Fall+2008+Section+08-PJ+Week+3

=**Satisfaction, Loyalty and Customer Lifetime Value (CLV)**=

1. Customer Lifetime Value
Here's a download of a CLV tool: http://hbswk.hbs.edu/archive/1436.html Stage 1: Prospects //(attracting potential customers, developing expectations)// Stage 2: First-Time Buyers //(assess the value of the product or service)// Stage 3: Early Repeat Buyers //(repeat business leads to confidence in the product)// Stage 4: Core Customers //(defection is low, will only leave if there is a high level of dissatisfaction)// Stage 5: Core Defectors //(external factors such as competition and new promotions/or products)// Relationship marketing builds on the concept of a relationship between the firm and customer that is ongoing and in turn, creates loyalty/repeat business.
 * Customer Life Cycle**

2. Comparing Campaigns using NPV
Net Present Value (NPV) is a tool that allows you to evaluate future expected cash flows based on the initial investment and discounted cash flows. This same idea can be used to evaluate marketing campaigns or estimating project retention. When using NPV, the discount rate should be set around 15%; most business would not invest for anything less than that. Using the Brita example to estimate the number of filters bought over the course of 3 years, there was an 80% retention rate for the pitchers and average of 3 filters used per year. Year 0 only one filter was used. This filter came with the pitcher. 1 + (3*.8/1.15) + (3*(.8)^2/1.15^2) + (3*(.8)^3/1.15^3)


 * Don't forget what Manohar taught us from finance class. You can leverage Excel and use the built-in NPV function: =npv (rate, value1, value2,...)

=3. "Firing Bad Customers"= Bad/Unprofitable Customer - find out who they are and fire them early! Ways to fire them: 1 - Increase cost to customer so they can't afford your product/service. 2 - Fine them if they break a contract (ie, not returning a medical device). 3 - Change/Limit/Delete return policy. 4 - Throw them out of the store (Nike Skater Store).

Keeping your best customers is as important as acquiring new ones. Best customers typically outspend others considerably, with a ratio of 15 to 1. Additionally, firms may identify customers who create substantial costs, like customers who abuse return policies.

4. How the Competitive Environment affects the Satisfaction-Loyalty Relationship
In today's market, companies are moving manufacturing operations to global regions that can make the products for the least cost. Comparing US manufacturing cost to China manufacturing cost can be very eye opening. The %age difference in cost is so far less in China that companies cannot resist the margin improvement and will move the manufacturing to compete on cost. Often times, this cost improvement is offset by poor delivery time ("...products are on the slow boat from China, literally"), and poor quality. Consumers are finding that products are not in stock and the quality is declining substantially in many different goods coming from China. Unless these challenges are corrected customer satisfaction will continue to decline and the demand for higher quality products will increase.

5. [|www.getsatisfaction.com]
This site is set up for consumers to communicate problems/issues with others who are in the same situation and to communicate with employees of that product/service. Win for companies since they don't have to pay for the cost of the call to the customer service department and win for someone who can help another person via this site (altruism).

6. Customer Referral Value
Word of Mouth Marketing is an important concept. This concept is called viral growth.

Books on Word of Mouth Marketing: Beyond Buzz: The Next Generation of Word-of-Mouth Marketing by Lois Kelly

7. Segmenting by Value
It is important to look at customer lifetime value (CLV) and customer referral value (CRV).

8. Harrah's Entertainment, Inc. Case
Competitors were moving in on Harrah's customer base and Harrah's realized they needed to make changes or they wouldn't survive. Initially they started a rewards program that would track the gambling of the customers at their properties. Harrah's used the customer loyalty as their main marketing focus. They weren't meeting revenue expectations so they began to explore new strategies. They built on their initial idea of customer loyalty with three major initiatives: changing the organization, building the Harrah's brand, delivering extraordinary service and exploiting relationship marketing opportunities. However, the first major hurdle towards achieving Harrah's initiatives was to integrate all of their casino operations into one functioning entity. Harrah's old model of each casino operation acting as a "fiefdom, managed by feudal lords", commanding its own operations, marketing budgets, customer retention, etc. was not working. The challenge then was to convince the property manager to encourage customers to their gaming at other properties under the Harrah's name rather than focusing solely on their own. The cross integration of all of their properties would be paramount to their successes of not only tracking customers, but targeting the right customer, with the right incentives, and at the right time.

9. Brita Case
Brita's business model is a complementary product model based on selling few units of one product (the pitcher) at a lower price, and larger quantities of the filter at an inflated price. Brita's model required the company to take a loss on the initial pitcher purchase per customer. Once the customer committed to the pitcher purchase, profit was obtained through disposable filter sales. Brita began sales in department stores but quickly expanded to the mass market and competed on taste rather than filter quality. Initially, Brita experienced viral growth through word of mouth and gifting of their product, but then was faced with competition from Pur, which caught them off guard as a disruptive influence in the marketplace. Competition from Pur led Brita to developing its own faucet filters. Marketing research by Brita was critical in determining if faucet filters would cannibalize its bread and butter pitcher business.

10. Atida Motor Company
Atida Motor Co. was faced with an issue of poor customer service, declining quality in thier product, high customer expectations based on thier past experience and expectation that Atida was a reputable and reliable brand. The management's disconnect from the customer service dept. and the product itself was creating a disjointed corporate structure.

Here is an article on putting the customer first, and how it can boost the brand: http://www.fastcompany.com/magazine/87/customer-1.html

It really shows how large companies get disconnected from the customer when trying to appease other stakeholders (i.e. shareholders). Based on what we've learned about Harrah's ability to really profile customers behaviors it's no surprise to see them on the list of champions. It's also important to note that some companies can be great at providing a customer experience, but are failing financially (Wachovia)

=Class Discussion For Week 3=

An example of customer service gone very wrong.