(Week 09) A03. Customer Value Analysis for CRM Electronic Commerce Marketing Course Code: 166186-01 Course Name: Electronic Commerce Marketing Period: Autumn 2015 Lecturer: Prof. Dr. Sync Sangwon Lee Department: Information and Electronic Commerce University: WONKWANG WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 1 Contents 3.1. Meanings of Customer Value Analysis 3.2. Measurement of Customer Equity 3.3. Customer Lifetime Value 3.4. Customer Referral Value 3.5. Customer Share 3.6. RFM 3.7. Strategic Utilization of Customer Value Analysis WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 2 1
3.5. Customer Share Measurements of CE Absolute measurement CLV CRV Relative measurement (customer-oriented measurement index) Customer share (CS) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 3 3.5. Customer Share 3.5.1. Concepts of Customer Share (CS) A relative measurement of CE Supplementing demerits of absolute measurements WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 4 2
3.5. Customer Share 3.5.2. Measurements of Customer Share (CS) Wallet size (WS) Customer share (CS) Aggregate customer share (ACS) Category requirement share (CRS) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 5 3.5. Customer Share 3.5.2. Strategic Utilization of Customer Share (CS) Matrix with WS and CS High WS and high CS (active management of churn) High WS and low CS (active marketing with additional selling) Low WS and high CS (Minimal retention activity) Low WS and low CS (refraining from marketing) Strategy with MS(Market Share) and CS Increasing MS (increasing the number of customers) Increasing CS (increasing the value of customers) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 6 3
3.6. RFM Measurements of CE Financial (quantitative) measurements of CE Absolute measurement CLV CRV Relative measurement (customer-oriented measurement index) Customer share (CS) Non-financial (qualitative) measurements of CE RFM(Recency, Frequency, Monetary) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 7 3.6. RFM 3.6.1. Concepts of RFM A qualitative measurement of CE for CRM = Index for profit contribution with recency, frequency and monetary WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 8 4
3.6. RFM 3.6.2. Components of RFM Recency Frequency Monetary WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 9 3.6. RFM 3.6.3. Measurement Model of RFM Basic RFM Case when R is important Case when F is important Case when M is important Weighted RFM Statistical estimation Transaction ratio participation Adjusted index calculation Modified RFM RM(Recency, Monetary) FM(Frequency, Monetary) LFM(Longevity, Frequency, Monetary) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 10 5
3.6. RFM 3.6.4. Utilization of RFM Marketing segmentation Customer evaluation (e.g. RFM scoring) Modification of RFM R-F matrix R-M matrix F-M matrix WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 11 3.7. Strategic Utilization of Customer Value Analysis 3.7.1. Customer Segmentation Methods of customer segmentation Using surficial data Using CV measurement model Using customer needs (for mass customization) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 12 6
3.7. Strategic Utilization of Customer Value Analysis 3.7.2. Profitability Prediction Procedure of profitability prediction 1 Conceptual modeling (e.g. independent/dependent variable) 2 Sampling (e.g. analysis sample, holdout sample) 3 Operational definition of variables 4 Model estimation and adjustment 5 Marketing by use of model 6 Performance analysis and feedback WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 13 3.7. Strategic Utilization of Customer Value Analysis 3.7.3. Marketing Budgetary Allocation General marketing budgetary allocation CE-oriented marketing budgetary allocation WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 14 7
3.7. Strategic Utilization of Customer Value Analysis 3.7.4. Churn Prediction Churn prevention = customer relationship retention Issues of churn prevention Who Why Procedure of churn prevention by use of churn prediction 1 Defining the churn 2 Realizing situations of churn 3 Realizing causes of churn 4 Designing a churn model 5 Predicting the churn 6 Preventing the churn WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 15 3.7. Strategic Utilization of Customer Value Analysis 3.7.5. Customer Migration Strategy Measuring CV is a basis for customer migration. Conceptual model of customer migration strategy Matrix with activity and profit Inactive customer (low activity and low profit) Value customer (low activity and high profit) Supporter customer (high activity and low profit) Star customer (high activity and high profit) WKU / Electronic Commerce Marketing / 2015-2-WKU-ECM-A04.pptx / Prof. Dr. SSL - IDEA+STEM+RF+FP+S+C+ LDV / p. 16 8