of
customers who are completely
satisfied.

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 Customer metrics
Identify key customer performance metrics
Allow companies to identify unprofitable customers
For example: here are three kinds of business travelers
categorized by their levels of customer satisfaction.
Customer 1. The business traveler is a very satisfied, loyal
customer who flies this airline whenever possible (eight
times a year).
Customer 2. The business traveler is a somewhat satisfied,
non-loyal customer who flies this airline occasionally (three
times a year).
Customer 3. The business traveler is a dissatisfied customer
who flies this airline only when necessary (once a year).
How do these impact the overall sales and profits of an airline?
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 Attracting the right customer
What could cause a business to attract
unprofitable customers?
1. The business does not know the target market for its
product and attracts customers who do not buy at a
level that makes them profitable as customers.

2. The business does not know which customers not to

attract (i.e. not all of the departments know!).

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 Customer satisfaction
Very
Satisfied
100

Satisfied
80

Somewhat
Satisfied
60
Somewhat
Dissatisfied
40
Dissatisfied
20

Very Dissatisfied
0

ACSI studies have shown that Customer Satisfaction is a leading

indicator of company financial performance.
Customer satisfaction is a forecast of future revenues and profits. 13
 Customer satisfaction the impact
ACSI: Customer Satisfaction Steady for Full-Service
Restaurants; Fast Food Declines as Consumers
With More Purchasing Power Prefer Quality Over
Price ANN ARBOR, Mich., (June 30, 2015)
Customers are less satisfied with fast food as their discretionary
income improves and preferences shift in favor of quality over price
The job market is the strongest it has been in years, which is having
an interesting effect on supply and demand, says Claes Fornell, ACSI
Chairman and founder. On the demand side, consumers with greater
discretionary income seem to put quality ahead of price in their
decision-making. On the supply side, restaurants are finding it harder
to hire and retain qualified and motivated workers, which can have an
adverse impact on service quality.
http://www.theacsi.org/news-and-resources/press-releases/press-2015/press-release-restaurants-2015
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 Profit impact of satisfaction
Average profit per customer = $250
De-averaging CSI is critical to understanding customer
profitability These customers drive profitability

Very satisfied customers not only buy more, they

often buy higher-margin products and services,
which results in a higher percent margin on total
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 Profit impact of satisfaction
When you chart customer profitability against customer
satisfaction, we see that the very satisfied customers
are the ones who drive profitability.

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 Using the metric
Question: How would average customer sales
and average customer profit change for a
business with 10 percent very satisfied
customers, 35 percent satisfied customers,
and 55 percent somewhat satisfied
customers?

http://www.rogerjbest.com/nav.cfm?A=N&C=1&P=0
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 Profit impact of satisfaction REF CASE

http://www.rogerjbest.com/nav.cfm?A=N&C=1&P=0 -28.8 % 18
 Using the metric
Question: How would the average customer sales
and average customer profit change if this
business was able to shift customer satisfaction to
35 percent very satisfied, 35 percent satisfied,
and 30 percent somewhat satisfied?

http://www.rogerjbest.com/nav.cfm?A=N&C=1&P=0
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 Complaint behaviour and retention
Dissatisfied customers often do not complain, but they do
walk and they do talk.

Each year, the business above loses 22,400 customers who are
dissatisfied, but do not complain. 20
 Estimating customer retention
To estimate retention rates, businesses can use a customer
survey:
How likely are you to buy this product or brand again on your next
purchase?

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Customer retention metric (re churn)

http://www.rogerjbest.com/nav.cfm?A=N&C=1&P=1
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 Customer retention metric (re churn)
Question: How would customer retention change if the percentage of all
dissatisfied customers decreased to 15 percent and the percentage
of all satisfied customers increased to 85 percent?

This improvement in customer satisfaction would reduce the percentage of

dissatisfied customers. The lower percentage of dissatisfied customers in
turn improves customer retention. In this example, customer retention
improved from 70 to 80 percent.
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 Customer retention metric (re churn)
Question: Using the original data, how would customer retention change if the
percentage of customers who complained increased from 10 to 50
percent?

With the same level of customer satisfaction, this change in customer

complaint behavior would enable this business to increase customer
retention from 70 to 77.6 percent. As with question A, an increase in
customer retention would increase the average customer life and average
customer profitability. 24
 Customer retention example
If a new coffee company had above-average
profits its first couple of years but estimates of
intentions to repurchase were declining, with
customer retention expected to fall from 67% to
50%, what would be the likely impact on future
profits?
Satisfied customers = 65%

Satisfied customers = 40%

http://www.rogerjbest.com/nav.cfm?A=N&C=1&P=2 25
 Analysis Scale
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Customer Retention 65.00%

Customer Life 2.86
Lifetime Value of Customer $111.66 per yr

Customer Retention 40.00%

Customer Life 1.67
Lifetime Value of Customer $111.66 per yr
 Customer retention example
Question: Why would extending the life of an online
fashion retail customer from 4 to 5 years impact
profits?
First, the longer a customer is retained, the more cash flow there
is for offsetting the cost of acquiring the customer.

By increasing the average life of a customer from 4 to 5 years, the

average customer lifetime value increases. That, in turn, increases
company profits.

Additionally, the longer online fashion customers remain as

customers, the more likely they are to increase their purchase
quantity and to buy higher margin products, which also increases
the average customer lifetime value and company profits. 26
 CLV and customer retention
The Customer Lifetime Value increases
exponentially with increases in Customer
Retention.

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 CLV and customer retention example

Dont be to quick to judge

Question: How could a repeat customer with a

low lifetime value be more valuable than a
repeat customer with a high lifetime value?
Customer B has a high lifetime value.
Customer B buys a lot and is a repeat customer, but this customer often buys at other
coffee shops and is not particularly loyal to any.
Customer A has a low lifetime value.
Customer A spends less at the coffee shop but buys only from this coffee shop.
Customer A is extremely loyal and tells friends and relatives about the coffee shop,
thereby generating new customers for the shop. Hence, Customer As loyalty leads to a
second level of customer cash flow for the coffee shop.
In the end, Customer A, who spends relatively little at the coffee shop, could be more
profitable than Customer B, who spends a lot at the coffee shop.

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 CLV and customer retention
Question: For an industrial supply company, how
could a returning new customer have a higher
customer lifetime value than a first-time
customer?

Returning customers usually pick up about where they

left off with respect to the purchase and usage of the
industrial supplies.
Brand new customers are more likely to buy a more
limited array of products, and smaller amounts of
them, in their first years as a new customer.
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 CLV example from text
The average credit card customer for this company has
a customer life of 5 years. It costs the company $51 to
acquire a new customer and by year 5 they produce
$55 in customer profit.

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Customer lifetime value metric

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 Customer loyalty
What makes an Apple customer loyal, and why
are loyal customers more profitable than other
customers?

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 Customer loyalty
Loyal customers:
1. have a long customer history,
2. buy at an above-average purchase amount,
3. have a high desire to repurchase,
4. have strong product preferences for the companys
products and
5. would recommend the companys
products to friends, relatives,
and co-workers.

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Assessing customer loyalty

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Managing customer loyalty

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 Managing customer loyalty
Loyal Customers
High performance in all five aspects of customer loyalty
Repeat Customers
Great customers that buy often but score lower on purchase amount,
product preference, and customer recommendation.
Captive Customers
Have a long customer history and average purchase amount but would
leave if they could, as they are dissatisfied captive customers.
New Customers
Score low on all aspects of customer loyalty as they do not yet have the
customer history to assess their customer loyalty.
Unprofitable Customers
Score low on all aspects of customer loyalty.
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 Customer loyalty example
Question: How would you manage a repeat
McDonalds customer who had a
below-average (low) purchase amount?
Offer better prices with combined sales, such as:
coffee at half price with a breakfast order between
6 and 8 a.m.
specials on certain days of the week, such as two
sandwiches priced less than two would normally
cost.
Senior specials also attract customers looking for
good value, resulting in a higher average
transaction amount.
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Customer loyalty metric

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 Customer loyalty metric example
How would the average customer profitability change
with 25 percent loyal and 25 percent repeat customers?

This change would increase the average customer revenue by $13 and the
average customer profit by $9. These may seem like small differences, but for a
business with 10,000 customers the impact would be significant.
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 Customer loyalty metric example
How would the average customer profit change with the following loyalty: 30
percent loyal, 35 percent repeat, 5 percent captive, 20 percent new, and 10
percent unprofitable?

These changes would have a much greater impact on sales and profits. Average
customer revenue would increase by $98, and the average customer profit would
increase by $45. For a business with 10,000 customers, the improvement in
performance would be significant: overall customer revenue would increase by
$980,000, and customer profits would increase by $450,000.
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Summary: Science not an art

Co-creation
Value creation
Customer retention
Customer lifetime value
Customer loyalty