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session2 - Spring 2009| Undergraduate Program Agenda...

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MGT 103 Product Marketing and Management Session 2 Spring 2009 | Undergraduate Program Professor Leif D. Nelson Agenda z Personal Information Forms z Marketing, Customers, and Value z Sources z Fredrick F. Reichheld (1996), The Loyalty Effect (Boston: Harvard Business School Press) z Bradley T. Gale (1994), Managing Customer Value (New York: Free Press). z Stephanie Coyles & Timothy C. Gokey (2002), “Customer Retention is Not Enough,” McKinsey Quarterly (2). z Fredrick F. Reichheld and Pil Schefter (2000), “E-Loyalty: Your Secret Weapon on the Web,” Harvard Business Review , July- August. Value Marketing, Customers & Value Firms’ Valuation of Customers Value to Customer Economics of Loyalty Acquisition Costs (credit card example) Revenue & Savings Lifetime Value of a Customer Cox example Customer Retention Management Customer Satisfaction Value Maps Loyalty Programs Economic Value Functional Value Psychological Value Economics of Loyalty Why firms like to value and retain customers? z Lifetime Customer Value z The present value of the profit stream that the company would have realized if the customer had not defected prematurely. z Examples of bad service z Loyal customers are much more profitable Economics of Loyalty Why Loyal Customers Are More Profitable -20 -10 0 10 20 30 40 50 60 70 12345678 Year Annual Customer Profit Economics of Loyalty Acquisition Costs z The cost of acquiring a new customer (direct sales, mail, telemarketing, etc.) z Initial Loss for any new customer z There will also be some maintenance costs
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Credit Card Example Possible Criterion: “Efficient” => least cost per customer Prospects Response Rate No. of Responses % Qualified Qualified Prospects % Converted Customers “Effective” Rate Cost per Prospect Total Cost ($) Cost per Customer Cost per Customer = Cost of contacting all prospects No. of customers obtained Credit Card Example Acquisition Costs: Citibank Credit Card Example • Method: Direct Mail (i.e. applications sent to you by mail) • Cost = $1.50 / unit • Typical Mailing List = 300,000 addresses • A market research agency estimated that approximately 2% of prospects usually respond to direct mailings. • The agency further estimated that two-thirds of those who responded to direct mail usually qualify. • About 80% of those who qualify would usually become a card customer. Citibank Problem “Efficient” => method with least cost per customer D Mail Prospects 300,000 Response Rate 2% No. of Responses 6,000 % Qualified 66.7% Qualified Prospects 4,002 % Converted 80% Customers 3,202 “Effective” Rate 1.1% Cost per Prospect $1.50 Total Cost ($) 450,000 Cost per Customer $140.55 Cost per Customer Cost of Contacting All Prospects No. of Customers Obtained = Why Loyal Customers Are More Profitable -20 -10 0 10 20 30 40 50 60 70 12345678 Year Annual Customer Profi Economics of Loyalty Base Profit z The profit margin that a company earns from an average customer z Stable over the years Why Loyal Customers Are More Profitable -20 -10 0 10 20
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This note was uploaded on 01/04/2010 for the course MGT 103 taught by Professor Nelson during the Spring '08 term at UCSD.

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session2 - Spring 2009| Undergraduate Program Agenda...

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