Discuss the fundamental concepts of marketing 97) Define customer equity and explain why it is important to a company. Answer: Customer equity is the sum of the lifetime values of all of the company’s current and potential customers. Customer equity is dependent upon customer loyalty from a firm’s profitable customers. Because customer equity is a reflection of a company’s future, companies must manage it carefully, viewing customers as assets that need to be maximized. Page Ref: 22 Difficulty: Easy Chapter LO: 4 Course LO: Discuss the fundamental concepts of marketing 8) Describe and compare the four types of customers classified by their potential profitability to an organization. Identify how an organization should manage each type of customer. Answer: The four types of customers are strangers, butterflies, true friends, and barnacles. 1. “Strangers” have low potential profitability and loyalty. A company’s offerings do not fit well with a stranger’s wants and demands. Companies should not invest in building a relationship with this type of customer. 2. Another type of customer in which a company should not invest is the “barnacle. Barnacles are highly loyal but not very profitable because there is a limited fit between their needs and the company’s offerings. The company might be able to improve barnacles’ profitability by selling them more, raising their fees, or reducing service to them. However, if they cannot be made profitable, they should be “fired. ” 3. Like strangers, “butterflies” are not loyal. However, they are potentially profitable because there is a good fit between the company’s offerings and their needs. Like real butterflies, this type of customer will come and go without becoming a permanent, loyal consumer of a company’s products.
Companies should use promotional blitzes to attract these customers, create satisfying and profitable transactions with them, and then cease investing in them until the next time around. 4. The final type of customers is “true friends;” they are both profitable and loyal. There is a strong fit between their needs and the company’s offerings, so the company should make continuous relationship investments in an effort to go beyond satisfying and to delight these customers. A company should try to delight true friends so they will tell others about their good experiences with the company.
Page Ref: 22-23 Difficulty: Challenging Chapter LO: 4 AACSB: Analytic skills Course LO: Discuss the fundamental concepts of marketing 99) Explain how the Internet has transformed the way in which we do business today. Answer: The Internet links individuals and businesses of all types to each other. The Internet allows firms access to exciting new marketspaces. The Internet has spawned an entirely new breed of “click only” companies–the “dot-coms. ” The post-Internet frenzy of the late 1990s has introduced companies that are both savvy and face promising futures.