Class 05 (and 04) Marketing Analytics

Transcription

1 Class 05 (and 04) arketing Analytics

2 Dhahran Roads (the importance of time value of money) Project Profits of 22 SR have NPV of Project IRR is 41% (found using =IRR or goal seek). Next step: Sensitivity Analysis. What if costs over-run? What if payments are delayed? Next step: Use CB to see how risky NPV is.

3 TIAVI Applying time value of money to Customer Relationships 1,000 customers each have CLV of $ CLV if renew at t=2 is $ converted customers have PV of $128,445 at t=1. CLV if converted at t=1 is $256.89

4 The Crutchfield Corporation Catalogers often segment their customers based upon RF R is recency How many catalogs since last bought. F is frequency How many times ever bought. is monetary value Either average or total dollars spent

5 The Crutchfield Corporation 1. How much did it cost us to acquire customers using the Car list? 2. Build an excel model to track the future recencies of 1,000 new customers for the purposes of estimating CLV. (See class three notes above for more detail.) Should we prospect the remainder of the Car list? 3. (Optional) Currently we quit mailing catalogs to customers after recency 24. What do the economics say about this cut off? Does a quicker cut off make economic sense?

6 The Crutchfield Corporation 1. How much did it cost us to acquire customers using the Car list? 2. Build an excel model to track the future recencies of 1,000 new customers for the purposes of estimating CLV. (See class three notes above for more detail.) Should we prospect the remainder of the Car list? 3. (Optional) Currently we quit mailing catalogs to customers after recency 24. What do the economics say about this cut off? Does a quicker cut off make economic sense?

7

8 Using Both R and F, there would be 24x5 = 120 customer buckets (states)

9 Using R only, there would be = 25 customer buckets (states)

10 To the spreadsheet

11 Break!

12 Customer Lifetime Value $ What it s good for? If we know CLV, we know which lists to roll out and which to ignore Break even response rate = c/clv = $1/$25 = 0.04 Same is true for TIAVA. Don t roll out JJJ. Same is true for Crutchfield. In deciding how to treat existing customers, maximizing CLV is the goal. Crutchfield cut off should be based on CLV, for example. Every Customer Relationship anagement (CR) Decision should be based on CLV. E.g., Cap One experiments to decide how to respond to customer requests. Next class, we will explore using CLV to value companies.

13 Customer Lifetime Value $ How to Estimate CLV? Cohort and Incubate Set aside a bunch of new customers. Keep track of their subsequent Cash Flows. PV the cash flows for the cohort back to acquisition date; divide by the number of customers. Just Spreadsheet it. TIAVI (.5 conversion followed by.75 renewal rates) Crutchfield (repurchase rates depend on recency) A SIPLE FORULA

14 The Simplest CLV odel The firm receives $ in net cash flow each period the customer is retained. $ is revenue minus costs minus any retention marketing spending. The customer is retained with probability (or rate) r each period. The customer churns with probability 1-r. The per-period discount rate is d. The customer is lost for good the first time she is not retained.

15 CLV of an existing customer who was just retained.... ) (1 $ ) (1 $ 1 $ d r d r d r CLV r d r CLV 1 $ See Customer Lifetime Value note in notebook for more details.

16 CLV of an existing customer who was just retained. CLV r $ 1 d 2 r (1 $ 2 d) 3 r (1 $ 3 d)... CLV $ r 1 d r If r=0, CLV = $0.

17 CLV of an existing customer who was just retained. CLV r $ 1 d 2 r (1 $ 2 d) 3 r (1 $ 3 d)... CLV $ r 1 d r If r=1, CLV = $/d.

18 CLV of a new customer (if and when we acquire her). CLV r $ 1 d 2 r $ 2 (1 d) 3 r $ (1 d) $ 3... CLV $ (1 d) 1 d r See Customer Lifetime Value note in notebook for more details.

19 CLV of a new customer (if and when we acquire her). CLV r $ 1 d 2 r $ 2 (1 d) 3 r $ (1 d) $ 3... CLV $ (1 d) 1 d r If r=0, CLV = $. See Customer Lifetime Value note in notebook for more details.

20 An ISP charges $19.95 per month. Variable costs are $1.50 per account per month. With marketing spending of $6 per year, attrition is only.5% per month. At a monthly discount rate of 1%, what is CLV? $ = $ $1.5 - $6/12 = $17.95 r = d = 0.01 CLV of existing customer = $ x r/(1+d-r) = $1,191 CLV of a new customer = $(1+d)/(1+d-r) = $1,209

21 Assignment for class 5 Please complete the CLV Exercises (linked from assignment page). Each team me their answers (in one file) before start of class next Thursday. This counts as a team exercise. Be familiar with Valuation of Netflix (in notebooks). Be familiar with Netflix Case Study: David becomes Goliath (link to this is on the course assignment page) What were the keys to Netflix success? Which of the three valuation methods is best? Use the simple CLV formula (as best you can) to estimate the CLV of an average Netflix customer at the end of Each team please prepare one slide with their CLV calculation.

22 To the Cup.. You get to choose which of the five exercises you want to present