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SD Coors

SD Coors. Ten minutes to select the research reports you want to buy. Twenty minutes to complete the pro forma and email a copy to me. Please put your group members’ names on it. Meet back here at 8:20 , ready to discuss the case and make recommendations.

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SD Coors

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  1. SD Coors • Ten minutes to select the research reports you want to buy. • Twenty minutes to complete the pro forma and email a copy to me. Please put your group members’ names on it. • Meet back here at 8:20, ready to discuss the case and make recommendations. To purchase research, bring a piece of paper with the requested reports & the total price.

  2. Opportunity Analysis/CustomersKey Learning Points • A general framework for managing market segments & individual customers. • Defining & Segmenting the Product Market • Selecting & Targeting Key Segments • Acquisition, Retention & Expansion • Positioning • Quantifying the Value of a Customer (Segment) w/customer-centric metrics • CRM, CLV, & Customer Equity

  3. Customer Relationship Management (CRM)Retention & Expansion Segmentation Selection Targeting Acquisition CRM: Retention & Expansion Break market into groups (segments) that respond differently to elements of the marketing mix. Identify segments that will respond most positively (i.e., profitably) to firm’s offerings. Concentrated vs. differentiated targeting strategy. Determine how to best acquire, retain & expand purchases by the most profitable segments. CRM tracks customers behavior to select, target & retain most profitable customers.

  4. Customer Relationship Management ProgramsCustomer-centric Marketing Differentiation Rewards Programs Capital One Cards Frequency/Loyalty Programs AAdvantage CRM Satisfaction, Retention & Relationship Expansion Community Building Facebook, Apple Customization IBM Customer Service Nordstrom

  5. Financial Analysis in MarketingK&P Chapter 2 • Marketing Pro Formas • Breakeven Analysis • Customer Lifetime Value (CLV) • Sales Forecasts • Economic Value Analysis • Channel Margin Calculus • Demand Elasticity See the Final Exam sample questions.

  6. Customer Life Cycle Profit Pattern in the Credit-Card Industry

  7. Traditional vs. CRM Metrics Traditional (Brand) Metrics Sales – Volume & Revenues Market Share Sales Growth • CRM Metrics • If you don’t have these metrics, you don’t have CRM • Primary Customer Metrics • Acquisition rate • Acquisition cost • Retention rate • Survival rate • Popular Customer Metrics • Share of category requirement • Size of wallet • Share of wallet • Strategic Customer Value Metrics • Past customer value • RFM value • Customer lifetime value (CLV) • Customer equity

  8. Customer Lifetime Value (CLV)Useful Analysis at the Individual Customer & Segment CLVinfinite lifetime = CM/(i* + 1 – r) – AC where CM = average annual contribution for the customer (segment) i* = i (=the risk-free discount rate) × risk factor r = retention rate for the customer (segment) AC = acquisition costs ― Growth rate How valuable/profitable is each customer (segment) given prices & variable costs (i.e., contribution), retention rates, discount rate, risk level & acquisition costs? How valuable/profitable is an acquisition or retention campaign given prices & variable costs (i.e., contribution), retention rates, discount rate, risk level & acquisition costs?

  9. CLV (i=10%) as a function of Contribution Margin ($100-200) and Retention Rate (0-100%)

  10. Customer Lifetime Value (CLV)Useful Analysis at the Individual Customer & Segment CLVinfinite lifetime = CM/(i* + 1 – r) – AC where CM = average annual contribution for the customer (segment) i* = i (=the risk-free discount rate) × risk factor r = retention rate for the customer (segment) AC = acquisition costs ― Growth rate How valuable/profitable is each customer (segment) given prices & variable costs (i.e., contribution), retention rates, discount rate, risk level & acquisition costs? How valuable/profitable is an acquisition or retention campaign given prices & variable costs (i.e., contribution), retention rates, discount rate, risk level & acquisition costs?

  11. How much was a Facebook Customer Worth? • 2008 Revenues: $300  $350 million • 2008 Unique Users: 80,000,000 • CM (90%) ≈ $3.65  Round to $4.00 for simplicity CLVinfinite lifetime = CM/(i* + 1 – r) – AC If CM = $4 i* = .06 r = .90 AC = $0 CLVinfinite lifetime = 4/(.06 + 1 - .9) – 0 4/.16 $25 See Sample Acquisition Value CLV Final Exam Question

  12. Customer EquityUseful Analysis at the Company Level At Facebook • 2008 Unique Users: 80,000,000 (and growing) • CLV ≈ $25 • Customer Equity = $2,000,000,000 Customer Equity = # Customers × CLV ~1.9x multiple Internal Valuation July 3, 2008: $3.75 B http://www.marketwatch.com/ Microsoft’s investment (2007) valued company @ $15 B

  13. Customer EquityFacebook Update June 2009 At Facebook • 2009 Unique Users: 250,000,000 (and growing) • If CLV ≈ $25 • Customer Equity = $6,250,000,000 Customer Equity = # Customers × CLV ~1.6x multiple External Valuation May 29, 2009: $10.00 B http://www.techcrunch.com

  14. Customer EquityFacebook Update January 2011 At Facebook • January 2011 Unique Users: 500,000,000 (and growing) • Revenue ≈ 1.97 B; CM (90%) ≈ $4 • CLV ≈ $25 • Customer Equity = $12.5 B Customer Equity = # Customers × CLV ~4x multiple External Valuation January 2011: $50 B Goldman

  15. Customer EquityFacebook Update January 2012 At Facebook • January 2012 Unique Users: 800,000,000 • Revenue ≈ 3.7 B; CM (90%) ≈ $4 • CLV ≈ $25 • Customer Equity = $20B Customer Equity = # Customers × CLV ~4x multiple External Valuation January 2012: ~$82 B

  16. Customer EquityFacebook Update April 2012 At Facebook • April 2012 Unique Users: 900,000,000 • Revenue ≈ 3.7 B; CM (90%) ≈ $4 • CLV ≈ $25 • Customer Equity = $22.5B Customer Equity = # Customers × CLV ~4.4x multiple External Valuation May 2012: ~$100 B

  17. Customer EquityFacebook Update July 2012 At Facebook • July 2012 Unique Users: 955,000,000 • Revenue ≈ 4.7 B; CM (90%) ≈ $4.4 • CLV ≈ $27.50 • Customer Equity = $26.3B Customer Equity = # Customers × CLV ~1.9x multiple External Valuation August 2012: ~$50B

  18. Tracking Customer Equity & Facebook’s Market Valuation

  19. Review Questions • What are the 3 steps in the general framework of customer relationship management (CRM)? • How do you define and segment a product market? • Which types of segmentation variables are most frequently used in CRM? • What is the formula to calculate infinite customer lifetime value (CLV)? Customer Equity? • Assignment for Next Week: Netflix

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