The Importance of Customer Lifetime Value from a Consumer Perspective

After our discussion about customer lifetime value in class, I really began to think about how important that concept is to marketers and most people at all companies in today's world.  With competition in almost every industry at an all time high, and the great cost to acquire new customers, companies are willing to go to more extreme lengths to retain their existing customers.  This mindset can however backfire on them in some instances.  This made me think about a time when my father was able to manipulate a customer service agent at JetBlue using many aspects that played off of customer lifetime value.

In this particular situation, my father was pretending to be my best friends uncle.  My father has always had a way with getting what he wanted out of companies and somehow changing their policies to fit his demands.  My friend booked a flight and last minute realized he did not want to use it.  Well apparently on JetBlue they do not offer refunds for cancelled flights.  So here is where customer lifetime value worked against JetBlue.  My father went on some long rant about how their family had been customers of the airline for a very long time and spent tons of money with them over the years.  He made up a story about a fake summer home they had in Florida and how they had always used the airline when flying there.  He then brought up other airlines such as Southwest and how their policies were different and that if this dilemma was not solved that this would not only be the last time he used JetBlue, but also the last time anyone in our family did.

Well with the previously made statements about how long we had been customers and all the money we spent with them, and threat of losing that, the agent told my father to hold for a second.  After a few minutes he came back on the line, said he spoke with his manager and that they were willing to offer my friend a credit for his flight to be used toward any JetBlue flight for the next year.  We accepted the offer and once again got around company policy.

In the end, I believe this is a great example about how important customer lifetime value is to companies.  The one issue here is that the airline agent never checked any records, because if he did he would have realized that the above story was absolutely false.  Maybe this is just a rare instance, but this story is an example that companies need to always figure out the true value of a customer on their own and not allow their dedication to customer lifetime value to get the best of them.

United States Football League

In our previous class lecture we talked a lot about new products and why they so often fail.  This got me to researching major new products that failed in the past.  I have a great interest in sports and when I came across an article on the United States Football League, I thought it would be perfectly related to our class lecture.

Looking back on it, I am not sure why anyone would ever try to compete with the NFL.  Maybe back in the 80s the NFL was nowhere as popular as it is today, however it was still the dominant league.  The USFL started out with the concept that they would have their games in the spring and summer when there was no NFL to watch.  It seemed like a pretty smart idea on the surface, but did anyone really do the required market research.  Here is why I believe the USFL failed.

For starters, maybe there was no real demand for a second league.  Yes, people love football and many are depressed through the long off season waiting for it to return, but that doesn't mean that another product could satisfy their hunger.  That brings me to the main reason I believed it failed.  It was most likely based on the competition.  If the NFL was playing all year then the consumers would most likely watch it all year.  But they do not want an inferior product to satisfy their demand.  The USFL might have had talented athletes, but no matter what it was going to be compared to the NFL.  If the athletes were not the quality that the fans were used to, then the league was likely destined to fail.  Here is where I believe the owner, Donald Trump got overly ambitious.

He just presumed that a good enough league would allow for profits and gain customers.  He never realized the importance of being able to compete with the NFL.  Although he finally saw how inferior his product was when after two seasons he tried to directly compete with the NFL by moving the USFL games to the fall.  The league was unable to compete with the NFL and ultimately the teams pulled out and went bankrupt.

The main lesson learned here is that new products are fragile, and almost all aspects must be accounted for before you invest a large amount of money into a new product.

Psychological Pricing

Recently while reviewing for the test, I came across the Gibson example, and how when they lowered the price of their guitars, they found that less people were purchasing them because they thought they were lower quality.  This was kind of interesting to me because I actually for the first time realized that I do this with guitars all the time.  I never really took notice of the effect that pricing has on how I determine the quality of the product.

I go into Guitar Center often and play all different brands of guitars just because I can't afford most of the ones I want.  However, I noticed that I immediately grab the most expensive ones, even when there is an identical model made by the same brand hanging right next to it.  For some reason, I just presume the one with the higher price tag is the better guitar.  It really is crazy to think about.  To be honest, I doubt I could tell the difference in the sound of a guitar that lets say is $500 and one that is $1800.  For the most part they sound almost exactly the same and feel pretty similar when I play them.  Yes, maybe there are certain aspects such as the type of wood that may be of higher quality in the more expensive model, but this doesn't necessarily change the sound.

I guess what I am trying to say is that sometimes the actual quality of the product does not determine the purchase or even the consumers perceived value of the product.  A lot of times it comes down to the price that signals quality to the consumer.  Therefore, I do believe it makes sense to price a product such as a guitar at a higher price because the consumer who is not experienced enough to really determine the difference in quality of a product, will automatically proclaim that the more expensive one is the better product.  Ultimately this leads to more sales for the company and allows them to compete with other models in their product category.

Pricing and Apple

With our recent lectures and readings on pricing, and the launch of the new iPad, I began thinking about what has made Apple so successful.  Yes, they clearly have superior products and technology, but they are doing a tremendous job at marketing these products.  I'm sure there are plenty of products out there that are superior to the popular product in their industry, but no one might ever hear of them and they might never get to the market.  Apple has great ads and marketing campaigns, however they have nailed it when it comes to pricing.

I believe Apple always uses a price skimming strategy with their new products.  And they have every reason to.  Their new products are almost always completely new technology to the industry and they usually have no real direct competition.  So what they do is price the product high to start because they know that people will over pay to get their hands on the newest technology behind the newest Apple product.

The high prices signal quality, and people are willing to pay for high quality.  They also have limited number of supply when they first launch and profit by having large margins on every sale.  This is price skimming at its best.  Then once the product has been out for a while and the buzz starts to calm down, they simply begin to slowly bring down the price.  Its usually not because another competitor has caused this though, its because they have another new product to launch to take the spot of their current product.  And once again, they turn to the skimming strategy with the new launch.

It really is fascinating when you think about everything that goes into giving an Apple product that untouchable feel.  I truly believe that their pricing strategy is a major reason for all of their products' successes.

Why Major Marketers are Moving to Google+

I read an interesting interview with Guy Kawasaki today about why marketers should be moving most of their efforts toward Google+.  In the interview he mentions that he spends 99% of his efforts on Google+.  One of his major reasons is that there is less clutter on Google+ right now.  Other social media sites like Twitter and Facebook are extremely saturated and companies are fighting for consumers to notice them.  His argument is why waste time fighting for a small piece of that pie when you can be an early adopter of Google+ and eventually hold an advantage over your competitors.  I however, still question if I fully trust that Google+ will eventually take off and be valuable to businesses.

I understand that it takes time for social media sites to catch on.  There won't be hundreds of millions of users on Google+ overnight, but there could eventually be more users there than on Facebook.  There also seems to be extremely positive aspects of Google+ such as the circles features which would allow you to group your customers into segments and gather extremely valuable data from this aspect.  My major argument here is that why would you focus 99% of your time on a social media platform that no one is even using yet?  How could you tell a company to dedicate time and money to something that is no guarantee to take off ever.  Yes, having Google as a basis for a company in any industry seems like a safe bet on success, but the numbers so far have shown that internet users barely spend any time on Google+.

To me, this interview seems like a lousy attempt to sell his new ebook, than a genuine recommendation.  People will recommend a lot of things if there are financial benefits linked to the recommendation.  I will wait to see what happens with Google+, but for now I believe it is erroneous to place 99% of your marketing efforts into an unproven social media platform.

Coca-Cola: Papertweetos

I came across another interesting viral campaign today.  It was done by Coca-Cola, a company who has what seems like an unlimited marketing budget, however reverted back to using their own customers to create a buzz.  Coca-Cola noticed that at Argentinean soccer games fans through tiny pieces of paper into the air and cheered as their players entered the field.  Coca-Cola also recognized that during these games there were sometimes hundreds of thousand tweets.  So what Coke did next was kind of genius.

They decided to launch a campaign called Papertweetos. They asked fans to tweet their words of encouragement for their team and to use a specific hashtag.  Coca-Cola then compiled over 2 million tweets and placed them on tiny pieces of paper and launched them at a major Argentinean national team game.  They recorded the paper flying into the air with their Coca-Cola brand name on them as the team took the field and placed the video on their website and YouTube.

 This again is a clear example of a company getting the consumer involved in order to create a marketing campaign for a much smaller cost than the traditional advertising methods.

Online Movie Streaming

After going through the Netflix case in class, I was reading this article from the New York Times (Web Deals Cheer Hollywood, Despite Drop in Moviegoers), and found it extremely relevant.  The article basically discusses the current state of DVD sales and how unlike the music industry, the movie industry will not fall complete victim to the internet.  More importantly it discusses the vast amount of competitors that will be entering this market. 

Some of these include the likes of Google which will be creating a home entertainment device for consumers.  Google is another extremely powerful company and could be a great threat to Netflix who is already in some serious issues after increasing prices last year and losing approximately 800,000 subscribers.  I also found this article interesting because it expressed the power of content in this industry.  The company who can ultimately provide the most desired content as well as a strong service will most likely become the leader in the industry. 

So despite DVD sales decreasing and consumers not as present at the theaters, the movie industry should still be fine.  The major reason they won't fall or atleast fall as quickly as the music industry is because it is much more difficult to download or stream movies due to the size of the files.  In conclusion, the online movie streaming industry is up for grabs, despite Netflix once dominance, there is absolutely no lifelong customers in this technology industry.