Date: January 16, 2007
Problem: North Pole Workshops’ production capacity can not meet the surging demand for Timmy CDs on Christmas Eve. The management team gets stuck in mapping a solution to fulfill such demand because team members have their own solutions and they oppose the others’ solution.
Reasons:
- Weak demand forecast ability (the actual demand is 20% over the company’s assumption)
- Weak production planning ability
- No links between demand and production planning
- Do not have compelling product strategy, sales & marketing strategy, operation strategy
Suggested temporary solution:
- If the company can use current production lines of Meorwrrr or change them to produce Timmy CDs, the company should stop producing Meowrrr and produce Timmy CDs.
- If the company can not use other production lines to produce Timmy CDs, it should sell Moewrrr in the US market instead of Timmy CDs as proposed by Fiffledip.
Suggested long-term solutions:
Production strategy:
- Redesign products so that all products can share as many common components as possible. This will help the company use a production line to produce various products.
- Redesign production process to make it become flexible to produce many types of toys.
- Diversify product lines so various products can substitute each other when one product is not available on sales.
Operation strategy:
- Adopt a flexible manufacturing system such as cellular manufacturing to achieve mass customization and reduce production lead time.
- Outsource some unimportant components in the US.
- Outsource toy production with tight control over product quality to China. This will help the company fulfill surging demand in the Asian market, cut production costs and reduce pressure of over capacity.
Branding strategy:
- Create and maintain successfully a strong brand to deliver the “soul” of the company’s toys to children and make them understand the core brand values rather than a single product Timmy. A strong brand can make children feel happy with various toys from the companies and willing to buy other toys when the toy they want is not available.
Sales & marketing strategy:
- Improve demand forecast ability. The company should make demand forecast by using historical sales data and managerial judgment of the current market conditions. But the company should not make demand forecast by basing on the number of the letters received from children.
- Use letters from children as a source of information to develop new products that meet children’ preferences and predict future purchase trends
- Sell toys to the core values of the brand
- Create & develop a strong distribution channel that can sell the core brand values to children
- Use up-selling: encourage children to continuously buy upgraded toys. This strategy can motivate children to visit stores often and buy new products that bring the company greater profits.
- Use cross-selling: sell one toy to children and recommend them to buy other toys as complement toys. This strategy can encourage children to make their own collection of the company’ various toys, and create the desire to buy many types of toys.
- Urgent purchase strategy: create the feeling of urgency to buy the company’s toys when the items are available. This strategy can encourage children to buy toys around the year instead of waiting for Christmas. By doing so, the company can avoid the surge of seasonal demand and predict better future demand.
Sunday, July 25, 2010
Internal Branding at Yahoo
Date: January 23, 2007
What I am going to achieve?
I want to change successfully corporate culture aligned with new business model and corporate values.
Why?
• Solve communication problem between the management and the employee and between business units.
Why?
• Strengthen the relationship between leaders and employees.
Why?
• Unite the management and employee.
Why?
• All Yahoo’s people share the same values.
Why?
• Link corporate external brand to corporate culture and values.
Fundamental question
How to best link corporate external brand to corporate culture and values?
Test
• This question is strategic because this is a part of the implementation of the new business model.
• This question is explicit because it is clear and understandable.
• This question is executable because HR division and Yahoo’s people can do.
• This question is direct because it is a direction to achieve the goal.
• Will answering the question can solve the problem at hand? Yes
Yahoo has a strong external brand but the people inside Yahoo do not perceive the values of the brand that the external people perceive. Therefore, by answering the question, we can have Yahoo’s people perceive the same values.
• Will answering this question make you champion? Yes
If Yahoo’s people are united in purpose and know the direction of the company, Yahoo can implement successfully the new business model and become a ready-to-change organization.
The SEED question
How does Sartain link Yahoo’s external brand to the corporate values and culture?
What I am going to achieve?
I want to change successfully corporate culture aligned with new business model and corporate values.
Why?
• Solve communication problem between the management and the employee and between business units.
Why?
• Strengthen the relationship between leaders and employees.
Why?
• Unite the management and employee.
Why?
• All Yahoo’s people share the same values.
Why?
• Link corporate external brand to corporate culture and values.
Fundamental question
How to best link corporate external brand to corporate culture and values?
Test
• This question is strategic because this is a part of the implementation of the new business model.
• This question is explicit because it is clear and understandable.
• This question is executable because HR division and Yahoo’s people can do.
• This question is direct because it is a direction to achieve the goal.
• Will answering the question can solve the problem at hand? Yes
Yahoo has a strong external brand but the people inside Yahoo do not perceive the values of the brand that the external people perceive. Therefore, by answering the question, we can have Yahoo’s people perceive the same values.
• Will answering this question make you champion? Yes
If Yahoo’s people are united in purpose and know the direction of the company, Yahoo can implement successfully the new business model and become a ready-to-change organization.
The SEED question
How does Sartain link Yahoo’s external brand to the corporate values and culture?
Walt Disney Internet Group Japan’s Dimo Project
Date: February 28, 2007
Most important question
How should WDIG increase the awareness of the Dimo brand among i-mode users?
Key drivers
• I-mode subscribers.
• I-mode providers (NTT Docomo).
• Strategic relationship-partnership with i-mode providers.
• Strategic partners with whom WDIG work with to develop character design and contents.
Competitive advantages
• ‘Living’ set of characters that can create different histories about the existence and therefore fulfill users’ need for self-image and identity.
• In-house innovation and technology enable WDIG to keep pace with fast changing Japanese mobile markets especially i-mode technology.
• Low operating costs.
Recommended strategy for WDIG
• Choose a product branding strategy, which is to create Dimo as a non-Disney brand exclusively to the set of Disney characters and to position Dimo brand as an individual brand that is totally separated from Disney brand.
• Continue to develop the power of Dimo set of characters as living characters by adding contents and histories characters can tell.
• Strengthen strategic relationship with NTT Docomo; continue to ask it for financial support for advertising and promotion campaigns; work closely with Docomo to develop new contents for future Docomo’s new series phones.
• Position Dimo brand as ‘self-image’.
• Target teenagers and adults in their early 20s who need self-image and identity to characterize themselves.
• Distribute Dimo set of characters via i-mode providers, especially via NTT Docomo.
• Communicate the positioning via Dimo Websites, ads on magazines and newspapers for teenagers and adults, TV commercials on channels for teenagers and adults, advertisement campaigns at places where teens and adults frequently come such as teenager shops.
• Register the trademark of Dimo set of characters and license the character set to expand business.
Most important question
How should WDIG increase the awareness of the Dimo brand among i-mode users?
Key drivers
• I-mode subscribers.
• I-mode providers (NTT Docomo).
• Strategic relationship-partnership with i-mode providers.
• Strategic partners with whom WDIG work with to develop character design and contents.
Competitive advantages
• ‘Living’ set of characters that can create different histories about the existence and therefore fulfill users’ need for self-image and identity.
• In-house innovation and technology enable WDIG to keep pace with fast changing Japanese mobile markets especially i-mode technology.
• Low operating costs.
Recommended strategy for WDIG
• Choose a product branding strategy, which is to create Dimo as a non-Disney brand exclusively to the set of Disney characters and to position Dimo brand as an individual brand that is totally separated from Disney brand.
• Continue to develop the power of Dimo set of characters as living characters by adding contents and histories characters can tell.
• Strengthen strategic relationship with NTT Docomo; continue to ask it for financial support for advertising and promotion campaigns; work closely with Docomo to develop new contents for future Docomo’s new series phones.
• Position Dimo brand as ‘self-image’.
• Target teenagers and adults in their early 20s who need self-image and identity to characterize themselves.
• Distribute Dimo set of characters via i-mode providers, especially via NTT Docomo.
• Communicate the positioning via Dimo Websites, ads on magazines and newspapers for teenagers and adults, TV commercials on channels for teenagers and adults, advertisement campaigns at places where teens and adults frequently come such as teenager shops.
• Register the trademark of Dimo set of characters and license the character set to expand business.
BRAND EXTENTION AT REAL MADRID
Executive summary
Real Madrid (RM) has been worldwide-known as one of the best soccer club in the world. However, RM has experienced negative profits in recent years due to changes in the soccer environment. To achieve sustainable growth, RM needs to extent its brand worldwide in order to gain profits. To do so, RM needs to set up a new channel of communications and partnership-relationship with retailers, broadcasters and franchisees who are key drivers in enabling RM’s brand extension around the world.
1. Ask SEED Question
Initial Question
What are we trying to achieve?
We want to extent Real Madrid brand worldwide to gain profits.
“Why”
• To have stable profit growth in the future independently from field performance.
Why?
• To counter the stagnation of revenue growth from traditional channels (broadcasters, sponsors, match day).
Why?
• To sustain the profitability of the club in the long term.
Well, that’s obvious!
The SEED Question
How can Real Madrid gain profits while extending its brand worldwide?
(How Real Madrid can have the best profitability through expanding it brand worldwide).
Why is the SEED Question Important?
• The question is strategic because it is a part of the implementation plan to achieve RM’ new vision and mission
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because RM’ marketing forces can execute an implementation strategy to answer this question.
• The question is because it addresses the declining profit problem that RM is facing.
• While answering this question, we can truly solve the challenge at hand. By extending the brand worldwide, RM can have stable and increasing incomes by selling contents and merchandise and therefore achieve sustainable profitability.
• While answering this question, we will become a champion. When the brand is extended, RM will have stable income sources, therefore RM will not totally depend on incomes from traditional channels which are depending on the team’s performance. By answering this question, RM will become the champion in the soccer business field.
2. Mapping Ecosystem
2.1. External factors
Law: RM has to follow the regulations in the business environment and the institutional rules framework of UEFA and FIFA without being able to influence them.
Media: RM has to be aware of the media’s influence in presenting a positive image and utilize it to achieve more visibility.
Market: RM needs to take into account market structure and conditions in different geographical regions where it extends its business.
2.2. Individual components
• Strategic partners: Sponsors and players are the strategic partners of RM because they bring RM incomes.
• Players’ sponsors: Sponsors bring incomes to the players, half of which are shared with RM.
• Real Madrid: RM’s management is the heart of the Ecosystem map. The management needs to utilize the other individual components in the map to extend RM’s brand in order to increase profits.
• Competitors: The competitors in the map include RM’s competitors in the field such as other soccer clubs and business competitors.
• Retailers: Retailers are RM’s distributors.
• Franchisees: Franchisees pay royalties to RM for using its assets such as logo and contents for business purposes.
• Broadcasting: The broadcasters show the club’s games to soccer fans all over the world.
• Customers: Customers are people or organizations who buy products/services from RM or RM’s franchisees.
2.3. Linkages and flows in the map
• RM and Sponsors: Money flows from sponsors to RM in exchange for advertising rights from RM.
• RM and Players: The most significant flow between the two in this case is the flow of money: RM pays the players for their services and the players give half of their advertising incomes to RM.
• Players and their Sponsors: The players have their individual sponsors who pay them for the right to use their image for advertising purpose.
• RM and Retailers: RM grants the retailers the rights to sell its products.
• RM and Franchisees: RM grants the franchisees the rights to use its assets such as logo and contents.
• RM and Broadcasting: RM grants the broadcasters the rights to air its games.
• Retailers and Customers: This is buying-selling relationship.
• Franchisees and Customers: This is buying-selling relationship.
• Broadcasting and Customers: The customers pay for the entertainment they get by watching the team’s games.
• Competitors and Broadcasting, Franchisees and Retailers: Competitors provide the broadcasting, franchisees and retailers money and information.
2.4. Evolution of the Ecosystem
Past
The main income sources were from gate receipts and broadcasting, which highly depend on RM’s performance in matches. While the incomes from gate receipts and broadcasting increased slowly, the expenses surged due to sharp increase in salaries paid to the players and quick augment in costs of buying the best players. When revenues were less than expenses, RM experienced negative profits in many years.
Present
To achieve sustainable growth in the future, RM needs to have stable independent revenue sources that are independent from its performance in the field. Given stagnant increase in traditional revenue streams, RM needs to leverage its brand into the global market to gain more revenues. The best way to leverage the brand is to extent the brand worldwide.
Future
If RM were unable to extent its brand worldwide to gain profits, it would continue to have losses and therefore unable to have the best players. If RM did not have the best players, its performance in games would not be better and therefore RM would not be able to gain championships. If RM lost games continuously, incomes from traditional sources would decrease. Therefore, RM would face deeper losses.
3. Key Drivers
From the Ecosystem Map, the Key Drivers are Retailers, Franchisees and Broadcasters through which RM can reach customers and extent the brand. The key drivers are the enablers for RM to extent successfully its brand.
4. Situation Summary
Real Madrid has been expanding its brand globally in the past few years. It has been increasing revenues from stable income sources such as merchandising by entering various international markets. The challenge in front of the club’s management is how to take the next step and extend its brand worldwide in a profitable manner.
In the case assignment we are asked to recommend the best strategy for the club to implement in order to answer the SEED question. However, we are not able to propose a strategy at this point because we need to follow the necessary steps to reach the conclusions. Still, if we were to provide basic guidelines, we recommend the following, hereby our situation summary.
1. In order to achieve its goal the club management needs to reach more customers.
2. In the end, the club needs to think of how to reach more visibility and extend its merchandise to new markets. Working within the framework of the ecosystem map and focusing on the key drivers and the SEED question, we will be able to pinpoint the right approach to increasing profitability in the long run and extending the Real Madrid brand worldwide.
3. We have identified three main channels for that, namely retailers, franchisees, and broadcasting. The connection of these channels with the customers and how Real Madrid will be able to utilize them is crucial for the success of the club in extending its brand worldwide in a profitable manner. If Real Madrid fails to utilize these channels, then other clubs, namely RM’s competitors, will do and the club will suffer losses.
Real Madrid (RM) has been worldwide-known as one of the best soccer club in the world. However, RM has experienced negative profits in recent years due to changes in the soccer environment. To achieve sustainable growth, RM needs to extent its brand worldwide in order to gain profits. To do so, RM needs to set up a new channel of communications and partnership-relationship with retailers, broadcasters and franchisees who are key drivers in enabling RM’s brand extension around the world.
1. Ask SEED Question
Initial Question
What are we trying to achieve?
We want to extent Real Madrid brand worldwide to gain profits.
“Why”
• To have stable profit growth in the future independently from field performance.
Why?
• To counter the stagnation of revenue growth from traditional channels (broadcasters, sponsors, match day).
Why?
• To sustain the profitability of the club in the long term.
Well, that’s obvious!
The SEED Question
How can Real Madrid gain profits while extending its brand worldwide?
(How Real Madrid can have the best profitability through expanding it brand worldwide).
Why is the SEED Question Important?
• The question is strategic because it is a part of the implementation plan to achieve RM’ new vision and mission
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because RM’ marketing forces can execute an implementation strategy to answer this question.
• The question is because it addresses the declining profit problem that RM is facing.
• While answering this question, we can truly solve the challenge at hand. By extending the brand worldwide, RM can have stable and increasing incomes by selling contents and merchandise and therefore achieve sustainable profitability.
• While answering this question, we will become a champion. When the brand is extended, RM will have stable income sources, therefore RM will not totally depend on incomes from traditional channels which are depending on the team’s performance. By answering this question, RM will become the champion in the soccer business field.
2. Mapping Ecosystem
2.1. External factors
Law: RM has to follow the regulations in the business environment and the institutional rules framework of UEFA and FIFA without being able to influence them.
Media: RM has to be aware of the media’s influence in presenting a positive image and utilize it to achieve more visibility.
Market: RM needs to take into account market structure and conditions in different geographical regions where it extends its business.
2.2. Individual components
• Strategic partners: Sponsors and players are the strategic partners of RM because they bring RM incomes.
• Players’ sponsors: Sponsors bring incomes to the players, half of which are shared with RM.
• Real Madrid: RM’s management is the heart of the Ecosystem map. The management needs to utilize the other individual components in the map to extend RM’s brand in order to increase profits.
• Competitors: The competitors in the map include RM’s competitors in the field such as other soccer clubs and business competitors.
• Retailers: Retailers are RM’s distributors.
• Franchisees: Franchisees pay royalties to RM for using its assets such as logo and contents for business purposes.
• Broadcasting: The broadcasters show the club’s games to soccer fans all over the world.
• Customers: Customers are people or organizations who buy products/services from RM or RM’s franchisees.
2.3. Linkages and flows in the map
• RM and Sponsors: Money flows from sponsors to RM in exchange for advertising rights from RM.
• RM and Players: The most significant flow between the two in this case is the flow of money: RM pays the players for their services and the players give half of their advertising incomes to RM.
• Players and their Sponsors: The players have their individual sponsors who pay them for the right to use their image for advertising purpose.
• RM and Retailers: RM grants the retailers the rights to sell its products.
• RM and Franchisees: RM grants the franchisees the rights to use its assets such as logo and contents.
• RM and Broadcasting: RM grants the broadcasters the rights to air its games.
• Retailers and Customers: This is buying-selling relationship.
• Franchisees and Customers: This is buying-selling relationship.
• Broadcasting and Customers: The customers pay for the entertainment they get by watching the team’s games.
• Competitors and Broadcasting, Franchisees and Retailers: Competitors provide the broadcasting, franchisees and retailers money and information.
2.4. Evolution of the Ecosystem
Past
The main income sources were from gate receipts and broadcasting, which highly depend on RM’s performance in matches. While the incomes from gate receipts and broadcasting increased slowly, the expenses surged due to sharp increase in salaries paid to the players and quick augment in costs of buying the best players. When revenues were less than expenses, RM experienced negative profits in many years.
Present
To achieve sustainable growth in the future, RM needs to have stable independent revenue sources that are independent from its performance in the field. Given stagnant increase in traditional revenue streams, RM needs to leverage its brand into the global market to gain more revenues. The best way to leverage the brand is to extent the brand worldwide.
Future
If RM were unable to extent its brand worldwide to gain profits, it would continue to have losses and therefore unable to have the best players. If RM did not have the best players, its performance in games would not be better and therefore RM would not be able to gain championships. If RM lost games continuously, incomes from traditional sources would decrease. Therefore, RM would face deeper losses.
3. Key Drivers
From the Ecosystem Map, the Key Drivers are Retailers, Franchisees and Broadcasters through which RM can reach customers and extent the brand. The key drivers are the enablers for RM to extent successfully its brand.
4. Situation Summary
Real Madrid has been expanding its brand globally in the past few years. It has been increasing revenues from stable income sources such as merchandising by entering various international markets. The challenge in front of the club’s management is how to take the next step and extend its brand worldwide in a profitable manner.
In the case assignment we are asked to recommend the best strategy for the club to implement in order to answer the SEED question. However, we are not able to propose a strategy at this point because we need to follow the necessary steps to reach the conclusions. Still, if we were to provide basic guidelines, we recommend the following, hereby our situation summary.
1. In order to achieve its goal the club management needs to reach more customers.
2. In the end, the club needs to think of how to reach more visibility and extend its merchandise to new markets. Working within the framework of the ecosystem map and focusing on the key drivers and the SEED question, we will be able to pinpoint the right approach to increasing profitability in the long run and extending the Real Madrid brand worldwide.
3. We have identified three main channels for that, namely retailers, franchisees, and broadcasting. The connection of these channels with the customers and how Real Madrid will be able to utilize them is crucial for the success of the club in extending its brand worldwide in a profitable manner. If Real Madrid fails to utilize these channels, then other clubs, namely RM’s competitors, will do and the club will suffer losses.
The Global Branding of Stella Artois
1. Ask SEED Question
Initial Question
What are we trying to achieve?
We want to develop Stella Artois as a strong global brand serving as Interbrew’s global flagship brand.
“Why”
• Global brand will be a base trend in brew industry and the beer industry will be internationalized in the next decades.
Why?
• To achieve synergies in global advertising and economies of scale to serve converging global beer market.
Why?
• To leverage low operating costs as a key competitive advantage.
Why?
• To expand globally and become a main player in the global beer market.
Why?
• To achieve sustainable growth by serving the global market.
Why?
• To be aware as a strong global brand.
The SEED Question
How to develop Stella Artois as a true global brand? (New)
How can Interbrew increase the awareness of Stella Artois as a true global brand, managing it consistently across countries? (old)
Why is the SEED Question Important?
• The question is strategic because it is a part of Interbrew’s corporate strategy to achieve sustainable growth in the future.
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because Interbrew’s marketing forces can execute an implementation strategy to answer this question.
• The question is direct because it is a direction to achieve the goal.
• While answering this question, we can truly solve the challenge at hand. By increasing brand awareness, we can have people around the globe know about the brand. By managing brand consistency, we can successfully develop the brand as a strong brand identically perceived across countries and regions in the world.
• While answering this question, we will become a champion. If we answer this question, we will successfully develop Stella Artois as a global brand that helps Interbrew achieve the corporate strategy and leverage current and future competitive advantages.
2. Mapping Ecosystem
In the map, we consider subsidiaries, franchises and joint-ventures have the same relationships with media, press, advertising agencies, distributors and Belgian café in local countries.
Key drivers:
- Strategic relationship with franchises and joint-ventures.
- Local laws and regulations.
- Strategic outsourcing partnership with suppliers.
3. Competitive Advantages
3.1. Current competitive advantage is operation efficiency. This competitive advantage reflects:
- Economies of scale
- Production efficiency
- Capacity utilization
- Strategic outsourcing and partnership with best suppliers
Interbrew can have lower operating costs than its competitors
3.2. Future source of competitive advantage is global brand
Global brand will help Interbrew differentiate itself from its competitor. By positioning Stelle Artois as a super-premium beer, the company can charge premium price.
The current and future competitive advantages will enable Interbrew make higher profits than its competitors.
4. Objectives
- Increase brand recognition among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘sophisticated brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘premium brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘authentic brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
5. Relevant Strategic Options
6. Brand Strategy
We recommend that the 2nd strategy is the best for the companies because this strategy can help the company answer the most important question and achieve objectives while leveraging key drivers and competitive advantages.
Initial Question
What are we trying to achieve?
We want to develop Stella Artois as a strong global brand serving as Interbrew’s global flagship brand.
“Why”
• Global brand will be a base trend in brew industry and the beer industry will be internationalized in the next decades.
Why?
• To achieve synergies in global advertising and economies of scale to serve converging global beer market.
Why?
• To leverage low operating costs as a key competitive advantage.
Why?
• To expand globally and become a main player in the global beer market.
Why?
• To achieve sustainable growth by serving the global market.
Why?
• To be aware as a strong global brand.
The SEED Question
How to develop Stella Artois as a true global brand? (New)
How can Interbrew increase the awareness of Stella Artois as a true global brand, managing it consistently across countries? (old)
Why is the SEED Question Important?
• The question is strategic because it is a part of Interbrew’s corporate strategy to achieve sustainable growth in the future.
• The question is explicit because it states exactly what kind of brand development we are pursuing.
• The question is executable because Interbrew’s marketing forces can execute an implementation strategy to answer this question.
• The question is direct because it is a direction to achieve the goal.
• While answering this question, we can truly solve the challenge at hand. By increasing brand awareness, we can have people around the globe know about the brand. By managing brand consistency, we can successfully develop the brand as a strong brand identically perceived across countries and regions in the world.
• While answering this question, we will become a champion. If we answer this question, we will successfully develop Stella Artois as a global brand that helps Interbrew achieve the corporate strategy and leverage current and future competitive advantages.
2. Mapping Ecosystem
In the map, we consider subsidiaries, franchises and joint-ventures have the same relationships with media, press, advertising agencies, distributors and Belgian café in local countries.
Key drivers:
- Strategic relationship with franchises and joint-ventures.
- Local laws and regulations.
- Strategic outsourcing partnership with suppliers.
3. Competitive Advantages
3.1. Current competitive advantage is operation efficiency. This competitive advantage reflects:
- Economies of scale
- Production efficiency
- Capacity utilization
- Strategic outsourcing and partnership with best suppliers
Interbrew can have lower operating costs than its competitors
3.2. Future source of competitive advantage is global brand
Global brand will help Interbrew differentiate itself from its competitor. By positioning Stelle Artois as a super-premium beer, the company can charge premium price.
The current and future competitive advantages will enable Interbrew make higher profits than its competitors.
4. Objectives
- Increase brand recognition among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘sophisticated brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘premium brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
- Increase brand perception as ‘authentic brand’ among beer drinkers in the markets where Stella Artois was launched by 10% in the next year.
5. Relevant Strategic Options
6. Brand Strategy
We recommend that the 2nd strategy is the best for the companies because this strategy can help the company answer the most important question and achieve objectives while leveraging key drivers and competitive advantages.
BRAND ROADMAP - NIIGATA, ALL ABOUT EXPERIENCE
A brand that captures your mind gains your behavior. A brand that captures your heart gains your commitment.
-Scott Talgo
CONTACT INFORMATION
950-8570
Niigata Prefecture
Department of Industry, Labor, and Tourism
Tourism Promotion Division
SYNOPSIS
CORE VALUES
Learning and involvement
Interaction with people
Harmony with nature
MESSAGE
All about experience
PERSONALITY TRAITS
A genuine and open-minded middle-aged man, ready to teach you unique skills and enrich your Niigata experience
ICONS
Sake
Rice
Crested Ibis
Snow Camellia
INTRODUCTION
Niigata is one of the forty-seven prefectures of Japan. It is very accessible from the Kanto region and has a lot to offer to tourists all-year round. It is famous for its rice, sake, spa resorts and beautiful nature.
This brand roadmap is written to serve international experiential tourists and tell them the story of Niigata. We believe that Niigata has a lot to offer to this group with its unforgettable learning experience.
In order to convey this message, Niigata produced this brand roadmap, which will set it apart from Japan’s other prefectures and establish it as the leading prefecture in experiential tourism in Japan.
BRAND COMPONENTS
A brand is made up of four components:
Core values: The values our brand is built on. Core values are the foundation of our company and the pillars of every message we deliver.
Brand message: The overall key message we’re trying to communicate. All other messages should support and add credibility to this message.
Brand personality: The overall tone and attitude we use to deliver our message. Brand personality is the key emotional component that determines whether we’re a likable brand.
Brand icons: The executional tools we use to deliver our brand message and brand personality: for example colors, typefaces, voice-over, logo, layouts, and music. Brand icons are the elements that make all our marketing materials uniquely us.
When these elements are delivered in a consistent and cohesive manner, we have the building blocks of a long-term, successful brand.
BRAND PERSONALITY
Our brand is:
Male
Middle-aged
Sophisticated
Local
It is best described as:
Genuine
Welcoming
Open-minded
Experienced
CORE VALUES
What core values are inherent to the Niigata experiential tourism experience?
- Learning and involvement
Niigata teaches new skills via rice cultivation and processing, as well as rice-based arts through special workshops
- Interaction with people
Niigata’s people are warm and welcoming and visitors can learn and experience Niigata’s traditions directly from them
- Harmony with nature
By experiencing rural life, the experiential tourists can learn how to live in harmony with nature
CORE MESSAGE
NIIGATA: ALL ABOUT EXPERIENCE
Niigata is all about experience and this is not just an empty statement. We offer experiential tourism to people looking to take a break from urban life and immerse themselves in nature, while at the same time enrich themselves through involvement in traditional activities and interaction with the local people.
Experience best describes Niigata tourism for tourists are directly involved in it through constant interaction with local people and cultural activities and gain personal enrichment through that. Experience is a strong word, which sets the level of tourists’ expectations for Niigata high, which makes us only happy to fulfill them. Because Niigata is exactly that: all about experience.
-Scott Talgo
CONTACT INFORMATION
950-8570
Niigata Prefecture
Department of Industry, Labor, and Tourism
Tourism Promotion Division
SYNOPSIS
CORE VALUES
Learning and involvement
Interaction with people
Harmony with nature
MESSAGE
All about experience
PERSONALITY TRAITS
A genuine and open-minded middle-aged man, ready to teach you unique skills and enrich your Niigata experience
ICONS
Sake
Rice
Crested Ibis
Snow Camellia
INTRODUCTION
Niigata is one of the forty-seven prefectures of Japan. It is very accessible from the Kanto region and has a lot to offer to tourists all-year round. It is famous for its rice, sake, spa resorts and beautiful nature.
This brand roadmap is written to serve international experiential tourists and tell them the story of Niigata. We believe that Niigata has a lot to offer to this group with its unforgettable learning experience.
In order to convey this message, Niigata produced this brand roadmap, which will set it apart from Japan’s other prefectures and establish it as the leading prefecture in experiential tourism in Japan.
BRAND COMPONENTS
A brand is made up of four components:
Core values: The values our brand is built on. Core values are the foundation of our company and the pillars of every message we deliver.
Brand message: The overall key message we’re trying to communicate. All other messages should support and add credibility to this message.
Brand personality: The overall tone and attitude we use to deliver our message. Brand personality is the key emotional component that determines whether we’re a likable brand.
Brand icons: The executional tools we use to deliver our brand message and brand personality: for example colors, typefaces, voice-over, logo, layouts, and music. Brand icons are the elements that make all our marketing materials uniquely us.
When these elements are delivered in a consistent and cohesive manner, we have the building blocks of a long-term, successful brand.
BRAND PERSONALITY
Our brand is:
Male
Middle-aged
Sophisticated
Local
It is best described as:
Genuine
Welcoming
Open-minded
Experienced
CORE VALUES
What core values are inherent to the Niigata experiential tourism experience?
- Learning and involvement
Niigata teaches new skills via rice cultivation and processing, as well as rice-based arts through special workshops
- Interaction with people
Niigata’s people are warm and welcoming and visitors can learn and experience Niigata’s traditions directly from them
- Harmony with nature
By experiencing rural life, the experiential tourists can learn how to live in harmony with nature
CORE MESSAGE
NIIGATA: ALL ABOUT EXPERIENCE
Niigata is all about experience and this is not just an empty statement. We offer experiential tourism to people looking to take a break from urban life and immerse themselves in nature, while at the same time enrich themselves through involvement in traditional activities and interaction with the local people.
Experience best describes Niigata tourism for tourists are directly involved in it through constant interaction with local people and cultural activities and gain personal enrichment through that. Experience is a strong word, which sets the level of tourists’ expectations for Niigata high, which makes us only happy to fulfill them. Because Niigata is exactly that: all about experience.
TUSCAN LIFESTYLES
ACCESSING CUSTOMER LIFETIME VALUE
What is the average lifetime value of a customer whose initial purchase is less than $50?
• $2,20 (Refer to Appendix I)
• Even though the CLV for customers whose initial purchase was less than $50, the value growth of these customers grew in large increments (refer to the graphs below). It is our opinion, that while this number is low it is significant enough in the later years that it would be worthwhile for Tuscan to continue to pursue their business.
What is the average lifetime value of a customer whose initial purchase is $50 or greater?
• $63,21 (Refer to Appendix I)
• The CLV for Tuscan customers whose initial purchase was greater than $50 was significantly and consistently higher then the customers whose initial purchase was less than $50 (refer to the graph below).
Based on these expected lifetime values, what marketing plans might be advisable?
• Focus on customers whose initial purchase is $50 or greater.
- By focus, we suggest that special incentives become available to these costumers through mailings or a special loyalty program.
• Differentiate the catalogues mailings according to the results fostered from the CLV research.
- For example, the customers who are in the $50 or above category should continue to receive the traditional number of mailings.
- The lower category of costumers who initially spent less should receive less catalogues in the mail. As previously stated however, these customers are still a valuable asset and should not be completely ignored. These consumers should be lured back to the company through specialized promotions catered to their comparatively lower spending habits.
Do you agree with Joan’s assumption that 5 years is a reasonable time horizon? Why or why not?
• We agree with Joans assumption that five years is a reasonable time frame for determining certain customer characteristics.
• As our analysis the average lifetime duration is less than 3 years (refer to appendix I). Therefore, anything over the three year time period results in diminishing returns.
• Approximately 95% of the customers did order 1 item or less in their 5th year (again refer to exhibits 1 and 2 of the case).
Do you have suggestions for other ways to group customers for determining lifetime value?
• Product group
- Segregate customers in terms of the products they purchased. While in this specific industry it is unlikely that a customer will make identical product purchases on an annual basis. However, it is possible that the consumer will make similar product purchases and this is a possible strategy that Tuscan should pursue.
• Expand the denominations used to categorize Tuscan’s customer base. Two groups are too vague of criteria to use to truly determine accurate customer habits. It is our opinion, that two additional categories are added in order to add more depth to the information ascertained as explained by the graph below.
What additional information might be helpful to Joan?
• Additional demographics of customers: income, sex, age, etc….
- While some of this information was already provided to Joan and Tuscan through the response list, the information was seemingly neglected. Tuscan should further categorize the demographics of its costumers and utilize this information through overlapping it with the CLV results.
• Explore the possible advantages of applying an RFM model to the Tuscan data.
Appendix 1
Method to calculate CLV
Use formula:
In which:
- CLV is customer lifetime value.
- Ordersizet is the amount of purchase per order at time t.
- Margin is 42% given in the case.
- AC is acquisition cost: AC = ($0.85´1000 catalog)/23 new customers = $36.96.
- T is number of time period. T = 5.
- r is discount rate. r = 10%.
- 6t is annual catalog cost in year t. 6t = $0.75 ´ 8 catalog. In this calculation, we ignore the discounted value of $6 catalog cost per year because the discounted amount is so small.
- rt is retention rate, which is the number of customers in cohort buying in (t) and also buying in (t-1) / Number of customers in cohort buying in (t-1).
- The average customer lifetime value is the simple average of the customer lifetime mean values (CVL mean) in 5 years.
Average lifetime duration
Formula:
Average lifetime duration ={ Customers retainedt * Number of periods} / N
Where: N = cohort size = number of customer at the beginning period.
T = time period
Customers retainedt is number of customers retained in period t.
What is the average lifetime value of a customer whose initial purchase is less than $50?
• $2,20 (Refer to Appendix I)
• Even though the CLV for customers whose initial purchase was less than $50, the value growth of these customers grew in large increments (refer to the graphs below). It is our opinion, that while this number is low it is significant enough in the later years that it would be worthwhile for Tuscan to continue to pursue their business.
What is the average lifetime value of a customer whose initial purchase is $50 or greater?
• $63,21 (Refer to Appendix I)
• The CLV for Tuscan customers whose initial purchase was greater than $50 was significantly and consistently higher then the customers whose initial purchase was less than $50 (refer to the graph below).
Based on these expected lifetime values, what marketing plans might be advisable?
• Focus on customers whose initial purchase is $50 or greater.
- By focus, we suggest that special incentives become available to these costumers through mailings or a special loyalty program.
• Differentiate the catalogues mailings according to the results fostered from the CLV research.
- For example, the customers who are in the $50 or above category should continue to receive the traditional number of mailings.
- The lower category of costumers who initially spent less should receive less catalogues in the mail. As previously stated however, these customers are still a valuable asset and should not be completely ignored. These consumers should be lured back to the company through specialized promotions catered to their comparatively lower spending habits.
Do you agree with Joan’s assumption that 5 years is a reasonable time horizon? Why or why not?
• We agree with Joans assumption that five years is a reasonable time frame for determining certain customer characteristics.
• As our analysis the average lifetime duration is less than 3 years (refer to appendix I). Therefore, anything over the three year time period results in diminishing returns.
• Approximately 95% of the customers did order 1 item or less in their 5th year (again refer to exhibits 1 and 2 of the case).
Do you have suggestions for other ways to group customers for determining lifetime value?
• Product group
- Segregate customers in terms of the products they purchased. While in this specific industry it is unlikely that a customer will make identical product purchases on an annual basis. However, it is possible that the consumer will make similar product purchases and this is a possible strategy that Tuscan should pursue.
• Expand the denominations used to categorize Tuscan’s customer base. Two groups are too vague of criteria to use to truly determine accurate customer habits. It is our opinion, that two additional categories are added in order to add more depth to the information ascertained as explained by the graph below.
What additional information might be helpful to Joan?
• Additional demographics of customers: income, sex, age, etc….
- While some of this information was already provided to Joan and Tuscan through the response list, the information was seemingly neglected. Tuscan should further categorize the demographics of its costumers and utilize this information through overlapping it with the CLV results.
• Explore the possible advantages of applying an RFM model to the Tuscan data.
Appendix 1
Method to calculate CLV
Use formula:
In which:
- CLV is customer lifetime value.
- Ordersizet is the amount of purchase per order at time t.
- Margin is 42% given in the case.
- AC is acquisition cost: AC = ($0.85´1000 catalog)/23 new customers = $36.96.
- T is number of time period. T = 5.
- r is discount rate. r = 10%.
- 6t is annual catalog cost in year t. 6t = $0.75 ´ 8 catalog. In this calculation, we ignore the discounted value of $6 catalog cost per year because the discounted amount is so small.
- rt is retention rate, which is the number of customers in cohort buying in (t) and also buying in (t-1) / Number of customers in cohort buying in (t-1).
- The average customer lifetime value is the simple average of the customer lifetime mean values (CVL mean) in 5 years.
Average lifetime duration
Formula:
Average lifetime duration ={ Customers retainedt * Number of periods} / N
Where: N = cohort size = number of customer at the beginning period.
T = time period
Customers retainedt is number of customers retained in period t.
THE KING-SIZE COMPANY
Executive summary
King-Size has long used traditional methods such as renting and exchanging names to attract new prospects. The test of a TV commercial shows that the cost of attracting by mail order is greater than the cost of generating prospects by cable networks. Therefore, the company should spend additional promotional budget and make marketing efforts to attract potential customers by TV commercials. Moreover, new customers acquired by cable seem to purchase more than the past customers. As the cost to maintain past customers is greater than the cost to acquire new customers, the company should study customer lifetime value and customer lifecycle to make appropriate strategy to develop its business.
Cost of generating new prospects and new customers
• Cost to generate a new prospect by mail order: $6.56 (Appendix 02).
• Cost to generate a new prospect by cable (Appendix 03):
- By the first commercial: $5.65.
- By each additional commercial: $4.90.
• Cost to generate a new customer by mail order under the assumption that a new customer places the 1st order after receiving a full catalogue: $7.26 (Appendix 04).
• Cost to generate a new customer by cable under the same assumption (Appendix 05).
- By the first commercial: $6.35.
- By each additional commercial: $5.60.
Remark:
1. If King-Size continues to run additional commercials, the cost to generate a new prospect will be reduced because it can get discounts for continuous broadcast and eliminate the cost of TV production.
2. The cost to generate a new prospect by mail order is more expensive than the cost to generate a new prospect by cable. This is because many mail receivers are not interested in King-Size’s products so the rate of people asking for the first catalogue over the total number of catalogue is very small. Moreover, the cost of obtaining names is expensive and printing ad did not reach target audience. On the other hand, commercial by cable reaches a very large audience and therefore can motivate many people interested in asking the first catalogue.
Past customers
• Sales per customer: $55.51 (Appendix 04).
• Gross profits per customer: $25.35.
• Cost of catalogue per customer: $6.27.
• Cost of maintaining a customer: $6.54.
As the cost to generate a new customer by cable is less than the cost of maintaining a past customer ($6.35 vs $6.45), King-Size should spend extra promotional budget to attract new prospects and new customers when allocating at least the same budget to maintain past customers.
Media strategy
Media effectiveness
The purpose of the TV commercial is to generate new prospects. Therefore, the criterion to measure media effectiveness should be the number of requests generated by each cable network. Because the amounts of money paid to different cable networks are totally different, we can not compare the effectiveness of the five cable networks by comparing the number of requests generated by each network. Instead, we should use the cost per request as a criterion.
According to exhibit 11, the cost per request of CNN-$10 off is the least ($1.11 per request), followed by the cost of CNN ($1.24 per request) and Family ($1.51 per request). Is seems that CNN-$10 gives the best results and ESPN has the worse results among the five networks. However, Family has the highest conversion and generates the highest total sales per media cost. Overall, Family gives the best results, then CNN-$10 and CNN. At a glace, ESPN seems to provide the best results because it has the largest number of request. Taking media cost into account, this network is not economically effective.
Choice of media
The exhibit 12 shows that people living in different geographic areas have different interest in watching TV and reading newspapers. People living in suburban prefer reading to watching TV. In contrast, people in towns and rural areas watch TV more than read newspapers. People in urban do not watch much TV and read much newspapers because those people are normally young and busy.
This difference helps King-Size use more effectively media to reach the target audience. King-Size should use printing ads to target suburban people and TV commercials to reach people in town and rural areas. The company should study the lifestyle and habits of urban people to find out the best media to reach them.
King-Size has long used traditional methods such as renting and exchanging names to attract new prospects. The test of a TV commercial shows that the cost of attracting by mail order is greater than the cost of generating prospects by cable networks. Therefore, the company should spend additional promotional budget and make marketing efforts to attract potential customers by TV commercials. Moreover, new customers acquired by cable seem to purchase more than the past customers. As the cost to maintain past customers is greater than the cost to acquire new customers, the company should study customer lifetime value and customer lifecycle to make appropriate strategy to develop its business.
Cost of generating new prospects and new customers
• Cost to generate a new prospect by mail order: $6.56 (Appendix 02).
• Cost to generate a new prospect by cable (Appendix 03):
- By the first commercial: $5.65.
- By each additional commercial: $4.90.
• Cost to generate a new customer by mail order under the assumption that a new customer places the 1st order after receiving a full catalogue: $7.26 (Appendix 04).
• Cost to generate a new customer by cable under the same assumption (Appendix 05).
- By the first commercial: $6.35.
- By each additional commercial: $5.60.
Remark:
1. If King-Size continues to run additional commercials, the cost to generate a new prospect will be reduced because it can get discounts for continuous broadcast and eliminate the cost of TV production.
2. The cost to generate a new prospect by mail order is more expensive than the cost to generate a new prospect by cable. This is because many mail receivers are not interested in King-Size’s products so the rate of people asking for the first catalogue over the total number of catalogue is very small. Moreover, the cost of obtaining names is expensive and printing ad did not reach target audience. On the other hand, commercial by cable reaches a very large audience and therefore can motivate many people interested in asking the first catalogue.
Past customers
• Sales per customer: $55.51 (Appendix 04).
• Gross profits per customer: $25.35.
• Cost of catalogue per customer: $6.27.
• Cost of maintaining a customer: $6.54.
As the cost to generate a new customer by cable is less than the cost of maintaining a past customer ($6.35 vs $6.45), King-Size should spend extra promotional budget to attract new prospects and new customers when allocating at least the same budget to maintain past customers.
Media strategy
Media effectiveness
The purpose of the TV commercial is to generate new prospects. Therefore, the criterion to measure media effectiveness should be the number of requests generated by each cable network. Because the amounts of money paid to different cable networks are totally different, we can not compare the effectiveness of the five cable networks by comparing the number of requests generated by each network. Instead, we should use the cost per request as a criterion.
According to exhibit 11, the cost per request of CNN-$10 off is the least ($1.11 per request), followed by the cost of CNN ($1.24 per request) and Family ($1.51 per request). Is seems that CNN-$10 gives the best results and ESPN has the worse results among the five networks. However, Family has the highest conversion and generates the highest total sales per media cost. Overall, Family gives the best results, then CNN-$10 and CNN. At a glace, ESPN seems to provide the best results because it has the largest number of request. Taking media cost into account, this network is not economically effective.
Choice of media
The exhibit 12 shows that people living in different geographic areas have different interest in watching TV and reading newspapers. People living in suburban prefer reading to watching TV. In contrast, people in towns and rural areas watch TV more than read newspapers. People in urban do not watch much TV and read much newspapers because those people are normally young and busy.
This difference helps King-Size use more effectively media to reach the target audience. King-Size should use printing ads to target suburban people and TV commercials to reach people in town and rural areas. The company should study the lifestyle and habits of urban people to find out the best media to reach them.
HILTON HHONORS WORLDWIDE LOYALTY WARS
Executive summary
Hilton is running a loyalty program to create and retain loyal customers as its competitors do. Given the severe competition in the lodging industry, all major players are competing by introducing more generous loyalty programs. Hilton should not compete on what its competitors are doing. Instead, it should customize and differentiate its current loyalty program and establish a compelling brand strategy to create brand passion and brand loyalty and to reposition the Hilton brand so that customers are truly loyal to the brand. In doing so, Hilton chain can attract and retain more business loyal customers and create long term customer loyalty.
1. Loyalty program and better customer management
Loyalty programs can help property operators and brand owners manage better their customers by the following points:
• Retain and reward profitable customers
• Tracking customer behavior patterns (spending, characteristics, preferences etc)
• Customize unique rewards to profitable customers
• Strengthen brand and improve brand loyalty
• Encourage customer spending
• Attract new customers
• Create and retain loyal customers
• Segment customers and formulate customized services to each segment
2. Loyalty program assessment
Value of the program
Now Hilton runs above breakeven point at 68% occupancy (p.4). It means that Hilton already passes the zero-profit point and makes profits. Therefore, revenue at higher occupancy levels will generate profits for Hilton. HHW program helps Hilton to run at higher occupancy level and hence revenues generated by the program will contribute to make profits for Hilton.
From page 4, the breakeven point is 68% x 154,000room x 365nights = 3,8222,800 nights or 3,8222,800 nights x $158 = $6,039.2 millions. From page 8 and table B, number of nights actually paid by members is 7,015,000nights + 712,000 stays x 2.4nights – 180,000 claimed nights = 8,543,800 nights. Total revenues from members is $1,108million + $327million = $1,435million.
• Percentage of nights by members over nights at breakeven is 8,543,800/3,8222,800 = 0.224 or 22.4%.
• Percentage of revenues by members over revenues at breakeven is $1,435/$6,039.2 = 0.2376 or 23.76%.
• If we compare the revenue generated by the program with revenue at breakeven, we see that the program increases revenue by 23.76%. This revenue increase is greater than 20% revenue increase by management yield.
• As Hilton already runs above breakeven point, the revenue obtained from the program should be considered as profit generating revenue. Therefore, gross profit earned through the program should be ($158 per night - $750per year/365days) x 8,543,800 nights = $1,328.5 million (these nights above occupancy levels do not bear fixed costs which are costs to build hotel facilities). In other words, $1,328.5 million is the value the program generated to Hilton.
Cost of the program
HHW executes the program as a non-profit center but a service for its parents companies HHC and HIC. Therefore, the expenses of HHW can be regarded as the expenses of the program. As shown in the exhibit 4, the cost of the program is $69,438,000.
Compare value and costs of the program
As the value is $1,328.5 million and the costs is $69,438,000, we can see that the program generate huge value vs. costs. The value is greater than costs more than 19 times. Therefore, it is worth to continue the program.
3. Loyalty program from franchisees’ view
Based on the above analysis, we saw that the frequent-stay program generates huge value to the hotel chain. Franchisees also see the lower program costs than that of competing chains and the high value and business opportunities the program may create for them. They are willing to run their properties under Hilton’s brand.
If franchisees had the choice of putting Hilton or one of Starwood brand on their properties, they can assess the value of doing so by comparing the value generated by the frequent-stay programs under both brands. To evaluate the value of each program, first they need to check whether they are running above or below breakeven levels, calculate the value of incremental occupancy generated by each program and associated costs, then compare values and costs of two programs.
4. What should Hilton do in response to Stawrwood?
Four major hotel chains are competing on frequent-stay programs at the same points: rewards or cash value to customers, redemption choices, convenience of program use. Competing by loyalty programs, all these hotel chains tend to increase reward value while they can not charge higher prices. As a result, their profit margins will decrease. Hilton, therefore, can not compete with other chains by offering more attractive loyalty program. Moreover, offering a very generous loyalty program has some risks:
• Customers tend to be variety-seeking customers so they want to have different experience with various hotel chains.
• Loyalty is something that cannot be programmed or bought by rewards. The rationale reason why customers use loyalty program is that they want to make profits out of loyalty programs. If Hilton stops offering generous rewards through its loyalty programs, its repeating customers might go to other hotel chains.
• The more rewards Hilton gives to customers, the more expectation customers have. Rewards therefore tend to be ever-higher.
• Customers participate in the program for profits and they might not have to be loyal.
• Loyalty programs are in fact is discount programs. By offering loyalty programs, Hilton implicitly trains its customers to expect lower prices.
Based on the above arguments, I would suggest that Hilton should avoid such loyalty war by maintaining current rewards levels and further customizing redemption choices, convenience of program use. Further, Hilton should differentiate its brand by using brand loyalty to retain customers and improve customer loyalty. Here are some ways to do:
• Create a brand passion. When customers are passionate about the brand, they will stay and become truly loyal without participating in any loyalty program.
• Reposition the brand as a unique experience.
• Differentiate the brand from others by creating a unique experience that no other chains are offering or will be able to offer.
• Create brand loyalty and brand passion as competitive advantages.
5. How should Hilton spend the additional revenue?
First, Hilton should spend the additional revenue to customize and differentiate current loyalty program to attract more prospect, create and retain loyal customers. Second, Hilton can spend more money on the marketing efforts to reposition the brand, create brand passion and brand loyalty. By doing so, both Hilton and its franchisees can have benefits because:
• The loyalty program helps both Hilton and franchises build customers loyalty, lure more business customers and increase their spending.
• When customers are truly brand loyal, they will stay with the hotel chain and depend less on loyalty program to make hotel choices.
• The chain and franchisees can charge premium price because loyal customers are not price sensitive. When customers are passionate about the brand, what they want is experience and they will be willing to pay higher price to have such experience.
• Brand loyalty is long term. Brand loyal customers tend to stay longer with the chain and spend more. The loyalty program can encourage them to spend even more.
• Franchisees might not have to run their own marketing campaigns. When customers are brand loyal, they will come to any franchisees’ hotels to have the experience promoted by the brand instead of considering where to come to accumulate many more points.
Hilton is running a loyalty program to create and retain loyal customers as its competitors do. Given the severe competition in the lodging industry, all major players are competing by introducing more generous loyalty programs. Hilton should not compete on what its competitors are doing. Instead, it should customize and differentiate its current loyalty program and establish a compelling brand strategy to create brand passion and brand loyalty and to reposition the Hilton brand so that customers are truly loyal to the brand. In doing so, Hilton chain can attract and retain more business loyal customers and create long term customer loyalty.
1. Loyalty program and better customer management
Loyalty programs can help property operators and brand owners manage better their customers by the following points:
• Retain and reward profitable customers
• Tracking customer behavior patterns (spending, characteristics, preferences etc)
• Customize unique rewards to profitable customers
• Strengthen brand and improve brand loyalty
• Encourage customer spending
• Attract new customers
• Create and retain loyal customers
• Segment customers and formulate customized services to each segment
2. Loyalty program assessment
Value of the program
Now Hilton runs above breakeven point at 68% occupancy (p.4). It means that Hilton already passes the zero-profit point and makes profits. Therefore, revenue at higher occupancy levels will generate profits for Hilton. HHW program helps Hilton to run at higher occupancy level and hence revenues generated by the program will contribute to make profits for Hilton.
From page 4, the breakeven point is 68% x 154,000room x 365nights = 3,8222,800 nights or 3,8222,800 nights x $158 = $6,039.2 millions. From page 8 and table B, number of nights actually paid by members is 7,015,000nights + 712,000 stays x 2.4nights – 180,000 claimed nights = 8,543,800 nights. Total revenues from members is $1,108million + $327million = $1,435million.
• Percentage of nights by members over nights at breakeven is 8,543,800/3,8222,800 = 0.224 or 22.4%.
• Percentage of revenues by members over revenues at breakeven is $1,435/$6,039.2 = 0.2376 or 23.76%.
• If we compare the revenue generated by the program with revenue at breakeven, we see that the program increases revenue by 23.76%. This revenue increase is greater than 20% revenue increase by management yield.
• As Hilton already runs above breakeven point, the revenue obtained from the program should be considered as profit generating revenue. Therefore, gross profit earned through the program should be ($158 per night - $750per year/365days) x 8,543,800 nights = $1,328.5 million (these nights above occupancy levels do not bear fixed costs which are costs to build hotel facilities). In other words, $1,328.5 million is the value the program generated to Hilton.
Cost of the program
HHW executes the program as a non-profit center but a service for its parents companies HHC and HIC. Therefore, the expenses of HHW can be regarded as the expenses of the program. As shown in the exhibit 4, the cost of the program is $69,438,000.
Compare value and costs of the program
As the value is $1,328.5 million and the costs is $69,438,000, we can see that the program generate huge value vs. costs. The value is greater than costs more than 19 times. Therefore, it is worth to continue the program.
3. Loyalty program from franchisees’ view
Based on the above analysis, we saw that the frequent-stay program generates huge value to the hotel chain. Franchisees also see the lower program costs than that of competing chains and the high value and business opportunities the program may create for them. They are willing to run their properties under Hilton’s brand.
If franchisees had the choice of putting Hilton or one of Starwood brand on their properties, they can assess the value of doing so by comparing the value generated by the frequent-stay programs under both brands. To evaluate the value of each program, first they need to check whether they are running above or below breakeven levels, calculate the value of incremental occupancy generated by each program and associated costs, then compare values and costs of two programs.
4. What should Hilton do in response to Stawrwood?
Four major hotel chains are competing on frequent-stay programs at the same points: rewards or cash value to customers, redemption choices, convenience of program use. Competing by loyalty programs, all these hotel chains tend to increase reward value while they can not charge higher prices. As a result, their profit margins will decrease. Hilton, therefore, can not compete with other chains by offering more attractive loyalty program. Moreover, offering a very generous loyalty program has some risks:
• Customers tend to be variety-seeking customers so they want to have different experience with various hotel chains.
• Loyalty is something that cannot be programmed or bought by rewards. The rationale reason why customers use loyalty program is that they want to make profits out of loyalty programs. If Hilton stops offering generous rewards through its loyalty programs, its repeating customers might go to other hotel chains.
• The more rewards Hilton gives to customers, the more expectation customers have. Rewards therefore tend to be ever-higher.
• Customers participate in the program for profits and they might not have to be loyal.
• Loyalty programs are in fact is discount programs. By offering loyalty programs, Hilton implicitly trains its customers to expect lower prices.
Based on the above arguments, I would suggest that Hilton should avoid such loyalty war by maintaining current rewards levels and further customizing redemption choices, convenience of program use. Further, Hilton should differentiate its brand by using brand loyalty to retain customers and improve customer loyalty. Here are some ways to do:
• Create a brand passion. When customers are passionate about the brand, they will stay and become truly loyal without participating in any loyalty program.
• Reposition the brand as a unique experience.
• Differentiate the brand from others by creating a unique experience that no other chains are offering or will be able to offer.
• Create brand loyalty and brand passion as competitive advantages.
5. How should Hilton spend the additional revenue?
First, Hilton should spend the additional revenue to customize and differentiate current loyalty program to attract more prospect, create and retain loyal customers. Second, Hilton can spend more money on the marketing efforts to reposition the brand, create brand passion and brand loyalty. By doing so, both Hilton and its franchisees can have benefits because:
• The loyalty program helps both Hilton and franchises build customers loyalty, lure more business customers and increase their spending.
• When customers are truly brand loyal, they will stay with the hotel chain and depend less on loyalty program to make hotel choices.
• The chain and franchisees can charge premium price because loyal customers are not price sensitive. When customers are passionate about the brand, what they want is experience and they will be willing to pay higher price to have such experience.
• Brand loyalty is long term. Brand loyal customers tend to stay longer with the chain and spend more. The loyalty program can encourage them to spend even more.
• Franchisees might not have to run their own marketing campaigns. When customers are brand loyal, they will come to any franchisees’ hotels to have the experience promoted by the brand instead of considering where to come to accumulate many more points.
Grey Worldwide
Opportunities:
• No legacy system that requires conversion so Grey can introduce state-of-the-art CRM tools
• China is a huge potential market
• Focus on CRM will provide some business solutions
• Asian market will enter a customer service era
Threats
• Increasing competition
• New technology leads to new effectively competing business models
• Rising customer expectations
• Increasing cost of acquiring new customers
• Changing in the communications industry from generalization to specialization
• Pure online companies are able to produce competitive high quality products at lower prices
• Strong price pressure
Strengths
• Strong brand
• Existing customer database and knowledge
Weaknesses
• Lack of an integrated customer knowledge database
What’s CRM? How Grey pursue the development of CRM?
• CRM goal: an integrated approach to create, identify, evaluate, capture, enhance, share and apply Grey’ intellectual capital
• Use existing database in segmenting customers, predicting loyalty, analyzing market needs
• Need a specialized team to develop CRM
• Utilize the resources of Grey’ worldwide partners
Compare traditional customer service and CRM
• Traditional customer service:
Multiple customer databases or having no customer database
Used to satisfy customers’ needs and requirements
Not used for customer acquisition, loyalty, growth, retention, etc
• CRM
An integrated customer database
Used to segment customers, predict loyalty, analyze market needs, make business strategy, etc
Used advanced technology as enabler
How to redefine client value using CRM? Divide clients into 2 tiers
• Traditional clients who need assistance to assess their competitive environments and build brands
• Sophisticated clients who have strong marketing & brand strategies but want to develop a customer relationship vision and plant
How to interact back-end and front-end?
• Make a unique understanding of gathering data, optimization in the front-end and back-end
• Provide training in the entire company to make sure that all employees think and do in the same way
• Interaction is done via CRM technology
• Front-end people need to be able to think strategically and back-end people support them
Build a customer process blueprint to maximize the use of existing customer database
• Define CRM objectives
• Choose enabler: CRM technology such as data mining, customer profiling
• Choose implementing tools
• Brand Future +: use a Grey’s group partners’ marketing and communications specialists to create personalized strategies to meet customers’ needs
• GRM charter: use Grey’ worldwide knowledge of specialist companies
• Back office and front office applications
Build a framework to assess CRM strategy
• CRM strategy: enhancing brand equity, customer loyalty and customer retention
• Framework:
- CRM strategy: Is CRM aligned with business objectives
- Implementation: measured by ROI of CRM system
- Technology: is it suitable to make use of marketing intelligence of the company?
- Applications: is the company selecting appropriate applications to support CRM?
Criteria to measure CRM performance
• Brand equity
- Added value the brand brings to the company
- Financial value of the brand
- Market share
- Brand extension
• Customer loyalty
- Repurchase rate and repurchase value by customer
- Lifetime customer value
• Customer retention
- Retention rate
- Return on customer retention investment
• No legacy system that requires conversion so Grey can introduce state-of-the-art CRM tools
• China is a huge potential market
• Focus on CRM will provide some business solutions
• Asian market will enter a customer service era
Threats
• Increasing competition
• New technology leads to new effectively competing business models
• Rising customer expectations
• Increasing cost of acquiring new customers
• Changing in the communications industry from generalization to specialization
• Pure online companies are able to produce competitive high quality products at lower prices
• Strong price pressure
Strengths
• Strong brand
• Existing customer database and knowledge
Weaknesses
• Lack of an integrated customer knowledge database
What’s CRM? How Grey pursue the development of CRM?
• CRM goal: an integrated approach to create, identify, evaluate, capture, enhance, share and apply Grey’ intellectual capital
• Use existing database in segmenting customers, predicting loyalty, analyzing market needs
• Need a specialized team to develop CRM
• Utilize the resources of Grey’ worldwide partners
Compare traditional customer service and CRM
• Traditional customer service:
Multiple customer databases or having no customer database
Used to satisfy customers’ needs and requirements
Not used for customer acquisition, loyalty, growth, retention, etc
• CRM
An integrated customer database
Used to segment customers, predict loyalty, analyze market needs, make business strategy, etc
Used advanced technology as enabler
How to redefine client value using CRM? Divide clients into 2 tiers
• Traditional clients who need assistance to assess their competitive environments and build brands
• Sophisticated clients who have strong marketing & brand strategies but want to develop a customer relationship vision and plant
How to interact back-end and front-end?
• Make a unique understanding of gathering data, optimization in the front-end and back-end
• Provide training in the entire company to make sure that all employees think and do in the same way
• Interaction is done via CRM technology
• Front-end people need to be able to think strategically and back-end people support them
Build a customer process blueprint to maximize the use of existing customer database
• Define CRM objectives
• Choose enabler: CRM technology such as data mining, customer profiling
• Choose implementing tools
• Brand Future +: use a Grey’s group partners’ marketing and communications specialists to create personalized strategies to meet customers’ needs
• GRM charter: use Grey’ worldwide knowledge of specialist companies
• Back office and front office applications
Build a framework to assess CRM strategy
• CRM strategy: enhancing brand equity, customer loyalty and customer retention
• Framework:
- CRM strategy: Is CRM aligned with business objectives
- Implementation: measured by ROI of CRM system
- Technology: is it suitable to make use of marketing intelligence of the company?
- Applications: is the company selecting appropriate applications to support CRM?
Criteria to measure CRM performance
• Brand equity
- Added value the brand brings to the company
- Financial value of the brand
- Market share
- Brand extension
• Customer loyalty
- Repurchase rate and repurchase value by customer
- Lifetime customer value
• Customer retention
- Retention rate
- Return on customer retention investment
CRM AT DOW CHEMICAL
1. Introduction to Dow Chemical
The Dow Chemical Company (hereafter referrer to Dow) is a US-based chemical company with net sales of $46.3 billion and with more than 40 000 employees (source: Annual Report 2005). It offers more than 7000 innovative products and services to business customers in more than 180 countries. Plastics, performance plastics, performance chemicals and chemicals account for more than 50% of the company’s total sales value. Dow’ customers are business customers who use Dow’s products as raw materials or parts of their finished products. In other words, Dow serves as a supplier for its customers. As those products require lots of technical support, Dow needs to build and nurture strategic relationship with its customers around the world.
In chemical industry, helping customers gain competitive advantages in their targeted markets and growing with customers’ growth is the key to exist. Dow has nurtured strong relationship with customers by managing contents (technical support and services) and hence has achieved sustainable growth in both home and international markets. CRM is, therefore, a key competitive advantage for the company to be a lealer in B2B e-commerce in the chemical industry.
2. Situation Analysis
The chemical industry in early 1990s
• The early 1990s was the era of plastics and performance of plastics with promising growth all over the world.
• As long as plastic industry developed, customers required ever-increasing associated technical support and services in order to use plastics products. Therefore, customer relationship was vital in the industry.
• The industry was expanding fast in the U.S. and well as in international markets
• Customers expected chemical producers to help them develop their new products in which they would use producers’ products as raw materials or as part of their finished products.
• Chemical producers or distributors were expected to educate customers how to use their products.
• Competition was rising from Europe and Asia as many chemical companies were trying to develop plastics and super-performance plastics to fulfill increasing demand for plastics products and specialty chemicals.
Future trends in chemical industry
• Low operating costs would be a competitive advantage.
• Costs of acquiring new customers would be much higher as producers need to educate customers and pass customers’ screening process to choose best chemical suppliers.
• Customers would require better technical support and services and lower prices as competition would increase.
• Customer retention would, therefore, be of vital importance in the industry.
• The evolution of the internet would allow companies to manage better customer relationship and lower operating costs via e-business.
Given this situation, Dow revised its business strategy in order to take advantages of the future trends, stay relevant to changing business environment and fulfill customers’ changing needs and wants. Dow implemented CRM as a part of the strategy to better serve customers and strengthen relationship with them.
3. First CRM strategy
Dow first bought a Siebel CRM software package in 1995 to start its CRM strategy. The company deployed CRM strategy to its entire global sales force in 1996.
Components of 1st CRM system Functional strategy and specific business
Siebel software package for CRM (enterprise-wide solution) Used for customer-facing front-end functions:
- Sales administration
- Order processing
- Customer services and support
- Marketing
Why this strategy failed?
• Dow installed CRM software in the entire organization but its global sales force was not well prepared to use it.
• It was difficult to incorporate business processes in this system.
Lessons from this failure:
• We need to make our people understand the system and prepare them for using it.
• We need to align business processes with IT operations before using the system.
• We need to train CRM users and make sure that they have required skills before starting to use the software.
4. Second CRM Strategy
Dow implemented 2nd CRM strategy in 2001 in the entire organization. This time, Dow has learned from the failure of the 1st CRM strategy and prepared the entire organization for using CRM system which is still based on Siebel system and integrated new functions such as mySAP ERP, mySAP SCM for supplier chain management, mySAP APO for advanced planning and optimization.
Components of 2nd CRM system Functional strategy and specific business
Siebel software for CRM - Basic software for CRM that Dow first bought
- Used for front-end functions as described above
Centralized data warehouse
- Partner relationship management
- Customer relationship management-
New technology interface points that include MyAccount@Dow, Dow.com, which is the online interface for e-purchase and e-procurement. - B2B e-business online interface
- Web interaction with customers
- E-biz sales administration
- Enquiry response
- Online technical support & services
Company-wide integrated desktops and voice over Internet protocol plans.
- Customer call centers
- Customer support centers
- Telephone technical support & service
- Telephone sales
ERP (Enterprise Resource Planning) system from SAP AG
The system integrate all corporate functions:
- Front-end functions (sales administration, customer service & support, order processing, marketing)
- Back-end functions (purchasing, manufacturing, warehousing, transportation, HR management)
- Supply chain management
- Partner relationship management
Result of the new CRM strategy:
• 90% reduction of defects in Dow’s 1.2 million shipments in the first year.
• The target was that all of its global sales force would be using the system by 2003.
CRM brings Dow competitive advantages:
• Low operating costs. With CRM system, Dow is able to simplify its order management processes, shorten order time, reduce shipment errors and minimize sales force.
• Order efficiency. CRM helps Dow reduce defect in shipment and errors in sales administration.
• Differentiation. Dow differentiates itself from competitors by offering e-commerce options to its customers. E-commerce is an innovation in the chemical industry where traditional paper-based orders have been popular for long time.
• Strong partnership and relationship with customers. As chemical technology is getting advanced, customers require increasing support from Dow to use its products and develop their new products. If Dow can help a customer develop a new product, it can supply raw materials to this customer as long as this new product exists. Therefore, strong partnership and relationship with customers will help Dow expand its business.
• Higher customer profitability. The longer customers stay with Dow, the more they buy and the less they are sensitive to prices.
• Better customer service. Dow’ customers can access to the company’s technical support and services via its worldwide websites or by integrated voice internet and desktops system. This allows customers understand more quickly how to use Dow’ products in their production.
5. Challenges
IT infrastructure: Dow needs to develop a good IT infrastructure to ensure the integration and non-stop running of all IT solutions (CRM, ERP, e-commerce, desktops and voice over internet).
Alignment between business and CRM: A key challenge is align CRM system with corporate objectives. Managers are driven by business objectives and targets and the CRM system should enable them to achieve their given objectives and targets. Business objectives must be the drivers and CRM is an enabler to achieve those objectives.
IT staff: Dow should develop an in-house IT force to be in charge of the maintenance, updates and integration of the current IT system.
Sales force: Dow’ global sales force should be able to control touch points with customers via CRM system.
People at Dow: It is a true challenge to get all people in the entire organization into the IT system. As the new CRM solution is now linked with all other corporate function, suppliers and partners, Dow needs to train, encourage and reward its global workforce to use the system effectively.
6. Recommendations
• Build strong in-house IT infrastructure.
• Align business processes with such IT structure.
• Have good IT staff teams who are able to keep the system running properly (system update, maintenance, integration).
• Conduct training for the global sales force and others working at customer touch points.
• Implement individual modules of a new software package before using it in the entire company.
• Adapt current IT structure with new solution.
The Dow Chemical Company (hereafter referrer to Dow) is a US-based chemical company with net sales of $46.3 billion and with more than 40 000 employees (source: Annual Report 2005). It offers more than 7000 innovative products and services to business customers in more than 180 countries. Plastics, performance plastics, performance chemicals and chemicals account for more than 50% of the company’s total sales value. Dow’ customers are business customers who use Dow’s products as raw materials or parts of their finished products. In other words, Dow serves as a supplier for its customers. As those products require lots of technical support, Dow needs to build and nurture strategic relationship with its customers around the world.
In chemical industry, helping customers gain competitive advantages in their targeted markets and growing with customers’ growth is the key to exist. Dow has nurtured strong relationship with customers by managing contents (technical support and services) and hence has achieved sustainable growth in both home and international markets. CRM is, therefore, a key competitive advantage for the company to be a lealer in B2B e-commerce in the chemical industry.
2. Situation Analysis
The chemical industry in early 1990s
• The early 1990s was the era of plastics and performance of plastics with promising growth all over the world.
• As long as plastic industry developed, customers required ever-increasing associated technical support and services in order to use plastics products. Therefore, customer relationship was vital in the industry.
• The industry was expanding fast in the U.S. and well as in international markets
• Customers expected chemical producers to help them develop their new products in which they would use producers’ products as raw materials or as part of their finished products.
• Chemical producers or distributors were expected to educate customers how to use their products.
• Competition was rising from Europe and Asia as many chemical companies were trying to develop plastics and super-performance plastics to fulfill increasing demand for plastics products and specialty chemicals.
Future trends in chemical industry
• Low operating costs would be a competitive advantage.
• Costs of acquiring new customers would be much higher as producers need to educate customers and pass customers’ screening process to choose best chemical suppliers.
• Customers would require better technical support and services and lower prices as competition would increase.
• Customer retention would, therefore, be of vital importance in the industry.
• The evolution of the internet would allow companies to manage better customer relationship and lower operating costs via e-business.
Given this situation, Dow revised its business strategy in order to take advantages of the future trends, stay relevant to changing business environment and fulfill customers’ changing needs and wants. Dow implemented CRM as a part of the strategy to better serve customers and strengthen relationship with them.
3. First CRM strategy
Dow first bought a Siebel CRM software package in 1995 to start its CRM strategy. The company deployed CRM strategy to its entire global sales force in 1996.
Components of 1st CRM system Functional strategy and specific business
Siebel software package for CRM (enterprise-wide solution) Used for customer-facing front-end functions:
- Sales administration
- Order processing
- Customer services and support
- Marketing
Why this strategy failed?
• Dow installed CRM software in the entire organization but its global sales force was not well prepared to use it.
• It was difficult to incorporate business processes in this system.
Lessons from this failure:
• We need to make our people understand the system and prepare them for using it.
• We need to align business processes with IT operations before using the system.
• We need to train CRM users and make sure that they have required skills before starting to use the software.
4. Second CRM Strategy
Dow implemented 2nd CRM strategy in 2001 in the entire organization. This time, Dow has learned from the failure of the 1st CRM strategy and prepared the entire organization for using CRM system which is still based on Siebel system and integrated new functions such as mySAP ERP, mySAP SCM for supplier chain management, mySAP APO for advanced planning and optimization.
Components of 2nd CRM system Functional strategy and specific business
Siebel software for CRM - Basic software for CRM that Dow first bought
- Used for front-end functions as described above
Centralized data warehouse
- Partner relationship management
- Customer relationship management-
New technology interface points that include MyAccount@Dow, Dow.com, which is the online interface for e-purchase and e-procurement. - B2B e-business online interface
- Web interaction with customers
- E-biz sales administration
- Enquiry response
- Online technical support & services
Company-wide integrated desktops and voice over Internet protocol plans.
- Customer call centers
- Customer support centers
- Telephone technical support & service
- Telephone sales
ERP (Enterprise Resource Planning) system from SAP AG
The system integrate all corporate functions:
- Front-end functions (sales administration, customer service & support, order processing, marketing)
- Back-end functions (purchasing, manufacturing, warehousing, transportation, HR management)
- Supply chain management
- Partner relationship management
Result of the new CRM strategy:
• 90% reduction of defects in Dow’s 1.2 million shipments in the first year.
• The target was that all of its global sales force would be using the system by 2003.
CRM brings Dow competitive advantages:
• Low operating costs. With CRM system, Dow is able to simplify its order management processes, shorten order time, reduce shipment errors and minimize sales force.
• Order efficiency. CRM helps Dow reduce defect in shipment and errors in sales administration.
• Differentiation. Dow differentiates itself from competitors by offering e-commerce options to its customers. E-commerce is an innovation in the chemical industry where traditional paper-based orders have been popular for long time.
• Strong partnership and relationship with customers. As chemical technology is getting advanced, customers require increasing support from Dow to use its products and develop their new products. If Dow can help a customer develop a new product, it can supply raw materials to this customer as long as this new product exists. Therefore, strong partnership and relationship with customers will help Dow expand its business.
• Higher customer profitability. The longer customers stay with Dow, the more they buy and the less they are sensitive to prices.
• Better customer service. Dow’ customers can access to the company’s technical support and services via its worldwide websites or by integrated voice internet and desktops system. This allows customers understand more quickly how to use Dow’ products in their production.
5. Challenges
IT infrastructure: Dow needs to develop a good IT infrastructure to ensure the integration and non-stop running of all IT solutions (CRM, ERP, e-commerce, desktops and voice over internet).
Alignment between business and CRM: A key challenge is align CRM system with corporate objectives. Managers are driven by business objectives and targets and the CRM system should enable them to achieve their given objectives and targets. Business objectives must be the drivers and CRM is an enabler to achieve those objectives.
IT staff: Dow should develop an in-house IT force to be in charge of the maintenance, updates and integration of the current IT system.
Sales force: Dow’ global sales force should be able to control touch points with customers via CRM system.
People at Dow: It is a true challenge to get all people in the entire organization into the IT system. As the new CRM solution is now linked with all other corporate function, suppliers and partners, Dow needs to train, encourage and reward its global workforce to use the system effectively.
6. Recommendations
• Build strong in-house IT infrastructure.
• Align business processes with such IT structure.
• Have good IT staff teams who are able to keep the system running properly (system update, maintenance, integration).
• Conduct training for the global sales force and others working at customer touch points.
• Implement individual modules of a new software package before using it in the entire company.
• Adapt current IT structure with new solution.
CAMPAING DESIGN @ AMAZON.COM
The Test Mailing
In the initial phase we decided to send the test mails to 12 groups. 12 groups was in our opinion enough to get accurate results, because both ‘promo’ and ‘excerpt’ are tested with each review at least once. Choosing all 24 groups would have given us the most accurate response rates, but we thought it would be too expensive to conduct since the cost of one group (i.e. test cell) is $7000.
However, the marginal cost of e-mails is almost negligible so we decided to send as much e-mails as possible. Although 50 000 was the maximum number, dividing it by 12 gives us an uneven number (4166.666…) so we decided to go with even 4000. It is easier figure for the management to understand. The test mailing table is given below.
The Roll-Out
Before doing any thorough statistical analysis with STATA, we decided to do a simple analysis with Excel. This was only because our team was not so familiar with STATA and this way we were able to get some hints what the ‘actual’ results might look like. So, we calculated simple response rates for our test cells. You can find them in the tables below
So, we found out that the highest response rate for men was in ‘no-promo’-‘no-excerpt’-‘review = 2’ category and for women it was in ‘promo’-‘excerpt’-‘review = 1’ category. We found that Excel analysis was insufficient so we decided to do the analysis with STATA also.
First, we created the dummy variables as instructed in the case. Then we did the logistic regression and check the significant p-values. Everything else except ‘review = 1’ for men was significant. We later eliminated this problem by setting its odds ratio to 1.
After the logistic regression we imported the data to Excel in order to do the odds ratio table. You can find the two versions of tables below. The first one is the original with ‘review =1’ handled as significant and the revised is where it is set to 1.
So, we founded out that the best groups to send the roll out mails were for men ‘no-promo’-‘excerpt’-‘review = 2’ and for women ‘promo’-‘no-excerpt’-‘review = 1’.
For the final roll out we decided to focus on these two groups for two reasons. Firstly, the population is said to be almost evenly divided between men and women so we ‘have to’ send mails also to men. Secondly, fixed cost of sending mails to many groups is expensive and of course it is wise to focus on the most profitable groups. You can find our final roll out mailing strategy below.
In the initial phase we decided to send the test mails to 12 groups. 12 groups was in our opinion enough to get accurate results, because both ‘promo’ and ‘excerpt’ are tested with each review at least once. Choosing all 24 groups would have given us the most accurate response rates, but we thought it would be too expensive to conduct since the cost of one group (i.e. test cell) is $7000.
However, the marginal cost of e-mails is almost negligible so we decided to send as much e-mails as possible. Although 50 000 was the maximum number, dividing it by 12 gives us an uneven number (4166.666…) so we decided to go with even 4000. It is easier figure for the management to understand. The test mailing table is given below.
The Roll-Out
Before doing any thorough statistical analysis with STATA, we decided to do a simple analysis with Excel. This was only because our team was not so familiar with STATA and this way we were able to get some hints what the ‘actual’ results might look like. So, we calculated simple response rates for our test cells. You can find them in the tables below
So, we found out that the highest response rate for men was in ‘no-promo’-‘no-excerpt’-‘review = 2’ category and for women it was in ‘promo’-‘excerpt’-‘review = 1’ category. We found that Excel analysis was insufficient so we decided to do the analysis with STATA also.
First, we created the dummy variables as instructed in the case. Then we did the logistic regression and check the significant p-values. Everything else except ‘review = 1’ for men was significant. We later eliminated this problem by setting its odds ratio to 1.
After the logistic regression we imported the data to Excel in order to do the odds ratio table. You can find the two versions of tables below. The first one is the original with ‘review =1’ handled as significant and the revised is where it is set to 1.
So, we founded out that the best groups to send the roll out mails were for men ‘no-promo’-‘excerpt’-‘review = 2’ and for women ‘promo’-‘no-excerpt’-‘review = 1’.
For the final roll out we decided to focus on these two groups for two reasons. Firstly, the population is said to be almost evenly divided between men and women so we ‘have to’ send mails also to men. Secondly, fixed cost of sending mails to many groups is expensive and of course it is wise to focus on the most profitable groups. You can find our final roll out mailing strategy below.
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