Part Two Foundations for Creating Value Part Two

Part Two Foundations for Creating Value

Part Two Foundations for Creating Value Takes us to the business marketer’s engine room: an overview of how to identify opportunities, strategic planning and assess the role of marketing in a learning organization Chapter 5 - Market Opportunities Chapter 6 - Marketing Strategy Chapter 7 - Weaving Marketing into the Fabric of the Firm 5 -2

Chapter Five Market Opportunities: Current and Potential Customers

Generating B 2 B Opportunities DEVELOP MARKETS AMONG CURRENT CUSTOMERS FIND OPPORTUNITIES WITH EXISTING CUSTOMERS NEW MARKET OPPORTUNITIES ACQUIRE NEW CUSTOMERS DEVELOP A RESEARCH PROGRAM 5 -4

Develop Markets among Current Customers • 80 -20 rule: Generally, the “top” 20 percent of customers generates 80% of sales • Existing customers are logical prime candidates for the firm’s new products because these customers (1) Know the company; (2) Are familiar with the firm’s service standards; (3) Are familiar with its dedication to quality; (4) Have experienced its technical capabilities • The seller can “penetrate” these accounts and receive more of the dollars for little cost as compared to the cost of attracting a new, unfamiliar customer; • The cost of recruiting new customers is greater than that of retaining existing ones should they be lost. 5 -5

Four step process of developing markets among current customers 1. Rate your best customers (Best Customers) – ideally, firms should allocate its marketing budget to service its best customers until marginal revenue equals marginal cost and marginal cost is rising 2. Maximize revenues through collaboration (Customer Maximization) – e. g. , newspaper ad manager work with car dealer to develop special events. 3. Develop customer specific products (New Products) – Light and medium accounts should be a prime target for account penetration 4. Learn from your customer’s customers (Network Payoffs) 5 -6

Finding Opportunities with Customers Four step approach: 1. Establish a formal feedback program with customer contact points (sales, support) 2. Develop databases – databanks, data warehousing and data mining 3. Compile decile reports 4. Develop customer research assistance program 5 -7

Customer Feedback A formal feedback program: Empathic dialogue is active listening an identification with customer concerns, resulting in customer-centered communication and problem solving. • The ability to listen actively and identify with customer concerns is at the core of empathic dialogue. • Sympathy is feeling for another; empathy is feeling as another. • These discussions require the seller to share his client’s knowledge, perceptions, hopes, and fears in order to offer solutions and/or point out opportunities. 5 -8

Customer Feedback Sources for customer feedback and opportunity identification - Marketing research firms - Academic research - The salesforce - Public opinion surveys 5 -9

Databases • Databanks created unprecedented volumes of information • Data warehousing is the practice of storing all of the firm’s information on a centralized, centrally managed computer which may be accessed by authorized users firmwide; it amassed databases which grew both with the simple passage of time and the continual hunt for new, “useful” data. • Data mining assists in sorting through this maze to identify data required for a specific project/use; Data mining is a logical outgrowth of databanks & data warehousing 5 -10

Decile Report • A decile report orders the firm’s customers from best to worst, according to purchase volume for the period, summarized by tenths. • Decile reports are used for: 1. Identifying the best accounts 2. Allocating promotional budgets 3. Focusing market research efforts 4. Targeting special promotions/rewards 5 -11

Acquire New Customers Four step process for acquiring new customers: 1. Calculate your current customer’s lifetime value (LTV) to serve as yardstick for planning 2. Find customers in a new segment who “look like” your existing customers 3. Get into some new geographic territory 4. Modify existing products for new industries 5 -12

Developing Opportunities through Marketing Research PURPOSE OF RESEARCH 1 2 CUTOMER MANAGEMENT ACQUIRE NEW CUTOMERS ACHIEVED BY 1. CUSTOMER RESEARCH - through focus groups and surveys 2. INTERACTING WITH CUSTOMERS - through joint product development and product testing (in Chapter 8, product development) 3. DEVELOPING ON-SITE VISITATION PROGRAMS – Crossfunctional teams may employ customer visits to gather information while assisting customers in problem solving and/or identifying opportunities 5 -13

Focus Group (1) • A small group of customers may be probed in depth about a specific topic or issue • The moderator should be well-trained in the behavioral sciences; encourages discussion and interaction; tapes the session for after-detailed analysis; keep discussion “on topic” • The focus group is best used to - generate ideas gain insights into consumer needs gain insights into consumer constraints develop hypotheses about market opportunities 5 -14

Focus Group (2) • Focus groups may accomplish all of the following: reveal a spectrum of customer motivations; suggest differences in usage patterns; provide closer contact with actual customers; simulate thinking about new products/services. Except provide quantitative results. • It is not proper procedure for measuring market share potential and should not be used to forecast adoption rates • Focus groups are popular because they are often supported by sophisticated databases; they can be conducted quickly and cheaply; they almost always yield surprising insights and some new ideas. 5 -15

Focus Group (3) Criticize focus groups • - - - Focus groups are too small in size and geographically limited to allow findings to be accurately projected onto the total market. Attitudes, motives, meanings, emotions, and preferences are difficult to convey and are interpreted by the moderator who is not necessarily correct. Still, focus groups can provide “insights” and ideas that can be subjected to further, more rigorous analysis as part of the total research effort. Indeed, focus groups are often considered exploratory research. 5 -16

Sample Survey • • Sample surveys may be administered by/through personal interviews, mail, telephone and the internet Personal interviews – If marketer needs to explain complex issues, probe in depth, or employ demonstration • Mail questionnaires – must be short, clear, logically laid out, and easy to complete • Telephone interviews – are comparatively easy to monitor; comparatively fast and inexpensive; more intrusive than mailed questionnaire; incapable of reaching all customers • Online surveys – are remarkably fast and cost effective; capable of reaching large numbers of consumers; do not reach all populations; may suffer from privacy and/or virus concerns 5 -17

Customer Lifetime Value Analysis By estimating the present value of future customer streams, the firm can identify those customers to guard most heavily and cultivate most aggressively. This is useful in all phases of the marketing program. Critique the LTV concept • • • - LTV is logical – as a concept It is really a statistical estimate It accuracy depends on subjectively selected historical data, time horizons, discount rates, and anticipated account maintenance charges. These factors can, and will, change over time – and will not change uniformly across accounts 5 -18

Exhibit 5 -4 Schedu. Trax Lifetime Value Analysis Expected customer migrations following acquisition Yrs. since 1 st Yr. 2 nd Yr. 3 rd Yr. 4 th Yr. the Last Purchase Expected $ Account Acquisition after Purchase Probability Purchases Service Costs Period acquisition 100 0 0. 60 $20 $90 60. 0 36. 0 31. 2 27. 4 Customers 16. 0 9. 6 8. 3 15. 0 4. 8 2. 9 45. 6 1. 9 1 2 3 0. 40 0. 20 0. 10 $60 $50 $10 $ 4 $ 2 40. 0 24. 0 20. 8 14. 4 19. 2 Profit forecasts Acq+1 [60 buyers ($90)]×. 8 gr. profit–[100 accts×$20 service/acct] = Acq+2 [36 buyers ($90)+16 buyers ($60)]. 8 gr. profit- [60 accts×$20+40 accts×$10] = Acq+3 [31. 2 buyers($90)+9. 6 buyers($60)+4. 8 buyers($50)]. 8 gr. profit- [52 accts×$20+24×$10+$24×$4] = Acq+4 [27. 4 buyers ($90)+8. 3 buyers ($60)+2. 9 buyers ($50)+1. 9 buyers ($50)][45. 6×$20+20. 8×$10+14. 4×$4+19. 2×$2] = NPV @ 10% NPV @ 20% Discounting profits Acq+1 $2, 109 $2. 017 $1, 933 Acq+2 $1, 455 $1. 331 $1, 222 Acq+3 $1, 144 $1, 002 $ 881 Acq+4 $ 919 $ 769 $ 649 LTV/100 customers $5, 627 $5, 119 $4, 686 40. 5 18. 2 12. 5 11. 5 17. 3 5 -19

Market Segmentation • To evaluate opportunities to acquire new customers, it is critical to segment the market in order to match company strengths with unmet or underserved customer needs. • Traditionally, market segmentation has used customer traits, buying patterns, information needs, benefits sought, psychographic profiles, etc. into discrete clusters that may be attractive. 5 -20

Segmentation and Opportunity Analysis IDENTIFY SEGMENTS THROUGH INDUSTRY CLASSIFICATION (SIC / NAICS) CHOOSE YOUR INDUSTRY TARGETS CHOOSE YOUR SPECIFIC COMPANY TARGETS BY: 1. 2. 3. HOW THEY BUY THE BENEFITS THEY SEEK MEMBERSHIPS IN PROFESSIONAL / TRADE ORGANIZATIONS 5 -21

Criteria for Successful Segmentation • SEGMENT MUST BE IDENTIFIABLE - enumerated and evaluated + • SEGMENT MUST BE ACCESSIBLE - can be reached by marketing activity + • SEGMENT MUST BE SUBSTANTIAL - enough to justify efforts Segments that satisfy all of the basic criteria for a “good” market are likely to be designed as a target market. 5 -22

Perceptual Mapping • The customer’s mental picture of various products in the marketplace with regard to significant features/attributes may be graphically analyzed by perceptual mapping. • An aid to segmentation, also an aid to positioning; may help identify new product opportunities; is used to group and discriminate among products. • The basics of this technique should be discussed in marketing research course. 5 -23

C Reasonable price A Order process efficiency & accuracy After-sale service Rapid delivery B Helpful / informative D Technical performance 5 -24