SALES FORECASTING

Sales forecasts are common and essential tools used for business planning, marketing,
and general management decision making. A sales forecast is a projection of the
expected customer demand for products or services at a specific company, for a
specific time horizon, and with certain underlying assumptions.

A separate but related projection is the market forecast, which is an attempt to gauge
the size of the entire market for a certain class of goods or services from all companies
serving that market. Sales and market forecasts are often prepared using different
methods and for different purposes, but sales forecasts in particular are often
dependent at least somewhat on market forecasts. Although the focus of this discussion
will be on sales forecasting, a brief summary of market forecasting will help provide
context.

A special term in studying sales and market forecasts is the word "potential." This refers
to the highest possible level of purchasing, whether at the company level or at the
industry or market level. In practice, full potential is almost never reached, so actual
sales are typically somewhat less than potential. Hence, forecasts of potential must be
distinguished from forecasts that attempt to predict sales realized.

SALES FORECASTING METHOD #1

For your type of business, what is the average sales volume per square foot for similar
stores in similar locations and similar size? This isn't the final answer for adequate sales
forecasting, since a new business won't hit that target for perhaps a year. But this
approach is far more scientific than a general 2 percent figure based on household
incomes.

SALES FORECASTING METHOD #2

For your specific location, how many households needing your goods live within say,
one mile? How much will they spend on these items annually, and what percentage of
their spending will you get, compared to competitors? Do the same for within five miles
(with lower sales forecast figures). (Use distances that make sense for your location.)

SALES FORECASTING METHOD #3

If you offer say, three types of goods plus two types of extra cost services, estimate
sales revenues for each of the five product/service lines. Make an estimate of where
you think you'll be in six months (such as "we should be selling five of these items a
day, plus three of these, plus two of these.") and calculate the gross sales per day.
Then multiply by 30 for the month.

Now scale proportionately from month one to month six; that is, build up from no sales
(or few sales) to your six month sales level. Now carry it out from months six through 12
for a complete annual sales forecast.

SALES FORECASTING SUMMARY

I guess you can see that instead of estimating one big sales figure for the year when
sales forecasting, a more realistic monthly schedule of income and expenses gives you
far far more information on which to base decisions. That's what "keeping the books" is
designed to do: give YOU information you can make good decisions on.

So in effect, you prepare three cash flow projections, where you vary the percentage of
sales or other figures to arrive at three different scenarios: pessimistic, optimistic, and
realistic. The pessimistic view should be the "worst case" situation; plan to have enough
capital and patience to get through that scenario. If it turns out that the actual results are
better than that - great!
ADVERTISING RESEARCH

Research conducted to improve the efficacy of advertising. It may focus on a specific ad

or campaign, or may be directed at a more general understanding of how advertising
works or how consumers use the information in advertising. It can entail a variety of
research approaches, including psychological, sociological, economic, and other
perspectives.

Advertising research is a specialized form of marketing research conducted to

improve the efficiency of advertising. According to MarketConscious.com, “It may focus
on a specific ad or campaign, or may be directed at a more general understanding of
how advertising works or how consumers use the information in advertising. It can entail
a variety of research approaches, including psychological, sociological, economic, and
other perspectives.”

TYPES OF ADVERTISING RESEARCH

There are two types of research, customized and syndicated. Customized research is conducted
for a specific client to address that client’s needs. Only that client has access to the results of the
research. Syndicated research is a single research study conducted by a research company with
its results available, for sale, to multiple companies. [15] Pre-market research can be conducted to
optimize advertisements for any medium: radio, television, print (magazine, newspaper or direct
mail), outdoor billboard (highway, bus, or train), or Internet. Different methods would be applied
to gather the necessary data appropriately. Post-testing is conducted after the advertising, either a
single ad or an entire multimedia campaign has been run in-market. The focus is on what the
advertising has done for the brand, for example increasing brand awareness, trial, frequency of
purchasing.
PRE-TESTING

Pre-testing, also known as copy testing, is a form of customized research that predicts in-market
performance of an ad, before it airs, by analyzing audience levels of attention, brand linkage,
motivation, entertainment, and communication, as well as breaking down the ad’s Flow of
Attention and Flow of Emotion.[16] Measuring attention is very important in Pre-testing. The data
tells us where customers look at and which parts of the ad they ignore. Attention can be
measured with Eye tracking or AttentionTracking. Pre-testing is also used on ads still in rough
form – e.g., animatics or ripomatics. Pre-testing is also used to identify weak spots within an ad
to improve performance, to more effectively edit 60’s to 30’s or 30’s to 15’s, to select images
from the spot to use in an integrated campaign’s print ad, to pull out the key moments for use in
ad tracking, and to identify branding moments.[17]

CAMPAIGN PRE-TESTING

A new area of pre-testing driven by the realization that what works on TV does not necessarily
translate in other media. Greater budgets allocated to digital media in particular have driven the
need for campaign pre-testing. The first to market with a product to test integrated campaigns
was OTX in association with Sequent Partners with the introduction of MediaCEP. The latest
generation of this product incorporates one of the leading media planning tools developed by a
media modeling and software company Pointlogic. The addition of a media planning tool to this
testing approach allows advertisers to test the whole campaign, creative and media, and measures
the synergies expected with an integrated campaign.[18]

POST-TESTING

Post-testing/Tracking studies provide either periodic or continuous in-market research

monitoring a brand’s performance, including brand awareness, brand preference, product usage
and attitudes. Some post-testing approaches simply track changes over time, while others use
various methods to quantify the specific changes produced by advertising—either the campaign
as a whole or by the different media utilized.
Overall, advertisers use post-testing to plan future advertising campaigns, so the approaches that
provide the most detailed information on the accomplishments of the campaign are most valued.
The two types of campaign post-testing that have achieved the greatest use among major
advertisers include continuous tracking, in which changes in advertising spending are correlated
with changes in brand awareness, and longitudinal studies, in which the same group of
respondents are tracked over time. With the longitudinal approach, it is possible to go beyond
brand awareness, and to isolate the campaign's impact on specific behavioral and perceptual
dimensions, and to isolate campaign impact by medium.[19]

POSITIONING (MARKETING)

In marketing, positioning has come to mean the process by which marketers try to
create an image or identity in the minds of their target market for its product, brand, or
organization.

Re-positioning involves changing the identity of a product, relative to the identity of

competing products, in the collective minds of the target market.
De-positioning involves attempting to change the identity of competing products,
relative to the identity of your own product, in the collective minds of the target market.

The original work on Positioning was consumer marketing oriented, and was not as
much focused on the question relative to competitive products as much as it was
focused on cutting through the ambient "noise" and establishing a moment of real
contact with the intended recipient. In the classic example of Avis claiming "No.2, We
Try Harder", the point was to say something so shocking (it was by the standards of the
day) that it cleared space in your brain and made you forget all about who was #1, and
not to make some philosophical point about being "hungry" for business.

The growth of high-tech marketing may have had much to do with the shift in definition
towards competitive positioning. An important component of hi-tech marketing in the
age of the world wide web is positioning in major search engines such as Google,
Yahoo and Bing, which can be accomplished through Search Engine Optimization , also
known as SEO. This is an especially important component when attempting to improve
competitive positioning among a younger demographic, which tends to be web oriented
in their shopping and purchasing habits as a result of being highly connected and
involved in social media in general.

Definitions

Although there are different definitions of Positioning, probably the most common is:
identifying a market niche for a brand, product or service utilizing traditional marketing
placement strategies (i.e. price, promotion, distribution, packaging, and competition).

Also positioning is defined as the way by which the marketers creates impression in the
customers mind.

Positioning is a concept in marketing which was first introduced by Jack Trout

( "Industrial Marketing" Magazine- June/1969) and then popularized by Al Ries and Jack
Trout in their bestseller book "Positioning - The Battle for Your Mind." (McGraw-Hill
1981)
This differs slightly from the context in which the term was first published in 1969 by
Jack Trout in the paper "Positioning" is a game people play in today’s me-too market
place" in the publication Industrial Marketing, in which the case is made that the typical
consumer is overwhelmed with unwanted advertising, and has a natural tendency to
discard all information that does not immediately find a comfortable (and empty) slot in
the consumers mind. It was then expanded into their ground-breaking first book,
"Positioning: The Battle for Your Mind," in which they define Positioning as "an
organized system for finding a window in the mind. It is based on the concept that
communication can only take place at the right time and under the right circumstances"
(p. 19 of 2001 paperback edition).

What most will agree on is that Positioning is something (perception) that happens in
the minds of the target market. It is the aggregate perception the market has of a
particular company, product or service in relation to their perceptions of the competitors
in the same category. It will happen whether or not a company's management is
proactive, reactive or passive about the on-going process of evolving a position. But a
company can positively influence the perceptions through enlightened strategic actions.

Product positioning process

Generally, the product positioning process involves:

1. Defining the market in which the product or brand will compete (who the relevant
buyers are)
2. Identifying the attributes (also called dimensions) that define the product 'space'
3. Collecting information from a sample of customers about their perceptions of
each product on the relevant attributes
4. Determine each product's share of mind
5. Determine each product's current location in the product space
6. Determine the target market's preferred combination of attributes (referred to as
an ideal vector)
7. Examine the fit between:
 o The position of your product
o The position of the ideal vector
8. interest and started a conversation, you'll know you're on the right track.

POSITIONING CONCEPTS

More generally, there are three types of positioning concepts:

1. Functional positions
o Solve problems
o Provide benefits to customers
o Get favorable perception by investors (stock profile) and lenders
2. Symbolic positions
o Self-image enhancement
o Ego identification
o Belongingness and social meaningfulness
o Affective fulfillment
3. Experiential positions
o Provide sensory stimulation
o Provide cognitive stimulation

Measuring the positioning

Positioning is facilitated by a graphical technique called perceptual mapping, various

survey techniques, and statistical techniques like multi dimensional scaling, factor
analysis, conjoint analysis, and logit analysis.
Repositioning a company

In volatile markets, it can be necessary - even urgent - to reposition an entire company,

rather than just a product line or brand. When Goldman Sachs and Morgan Stanley
suddenly shifted from investment to commercial banks, for example, the expectations of
investors, employees, clients and regulators all needed to shift, and each company
needed to influence how these perceptions changed. Doing so involves repositioning
the entire firm.

This is especially true of small and medium-sized firms, many of which often lack strong
brands for individual product lines. In a prolonged recession, business approaches that
were effective during healthy economies often become ineffective and it becomes
necessary to change a firm's positioning. Upscale restaurants, for example, which
previously flourished on expense account dinners and corporate events, may for the
first time need to stress value as a sale tool.

Repositioning a company involves more than a marketing challenge. It involves making

hard decisions about how a market is shifting and how a firm's competitors will react.
Often these decisions must be made without the benefit of sufficient information, simply
because the definition of "volatility" is that change becomes difficult or impossible to
predict.

.MOTIVATIONAL RESEARCH

Motivational research is a type of marketing research that attempts to explain why

consumers behave as they do. Motivational research seeks to discover and
comprehend what consumers do not fully understand about themselves. Implicitly,
motivational research assumes the existence of underlying or unconscious motives that
influence consumer behavior. Motivational research attempts to identify forces and
influences that consumers may not be aware of (e.g., cultural factors, sociological
forces). Typically, these unconscious motives (or beyond-awareness reasons) are
intertwined with and complicated by conscious motives, cultural biases, economic
variables, and fashion trends (broadly defined). Motivational research attempts to sift
through all of these influences and factors to unravel the mystery of consumer behavior
as it relates to a specific product or service, so that the marketer better understands the
target audience and how to influence that audience.

Motivational research is most valuable when powerful underlying motives are suspected
of exerting influence upon consumer behavior. Products and services that relate, or
might relate, to attraction of the opposite sex, to personal adornment, to status or self-
esteem, to power, to death, to fears, or to social taboos are all likely candidates for
motivational research. For example, why do women tend to increase their expenditures
on clothing and personal adornment products as they approach the age of 50 to 55?
The reasons relate to the loss of youth’s beauty and the loss of fertility, and to related
fears of losing their husbands' love. It is also a time of life when discretionary incomes
are rising (the children are leaving the nest). Other motives are at work as well (women
are complicated creatures), but a standard marketing research survey would never
reveal these motives, because most women are not really aware of why their interest in
expensive adornments increases at this particular point in their lives.

Even benign, or low-involvement, product categories can often benefit from the insights
provided by motivational research. Typically, in low-involvement product categories,
perception variables and cultural influences are most important. Our culture is a system
of rules and “regulations” that simplify and optimize our existence. Cultural rules govern
how we squeeze a tube of toothpaste, how we open packages, how we use a bath
towel, who does what work, etc. Most of us are relatively unaware of these cultural
rules. Understanding how these cultural rules influence a particular product can be
extremely valuable information for the marketer.

The Major Techniques

The three major motivational research techniques are observation, focus groups, and
depth interviews. Observation can be a fruitful method of deriving hypotheses about
human motives. Anthropologists have pioneered the development of this technique. All
of us are familiar with anthropologists living with the “natives” to understand their
behavior. This same systematic observation can produce equally insightful results about
consumer behavior. Observation can be accomplished in-person or sometimes through
the convenience of video. Usually, personal observation is simply too expensive, and
most consumers don’t want an anthropologist living in their household for a month or
two.

It is easier to observe consumers in buying situations than in their homes, and here the
observation can be in-person or by video cameras. Generally, video cameras are less
intrusive than an in-person observer. Finding a representative set of cooperative stores,
however, is not an easy task, and the installation and maintenance of video cameras is
not without its difficulties. In-store observers can be used as well, so long as they have
some “cover” that makes their presence less obvious. But, observation by video or
human eye cannot answer every question. Generally, observation must be
supplemented by focus groups or depth interviews to fully understand why consumers
are doing what they do.

The Focus Group

The focus group in the hands of a skilled moderator can be a valuable motivational
research technique. To reach its full motivational potential, the group interview must be
largely nondirective in style, and the group must achieve spontaneous interaction. It is
the mutual reinforcement within the group (the group excitement and spontaneity) that
produces the revelations and behaviors that reveal underlying motives. A focus group
discussion dominated by the moderator will rarely produce any motivational insights. A
focus group actively led by the moderator with much direct questioning of respondents
will seldom yield motivational understanding. But the focus group is a legitimate
motivational technique.
The Depth Interview

The heart and soul of motivational research is the depth interview, a lengthy (one to two
hours), one-on-one, personal interview, conducted directly by the motivational
researcher. Much of the power of the depth interview is dependent upon the insight,
sensitivity, and skill of the motivational researcher. The interviewing task cannot be
delegated to traditional marketing research interviewers—who have no training in
motivational techniques.

During the personal interview, the motivational researcher strives to create an empathic
relationship with each respondent, a feeling of rapport, mutual trust, and understanding.
The researcher creates a climate in which the respondent feels free to express his
feelings and his thoughts, without fear of embarrassment or rejection. The researcher
conveys a feeling that the respondent and his opinions are important and worthwhile, no
matter what those opinions are. The motivational researcher is accepting,
nonthreatening, and supportive. The emotional empathy between motivational
researcher and respondent is the single most important determinant of an effective
interview.

The motivational researcher relies heavily upon nondirective interviewing techniques.

Her goal is to get the respondent to talk, and keep talking. The researcher tends to
introduce general topics, rather than ask direct questions. She probes by raising her
eyebrows, by a questioning look upon her face, by paraphrasing what the respondent
has said, or by reflecting the respondent’s own words back to the respondent in a
questioning tone. Nondirective techniques are the least threatening (and the least
biasing) to the respondent.

Projective techniques can play an important role in motivational research. Sometimes a

respondent can see in others what he cannot see—or will not admit—about himself.
The motivational researcher often asks the respondent to tell a story, play a role, draw a
picture, complete a sentence, or associate words with a stimulus. Photographs, product
samples, packages, and advertisements can also be used as stimuli to evoke additional
feelings, imagery, and comment.

During the interview, the researcher watches for clues that might indicate that a
“sensitive nerve” has been touched. Long pauses by the respondent, slips of the
tongue, fidgeting, variations in voice pitch, strong emotions, facial expressions, eye
movements, avoidance of a question, fixation on an issue, and body language are some
of the clues the motivational researcher keys on. These “sensitive” topics and issues
are then the focus of additional inquiry and exploration later in the interview.

Each interview is tape-recorded and transcribed. A typical motivational study, consisting

of 30 to 50 depth interviews, yields 1,000 to 2,000 pages of typed verbatim dialogue.
During the interview, the motivational researcher makes notes about the respondent’s
behavior, mannerisms, physical appearance, personality characteristics, and nonverbal
communication. These notes become a road map to help the researcher understand
and interpret the verbatim transcript of the interview.

The Analysis

The motivational researcher reads and rereads the hundreds of pages of verbatim
respondent dialogue. As she reads, the researcher looks for systematic patterns of
response. She identifies logical inconsistencies or apparent contradictions. She
compares direct responses against projective responses. She notes the consistent use
of unusual words or phrases. She studies the explicit content of the interview and
contemplates its meaning in relation to the implicit content. She searches for what is not
said as diligently as she does for what is said. Like a detective, she sifts through the
clues and the evidence to deduce the forces and motives influencing consumer
behavior. No one clue or piece of evidence is treated as being very important. It is the
convergence of evidence and facts that leads to significant conclusions. In the scientific
tradition, empiricism and logic must come together and make sense.

The analysis begins at the cultural level. Cultural values and influences are the ocean in
which we all swim and, of which, most of us are completely unaware. What we eat, the
way we eat, how we dress, what we think and feel, and the language we speak are
dimensions of our culture. These taken-for-granted cultural dimensions are the basic
building blocks that begin the motivational researcher’s analysis. The culture is the
context that must be understood before the behavior of individuals within the context
can be understood. Every product has cultural values and rules that influence its
perception and its usage.

Once the cultural context is reasonably well understood, the next analytic step is the
exploration of the unique motivations that relate to the product category. What
psychological needs does the product fulfill? Does the product have any social
overtones or anthropological significance? Does the product relate to one’s status
aspirations, to competitive drives, to feelings of self-esteem, to security needs? Are
masochistic motives involved? Does the product have deep symbolic significance? And
so on. Some of these motives must be inferred since respondents are often unaware of
why they do what they do. But the analysis is not complete.

The last major dimension that must be understood is the business environment,
including competitive forces, brand perceptions and images, relative market shares, the
role of advertising in the category, and trends in the marketplace. Only part of this
business environment knowledge can come from the respondent, of course, but
understanding the business context is crucial to the interpretation of consumer motives
in a way that will lead to useful results. Understanding the consumer’s motives is
worthless unless somehow that knowledge can be translated into actionable marketing
and advertising recommendations.

Sometimes a motivational study is followed by quantitative surveys to confirm the

motivational hypotheses as well as to measure the relative extent of those motives in
the general population. But many times motivational studies cannot be proved or
disproved by survey research, especially when completely unconscious motives are
involved. In these cases, the final evaluation of the hypothesized motives is by the
testing of concepts (or advertising alternatives) that address the different motives, or by
other types of contrived experiments.
One final note is relevant to the successful conduct of motivational research. It is
critically important that the motivational researcher not be overly theoretical. An eclectic,
wide ranging, and open-minded philosophical perspective is best. The researcher
should not formulate any “cast in stone” hypotheses before she conducts the
motivational study. Strongly held hypotheses, or rigid adherence to theory, will doom a
motivational study to failure. Too often we see what we set out to see, or find that for
which we search, whether it exists or not. An objective, open, unfettered mind is the
motivational researcher’s greatest asset.

RESEARCH DESIGN

Research designs are concerned with turning the research question into a testing project. The
best design depends on your research questions. Every design has its positive and negative sides.

Research design can be divided into fixed and flexible research designs (Robson, 1993). Others
have referred to this distinction with ‘quantitative research designs’ and ‘qualitative research
designs’. However, fixed designs need not be quantitative, and flexible design need not be
qualitative. In fixed designs the design of the study is fixed before the main stage of data
collection takes place. Fixed designs are normally theory-driven; otherwise it’s impossible to
know in advance which variables need to be controlled and measured. Often these variables are
quantitative. Flexible designs allow for more freedom during the data collection. One reason for
using a flexible research design can be that the variable of interest is not quantitatively
measurable, such as culture. In other cases, theory might not be available before one starts the
research.

Examples of fixed (quantitative) designs

Experimental design
See also Design of experiments.

In an experimental design, the researcher actively tries to change the situation, circumstances or
experience of participants (manipulation), which leads to a change in behaviour of the
participants of the study. The participants are assigned to different conditions, and variables of
interest are measured. All other variables are controlled Experiments are normally highly fixed
before the data collection starts. Read more about experiental research designs here Experiment.

Non-experimental research designs

Non-experimental research is almost the same as experimental research, the only difference is
that non-experimental research does not involve a manipulation of the situation, circumstances or
experience of the participants. Non-experimental research designs can be split up in three
designs. First, relational designs, in which a range of variables is measured. These designs are
also called correlational studies, since the correlation is most often used analysis. The second
type is comparative designs. These design compare two natural groups. The third type of non-
experimental research is a longitudinal design. See Longitudinal study.

Quasi experiment

Quasi research designs are research design that follow the experimental procedure, but do not
randomly assign people to (treatment and comparison) groups. See Quasi-experiment and natural
experiment for more details.
Examples of flexible (qualitative) research designs

Case study

In a case study, one single unit is extensively studied. This case can be a person, organization,
group or situation. Famous case studies are for example the descriptions about the patients of
Freud, who were thoroughly analysed and described. Read more on case study. Bell (1999) states
“a case study approach is particularly appropriate for individual researchers because it gives an
opportunity for one aspect of a problem to be studied in some depth within a limited time scale”.

Ethnographic study

This type of research is involved with a group, organization, culture, or community. Normally
the researcher shares a lot of time with the group. Read more on Ethnography.

Grounded theory study

The aim of grounded theory studies is to make theories that can explain certain events. Read
more about this on Grounded theory

Market segmentation
Market segmentation is a concept in economics and marketing. A market segment is a sub-set
of a market made up of people or organizations with one or more characteristics that cause them
to demand similar product and/or services based on qualities of those products such as price or
function. A true market segment meets all of the following criteria: it is distinct from other
segments (different segments have different needs), it is homogeneous within the segment
(exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a
market intervention. The term is also used when consumers with identical product and/or service
needs are divided up into groups so they can be charged different amounts.The people in a given
segment are supposed to be similar in terms of criteria by which they are segmented and different
from other segments in terms of these criteria. These can broadly be viewed as 'positive' and
'negative' applications of the same idea, splitting up the market into smaller groups.
Examples:

 Gender
 Price
 Interests

While there may be theoretically 'ideal' market segments, in reality every organization engaged
in a market will develop different ways of imagining market segments, and create Product
differentiation strategies to exploit these segments. The market segmentation and corresponding
product differentiation strategy can give a firm a temporary commercial advantage.

"Positive" market segmentation

Market segmenting is dividing the market into groups of individual markets with similar wants
or needs that a company divides into distinct groups which have distinct needs, wants, behavior
or which might want different products & services. Broadly, markets can be divided according to
a number of general criteria, such as by industry or public versus private. Although industrial
market segmentation is quite different from consumer market segmentation, both have similar
objectives. All of these methods of segmentation are merely proxies for true segments, which
don't always fit into convenient demographic boundaries.

Consumer-based market segmentation can be performed on a product specific basis, to provide a

close match between specific products and individuals. However, a number of generic market
segment systems also exist, e.g. the system provides a broad segmentation of the population of
the United States based on the statistical analysis of household and geodemographic data.

The process of segmentation is distinct from positioning (designing an appropriate marketing

mix for each segment). The overall intent is to identify groups of similar customers and potential
customers; to prioritize the groups to address; to understand their behavior; and to respond with
appropriate marketing strategies that satisfy the different preferences of each chosen segment.
Revenues are thus improved.
Improved segmentation can lead to significantly improved marketing effectiveness. Distinct
segments can have different industry structures and thus have higher or lower attractiveness

[edit] Positioning

Once a market segment has been identified (via segmentation), and targeted (in which the
viability of servicing the market intended), the segment is then subject to positioning. Positioning
involves ascertaining how a product or a company is perceived in the minds of consumers.

This part of the segmentation process consists of drawing up a perceptual map, which highlights
rival goods within one's industry according to perceived quality and price. After the perceptual
map has been devised, a firm would consider the marketing communications mix best suited to
the product in question.

[edit] Using Segmentation in Customer Retention

The basic approach to retention-based segmentation is that a company tags each of its active
customers with 3 values:

Tag #1: Is this customer at high risk of canceling the company's service? One of the most
common indicators of high-risk customers is a drop off in usage of the company's service. For
example, in the credit card industry this could be signaled through a customer's decline in
spending on his or her card.

Tag #2: Is this customer worth retaining? This determination boils down to whether the post-
retention profit generated from the customer is predicted to be greater than the cost incurred to
retain the customer. Managing Customers as Investments. [1] [2]

Tag #3: What retention tactics should be used to retain this customer? For customers who
are deemed “save-worthy”, it’s essential for the company to know which save tactics are most
likely to be successful. Tactics commonly used range from providing “special” customer
discounts to sending customers communications that reinforce the value proposition of the given
service.
Process for tagging customers

The basic approach to tagging customers is to utilize historical retention data to make predictions
about active customers regarding:

 Whether they are at high risk of canceling their service

 Whether they are profitable to retain
 What retention tactics are likely to be most effective

The idea is to match up active customers with customers from historic retention data who share
similar attributes. Using the theory that “birds of a feather flock together”, the approach is based
on the assumption that active customers will have similar retention outcomes as those of their
comparable predecessor.

Price Discrimination

Where a monopoly exists, the price of a product is likely to be higher than in a competitive
market and the quantity sold less, generating monopoly profits for the seller. These profits can be
increased further if the market can be segmented with different prices charged to different
segments charging higher prices to those segments willing and able to pay more and charging
less to those whose demand is price elastic. The price discriminator might need to create rate
fences that will prevent members of a higher price segment from purchasing at the prices
available to members of a lower price segment. This behavior is rational on the part of the
monopolist, but is often seen by competition authorities as an abuse of a monopoly position,
whether or not the monopoly itself is sanctioned. Examples of this exist in the transport industry
(a plane or train journey to a particular destination at a particular time is a practical monopoly)
where business class customers who can afford to pay may be charged prices many times higher
than economy class customers for essentially the same service