Managing Customers for Profit V Kumar Chapter 11

Managing Customers for Profit V. Kumar Chapter – 11 Linking Investments in Branding to Customer Profitability Instructor’s Presentation Slides ©Dr. V. Kumar http: //www. drvkumar. com/books/book_mcp. html 1

Relevant Issues Should we invest in building brand equity or customer equity? How does building Individual Brand Value maximize customer profitability? ©Dr. V. Kumar http: //www. drvkumar. com/books/book_mcp. html 2

Samsung and Nokia Example Figure 11. 1 shows that Samsung’s brand value has been steadily increasing over the period, and the net income for this period has been following an upward trend. This shows that there is an association between a firm’s brand value and the firm’s net income. Brand Value Net Income* * The net income has been scaled by a factor of 1000 to make it comparabl Figure 11. 2 shows that Nokia’s brand value has been following a declining trend between 2001 and 2005, and the net income is almost stagnant over the same period. This shows how the declining brand value can affect a firm’s overall performance. Brand Value Net Income* * The net income has been scaled by a factor of 1000 to make it comparabl ©Dr. V. Kumar http: //www. drvkumar. com/books/book_mcp. html 3

Framework for Linking Value to CLV �Linking the IBV to the CLV is a dynamic process, where each aspect of the individual’s brand value such as brand knowledge, brand attitude, brand behavior intention and brand behavior contributes towards the individual’s lifetime value with the firm. ©Dr. V. Kumar http: //www. drvkumar. com/books/book_mcp. html 4

Framework for Linking Value to CLV Figure 11. 3 Firm-Level Firm Actions Marketing Communications Corporate Activities Marketing Mix Activities Individual-Level Firm Actions Marketing Communications Brand Knowledge Brand Awareness Components of an Individual’s Brand Value Behavior Outcome Brand Behavior Components of an Individual’s CLV Brand Advocacy Brand Loyalty Brand Image Brand Affect ©Dr. V. Kumar Purchase Frequency Contribution Margin Brand Attitude Brand Trust Premium Price Behavior Marketing Cost Brand Behavior Intention Purchase Intention Brand Experience Customer Referral http: //www. drvkumar. com/books/book_mcp. html 5

Components of Individual Brand Value ©Dr. V. Kumar Brand Awareness Purchase Intention • Increased awareness of the brand increases the purchase probability • Such repeated exposure to the brand will generate a positive outlook in the customer. • The purchase intention of a customer gains importance when there are multiple competitors in the market and gives the focal brand an edge in various purchasing situations. • The greater the brand purchase intention of a customer, the greater is his brand value Brand Image Brand Loyalty • Brand image is affected by how customers perceive a particular brand what they associate it with • Brand image is not only influenced by how a firm markets its brand, but also with all other brand related activities undertaken by the firm • A customer has brand loyalty when he/she makes repeated purchases of a preferred brand shows both attitudinal and behavioral loyalty to the brand • The higher the brand loyalty towards a brand for a customer, the higher his/her brand value Brand Trust Brand Advocacy • Brand trust assumes particular significance when customers cannot objectively evaluate the quality of a product. • Brand trust is developed over time when the customer acquires positive brand knowledge through experience and through information from external sources • Brand advocacy refers to the customer establishing a relationship with other customers using the brand through joining a brand community and encouraging other customers to do so • The greater the brand advocacy for a customer, the greater his/her brand value. Brand Affect Brand Priced Premium Behavior • A customer’s positive emotional response towards a brand • Brand affect is created by positive associations and past experience, and indicates towards a deeper relationship between the brand the customer • Brand price premium behavior refers to the customer’s willingness to pay a premium price to buy a preferred brand over other products • The greater the brand price premium behavior of a customer, the greater his brand value http: //www. drvkumar. com/books/book_mcp. html 6

How to Link IBV and CLV Communication plays an important role in linking an individual’s brand value to his/her customer lifetime value. ©Dr. V. Kumar These include word-of-mouth, product messages, corporate activities, marketing mix activities, and marketing communications. Customer satisfaction (or dissatisfaction) goes a long way in deciding a customer’s brand knowledge. In order to successfully implement this strategy and achieve positive growth in both individual brand value and customer lifetime value, seven steps are suggested. http: //www. drvkumar. com/books/book_mcp. html 7

Predicted Behavior Outcomes Lifetime Duration • The various factors that affect individual’s brand value such as brand knowledge, attitude and behavior intentions affect a customer’s lifetime value. • The greater a customer’s individual brand value, greater his/her lifetime value. ©Dr. V. Kumar Purchase Frequency • The better the customer is able to recall the brand its attributes the more he/she is likely to purchase from the brand • A customer with a higher level of brand advocacy is more likely to resist offers and promotions from competitors Contribution Margin • By building on the core image of the parent brand, new products and services could be introduced • This shows that greater the brand value of a customer, the greater his/her contribution margin. Customer Referrals • One of the main functions of brand advocacy is to propagate information about the brand • It directly contributes to a positive word-ofmouth behavior http: //www. drvkumar. com/books/book_mcp. html 8

Implementation Calculate CLV at the individual level then rank-order customers based on CLV then segment into 10 deciles Obtain information on Brand Value Components on a sample from each decile, then link components to Lifetime Value and obtain an importance weight Estimated Bob’s Individual Brand Value ©Dr. V. Kumar http: //www. drvkumar. com/books/book_mcp. html 9

Implementation (cont’d) Once the individual attributes of Bob’s brand value have been measured, the firm can take measures to optimize the value of the various factors of his brand value to maximize his CLV. Estimated and Optimized Bob’s Individual Brand Value Optimized ©Dr. V. Kumar Estimated 10 http: //www. drvkumar. com/books/book_mcp. html

Implementation (cont’d) Once the components of brand value have been optimized, the firm can translate these optimized values to concrete brand management strategies. Customer Lifetime Value CLV Curve Measured after New Brand Strategy CLV Curve Measured before New Brand Strategy Time After implementing the new brand management strategies, the focal firm found that Bob’s CLV curve improved greatly and such an increase was driven directly by increasing Bob’s brand value. ©Dr. V. Kumar 11 http: //www. drvkumar. com/books/book_mcp. html

Implementation (cont’d) Customer Lifetime value Customer Life Cycle Brand Management: An Integrated Framework Brand Management for Each Individual Traditional CLV Curve Time Acquisition • Build desirable brand knowledge • Cultivate favorable brand attitude • Encourage positive brand behavior Retention OPTIMAL Marketing Communications Attrition • Maintain desirable brand knowledge • Strengthen favorable brand attitude • Further develop positive brand behavior RESOURCE • Forecast with signaling brand behavior • Prevent with brand investment • Win back with new brand strategy ALLOCATION Corporate Activities Marketing Mix Activities The goal of a successful individual brand management strategy is to maximize a customer’s lifetime value driven by a brand in all three stages of the customer lifecycle- acquisition, retention and attrition. ©Dr. V. Kumar 12 http: //www. drvkumar. com/books/book_mcp. html

How to acquire customers with potentially high CLV Existing Customers with High IBV Profile of High IBV Customers Prospects Group Selecting Potential customers ©Dr. V. Kumar 13 http: //www. drvkumar. com/books/book_mcp. html

End of Chapter 11 ©Dr. V. Kumar 14 http: //www. drvkumar. com/books/book_mcp. html