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Using CLV Concept for Marketing Budgets Allocation

EMAC 40 th Conference “The Day After: Innovation, Inspiration, Implementation”. Using CLV Concept for Marketing Budgets Allocation . Olga Oyner and Elena Panteleeva (National Research University “Higher School of Economics” ) Ljubljana, 2011. Theoretical background.

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Using CLV Concept for Marketing Budgets Allocation

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  1. EMAC 40th Conference “The Day After: Innovation, Inspiration, Implementation” Using CLV Concept for Marketing Budgets Allocation Olga Oyner and Elena Panteleeva (National Research University “Higher School of Economics”) Ljubljana, 2011

  2. Theoretical background • To make marketing measurable: • More transparent from financial point of view (Kotler 2002; Kumar2004; Ambler 2006 ) • More efficient in terms of output/input (Shet, Sisodia 2002) • To consider marketing results from long time perspective: from costs to investment and from profit to equity (Rust 2004; Ambler 2006; Strivastava 2001; Doyle 2001) • To estimate marketing impact on financial results and firm value (Rust et al 2004; Ambler 2006; Shet, Sisodia 2002; Srivastava et al 2001)

  3. Theoretical background (cont.) • Marketing productivity chain – the marketing impact on the firm’s value (Rust et al 2004; Ambler 2006; Shet, Sisodia 2002; Srivastava et al 2001) • Customer equity and CLV (Pfeifer, Haskins, and Conroy 2004; Rust and Lemon 2001; Rust, Lemon, and Zeithaml 2004; Kumar and Reinartz 2006)

  4. Research object • Large multinational business-to-business (B2B) PC hardware manufacturer • Business task: how to generate more value from every client?

  5. Model: chain of marketing productivity

  6. Aims • The proposed model is aimed at increasing the efficiency of the intrafirm budget allocation because it will help determine which marketing instruments have the greatest impact on CLV and sales • Sales targets are set on individual level and don’t take into account marketing budgets spent on each single customer in order to achieve these results. So we need to find out if there are any differences in how marketing instruments contribute to the sales volumes and CLV

  7. Data characteristics • Data on purchase volume and marketing budgets spent on various marketing activities for company’s clients • 451 clients from one of the sub regions of Russia and CIS countries • 1471 datum

  8. Hypotheses • H1: discount amount positively influences the sales volume, but doesn’t significantly add to the CLV • H2: account manager (communication level) has positive and the greatest impact on sales • H3: retail promotion has positive impact on sales but this impact is less then account manager has • H4: core product promotion has positive impact on sales but less then all above has • H5: other product promotions has positive impact on sales but less then all above has

  9. Variables and CLV • Independent variables for the models were: • Account manager – investments in relationship marketing • Retail promotions – budgets for co-marketing with retailers • Discount – price reductions given to specific customers • EPSD – budgets for co-marketing activities with clients for server products (seminars for end-users, trade-shows) • UPSD – budgets for co-marketing activities with clients for motherboards (seminars for end-users, trade-shows) • DT - budgets for co-marketing activities with clients for core product (seminars for end-users, trade-shows)

  10. Regression equation: sales Sales = -2080,950+215,468*Account manager +594,232*EPSD promo -163,746*UPSD promo +55,565*DT promo - 115,572*retail promo+1,548*discount

  11. Regression equation: CLV CLV (for 4 periods) = -43336,460+ 1204,753* Account manager +2261,849**EPSD promo -775,462* UPSD promo -767,601* retail promo + 246,695 DT promo +0*Discount

  12. Regression equation: sales (2) In order to rationalize the budget allocations we need to determine the equation of the non-linear multiple regression: Sales = 11311.215 + 0.247Account Manager*EPSD+0.056 Account Manager2+0* Discounts2+ -0.051Account Manager*UPSD+0.034 DT2-51.218 Account Manager+0.109 Retail promotions*DT-0.003 Discounts*EPSD-79.975 DT

  13. Budget allocation optimization

  14. Framework limitations and future research directions • The study is based on one B2B hardware PC company. Similar studies in identical companies are needed to outline general correlations • It would be useful to calculate CLV and customers’ profitability not only on an aggregated level, but on individual ones in order to tailor marketing mix tactics for each customer specifically

  15. Framework limitations and future research directions (cont.) • We evaluated only those budgets, that can be attributed to each customer specifically. We didn’t take into account corporate marketing activities, such as PR, ATL, etc. • how will the proportion between those “customer-specific” and “general” budgets influence the CLV? • what if “general” budgets are more efficient on the company level?

  16. Framework limitations and future research directions (cont.) • We didn’t take into account competitor’s response to the marketing actions of the company. But for the oligopoly in which the company in study is in, it is vitally important

  17. THANK YOU! Q&A

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