MAR 396I Designer Case Study - Prada Italian Fashion House

Designer Case Study - Prada

            Prada is an Italian fashion house, which was founded in 1913. The company offers luxury leather goods, handbags, clothing, eyewear, various accessories and fragrances, all of which are very stylish and belong to the luxury designer products. The company’s principles, Patrizio Bertelli and Miuccia Prada, laid the grounds for the successful operation of the company back in 1970s. Miuccia Prada was the one with a creative and unordinary approach who helped attract the world’s attention to the company. The company is also strongly associated with culture, architecture and art. This definitely sets it apart from its competitors. Prada Company belongs to a Group with three other brand names on board: Miu Miu, Church’s and Car Shoe. The Group’s operation extends across 70 countries and features multi-channel marketing.

Prada’s multi-channel marketing includes various intermediaries worldwide. They are retailers, which are represented by single brand stores (specialty stores called “Prada Epicenters”), and the independent multi-brand stores (department stores and franchises). For example, intermediaries such as Macy’s or Saks Fifth Avenue help Prada customers to obtain the products they really want like sunglasses, fragrance, leather goods or clothing where and when they want them. I believe Prada has effective and more importantly efficient channels that enable the company to be present at most select points of sale at multiple levels of distribution and target multiple markets. For example, their up-to-date inventory is featured in Prada’s own specialty stores or franchises, while what is not trendy any longer is sent to outlet malls for further resale at a more affordable price. There is a direct marketing channel, an e-store for leather goods and accessories, which could be purchased directly from Prada without middlemen. With the differentiated marketing channels there is a definite cooperation among all members because they all try to achieve the same common goal of making long-term profit and providing 100% customer satisfaction. This is why everyone who is involved in the process has to ensure continuous stream of Prada products to consumers in a timely manner. For this reason Prada utilizes an effective supply chain, which is supported by a centralized system that combines retail, logistics and other important factors, which help find answers to financial questions and provide access to current information about distribution and sales of Prada products. The up-to-date information about stock both at warehouse and all the stores helps the company to constantly work towards customer service improvement. This is done by logistics department and the centralized system, which help address the fluctuations in supply and demand as soon as possible. This effective system also helps decrease the total inventory and variable costs. Since Prada manufactures their products outside their headquarters, this effective system is very important in order to make sure everything is done on time for the new trends to be sold. Prada manufactures a lot of its products in countries where costs of labor are much lower than in Italy. For example, Turkey, Vietnam, Romania and China (most likely there are other exterior manufacturers). This is no surprise, as many designers want to cut down on various costs. Plus, the laws that let a company put “Made in Italy” labels are not very strict, so Prada can price their outsourced products the same as they do the ones made in Italy. In addition to that Prada established 12 in house production facilities, 11 of which are located in Italy and one in United Kingdom. The in-house production although not as cheap provides an opportunity to have more control over quality of the products and various costs, as well as constant improvement of the production techniques.

So who is Prada’s end consumer? Miuccia once said this in one of her interviews, “I choose a wider audience. I also think when I’m doing the shows I try to be more obvious, more loud, more clear.” Judging by this statement it is possible to segment the target market by following demographic characteristics: Age – 25-40, Gender  - Male and female, Income - $100,000 and up, Education – minimum a college degree, Social Class – belong to the higher class, Ethnic group/Race – various ethnic backgrounds. However, demographics alone do not fully describe the target market of the company. The company has a unique style and sells various products both for men and women. The company offers exclusivity. Therefore, it is important to further differentiate the market through psychographic segmentation. Business women under 45 could be definitely seen wearing Prada products because the brand provides a sense of self-fulfillment. It also represents class and sophistication. Their suits are all strict, made in business appropriate colors and very elegant. People, who have high interest in fashion world might be also segmented. These are mostly women and men who work in the fashion industry and have to stay up to date with the latest trends. For example, fashion magazine editors and fashion show organizers.

To sum up the description of the target market, the target consumer is the one with an active life style and strong position in society, fashion conscious, wealthy and willing to spend more for quality and exclusivity. This target market does not want to age (especially women) and want to have interesting lives. Prada’s products provide a great opportunity for their target customers to look great, and help them feel self-confident. Prada is the symbol of chic, class, sophistication and taste. Keeping these descriptions in mind, there are several advertising medias that are a great fit for the company’s advertising campaign. I would definitely suggest the company to keep advertising in print publications like fashion magazines (Vogue, InStyle and more). Product placement is another option. Celebrities and other influential figures are great live promoters of the new trends. So providing a beautiful gown for a red-carpet event might be a great option as well as featuring the product in a movie or a music video. Since Prada has an online store for accessories, I would also emphasize the importance of the Internet advertising through side ads, search engine optimization, and direct links to the stores on various supported websites.

Advertising campaign has to be backed up with an overall carefully designed marketing plan in order to attract the target market. This is done through marketing mix, which consists of the four basic elements: product, price, place, and promotion. Let me first introduce in more detail which products the company is selling under Prada brand name. A wide selection of apparel for men and women, luxury leather goods such as handbags, wallets, shoes and other small leather accessories, designer eyewear, fragrances and other products (LG Prada cellphone). These products were all designed to satisfy their customers’ needs and wants.

Pricing strategy is very important for Prada because it reflects the main concept and image behind the company. The average price for a best-selling handbag is around $3000. The price reflects the status and places Prada side by side with its main competitors Chanel, Gucci or Louise Vuitton. Their customers are willing to pay this much because they value the brand’s quality, details and design. Prada’s overall pricing strategy is well formed by the smart management and the whole Prada team that make the brand so desirable. Luxury goods like that are selling at premium prices. The carefully selected target market will definitely pay more to have products by their favorite designer.

Prada products are sold in more than 70 countries, both through directly operated stores, department stores, multi-brand stores and online. The products are available when and where the potential customers want them. As I have already mentioned above, the marketing channel includes both single-brand and multi-brand stores. This ensures the convenient way for the customers to purchase the products. Another point worth mentioning is the e-store that Prada has. The appropriateness of the online store may not be the best for clothing but for accessories it is a faster way for the end consumers to obtain what they want. Prada prefers to sell apparel in stores because of the personal touch they want their customers to feel when they are inside the stores. Prada is an exclusive brand, and therefore their stores are mostly located in big cities where their target market values the fashion and designers. In addition, Prada features state of the art stores, which were specifically designed for the company. This visual appeal helps Prada differentiate its concept from other competitors.

      Promotion as the last element of the marketing mix is very important for the company. It helps the target market to get acquainted with the latest projects, designs and products the company is involved in. Marketers communicate this information through advertising, personal selling, sales promotions, fashion shows, blogs, and more. Prada selected various means of promotion so that their target market stays connected to the company and its offerings. Fashion show is one of the best examples that Prada uses for promotion. Introducing the new collection each season ensures various fashion magazines, blogs, and TV channels (like Fashion TV) talk about the brand. In addition, Prada does not only appreciate the fast changing fashion world but also art, cinema, architecture and other cultural events. This is why the company established Prada Foundation in 1993 to promote "the most radical of intellectual challenges in art and contemporary culture". The foundation is worldwide known. This foundation definitely adds the value to the brand. The company also sponsored various sports teams like Luna Rossa (2000, 2003, 2007 and 2013) at America's Cup campaigns. All of these promotional activities add publicity to the company and make it more recognizable not only among the fashion world but in other spheres of life.

So what makes Prada such haute designer today? I believe it’s the brand equity. It is the marketing and financial value associated with the brand’s strengths in the market. Prada has strong brand equity and this is why its products are recognized worldwide and accepted. This also means that consumers who know about the brand equity will be willing to pay much more for such products. Prada’s brand equity is managed through constant reinforcement of the new and innovative collections. The company has to make sure all the products have a sense of boldness and innovation in addition to distinction from other competitors. The brand’s name is its equity. If Prada licensed the use of its name to any other product, that product would immediately be priced higher than the similar ones just because of the association with Prada name. The association would also imply high standards and quality, which would attract potential customers. Another way how strong brand equity could be supported is by how profitable the company is. Although the economic times are tough, the brand is still somewhat successful.

To sum it up, Prada is doing a great job with its business model because all the components are carefully analyzed and working seamlessly together to achieve some of the common goals across the marketing channels, which are making a profit, customer satisfaction and unique competitive design of the products. The company’s smart management and talented designer set the company apart from its rivals by utilizing the marketing mix elements that work together to establish brand equity. In addition, strong customer base worldwide appreciates the designer brand so much, that they will support it as long as the company will produce the state-of-the-art and stylish products.

Please Note! All of the work posted in my blog is my personal insight into problem solving and answering questions. It is subjective opinions based on scholarly readings. The information may have some errors. I am not a professor.

If you see something you would like to contribute to or correct, you are more than welcome to comment below. I would appreciate it!

BUZZ Marketing: Kayem Foods, Inc. Al Fresco Chicken Sausage

BUZZ Marketing: Kayem Foods, Inc. Al Fresco Chicken Sausage

State the problem – background

            Kayem Foods, Inc. is a well-known company in the industry and among consumers. The company was trying to expand its brand awareness and increase revenues through other products and, therefore, has introduced a new specialty product into the market. The new product Al Fresco Chicken sausage corresponded to the company’s overall brand image of freshness and quality and offered additional benefits for the proposed target market. Kayem Foods, Inc. realized that in order to make this product successful in its market niche, it had to spend certain amount of money on marketing the product line. The first marketing campaign involved buzz marketing, which was estimated to bring very good results. The increased sales numbers partially supported this estimation. However, since the sales team was also working towards expanding the customers’ base through offering discounts, it was impossible to determine whether the success of the sales of this product was a sole responsibility of the buzz marketing campaign. Whatever the case might be, the sales began to grow making the Al Fresco Chicken sausage a best seller among similar products. Therefore, the marketing team had to make sure the buzz around the new product would not fade and additional marketing plans had to be implemented. This is why for the next fiscal period of 2006, the company had to come up with another marketing plan with extra budget on hand, but was unsure what would be the most effective approach.

Background

            Kayem Foods, Inc. has been known for its success for over 100 years as a processor and distributor of fresh meat products. It offered a wide variety of meat products under several brand names mainly for the delicatessen section but also wanted to expand its offerings to the frozen section. The brand awareness was very high in the Northeast but the company also expanded into other regions such as Midwest and Southeast. The company experienced high sales volume but was not a number one company among competitors like Hillshire Farms, Johnsonville or Ball Park. In fact, Kayem Foods, Inc. was only third in the market share. The company lacked something distinctive. This resulted in the fact that supermarkets had “gaining power” over the company. This in turn affected the profit margins. After those concerns for profits were raised, the company decided to introduce a new well recognized “demand brand” that would set them apart from competition and consequently raise profits. Such product could guarantee the possibility to charge a premium price and somewhat eliminate price competition if it would be a success. In addition, this product could take the brand to the next level and open up new markets. The product, which was chosen for this step was Al Fresco Chicken sausage with several flavors, which put it into the gourmet food category. Now that the company had a distinctive product, clearly identified target market of 25-54 year old women, who was health conscious, all it had to do is spread the word about this product through several marketing channels. The problem that the company faced was the limited marketing budget. Therefore, it was proposed to implement buzz marketing campaign in addition to coupons with the total of $90,000 budget.

Results of first Buzz Marketing Campaign

            The reason why Kayem Foods, Inc. decided to go with the buzz marketing campaign was the lack of substantial marketing dollars, which were necessary for the use of traditional methods. The budget for this period was only $90,000, which included $47,000 for the 12-week campaign for buzz marketing and $43,000 for coupons. Although traditional techniques were considered more appropriate and supposedly more effective for increasing the brand awareness for a relatively new product, Kayem Foods, Inc. decided to utilize BzzAgent company to spread the word about their new Al Fresco Chicken sausage. The benefits of buzz marketing are rather obvious. They include the credibility of the conveyed messages about the product because people tend to believe more to other people’s feedbacks. Plus, this company utilized friends and family as the closest source for targeting. Second benefit lies in the human nature to share good experiences with the outside world. The company assigned 2000 agents to spread the word about the new product to their friends and family through various activities from cooking the product at home to bringing food to the workplace. We could see that the results of the campaign were clearly positive. The 77% of those agents were the preferred target market of females. The percentage of people, who have never heard of the new brand of Al Fresco, consisted of 91%. So this campaign alone educated minimum of 2000 from the start about the new offering on the market.

The challenge of such advertising method was the fact that the product’s distribution was limited and not every supermarket carried the brand. A lot of the agents experienced difficulty finding the product in the first place. In fact, 23% of the agents could not find the product at all and thus could not fully participate in the campaign. It was also very difficult to analyze and single out the success of only this campaign. In other words it was merely impossible to track down the success of each of the buzz hit and what it generated in terms of new sales or new accounts because the sales team decided to incorporate additional efforts, which helped the company strengthen the campaign. The table shows the increase in sales for the period before, during, and after the campaign was run (June 1, 2004 – August 31, 2004).

Date	Sales in $(000)
February, 2004	257
March, 2004	262
April, 2004	366
May, 2004	323
June, 2004	368
July, 2004	500
August,, 2004	399
September, 2004	453
October 2004	575

The highlighted months show the obvious increase in sales for the period of the buzz marketing campaign. After the campaign was completed it is clearly seen that the sales continued to grow. It is unclear whether it was only due to the campaign or the 10% off the regular price that the sales team offered during the same period for the product to their wholesalers and supermarket buyers.

Second Buzz Marketing Campaign – descriptions/details + detail cost estimate

            For the next fiscal year the marketing budget for the product was increased to $185,000 because it was necessary to keep the product’s buzz in the air through additional marketing efforts. Therefore, the director of marketing, Matt Monkiewicz, thought it would make sense to implement the buzz marketing campaign again. Although this time the geographic area should be different. It was estimated that the buzz marketing would cost $60,000 in addition to estimated $12,000 - $15,000 reimbursement budget for the various coupons that consumers redeemed. So the total cost for this campaign would be around $75,000. The director believed in the success of the buzz marketing and thought that for traditional advertising to bring success, a much bigger budget has to be assigned. Unfortunately, recent studies show there was an ethical problem with buzz marketing, that people who are approached about a new product, have no idea the company was targeting them indirectly through the use of their personal relationships. The skepticism around this campaign grew within the Kayem Foods company and other retail executives, who did not see how such campaign could really affect the sales in the long run. In addition, there was no guarantee that in the new selected geographical area, the participating agents could easily find the product in the supermarkets because the new regions were not simply familiar with the product.

Traditional Magazine campaign – description/details + detail cost estimate

            The traditional magazine campaign was considered the appropriate standard to advertise such products for consumers. The competition spent millions of dollars each year to attract the potential customers. However, Kayem Foods, Inc. did not have enough money yet to advertise on the same level. The director of marketing, however, knew that such methods could definitely help expand the brand awareness through specialty magazines that targeted approximately the same consumer as the company for this product. The costs for magazine ads are quite high. The table below shows the estimated costs for the ad placements in 3 food magazines.

	Circulation	Cost of a Single Insertion Full Page, 4Color Ad	Half-page 4Color Ad (60%)	One-Quarter page 4Color Ad (30%)
Better Homes and Gardens	7.6 million	$359,000	$215,400	$107,700
Food and Wine	0.9 million	$66,275	$39,765	$19,882.50
Cooking Light	1.7 million	$96,400	$57,840	$28,920

Since Better Homes and Gardens charged too much for even a one-quarter page 4 color ad, it was out of the budget’s limits. Therefore, Monkiewicz knew that in order for the ad to be effective in one of the two other magazines with considerably lower circulation, it has to run at least 2 or 3 ads to attract desirable attention from potential customers.

Rationale and plans

            With $185,000 budget on hand it is possible to try a traditional marketing campaign for the next period so the company will have some basis for future decisions.  Below is the table with the associated costs for the second marketing campaign:

Type of Advertisement	Cost	Totals
Cooking Light Magazine One-quarter-page 4 Color Ad	$28,920 per ad, Total of 3 ads	$86,760
Ad creation (in house)	$1,500	$1,500
Consumer price-off coupons	$90,000	$90,000
		$178,260

Better Homes and Gardens magazine publication offers wide exposure and is considered one of the best sources for ad placement. But advertising in it is out of the picture because it goes over the budget dramatically. Therefore, I suggest running 3 one-quarter-page ads in Cooking Light magazine, which offers circulation of 1.7 million copies. The total for three ads would be $86,760 in addition to the $1500 creative part of putting the ad together. This could be done in house to save money. This magazine could mean a start for the traditional way of advertising of such a product and therefore retail executives will see the efforts the company is putting towards increasing brand awareness and consequently the sales. The retail executives saw a direct link between advertisements in those specialty food magazines and having the merchandise in the store. One definite benefit of printed ad in a magazine is that such magazines have longer shelf lives and could be passed well beyond the marketing campaign dates. In addition to the print ads in the magazine the sales team thinks that adding some price off coupons to the overall marketing picture can help increase the sales even more. The estimated budget for this effort is $90,000. The second marketing campaign is scheduled for the whole year and it would be more efficient to incorporate those coupons and magazine ads together, especially during the holiday season, when sales are generally higher overall. Coupons and ads can work seamlessly together and dictate a better shelf place and retail advertising location. Plus, coupons encourage extra spending and can even attract new customers to try the product. Buzz marketing campaign may wear off at some point and there is no 100% guarantee or control over the results of such campaign. In addition, buzz marketing was suggested in the new geographic area, and therefore there is no guarantee that all the buzz agents will be able to find the products in their area like it happened in the first campaign. What’s even worse, a word of mouth is a strong channel, and the new area may not have the same positive feedback due to certain characteristics. The selected agents may not like chicken sausage or sausage products at all. This can distract from the already achieved positive results. So the total budget for this period for the marketing campaign is $178,260. The extra dollars could be spent for unforeseen circumstances like the extra coupon reimbursement fees or putting together a new ad.

All things considered, the product is already a number selling chicken sausage on the product. It is important not to lose the position through constantly reminding the consumers about its benefits. Limited marketing budget if spent wisely and cost-efficiently will guarantee a great return on investment in the future and lay grounds for expanding the marketing campaign further.

Please Note! All of the work posted in my blog is my personal insight into problem solving and answering questions. It is subjective opinions based on scholarly readings. The information may have some errors. I am not a professor.

If you see something you would like to contribute to or correct, you are more than welcome to comment below. I would appreciate it!

MAR 331 Critical Thinking Questions for Analysis Chapter 3 - Marketing Director for Shoe Store, National Airline Employee

Discussion and Critical Thinking, Q1, Q2, Q3 pp. 77-78. Fill in the table and explain in writing (chapter 3).

1.    You have been hired as the new marketing director for a shoe store chain with 34 outlets. Your first task is to develop data warehouse. The vice president does not see the benefit of a warehouse and balks at the idea of spending $50,000 to build it. Using Figure 3.1 explain the various functions of the data warehouse and how it can benefit the shoe store chain.

One of the most important reasons to build a quality data warehouse is the fact that it helps the overall marketing management program. The company objectives of identifying the customers and making sure these customers know the company are achieved through utilizing data warehouse. The data is collected through various channels, analyzed and used to achieve those objectives. Today, having a strong online presence is equally or sometimes more important than a traditional brick-and-mortar location. Our shoe company has a strong online presence as well and has an online store.

According to Figure 3.1 there are 7 clearly identified functions of a data warehouse:

1)   Customer communication – This is the most important function of the data warehouse. The information (names, last purchases, shoe sizes, contact info to name a few) that could be stored in the data warehouse will help the shoe company establish a closer relationship with the existing and prospective customers. This function can help improve the existing customers’ loyalty and facilitate the return for the next purchase, or it can help build the brand recognition and equity for the perspective customers. One way we could utilize the information is through personalization. We could start by sending personalized emails or newsletters with special offers or with new products (shoes) availability. This provides a feeling that the company personally values each customer.

2)   Website operations – Even though we may have a strong presence online through our official website, we need to concentrate more on the database technology that could help our website become tailored to each individual viewer or shopper. This is why this function is very important. Such information can help the marketing program achieve better results and make more sales as a result. For example, the information that is gathered from a customer can be used when he/she logs back to their account. Specific offers and information will be displayed for their convenience. For example, a specific offer could be displayed, that our shoe company offers free shipping for purchases over $100. This visual promotion will encourage the shopper consider buying more.

3)   Data-driven marketing programs –Data warehouse helps create numerous marketing programs, which can target specific customers, who tend to spend more or who only spend money on sales items. We also offer sales events and to be able to target the specific customers with higher purchasing power is a plus for the sales revenue in general. It also provides a  more targeted way of marketing our products with a higher response levels than regular advertising.

4)   Customer service operations – This is another important function of data warehouse. Today customer service plays a crucial role in developing positive relationship between a customer and a company. If we build a data warehouse, we will have access to information when it is needed. If there is a problem with the customer’s order or any other issue, the moment they call the representative can be half way ready to address any existing issues just by looking at the database. It can save time and therefore cut down certain costs. Plus, this quicker response time provides better overall customer service experience as well.

5)   Customer information – This function helps cut down on certain costs connected with the lack of important company or product information that is posted on the website. With database all the frequently utilized information could be posted on the website under certain tabs like FAQ, Contact Us, Feedback, Directions and so forth. Here is the information that could be posted that would benefit the shoe company:

o   Hours of operation for each location;

o   The brand names size charts;

o   “How To” section explaining how to care for the shoes with the products we offer (shoe shines and more);

o   Feedback or Comments page that could be used to know what we are doing right or what needs to be fixed;

o   Access to “My Account” where certain operations with the order could be done without the need to call to the customer service representative.

6)   Sales staff operations – This function saves a lot of time for a company representative when the order is placed through a phone call. The available information about the customer’s previous transactions and contact information can help process the order faster and proceed to the next customer. This shortens the waiting time on the phone for another customer.

7)   Market planning – The last function of data warehouse helps the marketing team ensure their marketing programs are effective. Database allows analyzing the information much faster by creating certain profiles of target markets, sales volumes of products during specific time period, and more. This information generally helps organize and prepare the stock. For, example, in our case, having 34 locations will not mean all of them sell the same amount of shoes and shoe types at the same time period. In order to improve the availability of the products that are desirable in specific locations, database analysis could be used. For example, high heel shoe varieties might be more numerous in the city location, while the variety of the flats and sneakers in the suburban areas.

2.    Referring back to Question 1, assume you have been granted permission to build the data warehouse. For each of the following types of data, explain why they are important, how they will be collected, and how they will be used.

-       Customer data – This information is very important for the database because it contains valuable information that could be utilized for marketing programs for existing and potential customers. Customer data includes names, addresses, telephone numbers, emails and other relevant information. This data will be provided to our company voluntarily by the customers through the following steps:

o   Through official website, where a customer can submit email to receive special offers;

o   At the 34 locations at the point of sale at the cashier;

o   Online and in store through filling out a form to receive a rewards card.

This data will be used for various purposes. For example, personalization could be implemented while shopping on the website. Special offers and sales events information will be sent out to the specific target market. Newsletters about the company events will be generated and sent to enhance brand awareness and recognition.

-       Transaction data – This data includes customer transactions like purchases and returns, interactions with the company like customer service call, and other related data. It is very important because it tracks down all the activities that could be analyzed later on to improve company’s business (products, shipping service, customer service and more). The data will be collected through several channels:

o   Website purchases;

o   Customer service call;

o   Online customer service forms;

o   Website cookies that provide info about what products were viewed, how long each page was viewed and so on;

This type of data will be used to mainly follow up with the customers by generating emails or customer representative phone call (if customer specified phone as the preferred method of contact). In addition, customer service department can utilize the data to efficiently deal with any related issued with products.

-       Appended data – This data is usually collected through a third party. We may not be able to always collect all the necessary data, therefore we could utilize services from some of the well-known independent marketing firms. This data is important as it provides the ability to target specific segments according to demographic and psychographic characteristics. For example, marketing campaign can be tailored according to gender, income or special hobbies to raise the possibility of a response. The shoe company can also target certain customers through direct mail campaign, who otherwise do not have access to online offers and sales event information. This is possible because of the geocoding feature of such data.

-       Analytical data – Analytical data consists of the statistics and facts that were generated through examination of all the available data. This data is very important for various marketing purposes. For example, customer quantities could be looked at through the prism of marketing dollars spent on acquiring them. It could be collected through:

o   Lifetime value analysis;

o   RFM Analysis (recency, frequency, and monetary);

-       In the case of our shoe company, such data could be used for making sure the marketing budget is spent on raising revenues and lifetime values. In addition, Lifetime value analysis can help our sales or customer service representative see the relationship the customer has with the store and make certain decisions just by knowing that information. Through RFM analysis our shoe company can tailor its advertising program to specific groups that would account for the largest number of customers in the system. In addition, the emails with offers could be sent out to those with higher recency numbers, as they are believed to buy again sooner than others.

3.    You are employed by a national airline and have been assigned to collect and interpret data using a lifetime value analysis procedures. Using information collected from a loyalty program, the average lifetime value of business people who sign up for the frequency program is $5,000.  After a further analysis, three categories emerged:

1)   Light users with lifetime values of $3,000 or less (33%)

2)   Moderate users with lifetime values of $3,000 to $5,500 (57%)

3)   Heavy users with lifetime values of $5,500 or more (10%)

a.     Which group of users deserves the most attention from the marketing department? Why does it have more potential than the others?

b.     What type of marketing or communication programs would you design for each of the three lifetime value group?

a.     Ideally, the group that deserves most attention from marketing department is the heavy users with lifetime values of $5,000 or more. These are the customers that would receive the best treatment if for any reason they are not satisfied with the service when dealing with the company. This group is very important because it generates profit of $5,500 and up for the company. However, this group only account for 10%. Therefore, it is important to pay attention to the moderate users as well because they account for 57% of all users. Since this is a high percentage number, then marketing team could increase efforts on trying to increase their lifetime values, which would move them to the preferred group of high users.

b.     For all three users groups, the marketing communication program would be aimed at retention. It is clear from the lifetime value numbers why it is important to retain existing customers. Light users could be gone if they are not provided with incentives, and moderate or high users could slowly move toward light users if nothing is done. So programs like frequent flyer can help the customer build up their equity and fly more. Light users would be targeted through special advertising campaign that would encourage people to start traveling by air with this specific company through direct communication, database warehouse utilization and special sales programs that could facilitate the need to travel. If the company considers to let the light users go and concentrate on the other two more important groups, then they could simply stop or lower the amount of marketing dollars spend on this group. For moderate users, an email or a direct mail would be sent after 3 months to encourage using the same airline. A survey with a follow up to enhance further experience. For high users, customer service would be enhanced so that these customers will not even think of changing the airline in case any problem occurs.

Please Note! All of the work posted in my blog is my personal insight into problem solving and answering questions. It is subjective opinions based on scholarly readings. The information may have some errors. I am not a professor.

If you see something you would like to contribute to or correct, you are more than welcome to comment below. I would appreciate it!