Customer Acquisition & Retention

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Manufacturers Can Also Win in the Sharing Economy

  • Interview
  • Read Time: 8 min 

The sharing economy isn’t all bad news for manufacturers of big-ticket items such as cars. Research from Carnegie Mellon and UC Berkeley says that manufacturers will sometimes be able to charge higher prices to customers who are planning to rent out those goods. In a Q&A, one researcher says that when there’s heterogeneity in the market, meaning both a high-usage population and a low-usage population, circumstances are ripe for “a win-win-win for the borrower, the owner, and the manufacturer.”

Which Features Increase Customer Retention?

Companies have an incentive to design goods and services with customer retention in mind. Unfortunately, they often add expensive features to their offerings without knowing whether or how much they will increase retention — and adding too many features can actually decrease customer satisfaction with products after customers have used them.

Are You Using the Return on Investment Metric Correctly?

  • Blog
  • Read Time: 3 min 

The biggest challenge with ROI isn’t a technical deficiency but confusion over how it is used. “To calculate ROI accurately, you need to be able to estimate the fraction of profits attributable to the investment,” write Neil T. Bendle and Charan K. Bagga. “In order to calculate ROI, there must be a return (a profit associated with the investment) and an investment. Unless you have both, you cannot calculate ROI.”

How Should You Calculate Customer Lifetime Value?

  • Blog
  • Read Time: 3 min 

Should marketers subtract the cost of acquiring a customer before assessing that customer’s lifetime value (CLV)? Most of the time, no. “CLV is easier to understand, and in our view more useful, if marketers don’t subtract the acquisition cost from their calculation of CLV before reporting it,” write Neil T. Bendle and Charan K. Bagga. “Imagine that a company is selling an old machine. In this scenario, the company’s managers would expect to receive the machine’s current value, not the current value less what the company paid to buy the machine when new.”

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Should You Use the Value of a “Like” as a Metric?

  • Blog
  • Read Time: 3 min 

Social media strategy shouldn’t be seen as the driver of value difference between a company’s fans and nonfans. Fans are often more favorable toward a brand to start with than nonfans are — indeed, this is probably what motivated them to affiliate in the first place. As well, social media spending should not be justified by an observed difference in customer value that may not have been caused by social media spending. Instead, to understand social media marketing’s impact, companies should run randomized experiments.

Should You Use Net Promoter Score as a Metric?

  • Blog
  • Read Time: 5 min 

The net promoter score (NPS) has become one of the most widely used marketing metrics. Consumers answer a simple question (How likely is it that you would recommend X?) on a scale from 0 to 10. Customers who answer 9 or 10 are considered promoters; those who answer 6 or less are rated as detractors. The score is the percentage of promoters minus the percentage of detractors. One of the strongest selling points of NPS is its simplicity. But the value of NPS may depend upon whether a manager sees it as a metric or as a system.

Should You Use Market Share as a Metric?

  • Blog
  • Read Time: 5 min 

Market share is a hugely popular metric. But is it really useful? Companies with superior products tend to have high market share and high profitability because product superiority causes both. This means that the two metrics are correlated — but it does not necessarily mean that increasing market share will increase profits. Using market share as a metric of success simply because other companies do can be counterproductive.

The Metrics That Marketers Muddle

Well-defined metrics are critical to effective marketing. However, despite their widely acknowledged importance, five of the best-known marketing metrics — market share, net promoter score, the value of a “like,” customer lifetime value, and ROI — are regularly misunderstood and misused. This confusion undermines the marketing discipline’s reputation for delivering results. The authors present Do’s and Don’ts for using these metrics and flow charts with detailed advice for developing each metric.

How Well Does Your Company Integrate Demand and Supply?

  • Blog
  • Read Time: 1 min 

An online questionnaire by the authors of the MIT Sloan Management Review article “Integrating Supply and Demand” helps users assess how well their company’s supply chains are helping meet product demand — and serve key customers. The self-assessment lets users rate their companies in five areas in the demand and supply integration spectrum: relevant value focus, integrated knowledge sharing, strategic resource allocation, integrated behavior, and capacity and demand balance.

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Integrating Supply and Demand

To compete in different strategic segments at the same time, companies need close coordination between the sales side of the company and supply chain operations. Just as importantly, joining the supply and demand sides of an enterprise presents an opportunity for efficiency and value creation. “A company may have an excellent sales and marketing team and a top-flight operations team and still deliver the wrong benefits to a customer,” the authors note. This article includes an online questionnaire for assessing the current stage of your company’s demand and supply integration, with suggestions for how to improve.

Thinking Outside the [Penalty] Box

When you think of sports teams using social media to great effect, you probably don’t automatically jump to the NHL’s use of Pinterest — but you should. The league has far outstripped all other sports leagues in gathering a following on the fast-growing social media site, with nearly 50 times the followers of all other leagues combined. Impressive as those results are, its path to success involved following some fairly simple, basic rules of social business.

The Case for ‘Benevolent’ Mobile Apps

Smartphone apps that provide consumers with helpful information — instead of simply pushing product sales — can improve users’ preference for a company. As well, mobile apps that are about useful information, what the authors call “benevelance,” can significantly impact sales at a low cost and thus improve profitability. “A benevolent app can build trust, which in turn can lead people to consider purchasing your product,” write authors Glen L. Urban and Fareena Sultan.

Rejuvenating a Brand Through Social Media

When Nestlé UK invited customers to vote for a new chocolate bar flavor, the company’s target customers participated in droves. By leveraging social media for the Kit Kat brand, the company was able to build positive word of mouth through consumers who became brand advocates; increase sales; and generate a higher return on investment. The process followed a four-step framework that any company can use to extract valuable information from the vast amount of data generated by social media.

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Revisiting Complexity in the Digital Age

As businesses grow and diversify, they almost inevitably make their range of offerings more complex. Until now, managing that complexity usually involved a trade-off between creating value from complexity and benefiting from the efficiencies of simplicity. But smart use of today’s digital technologies can help companies finesse those trade-offs between costs and benefits. Digitization can help companies, for instance, increase product variety and integration while maintaining process simplicity.

Image courtesy of Flickr user Roy Luck.

Ethnography in Action at Wells Fargo

  • Blog
  • Read Time: 2 min 

How do companies gain value from ethnography — the in-person study of how people actually use a product or service? Wells Fargo Bank commissioned an ethnographic project and found out for itself. The bank was able to determine that customers approach retirement with three styles: they were either Reactors, Poolers or Maximizers. The bank learned, for instance, that the language of customers who were Maximizers would not resonate with Poolers — and so it developed new kinds of messaging for each.

Image courtesy of Flickr user DaveMN

What Unhappy Customers Want

Companies have tried for decades to improve customer complaint resolution — without notable success. Customer expectations are rising; customers now expect positive results and not just the chance to complain. Many customers want nonmonetary remedies, such as an apology or a chance to vent. In addition, companies must recognize that they must treat every customer interaction as if it were playing out on a Facebook page or a YouTube video, because it might be.

Image courtesy of Flickr user abplanalp_photography.

When Should You Fire Customers?

  • Blog
  • Read Time: 3 min 

Many customers are simply not profitable. Letting them go is one option, but so is trying to train them out of expensive behavior. Options suggested by Jiwoong Shin and K. Sudhir, both of Yale School of Management, include reducing services to unprofitable customers and educating them to use less costly service channels. “We recognize the mix of concerns, both ethical and practical, that swirl around firing customers,” write Shin and Sudhir. “We advocate firing customers only as a last resort.”

Why Customer Participation Matters

These days, many businesses are focused on increasing customers’ positive word of mouth. But emphasizing customer participation — such as providing feedback or suggestions — may be a more important vehicle for generating valuable repeat business. As one COO said, “Levels of feedback is a way we identify our most profitable customers. Those that bother to write to us do care. And they do spend money with us.”

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