The Customer Experience and Value Creation Chapter 4 O.docx
- 1. The Customer Experience and Value Creation Chapter 4 Objectives Life-cycle Cost and customer value creation Performance and customer value Measuring perceived value MBM6 Chapter 4 1 Life-Cycle Cost and Customer Value Creation In this section we will look at different ways companies can assess the dollar value they create in customer savings relative
- 2. to competitors. MBM6 Chapter 4 The Customer Experience and Value Creation Southwest Airlines Total Cost of Purchase MBM6 Chapter 4 3 Sources of Life-Cycle Cost MBM6 Chapter 4
- 3. 4 Life-cycle Cost & Economic Value MBM6 Chapter 4 Economic Value = Life-cycle cost (competitor)- Life-Cycle Cost (company) 5 AirCap Total Cost per Shipment MBM6 Chapter 4 6 Communicating Value
- 4. MBM6 Chapter 4 7 Lowering Disposal Costs as A Source of Value Creation MBM6 Chapter 4 8 Price-Performance and Customer Value Creation Performance can also include product features and functions that do not save money but enhance usage and create customer value. MBM6
- 5. Chapter 4 The Customer Experience and Value Creation 9 Performance vs. Price and Customer Value Customer Value = Product Price – Fair Price Data Source: “Digital Cameras,” Consumer Reports (April 2010) MBM6 Chapter 4 10 Customer Value and Value Map
- 6. Canon A590 11 Sport Utility Vehicle Value Map MBM6 Chapter 4 How would you evaluate the Toyota Highlander value based on these results? (Data Source: “Best and Worst New and Used Cars,” Consumer Reports (2011): 43.) 12 Relative Performance and Customer Value MBM6
- 7. Chapter 3 If the average performance rating of sixty-two printers is 61 according to Consumer Reports, and HP’s performance rating is 73, what is HP’s relative performance rating? Relative Performance = (73/61)*100= 120. Product Performance Rating Average Performance Rating X 100 Relative Performance = 13 Measuring Perceived Customer Value Customer perceptions shape assessments of customer value. In many cases, customers consider more than product performance when they assess the overall value of a product. MBM6 Chapter 4 The Customer Experience and Value Creation 14
- 8. Perceived Customer Value MBM6 Chapter 4 Perceived Customer Value = Overall Performance Index (Overall benefits) – Cost of Purchase Index (cost) = (Perceived Product Performance + Perceived Service Performance + Perceived Brand Reputation) – Cost of Purchase 15 Measuring Perceived Product Performance MBM6 Chapter 4 1 2 3 Advantage: When the business is significantly better (>1 points)
- 9. than a competitor, it gets the relative importance points. Disadvantage: If it is significantly worse (> -1 points), it loses the relative importance points. No advantage/disadvantage: Between -1 and +1 no points are won or lost. 16 Service Quality & Brand Reputation Perceptions Are Indexed that Same Way MBM6 Chapter 4 17 Overall Performance MBM6 Chapter 4
- 10. Because each core area of performance could have different importance to customers, these area are assigned a Relative Importance. The overall performance is a weighted average of the relative advantage and relative importance for the three core areas of performance. In this case the overall performance is 123. Relative Importance x Relative Advantage= Performance score 18 Cost of Purchase MBM6 Chapter 4 The cost of purchase is rated the same way. However, a higher rating means a higher cost and a lower rating a lower cost. For the business its purchase price is 27% higher but service and repair 10% lower than its three competitors. Overall, their cost of purchase is 3% higher than competitors.
- 11. 19 Customer Value Index and Value Map Perceived Customer Value Index = Overall Performance Index- the cost of purchase index 20 Customer Value and Profitability Businesses with higher customer value indexes have been shown to general higher levels of profitability than businesses with lower customer value indexes. MBM6 Chapter 4 21
- 12. Identifying Value Drivers and Level of Price Sensitivity Using Conjoint Analysis MBM6 Chapter 4 The Customer Experience and Value Creation Conjoint analysis is a tool widely used in marketing to estimate the relative importance of different factors that influence people’s decision. 22 Conjoint Analysis: Price-Performance Trade-Offs Step 1: Set up two performance features each with 3 levels of performance and price at 3 price levels. Step 2: Rank the 9 options presented from 1 (most preferred) to 9 (least preferred). These nine options (generated by conjoint analysis software) are a representative subset of 27 (3x3x3) combinations. Step 1 Set-Up Step 2 Rank Preferences
- 13. 23 Customer Preferences & Price Sensitivity Customer Preferences Which factor is most important? Across different factors, the larger the range from low score to high score, the more important that attribute is. What is the incremental benefit of a large hamburger over an average size? Within the same factor, the bigger the jump from a lower score to a higher score, the more incremental benefits the change will bring to the customers. Hamburger Size Wait Time Hamburger Price Small Average Large 1 min. 5min. 10 min.
- 14. 24 Relative Performance MBM6 Chapter 3 Your strategy: everything in the mid range. (What would be the Value Index of a $2.50 hamburger, with average size and 5 minutes wait time)? Customer Value Index = Hamburger Size +Wait Time + Hamburger Price CVI= .8+.67+.67= 2.14 Strategy A: Pursue the high-end market. (high price for a small burger, short wait time) CVI= 0 +.33 +.80= 1.13 Strategy B: Pursue the low-end market. (low price for a big burger, long wait time) CVI= 1 +.33 +.80= 2.13 25
- 15. Business Rating - Competitor Rating RelativeComp.Comp.Comp. Product PerformanceImportanceABC Machine Uptime40132 Print Speed30144 Image Quality20001 Ease of Use10-2-3-2 100 Indexing Competitive Advantage RelativeComp.Comp.Comp.Rel. Product PerformanceImportanceABCAdv.(*) Machine Uptime400404027 Print Speed300303020 Image Quality200000 Ease of Use10-10-10-10-10 10037 Sheet1RelativeBusinessCompetitorRatingProduct PerformanceImportanceRatingADifferenceMachine Uptime40871Print Speed30981Image Quality20770Ease of Use1046-2100Business Rating - Competitor RatingRelativeComp.Comp.Comp.Product PerformanceImportanceABCMachine Uptime40132Print Speed30144Image Quality20001Ease of Use10-2-3- 2100Indexing Competitive AdvantageRelativeComp.Comp.Comp.Comp.Product PerformanceImportanceABCAdv.(*)Machine Uptime400404027Print Speed3014420Image Quality200010Ease of Use10-2-3-2-1010037 Sheet2 Sheet3 Sheet1RelativeBusinessCompetitorRatingProduct PerformanceImportanceRatingADifferenceMachine Uptime40871Print Speed30981Image Quality20770Ease of Use1046-2100Business Rating - Competitor RatingRelativeComp.Comp.Comp.Product PerformanceImportanceABCMachine Uptime40132Print
- 16. Speed30144Image Quality20001Ease of Use10-2-3- 2100Indexing Competitive AdvantageRelativeComp.Comp.Comp.Rel.Product PerformanceImportanceABCAdv.(*)Machine Uptime400404027Print Speed300303020Image Quality200000Ease of Use10-10-10-10-1010037 Sheet2 Sheet3 Market-Based Management MBM6 Chapter 3 Ch 3: Market Demand Ch 4: Customer Analysis Ch 5: Market Segmentation Ch 6: Competitor Analysis 1 Market-Based Management MBM6 Chapter 3
- 17. Chapter 3 Defining Market Space and Estimating Market Potential Understanding Dynamics of Market Demand and the Product Lifecycle Understanding How Market Share is Achieved and Evaluating Share Strategies A narrow market definition limits your business opportunities. You have to see more to sell more. —Jack Welch, CEO, 1981–2000 General Electric 2 Customer Focus, Customer Performance, and Profit Impact Defining Market Space and Estimating Market Potential MBM6 Chapter 3 In this section we will look at how the greatest threat to a business’s survival—and a major cause of missed market opportunities—is a narrow focus on existing product-markets.
- 18. 3 Narrow vs. Broad Market Definition MBM6 Chapter 3 Broad Market Definition Goes beyond existing products and customers Discovers unserved needs of customers Includes all substitute products. Recognizes untapped market potential. Long-term oriented Narrow Market Definition Sticks with existing products and customers Focuses on the articulated needs of served customers Confines to a particular product Results in unfilled market potential. Short-term oriented 4 Product-Market Structure MBM6 Chapter 3
- 19. 5 Market Definitions MBM6 Chapter 3 A broad market definition is essential for any business in order to understand and measure market demand, market potential, and market share. A narrow market definition, one adopted by design, is not always a limitation. Market Share = Sales/Market Demand 6 Market (Demand) Potential MBM6 Chapter 3
- 20. Knowing the maximum number of units that can be consumed by the defined market (Market Potential) is of great strategic importance to a business: After a market reaches its full potential and saturates, new customers will be hard to find. Personal Computer Market Demand 7 Market Potential (Units vs. dollar values) MBM6 Chapter 3 Units Dollars Consuming units: individuals, families, households, businesses, or other purchasing entities. Buying ceiling: the percentage of consuming units who can afford to buy your product at an average price. Purchase rate: how likely will a consuming unit buy your product each year?
- 21. 8 Estimating Market Potential - PCs MBM6 Chapter 3 The first step of estimating market potential is to define the geographical boundaries and the consuming units. 9 Market Development and Potential MBM6 Chapter 3 MDI: the degree to which the overall market for a product has been developed MDI <33 : considerable growth potential 33<MDI<67: moderate growth potential MDI>67: limited growth potential
- 22. MDI begins to level off near 80 10 Customer Focus, Customer Performance, and Profit Impact Understanding Dynamics of Market Demand Throughout the Product Lifecycle MBM6 Chapter 3 In this section we will look at how understanding market demand over time is an important aspect of market planning and strategy development. Factors of Market Development MBM6 Chapter 3 Many new markets and most global markets are well below their market potentials because large numbers of potential customers have not yet entered them.
- 23. 12 Product-Market vs. Product Life Cycle MBM6 Chapter 3 Generic product-market life cycle: entire product category Product life cycle: a particular product in the category. 13 Product Life Cycle, Market Demand, and Profits MBM6 Chapter 3 In the early stages of the product life cycle the net marketing contribution (NMC) is negative. As the product moves through the lifecycle, NMC will reach break-even, grow, peak, flatten, and begin to decline as market demand decreases. NMC =
- 24. Gross profit – Marketing and Sales Expenses 14 PC Life-Cycle Sales and Gross Profit MBM6 Chapter 3 Profits can vary over the product life cycle. For PCs, we see continued growth beyond the late growth stage in both sales revenues and market demand in units. Slower growth in volume and declining prices will contribute to lower margins and lower industry gross profits. This modest decline occurs as the PC market moves from late growth to the maturity stage. 15 Customer Focus, Customer
- 25. Performance, and Profit Impact Understanding How Market Share is Achieved and Evaluating Share Strategies MBM6 Chapter 3 In this section we will look at how, for a given market and the market’s potential for development, a business can determine its best opportunities for sales growth, depending on its potential to grow share. 16 Market Share Performance Tree MBM6 Chapter 3 Moving from bottom to top, each stage of the market share performance tree indicates how the customer respond to a strategy influences market share. The first step is to identify the sequence of events that have to take place for a customer purchase to occur. 45% x 25%
- 26. 17 Market Share Index vs Actual MBM6 Chapter 3 Benefits of MSI: Helps identify the major causes of lost market share opportunity Provides a mechanism for assessing market share change when improvement efforts are directed to an area of poor performance Enables a business to estimate a reasonable potential for its market share 18 Market Share Potential Index MBM6 Chapter 3
- 27. For each level of the tree, the share performance gap indicates the extent of lost market share due to the lower customer response rates. Establishing a desired level of response at each level of the performance tree provides a basis for estimating market share potential. 19 Share Development Index (SDI) MBM6 Chapter 3 The SDI of 41 means that the business is achieving only 41 percent of its potential market share performance. Share Development Index (SDI) = Market Share Index/Share Potential Index = 10%/24.6% x 100 = 41 Based on share potential index (potential market share) and market share index (current market share), we can calculate a share development index (SDI) by using this formula: Share Development Index (SDI) = market share index/ share potential index This share development index tells us the extent to which the business has achieved its market share performance.
- 28. 20 MDI vs SDI MBM6 Chapter 3 By combining the Market Development Index (MDI) with the Share Development Index (SDI), a business can discover whether they should focus on market development or share development or both, depending on the product’s position in the growth opportunity portfolio. 21 MBM6 Chapter 2 Marketing Metrics and Marketing Profitability Marketing Metrics are at the core of a market-based business striving to achieve profitable growth. Tracking Marketing Performance to Profit Performance Impact
- 29. Chapter 2 Objectives Understand the importance of marketing metrics Understand the difference between marketing metrics and financial metrics Measure marketing profitability and Marketing ROI Manage marketing profitability 1 MBM6 Chapter 2 Company Performance and the Importance of Marketing Metrics In this section we will look at financial performance and the role marketing metrics play in providing a broader view of overall company performance. Marketing Metrics and Marketing Profitability 2
- 30. MBM6 Chapter 2 Company Performance How would you rate this company’s performance over the last 3 years? Good, average, or poor? Gross Profit= Sales Revenue-COGS 3 MBM6 Chapter 2 The Importance of Marketing Metrics Marketing metrics provide a different view of company performance. What problems do you see here? Deteriorating!! Eroding!!
- 31. 4 MBM6 Chapter 2 External Market Performance The market is growing faster than company sales. This means the company is losing market share, but is likely unaware without utilizing these market metrics. 5 MBM6 Chapter 2 Profit Impact of a Hold Share Strategy Managing market share to hold share in a rapidly growing market would have yielded the company $41 million in additional profits over the past 3 years. Stable
- 32. Demand X Share = Revenues 6 The Importance of Marketing Metrics Analytics: The measurement devices or data used to create metrics. Metrics: The specific measures of performance. For Example: The measurement system used to measure customer satisfaction is a Marketing Analytic. A Customer Satisfaction Index of 72 and % Very Satisfied of 20% are Marketing Metrics. MBM6 Chapter 2 7 MBM6 Chapter 2 A Well-Balanced Performance Profile
- 33. Financial Metrics: These are internal performance metrics. Marketing Metrics: These are external performance metrics. Internal View of Performance External View of Performance 8 MBM6 Chapter 2 Profit Impact of Marketing Metrics Most marketing metrics have high correlation with profitability. Businesses that perform well on these marketing performance metrics are considerably more profitable. MBM6 Chapter 2 Customer Focus, Customer Why are forward-looking performance metrics especially important?: Future predicting
- 34. 10 MBM6 Chapter 2 Measuring Marketing Profitability and Marketing ROI In this section we will look at how to measure Marketing Profitability (NMC) and Marketing ROI. Marketing Metrics and Marketing Profitability MBM6 Chapter 2 Adding Marketing Profits to Performance Net Marketing Contribution (measure of marketing profits)= Gross Profit- Marketing & Sales Expenses) Net Marketing Contribution (measure of marketing profits)=
- 35. Gross Profit- Marketing & Sales Expenses) 12 MBM6 Chapter 2 Operational Income Net Marketing Contribution (measure of marketing profits)= Gross Profit- Marketing & Sales Expenses) Operating Income= Sales Revenues- 3 major Expenses (COGS, SGA Expenses, & Other Operating Expenses) Marketing & Sales Expenses + G&A Expenses 13 MBM6
- 36. Chapter 2 Estimating Marketing & Sales Expenses (% sales) Data Challenge: Use 75% of SGA as an estimate of MSE Unfortunately, most companies do not report their Marketing & Sales Expenses separately in their financial reports except for the sample of companies above. Based on the data above, 75% of SGA should be a good estimate when actual marketing & sales expenses are not reported. 14 MBM6 Chapter 2 Marketing ROI and Marketing ROS Marketing ROI = Net Marketing Contribution Marketing & Sales Expenses Marketing ROS = Net Marketing Contribution Sales Revenues
- 37. 15 MBM6 Chapter 2 Marketing ROI and Marketing ROS Marketing Return on Sales (ROS) = Net Marketing Contribution/Sales X 100% = $30 million/ $125 million x 100% = 24% $125 $100 $75 $50 $25
- 38. $0 Sales $125 mil. NMC $30 mil. This marketing profitability metric tells us what portion of sales are marketing profits. NMC is 24% of sales MBM6 Chapter 2 Marketing ROI and Marketing ROS $125 $100 $75 $50
- 39. $25 $0 Sales $125M NMC $30M NMC is: NMC = Gross - Marketing & Profit Sales Exp. Gross Profit $48.5M Mktg. & Sales Expenses $18.5M Marketing Return on Investment (ROI) = NMC/Mktg & Sales Exp. X 100% = $30 million/ $18.5 million x 100% = 162% In this case, for every $1 invested in Marketing & Sales Expenses, the company produces $1.62 in marketing profits. ($48.5M) (*$18.5M)
- 40. MBM6 Chapter 2 Marketing Profitability & Marketing Profitability Metrics These two marketing profitability ratio metrics (ROS & ROI) allow us to compare company performance with any part of the business…regions, markets, segments, products. 18 MBM6 Chapter 2 Appendix Operating Income: The amount of profit realized from a business's operations after taking out operating expenses Cost of Goods Sold (COGS): Variable cost: An expense that changes on a pre-unit basis when production volume increases or decreases, such as the cost of materials, labor, and packaging. Manufacturing Overhead: Fixed expenses for a business’s facilities, equipment, management, and other manufacturing needs, which do not vary for a given production capacity. Sales, General, and Administrative (SGA) Expenses: Marketing& Sales Expenses: Marketing and advertising expenses, plus costs related to all sales and customer support services.
- 41. General & Administrative Expenses: Costs associated with managing a business, such as senior manager’s salaries, professional fees, and office supplies. Other Operating Expenses: Research & Development expenses: Costs associated with improving products and developing new ones. Taxes and Interest: Income, property, and other taxes, and interest on borrowing. 19 Customer Focus, Customer Performance, and Profit Impact Satisfied is not good enough. Completely satisfied—that’s a big deal. A completely satisfied customer is at least three times more likely to return than one who’s just satisfied. ―Andrew Taylor, CEO, Enterprise Rent-A-Car Very Satisfied Customers Drive Profits Chapter 1 Objectives Building a customer focused organization Measuring customer performance Profit impact of customer
- 42. retention and customer loyalty. Chapter 1 1 Customer Focus, Customer Performance, and Profit Impact Building a Customer-Focused Organization Chapter 1 In this section we will look at how customer-focused organizations not only outperform their competition over the long term by consistently delivering higher levels of customer satisfaction, they also realize higher profits over the short run. 2 Underwhelming Customers Little or no customer focus translates into an unfocused competitive position and minimal customer satisfaction. The result is a vicious circle of poor performance.
- 43. Chapter 1 3 Top Performers Produce Higher Investor Returns Apple, Southwest Airlines, and Clorox would be a part of the top performers in the graph above. Their average stock price index started at 100 and 10 years later was 300. Poor performers started at 100 and 10 years later were still at 100. Chapter 1 4 Customer-Focused Organization Senior Mgmt Leadership Employee Customer Training Customer Involvement
- 44. Customer Satisfaction Customer Retention Customer Loyalty Customer Experiences Customer Solution s Customer Complaints Chapter 1 5 Customer Focus, Customer Performance, and Profit Impact Measuring Customer Performance
- 45. Chapter 1 In this section we will look at how companies that use customer performance metrics are able to identify their unprofitable customers. 6 Benchmarking Customer Satisfaction ACSI studies have shown that Customer Satisfaction is a leading indicator of company financial performance. The ACSI database reports all companies by industry. American Customer Satisfaction Index - University of Michigan (www.theACSI.org) Chapter 1
- 46. 7 Customer Satisfaction A Key Performance Metric Chapter 1 To determine the CSI for a sampling of customers, simply compute the average of the customers’ satisfaction ratings. Customer satisfaction is a forecast of future revenues and profits. Very Dissatisfied 0 Dissatisfied 20 Somewhat Dissatisfied
- 47. 40 Somewhat Satisfied 60 Satisfied 80 Very Satisfied 100 8 Customer Satisfaction – Wide-Angle View Chapter 1 De-averaging CSI provides a wide-angle view of customer satisfaction and allows managers to see more completely the opportunities for improvement.
- 48. 9 Profit Impact of Very Satisfied Customers “Very satisfied” customers not only buy more, they often buy higher-margin products and services, which results in a higher percent margin on total sales. De-averaging CSI is critical to understanding customer profitability Chapter 1
- 49. 10 Complaint Behavior and Retention Each year, the business above loses 22,400 customers who are dissatisfied, but do not complain. Dissatisfied customers often do not complain, but they do walk away and they do talk. Chapter 1 11 Profitability of Satisfied Customers
- 50. Chapter 1 When we chart customer profitability against customer satisfaction, we see that the “very satisfied” customers are the ones who drive profitability. 12 Managing the Customer Experience with Twitter Alaska Air uses twitter as a channel to promote new fares/routes and to field customer service issues. Their twitter page is a mix of responses to customers, promotions, and warnings of weather delays. Chapter 1
- 51. 13 Estimating Customer Retention Chapter 1 To estimate retention rates, businesses can use a customer survey as outlined above. How likely are you to buy this product or brand again on your next purchase? 14 NetFlix Customer Retention The Customer Life increases exponentially with increases in Customer Retention.
- 52. Chapter 1 15 Customer Lifetime Value The lifetime value using a 10% discount rate is $111.70, the net present value of the customer cash flow over 5 years. The average credit card customer for this company has a customer life of 5 years. It costs the company $51 to acquire a new customer and by year 5 they produce $55 in customer profit.
- 53. Chapter 1 16 Customer Performance and Profit Impact Profit impact of customer retention and customer loyalty. Chapter 1 In this section we will look at how loyal customers have a longer customer history, are more committed to the company brand, buy more, and are more likely to recommend the brand to others.
- 54. 17 Assessing Customer Loyalty Loyal customers have a long customer history, buy at an above- average purchase amount, have a high desire to repurchase, have strong product preferences for the company’s products and would recommend the company’s products to friends, relatives, and co-workers. Chapter 1 18 Managing Customer Loyalty
- 55. Loyal Customers – High performance in all five aspects of customer loyalty Repeat Customers – Great customers that buy often but score lower on purchase amount, product preference, and customer recommendation. Captive Customers – Have a long customer history and average purchase amount but would leave if they could, as they are dissatisfied captive customers. New Customers – Score low on all aspects of customer loyalty as they do not yet have the customer history to assess their customer loyalty. Unprofitable Customers – Score low on all aspects of customer loyalty. Chapter 1 19
- 56. Customer Lifetime Value and Customer Loyalty Customer Loyalty Scores and Customer Lifetime Value are closely correlated. Chapter 1 20 Customer Lifetime Value Of Win-Back Customers The “second lifetime value” of a win-back customer has a net present value almost 3x higher than the average lifetime value of an entirely new customer. Chapter 1
- 57. The return of a former customer is a lost opportunity that has reappeared— a second chance to develop a loyal customer. 21 Customer Loyalty & Customer Profitability Loyal customers play an important role in company profitability. Chapter 1
- 58. 463 Marketing Management: Chapter 4 · How would the company’s customer value change if it raised its repair time rating from 5 to 7 (other things remain the same)? Step 1: calculation of difference score (business rating – A/B/C) A B C Repair time 7-7=0 7-6=1 7-5=2 Step 2: Assignment of importance scores A B C Advantage
- 59. Repair time 0 0 60 60/3 = 20 Thus: customer value = 100+ 20+10= 130 · What would be the value impact of improving the ease-of-use product benefit from 4 to 6 (other things remain the same)? Would this improve perceived customer value more than addressing the repair time benefit problem in the previous question? Step 1: Ease of use: difference score (business rating – A/B/C) A B C Repair time 6-6=0 6-7=-1 6-6=0 Assignment of importance scores
- 60. A B C Advantage Repair time 0 0 0 0/3 = 0 Thus: customer value = 100+ 27+20= 147 Setup Performance Factor Low Mid High Taste Quality Poor
- 62. Hamburger Price 25% Lower Avg. 25% Higher Rank these options from 1 (most preferred) to 9 (least preferred). Profile A: Taste Quality Poor Service Quality Poor Hamburger Price 25% Lower Profile B:
- 63. Taste Quality Avg. Service Quality Poor Hamburger Price Avg. Profile C: Taste Quality Good Service Quality Poor Hamburger Price 25% Higher Profile D: Taste Quality Poor Service Quality Avg. Hamburger Price 25% Higher Profile E: Taste Quality Avg.
- 64. Service Quality Avg. Hamburger Price 25% Lower Profile F: Taste Quality Good Service Quality Avg. Hamburger Price Avg. Profile G: Taste Quality Poor Service Quality Good Hamburger Price Avg. Profile H Taste Quality Avg. Service Quality
- 65. Good Hamburger Price 25% Higher Profile I: Taste Quality Avg. Service Quality Good Hamburger Price 25% Higher Stop after you are done with ranking. Answer the following questions: · Which aspect of price or performance is most important and which is least important? · Compare the customer values of the following two options: · A hamburger that has average taste quality, average service quality, and average price. · A hamburger that has poor taste quality, high service quality and low price.
- 66. 1 _1432013425.unknown _1432013427.unknown _1432013428.unknown _1432013426.unknown _1432013421.unknown _1432013423.unknown _1432013424.unknown _1432013422.unknown _1432013419.unknown _1432013420.unknown _1432013418.unknown _1432013417.unknown 463 Marketing Management: Chapter 3 · How would the market development index change if the annual purchase rate increased to 25%? Market potential = 4,500*50%* 25%*1= 562.5 Market Development index= Market Demand/ Market potential *100 = 325/562.5 *100 = 57.8 · What would be the market potential in both units and dollar
- 67. values if the buying ceiling reduced to 40% and the average price increased to $700? Market potential in units = 4,500 * 40% * 20%*1= 540 Market potential in dollars = 4,500 * 40% * 20%*1*700= 378,000 · How much would the market share index be if price acceptance index could be improved from 50% to 60%? · How much would the market share index be if a product’s purchase metric could be improved from 75% to 80%? 45% x 75% x 60% x 79% x 75% = 11.9% 45% x 75% x 50% x 79% x 80% = 10.7% 463 Marketing Management: Chapter 2 · What is the percent gross profit in this example (revenues-cost of goods sold/revenues)? · 48.5/125= 38.8% · If percent gross profit was reduced to 35%, how would NMC (net marketing contribution) change? What are the Marketing ROS and marketing ROI in that case? How about operating
- 68. income? NMC= Gross Profit – Marketing& Sales Expenses = 125*35% - 18.5 = 25.25 Marketing ROS= NMC/SALES *100= 25.25/125*100= 20.2 Marketing ROI= NMC/Marketing& Sales Expenses *100 = 25.25/125*18.5= 140.3 Operating income= 25.25- 20 = 5.25 463 Marketing Management: Chapter 1 · How would the lifetime value of the average customer change if the customer life was shortened from 5 to 4 years? 111.7- 34.2= 77.5 · How would the lifetime value change if the customer life was extended from 5 to 6 years and in year 6 the net cash flow was $60? · Present value of 1 dollar is .564 · 60*.564=33.84 · 111.7+33.8=145.54 · How would the average customer profitability change with 25 percent loyal and 25 percent repeat customers?