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Part Two
Foundations for Creating Value
5-2
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
Chapter Five
Market Opportunities:
Current and Potential Customers
5-4
Generating B2B Opportunities
NEWMARKET OPPORTUNITIES
ACQUIRENEW
CUSTOMERS
DEVELOPA RESEARCH
PROGRAM
FIND OPPORTUNITIES WITH EXISTING
CUSTOMERS
DEVELOP MARKETS AMONG CURRENT
CUSTOMERS
5-5
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.
5-6
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)
5-7
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
5-8
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.
5-9
Customer Feedback
Sources for customer feedback and opportunity identification
- Marketing research firms
- Academic research
- The salesforce
- Public opinion surveys
5-10
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
5-11
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
5-12
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
5-13
Developing Opportunities through Marketing Research
PURPOSE OF RESEARCHPURPOSE OF RESEARCH
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 – Cross-
functional teams may employ customer visits to gather information
while assisting customers in problem solving and/or identifying
opportunities
1
CUTOMER MANAGEMENT
2
ACQUIRE NEW CUTOMERS
5-14
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
5-15
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.
5-16
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.
5-17
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
5-18
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
5-19
17.3
$4,686$5,119$5,627 LTV/100 customers$ 649$ 769$ 919Acq+4$ 881$1,002$1,144Acq+3$1,222$1.331$1,455Acq+2$1,933$2.017$2,109Acq+1
NPV @ 20%NPV @ 10%NPV @ 10Discounting profits
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 ($50)]-
Exhibit 5-4 ScheduTrax Lifetime Value Analysis
8.3 9.616.0Customers 2.9 4.815.0
11.519.2$ 2$500.103
12.514.424.0$ 4$500.202
18.220.824.040.0$10$600.401
40.5
1.945.6
27.431.236.060.0100$90$200.600
4th Yr. after
acquisition
3rd Yr.after
acquisition
2nd Yr.after
acquisition
1st Yr.after
acquisitionAcquisition
PeriodAccount
Service CostsExpected $ Purchases
Purchase Probability
Yrs. since the Last Purchase
[45.6×$20+20.8×$10+14.4×$4+19.2×$2] =
Expected customer migrations following acquisition
5-20
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.
5-21
Segmentation and Opportunity Analysis
IDENTIFY SEGMENTS THROUGH INDUSTRY CLASSIFICATION (SIC / NAICS)
CHOOSE YOUR INDUSTRY TARGETS
CHOOSE YOUR SPECIFIC COMPANY TARGETS BY:
1. HOW THEY BUY2. THE BENEFITS THEY SEEK3. MEMBERSHIPS IN PROFESSIONAL / TRADE
ORGANIZATIONS
5-22
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.
5-23
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.
5-24
Helpful / informative
D
C
A
B
Order processefficiency & accuracy
Reasonable price
After-sale service Rapid delivery
Technicalperformance