Marketing: Real People, Real Choices by Solomon and Stuart

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MarketOrientedBusinesses
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Every Business is at Risk for Survival

• The only thing that is constant is change
• Consumers will change in needs, demographics,
  lifestyle, and consumption behavior
• Competitors will change as new technologies
  emerge and barriers to foreign competition shift
• The environment will change as economic,
  political, social, and technological forces shift

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High Cost of Losing a Customer
1. In the average business, for every customer
who bothers to complain, there are _____ others
who remain silent. 2. The average wronged
customer will tell _____ to _____ people (Over
_____ percent will tell more than 20 people.)
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High Cost of Losing a Customer
3. ______ percent of unhappy customers will
never purchase goods or services from you again.
4. If you make an effort to remedy customers
complaints, _____ percent to _____ percent of
them will stay with you.
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High Cost of Losing a Customer
5. It costs about ___ times as much to attract a
new customer as it costs to keep an old one.
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Fundamental Truths
Without customers, there is no
business. anonymous The sole purpose of a
business is to create a customer. Peter
Drucker The customer is always right, but we
get to pick who is a customer anonymous
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Satisfied Customers

• Remain loyal longer
• Buy more (new products and upgrades)
• Spread favorable word-of-mouth
• Exhibit more brand loyalty (less price sensitive)
• Offer feedback
• Reduce transaction costs

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Customer Satisfaction A Wide Angle View
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Characteristics of Market-Oriented Businesses

• Customer focused
• Competitor oriented
• Team oriented

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Building a Market Orientation

• Marketing Knowledge
• Marketing Leadership
• Employee Satisfaction

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Profit Impact of 75 Percent Customer Retention
Retained Customer Performance Customers
Number of Customers 150,000 (customer base of
200,000 X .75)
Revenue per Customer 800 Given
Sales Revenue (millions) 120.0 (150,000
retained customers X 800 rev./cust)
Variable Cost per Customer 400 Given
Margin per Customer 400 (800 revenue 400
variable cost)
Tot. Contribution (millions) 60.0 (150,000
retained customers X 400 margin)
Mkt. Expense per Cust. 60 Given
Tot. Mkt. Expense (millions) 9.0 (150,000
retained cust X 60 mkt exp/cust)
Net Mkt. Contr. (millions) 51.0 (60 tot
contribution - 9.0 tot mkt exp)
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Profit Impact of 75 Percent Customer Retention
Retained Lost New Overall Customer
Performance Customers Customers Customers Performa
nce
1 Number of Customers 150,000 50,000 50,000 250,00
0
2 Revenue per Customer (G) 800 200 400
3 Sales Revenue (millions)(1x2) 120.0 10.0 20.0
150.0
4 Variable Cost per Customer (G) 400 150 300
5 Margin per Customer (2-4) 400 50 100
6 Tot. Contribution (millions)(1x5) 60.0 2.5 5.
0 67.5
7 Mkt. Expense per Customer (G) 60 100 300
8 Tot. Mkt. Expense (millions)(1X7) 9.0 5.0 15.
0 29.0
9 Net Mkt. Contr. (millions)(7-8) 51.0 (2.5) (1
0.0) 38.5
10 Operating Exp. (millions)(G) 30.0
11 Net Profit before Tx (millions)(9-10) 8.5
12 Return on Sales (11/3) 5.67
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Profit Impact of 5 Percent Improvement in
Customer Retention
Retained Lost New Overall Customer
Performance Customers Customers Customers Performa
nce
Number of Customers 160,000 40,000 40,000 240,000
Revenue per Customer 800 200 400 Sales Revenue
(millions) 128.0 8.0 16.0 152.0 Variable
Cost per Cust. 400 150 300 Margin per
Customer 400 50 100 Tot. Contribution
(millions) 64.0 2.0 4.0 70.0 Mkt. Expense
per Cust. 62.5 100 300 Tot. Mkt. Expense
(millions) 10.0 4.0 12.0 26.0 Net Mkt. Contr.
(millions) 54.0 (2.0) (8.0) 44.0 Operating
Exp. (millions) 30.0 Net Profit before Taxes
(millions) 14.0 Return on Sales 9.2
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Customer Lifetime Value
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Traditional Approach to Marketing Expenditures
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Green-Hills Approach to Marketing Expenditures
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Green-Hill Results

• Increase in the most valued customer segment
• Increased customer spending
• Four-percentage point increase in gross profits
• Customer retention rate ten percentage points
  above the past.