improving customer metrics in a subscription based...
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Improving customer metrics in a subscription
based business A study of a company within the pre-packed grocery bag industry
Master of Science Thesis in the Master Degree Programmes
Entrepreneurship and Business Design and Management and Economics
of Innovation
DOUGLAS HAEGER
GABRIELLA NILSBY
Department of Technology Management and Economics
CHALMERS UNIVERSITY OF TECHNOLOGY
Gothenburg, Sweden, 2013
Report No. E2013:102
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Improving customer metrics in a subscription based business
A study of a company within the pre-packed grocery bag industry
DOUGLAS HAEGER
GABRIELLA NILSBY
Supervisor: Magnus Eriksson
Department of Technology Management and Economics CHALMERS UNIVERSITY OF TECHNOLOGY
Gothenburg, Sweden, 2013 Report
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Acknowledgement Thisthesisistheresultfromtheworkperformedbytheauthorsduringthespringsemesterof2013.
Firstofall,wewouldliketoexpressourgratitudetoallinterviewrespondentsfortheirtimeandvaluableinsightstheyhaveprovidedtothisreport.Furthermore,wewouldliketothanktheemployeesatGUHoldingforcontributionwithdata,commentsandinput.Finally,wewouldliketoexpressaspecialthankstooursupervisorMagnusEriksssonatGothenburgUniversityforhisencouragement,guidanceandsupportthroughouttheprocessofwritingthisthesis.
DouglasHaeger&GabriellaNilsbyGothenburg,June2013
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Abstract ThisreportstudiesthePre‐PackedGroceryBag(PPGB)industryandhowthesee‐commercecompaniescanmakeuseofaswellasimprovecustomermetrics.Themajorityofcompaniesinthisindustryuseasubscription‐basedbusinessmodelthatenablestheuseoftwokeycustomermetricsnamely,ChurnandCustomerAcquisitionCost(CAC).Bynotactivelyusingthesemetricsthecompaniesmightbemissingimportantinformationandmakeunderinformedmarketinginvestmentdecisions.Thepurposeistodescribeandanalysehowane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,caninacostefficientwayimprovetheirCACandChurn.Furthermore,giveimplicationsabouthowmanagingCACandChurncansupportdecision‐makingprocessesregardingmarketinginvestments.
ToimproveCACthefirststepistomapthecompany’smarketingprocessestoseewhichmarketingmediachannelsthatismostcost‐efficient.Themostefficientchannelsareonlinemarketingastheytargetthecustomersthatareinthebuyingprocessandprovidethecustomerwithadirectlinktothebuyingplace.ToimproveChurnitisimportanttoimprovecustomerloyaltyandoneofthedriversofloyaltyisrelationshipcommitment.Thisisinturndividedincalculativeandaffectivecommitment.ImprovingthesecommitmentswillimprovecustomerretentionandhenceChurn.Calculativecommitmentiscreatedthroughswitchingbarriersandaffectivecommitmentiscreatedthroughthecustomer/firminteractionpointsandaimstodevelopemotionaltiesanddirectrelationships.Tosupportthemarketinginvestmentdecisionsathirdmetric,CustomerLifetimeValue(CLV),ispresented.ThismetricisbasedonCACandChurnandshowsthelong‐termprofitabilityofacustomer.Incorporatingthesemetricsintoarecurringrevenuemodelafirmcanforecasttheirfuturefinancialperformance.Thereforethismodelcanbeausefultoolfordecisionmaking‐processesregardingmarketinginvestments.
Thereportprovidesevaluationsofmarketingmediachannelsfore‐commercecompaniesandsuggestionsofalternativechannelsthatgeneratelowCACareprovided.OnlinemediachannelsarerecommendedasmostsuitableforacompanytoimproveCAC,becausetheyarecheaperandprovidebettertargetingthanalternativemedia.ThequalitativecontentanalysisprovidesanoverviewofthePPGBcompaniesmeanstoretaintheircustomers.ItisshownthatthelevelsofcalculativecommitmentdiffersamongthePPGBcompaniesandthatLinasmatkasseisthemostsuccessfulcompanyinthisarea.Affectivecommitmentdoesnotseemtobeprimaryfocusintheirretentionstrategiesandsuggestionsformeasurestocreatethiscommitmentisprovided.Finally,therecurringrevenuemodelissuggestedasagoodwaytoimprovethereliabilityofmarketinginvestmentsdecisions,sinceitprovidesagoodunderstandingofhowthecustomermetricsareaffectedbythesedecisions.
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Table of content
1.Introduction.....................................................................................................................41.1.Background...........................................................................................................................41.2.Problemformulation.........................................................................................................51.3.Purpose...................................................................................................................................71.4.Researchquestions.............................................................................................................81.5.Reportstructure..................................................................................................................81.6.Limitation...............................................................................................................................9
2.Method............................................................................................................................102.1.Researchmethods.............................................................................................................102.1.1.Firstresearchquestion.........................................................................................................102.1.2.Secondresearchquestion....................................................................................................102.1.3.Thirdresearchquestion.......................................................................................................11
2.2.Researchprocedure.........................................................................................................122.3.Ensuringquality.................................................................................................................14
3.Theoreticalframework.............................................................................................163.1.Twokeycustomermetrics.............................................................................................163.2.CAC..........................................................................................................................................173.3.Churn......................................................................................................................................193.4.Financialperformanceanddecision‐makingprocesses.....................................243.5.Summaryoftheoreticalfindings.................................................................................26
4.Empirics..........................................................................................................................284.1.CAC..........................................................................................................................................284.1.1.MatkasseAB..............................................................................................................................284.1.2.MarketingactivitieswithlowCAC...................................................................................31
4.2.Churn......................................................................................................................................354.2.1.Linasmatkasse.........................................................................................................................364.2.2.Middagsfrid................................................................................................................................374.2.3.Mathem.se..................................................................................................................................384.2.4.MatkasseAB..............................................................................................................................404.2.5.Members.com...........................................................................................................................414.2.6.Milkandhoney.se......................................................................................................................43
4.3.Recurringrevenuemodeltosupportdecision‐makingprocesses..................434.3.1.TestingtheRecurringRevenueModel:AnexampleofChef&Friend..............44
5.Analysis...........................................................................................................................485.1.CAC..........................................................................................................................................485.2.Churn......................................................................................................................................515.3.Recurringrevenuemodel...............................................................................................55
6.Discussion......................................................................................................................576.1.CAC..........................................................................................................................................576.2.Churn......................................................................................................................................626.3.Recurringrevenuemodel...............................................................................................67
7.Conclusion.....................................................................................................................69
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7.1.Suggestionsforfurtherresearch.................................................................................71
8.ListofReferences........................................................................................................72
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1. Introduction
Thissectionshouldprovideanunderstandingofwhythisreporthasbeenwritten.Firstthebackgroundispresentedtocreateasettingfortheproblemformulation.Theproblemformulationisfollowedbythepurposeofthereportandfinallytheresearchquestionsarepresented.Conceptsthatmayneedtobeclarifiedaremarkedwithanasterisk(*)andthedefinitioncanbefoundinAppendixI.
1.1. Background
Inthisreportthedefinitionofapre‐packedgrocerybag(PPGB)isapre‐composedbagofgrocerieswithmatchingrecipes,sufficientforacertainnumberofdinners.Furthermore,thegrocerybagisorderedonline,fromane‐commerce*
companyinthePPGBindustry,byenteringasubscriptionforeachoreveryotherweekandgetsdeliveredtothecustomer’shome.
Theindustryofpre‐packedgrocerybagswasfoundedaround2007whenMiddagsfridbegantheirbusiness.Theindustryisinanearlystageofitslifecycleandthecompetitorsareswarmingthemarket.Since2007thebusinessofpre‐packedgrocerybagshasincreasedinpopularity,especiallyinthelargercities.2011theproductbecameChristmaspresentoftheyear,whichisrecognitionofitspopularitybytheSwedishconsumers(SvenskHandel,2011).TheconceptwasfoundedinSwedenandisnowspreadingacrossEuropeandtheU.S(Moskin,2013).Theonlinecommerceoffast‐movingconsumergoods(FMCG)representscirca350MSEK(0,5%)ofthetotalandisexpectedtogrowinthefuture.Mainlyduetothatyoungergenerationsaremorecomfortableandfamiliarwiththeonlinemarket(SvenskHandel,2011).
MatkasseABwasstartedin2010.Todaythecompanyprovidespre‐packedgrocerybagstocirca150subscribersintheGothenburgarea.Thenicheistoprovidepre‐cookedsauceswiththebagsthatGustavSvenssonhaspreparedbyhimself.MatkasseABofferfourdifferentsubscriptionproducts,eithertwoorfourmealsforfourdaysaweektobeprovidedeachweekoreverytwoweeks.Thecustomersareabletoendtheirsubscriptionorpauseitforanypreferredamountoftimewithoutbeingchargedadditionalfees.(Svensson,2013)
Themostcommonbusinessmodelinthisindustryisasubscriptionbasedbusinessmodel.Tofurtherelaborateonhowasubscriptionbasedbusinessmodelisdefinedthetermbusinessmodelshouldbeoutlined.Therearemanyauthorswhohavetriedthisandseveraldifferentmodelscanbeidentified.Rappa(2000)identifies29differenttypesofmodels,whichheordersinninecategories.Thisdemonstratesthediversityandcomplexitythatcanbe
*FinddefinitioninAppendix1
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associatedwiththisterminology.InthisreportthedefinitionwillrelyonOsterwalder(2009,p.14),namely“Abusinessmodeldescribestherationaleofhowanorganizationcreates,deliversandcapturesvalue”.Osterwalder(2009)furtherpresentsthatthebusinessmodelcontainsninebuildingblocks;Customersegments,Valuepropositions,Channels,CustomerRelationships,Revenuestreams,Keyresources,Keyactivities,KeypartnershipsandCoststructure.
Asubscriptionbasedbusinessmodelismainlydistinguishedinthefifthbuildingblock,Revenuestreams.Thispartshouldstatehowthecompanywillgeneraterevenuefromthecustomersandcanbedividedintotwodifferentparts;Transactionrevenuesthataregeneratedfromaone‐timepurchaseandRecurringrevenues*thataregeneratedfromeitherrepeateddeliveryoftheproductorpost‐purchasecustomersupport(Osterwalder,2009).Thesubscriptionbasedbusinessmodeliswithinrecurringrevenuesandisgeneratedbysellingperiodicuseoraccesstoproductsorservices.Thecustomerisenteringintoaformalagreementwiththevendorforaperiodoftime,whichcreatesrecurringrevenues.Thisresultsinareduceduncertaintyduetothatthevendorknowsitscurrentactivemembers.Itfurthermoreassuresconstantrevenuesduringthecustomer’ssubscription.Thedirectdownsideisthatonemightloosecustomersthatonlywouldliketopayaone‐timefee(Sundelin,2008).
Foracompanywithasubscriptionbasedbusinessmodeltwokeycustomermetricsarecommonlyusedtomeasurethecompany’sperformance.ThesemetricsareChurnandCustomerAcquisitionCost(CAC)andtheyarerelatedtothecompany’scustomerbase*andsales.Churnisametricthatrelatestotheretentionofcustomersandmeasureshowmanycustomersthatleavesthefirmduringaspecificperiodoftime.CAC,asthenameindicates,measureshowmuchitcostsforthefirmtogetanewcustomer.Acompany’sdecisionsaffectthesemetricsandsimilarlythesemetricsaffectsthecompany’sdecision‐makingprocesses.Therefore,understandingandactivelyusingthemetricsiscriticalforthecompany’smanagerialdecisionsandtheperformanceofthefirm.(Guptaetal,2004)
1.2. Problem formulation
Intheearlyphaseforacompanyitishighlyprioritizedtoincreasethecustomerbaseaswithoutcustomers,thefirmhasneitherrevenuesnorprofits.Toattractnewcustomersthecompanyneedtoinvestinmarketingactivitieswiththeobjectivetocreateagoodcustomer‐firmrelationship.However,itisachallenge
*FinddefinitioninAppendixI
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tounderstandwhichcustomerstoacquireandhowtoretainthem;hence,itisachallengetomanagetheallocationofmarketingexpenses*andbeabletojustifythesedecisions.(Guptaetal,2004)
Thefundamentalgoalofafirmistoincreaseprofits,notjusttoobtainnewcustomers,andthereforeusingeffectivemarketingactivities,meaninghighergeneratedvalueperinvesteddollar,iscritical.(Dacey,1997)Understandingthelinkbetweencustomer‐firmrelationshipandfinancialperformance*willsupportfirms’investmentdecisions.Thislinkcanbedescribedaswhatafirmcando(marketingactivities),whatcustomersdo,andhowthisaffectsafirm’sfinancialperformance.Marketingactivitiesandhowcustomersrespondcanbeunderstoodbyanalysingkeycustomermetrics.(Guptaetal,2004)
Customermetricscanbecategorizedasobservableandunobservablemetrics,whereobservablerelatestopurchaseorconsumptionofaproductorserviceandunobservablerelatestocustomerperception,attitudeandbehaviouralintentions.Economistsmeanthatunobservedconstructsarestatedpreferenceswhileobservedarerevealedpreferences.Unobservedmetricsrelatetoobservedmetrics,whicharedirectlylinkedtofinancialgains.Forinstance,ifacustomer’sperceptionofaproductispositiveitwillmostlikelyleadtoapurchase,whichtranslatesintoincreasedsalesandprofits.(Reinartzetal.,2005)Asitistheobservablemetricsthatgeneratefinancialimprovementtoacompanythesearethemetricsthatwewillfocusoninthisreport.KeyobservablemetricsareChurnandCustomerAcquisitionCost.(Guptaetal,2004)
*FinddefinitioninAppendixI
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Figure1Illustrationofrelationshipbetweenthefirm,customersandthefirm'sfinancialperformance.Compiledbytheauthors.
CACandChurnaremetricsthatmeasuresacompany’sfinancialperformanceandtogethertheyconstituteagoodbenchmarktohowwellthecompanyisperformingagainstitscompetitors.Therearefurthermoredifferentwaysforthecompanytoaffectthemetricsinordertoenhancethefinancialperformance;therefore,understandingtheroleofthesemetricsandhowtheycanbeimprovedbecomescritical.Therelationshipbetweenthefirm,customersandthefirm’sfinancialperformanceareillustratedinFigure1.(Guptaetal,2004)
AsMatkasseABprovidesasubscription‐basedproduct,managingCACandChurnisimportant,butiscurrentlynotapartoftheirdecisionmakingprocessesregardingmarketingactivities.Bynotactivelyusingthesemetricsitcanbethattheyaremissingimportantinformationandmakingunderinformedmarketingdecisions.Introducingthesemetricstothecompanywillbebeneficialforthemanagerialdecision‐makingprocesses.MatkasseABdon’tknowiftheyareoverorunderinvestingincustomeracquisitionorretentionorwhethertheseinvestmentsareeffective.TheyneednewcustomerstoimprovetheirfinancialperformanceandstrengthentheirpositiononthePPGBmarket.
1.3. Purpose
Describeandanalysehowane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,caninacostefficientwayimprovetheirCACandChurn.Furthermore,giveimplicationsabouthowmanagingCACandChurncansupportdecision‐makingprocessesregardingmarketinginvestments.
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1.4. Research questions
1.Whichmarketingmediachannels*,suitableforane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,canlowerCAC?
StudyingtheliteraturewillprovideanunderstandingofthemeaningofCAC,whyitisimportantandhowcompaniestheoreticallycanaffectthemetric.Thiswillprovideaframeworkthatcanbeusedasabasisforanalysis.Nextstepwillbetofindmarketingmediachannelsthatarecostefficientandsuitableforacompanyinthementionedsituationbytalkingtoanexpertwithinthefield.Furthermore,theauthorswillevaluatemarketingmediachannelsalreadyusedbyaPPGBcompanyandassesstheirimpactoncustomeracquisition.CombiningtheseempiricaldatawillprovideacomprehensiveunderstandingofwhichmarketingmediachannelsthatshouldbeusedinordertolowerCAC.
2.Howcanane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,takemeasurestoretaintheirexistingcustomers,i.e.lowerChurn?
StudyingtheliteraturetounderstandwhyChurnisanimportantmetricandhowtoimproveitwillprovideaframeworkthatcanbeusedasabasisforanalysis.ByresearchingfourPPGBcompany’swebsitesitcanbeshownhowtheytakemeasurestoretaincustomers.Interviewingane‐commercecompanyfromanotherlineofbusinesswilladinsightsandmakeupforgoodanalysisanddiscussionregardinghowtolowerChurn.
3.HowcanacompanyincreasereliabilityofmarketinginvestmentdecisionsbyunderstandingtheimpactofCACandChurnonthefinancialperformance?
BasedonobtainedknowledgefromthetheoreticalframeworkandinsightsfrominterviewwithInvestmentmanager,buildaforecastingmodeltoseefuturefinancialresultsfrommarketinginvestmentsinmarketingactivitieswiththepurposeofimprovingCACandChurn.Themodelwillthenbetestedinafictitiouscasetodemonstratehowthemodelcanbeutilizedasatoolforsupportingmarketingdecisions.
1.5. Report structure
Thenextchapter,Method,describestheproceduretoachievethepurposeofthereport,i.e.howtheworkhasbeenstructuredandwhichresearchmethodsthathavebeenused.Themethodsvalidity,i.e.howfaritmeasureswhatitisintendedtomeasure,andreliabilityofthemeasurements,willbediscussed.
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Followingchapter,Theoreticalframework,isareviewofthetheoriesthatareconsideredrelevanttothereport.Thesetheorieswillcreatetheoreticalframeworks,whichtogetherservesasastartingpointfortheempiricalandanalyticalchapters.
Theempiricalchapterwillpresenttheempiricalfindingsfromtherealitythestudyaimstoinvestigate.ThischapterisfollowedbytheAnalysis,wherethetheoreticalandempiricalfindingsareconnectedandanalysed.InthenextchapterDiscussion,theresearchquestionsareansweredsequentiallybydiscussingpreviousanalysis.Finally,Conclusionsofthereportwillbepresented.
1.6. Limitation
ThethesiswillfocusonimprovingthetwometricsCACandChurn,aswellas,describehowtheycanbemanagedtosupportdecision‐makingprocessesregardingmarketinginvestments.Thisfocusinchosenastheymainpriorityatthisstageistoincreasetheircustomerbase,hence,investinginvaluablemarketingactivitiesisrelevant.
CACandChurnareobservablemetricsthataredirectlylinkedtoapurchaseoftheproduct;therefore,thesemetricshaveanimpactonthefinancialperformanceofthecompany.Asunobservabledescribestheperception,attitudeandbehaviouralintentionsofthecustomers,suchmetricscannotbeutilizedasmeasurementoffinancialperformance.Therefore,unobservablemetricswillnotbeconsideredinthisreport.
UnobservablemetricsrelatestotheconceptofthePPGB;forinstance,theproductsofferedbythePPGBcompany.Asunobservablemetricsareoutsidethescopeofthisreport,MatkasseAB’sconceptofthePPGBwillnotbeconsidered.ThereasonforthislimitationisthatMatkasseABalreadyhavetakenseveralmeasurestoimprovetheconcept.
Whendeterminingtheimpactonthefirm’sfinancialperformancetheauthorswillusethefirm’sprofitsasameasureofthefinancialperformance.Theproductpriceisacriticalfinancialparameterforthecompanyandaffectsthecompany’sprofits.However,thisparameterwillnotbeconsideredinthethesisasMatkasseABdecidesonthepriceleveloftheirproducts.
ThethesiswilllimitthegeographicalaspecttotheGothenburgregion,asthisiswheretheanalysedcompanyMatkasseABisactive.
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2. Method
Inthischapterofthereportitisdescribedhowtheworkhasbeenstructuredandwhichresearchmethodsthathavebeenused.Thechapterisdividedinthreeparts,namelyResearchmethods,ResearchprocedureandEnsuringquality.Thefirstsectionisfurtherdividedaccordingtothethreeresearchquestionsandbringsupthedifferentresearchmethodsthathavebeenapplied.Thesecondsectioncontainsadescriptionoftheresearchprocessandhowthiswasbuilt.Thethirdandfinalsectionisadiscussionwheredifferentaspectsofthequalityofthereportarebroughtupintermsofcredibility,transferabilityanddependability.
2.1. Research methods
Theresearchmethodsinthisreportisofaqualitativemannerandconsistsoftwomainmethodsforthecollectionandgenerationofdata,namelysemi‐structuredinterviewsandaqualitativecontentanalysis.Thefollowingsectionsdescribethemeanstakentoanswereachresearchquestion.
2.1.1. First research question
Thispartofthestudyaimedtoinvestigatewhichmarketingchannelsthatweresuitableforane‐commercecompany,withasubscriptionbasedproductandlimitedresources,tolowerCAC.ThiswasdonebystudyingwhatmarketingchannelsaremostusefultoattainalowCACandwhatmeasuresthatcanbetaken.NextstepwastomapthemarketingchannelsalreadyusedbyaPPGBcompanyandassesstheimpactonCAC.ThesetwofindingsformedthebasisforunderstandingwhatmediachannelsthatcanbeusedtolowerCAC.
TofindthemostusefulmarketingchannelstoattainalowCACasemi‐structuredinterviewwereconductedwithAndersKatzcampaignplanneratMediaView.TeodorAbreu,SalesRepresentativeatGroupon,wasalsointerviewedtogetmoreinformationaboutthe“deal‐of‐the‐day”marketingmediachannel.TomapthemarketingchannelsofaPPGBcompanyasemi‐structuredinterviewwiththefounderandCEOofMatkasseAB,weremade.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.
2.1.2. Second research question
ThispartofthestudyaimedtoinvestigatehowthePPGBindustryengagesinactivitiestoincreaseloyalty*,butmorespecific,howonecanengageinactivitiestobuildrelationshipcommitmentwithcustomers.Theauthorsalsoexaminedhowothere‐commercecompanieshaveengagedinactivitiestoincreaseloyaltyandcomparedwiththepreviousfindingsfromthePPGBindustry.Bystudying
*FinddefinitioninAppendixI
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howthePPGBindustrydoesthisandcomparingwithothere‐commercecompaniestheauthorshopedtopointoutimprovementpotential.
TofindhowthePPGBindustryretainstheircustomersaqualitativecontentanalysiswasusedbystudyingdocumentsassourcesofdata.Morespecifically,virtualdocumentsintheformofcompanywebpageswerestudiedtofindinformationabouthowthesecompaniesengageinactivitiestobuildloyaltywiththeircustomers.Fourdifferentcompanieswithinthisindustrywerestudied.Thethreebiggestactors,Linasmatkasse,Middagsfridandmathem.se,togetherwiththeGothenburgbasedPPGBcompany,MatkasseAB,constitutedthesampleforthecontentanalysis.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.
TheaimofthecontentanalysiswastoanalyseswitchingbarriersthatthecustomerswithinthePPGBindustryweresubjectedtoandhencerelatedtothesecondresearchquestion.Theaimofthecontentanalysiswassetduringtheliteraturestudyofthesecondresearchquestionrelatedtocustomerretention.Theliteraturestudyshowedthatswitchingbarrierswerepartlytheimprovementfocuswhentryingtobuildcustomerloyaltyandhenceincreaseretention.SinceallPPGBcompaniesaree‐commercebusinessesstudyingtheirwebsitesgavetheauthors’accesstoanalysetheexactsamesituationthatthecustomersinthisindustryhadandhencetheswitchingbarrierssubjectedtothem.Tofulfiltheaimofthecontentanalysisacodingschemewassetupandstructuredaccordingtothedriversofloyaltyandswitchingbarriershighlightedinchapter3,section3.2Churn,allinaccordancetoBryman&Bell(2011).Thiscodingschemewerethenusedtoconductthecontentanalysisandalsoservedasabasiswhenstructuringsection4.2.Churn.
Tofindhowothere‐commercecompaniesareimprovingloyaltytwosemi‐structuredinterviewswereconductedwithtwodifferentcompanies.OnewithAlbinJohansson,ProductManageratmembers.com,andonewithMaxSvärdh,CEOatmilkandhoney.se.Moreabouthowthesesampleswerechosencanbefoundinsection2.2Researchprocedure.
2.1.3. Third research question
ThispartofthestudyaimedtoinvestigatehowacompanycanincreasetheunderstandingofCACandChurnsimpactonthefinancialperformanceandhowthiscanbelinkedtodecision‐makingprocessesregardingmarketinginvestments.
Theinitialstepwastoobtainanunderstandingofhowtoimproveafirm’sprofitsbymanagingCACandChurn.ThenextstepwastobuildatoolinExcelthatcandemonstratehowthecompany’sprofitsareaffectedbyimprovingCACandChurn.
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Toobtainanunderstandingofhowtoimproveafirm’sprofits,theliteraturewasstudied.Asemi‐structuredinterviewwithGregoryCarson,InvestmentmanageratGUHolding,wasalsoconducted.Carsonhasexperienceinforecastingrecurringrevenuesandgaveinsightsinhowtobuildaforecastingmodel,suitableforabusinesswithasubscriptionbasedbusinessmodel.BasedontheobtainedknowledgefromthetheoreticalframeworkandinsightsfromInvestmentmanager,aforecastingmodelthatcanbeusedasatoolforunderstandingtheimpactfromCACandChurnonafirm’sprofitswerebuilt.
Themodelwasthentestedwithafictitiouscasetodemonstratehowthemodelcansupportmarketinginvestmentdecisions.AfictionalcompanycalledChef&Friendispresentedwithacertainsetting.FivescenariosarethendemonstratedwhereCACandChurnarealteredtodemonstratehowCLVisaffected.Scenario1,withnoalterationsofthemetrics,Scenario2,withaCACdecreaseof10%,Scenario3,withaChurndecreaseof10%,Scenario4,withaCACdecreaseof20%andScenario5,withaChurndecreaseof20%.ThesescenarioswerechosentogiveanunderstandingofhowCACandChurnrelatetoeachother,howtheyrelatetoCLVandhowthismodelcanbeusedasatoolforevaluatingmarketingdecisions.ThedifferentalterationsofthemetricswillaffectCLVindifferentwaysandhenceprovidetheuserofthemodelwithinformationabouttheprofitability,intermsofCLV,ineachdecision.Thesetestsandthedifferentscenariosarepresentedinsection4.3.1.TestingtheRecurringRevenueModel:AnexampleofChef&Friend.
2.2. Research procedure
Somepartsoftheresearchprocedureshavebeenbroughtupintheprevioussectionandthissectionaimtofurtherelaborateonthissubject.
ThepurposeofthereporthasbeenformulatedwiththepurposeoffulfillingtherequestsfromMatkasseAB.Theinitialproblemidentifiedbytheconstituentwasreformulatedtogetherwiththeauthors,academiccontactsandbusinessadvisorsatMatkasseAB.Thisreformulationwasalsobasedonasubstantialliteraturestudyconductedbytheauthorsandresultedintheproblemidentification.Thisprocessresultedintheformulationofthepurposeandtheresearchquestions,whichhasbeenthefoundationandscopeofthereport.
Thetheoryhasbeenstudiedintwodifferentphaseswithtwodifferentpurposes.Intheinitialphasethefocushasbeentogetfamiliarwiththeproblemandgetabetterunderstandingofthebackgroundtotheissues.Nextstepwastodividetheresearchaccordingtothedifferentresearchquestionsandprovidetheoreticalframeworkstoassistwithstructuringoftheempiricsandfulfillingthepurposeofthereport.Eachresearchquestionservedasthebasisforthisprogressandtheliteraturestudyhasbeenorganizedaccordingly.Thesectionsintheliteraturechapterallresultsinaframeworkthatservedasabasisforthe
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analysischapter(Chapter5)describedfurtherdown.Theuseofmultiplesourcestocreatetheframeworkshaspreventeduncertainopinionsfromsingleauthors.
Theempiricshavebeenbasedonaseriesofsemi‐structuredinterviewsandaqualitativecontentanalysiswherevirtualdocumentsintheformofwebpageswerestudied.Theempiric’schapter(Chapter4)hasbeenstructuredinaccordancetothethreeresearchquestionsusedinthisreport.
Theintervieweesforthesemi‐structuredinterviewsservedastheempiricalbasisforallresearchquestionsandwerechosenasfollows.AndersKatz,campaignplanneratMediaView,waschosenbecauseofhisexperienceinthemarketingbusiness.Hecouldprovidetheauthorswiththerelevantinformationaboutmarketingmediachannelsthatwereneededtoanswerthefirstresearchquestionaboutcustomeracquisition.Afterthisinterviewhadbeenconductedtheauthorsalsotriedtodiscussthesubjectofcustomerretention(thirdresearchquestion).AndersKatzrecommended,MaxSvärdhandAlbinJohanssonasgoodreferenceswhenstudyingcustomerretentionsincetheybothwereactivelyworkingwiththissubjectattheire‐commercebusinesses.TheintervieweeTeodorAbreuwasalsocontactedafterrecommendationfromAndersKatz.Hence,theseinterviewees(Svärdh,JohanssonandAbreu)weresampledthroughsnowballing,inaccordancetoBryman&Bell(2011).Theseinterviewsprovidedtheauthorswithrelevantinformationaboutcreatingloyaltywithcustomersandhencerelatingtothesecondresearchquestion.TheinterviewobjectGregoryCarsonwaschosenbecauseofhisinvolvementasbusinessadvisortoMatkasseAB,butalsoforhisbackgroundinfinanceandexperiencefromrecurringrevenuemodels.Thisinterviewprovidedtheauthorswithrelevantinformationabouthowtocreatearecurringrevenuemodel.
ThesamplechosenforthecontentanalysiswerethefourPPGBcompaniesMatkasseAB,Middagsfrid,Mathem.seandLinasmatkasse.MatkasseABwaschosenbecauseoftheirroleasconstituentsforthesubjectofthisreport.Middagsfrid,Mathem.seandLinasmatkassewerechosenbecauseoftheirsignificantsizesintermsofrevenueinthePPGBindustry.Allthesethreearethesolebiggestactorsonthismarketintermsofrevenue.Withthissampletheauthors’gotaccesstostudythebestpracticewithincustomerretentioninthePPGBindustry.Morediscussionabouthowthequalityoftheresearchmethodsusedinthisreporthasbeenensuredispresentedinthenextsectionofthischapter(2.3.Ensuringquality).
Theanalysishasbeenbasedonthefindingsfromtheempiricsandcomparedwiththetheoreticalframeworksfromtheliteraturestudy.Eachsectionintheanalysischapterhasbeenstructuredaccordingtothethreeresearchquestionsusedinthisreport.Sincechapter3Theoreticalframeworkandchapter4Empiricshasbeenstructuredthesameway,theanalysiswerebroughttogetherby
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combiningthetheoreticalframeworksfromeachresearchquestionwiththeempiricalfindingsfromeachresearchquestion.Thetheoreticalfindingshasfurthermoreservedasabasisfortheprocessofgeneratingtheempiricaldata,hencetheanalysiswereconductedinastructuredmannerprovidingarichevaluationofthedifferentresultspresentedinthereport.
Toensureananalysisofhighqualitytheauthors’ownviews,ideasandotherinputhasbeenpresentedinthediscussion.Thiswasimportanttoprovideanobjectiveandcorrectanalysiscomparingthetheoreticalfindingswiththeempiricalfindings.Thediscussionhasalsobeenstructuredtofulfilthepurposeandanswertheresearchquestionssequentially.Theconclusionshavebeenbasedonallprogressfromthetheory,empirics,analysisanddiscussions.
2.3. Ensuring quality
Thisreporthassolelyusedqualitativeresearchmethods,suchassemi‐structuredinterviewsandqualitativecontentanalysisforthecollectionandgenerationofdata.Bryman&Bell(2011)statesthatthecriteriaofreliabilityandvalidityareanevidentqualityissueformostresearch,butespeciallyforquantitativeapproaches.Thegroundingofthesecriteriaisbasedonquantitativeresearch.Thereforesomeauthorsarguethatvalidityandreliabilityareinapplicableorinappropriateforqualitativeresearch.Insteadothercriteriashouldapplytoqualitativeresearch,suchascredibilityinparallelwithinternalvalidity(howbelievablearethefindings),transferabilityinparallelwithexternalvalidity(dothefindingsapplytoothercontexts)anddependabilityinparallelwithreliability(arethefindingslikelytoapplyatothertimes)(Bryman&Bell,2011).
Bryman&Bell(2011)statesthatqualitativecontentanalysisprobablyisthemostwidespreadapproachtothequalitativeanalysisofdocuments.Theyfurtherarguethattoensurethecredibilityanddependabilityofthefindingstheextractedthemesfoundbytheresearchersshouldbeillustratedbyquotationsorpictures.InthisreportpicturesofthefindingsarefoundinAppendixII.Bryman&Bell(2011)furtherstatesthatthisisespeciallyimportantstudyingvirtualdocumentssincewebsitescontinuouslyareupdatedandchanged.
Theinterviewshavemainlybeenconductedoverthephonebutalsoinpersonandallofthemhavebeencarriedoutinasemi‐structuredapproachinaccordancetothedescriptionofBryman&Bell(2011).Interviewguides(seeAppendixIV)werepreparedandthequestionswerelimitedtoonlyafewtoensurethattherespondentcouldanswerfreely.Theinterviewguidewithquestionswassenttotherespondentthreedaysinadvancewereadescriptionthepurposeoftheinterviewalsowasincluded.Thiswasdonetoensurethattherespondentwaspreparedtoanswerthequestionscorrectly.Thequestionswerenotaskedinanyspecificorderbutadaptedtotheanswersgivenfromthe
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interviewee.Thiswasdonetogettheconversationflowing.Aftertheinterviewstheintervieweewasabletoseethetranscriptstoensurethattheanswerswasinlinewithherorhisactualopinion.AllthesemeasuresweretakentoensurethecredibilityoftheinterviewsinaccordancewithBryman&Bell(2011).Thecredibilityhasbeenfurtherenhancedbytriangulationofmultiplesourcesofdatafromtheresearchmethodsusedinthereportandthestudiedliterature.
Asqualitativeresearchinvolvesthedeeperstudyofasmallergroupqualitativeresearchtendtobeorientedtowardsaspecificsettingandcontext(Bryman&Bell,2011).TheseargumentsareapplicabletothisreportaswellandthefindingspresentedshouldnotbeviewedasconclusionsthatcanbegeneralizedbutarerathersolelyapplicabletothePPGBindustryandthecompaniesincludedinthestudy.Hence,thetransferabilitycouldbeviewedasratherweak.
Thedependabilitycriteriainvolvethedocumentationoftheresearchprocessandthatrecordsarekeptduringallstages(Bryman&Bell,2011).Inthisreportallinterviewtemplates,transcriptsoftheinterviewsaswellasthefindingsfromthequalitativecontentanalysishasbeensaved.Theproblemidentificationisspecifiedandtheselectionofresearchparticipantsaredocumentedandpresented.Hence,thedependabilityoftheresearchhasbeenconsidered.
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3. Theoretical framework
Inthischapterofthereportthefindingsfromtheliteraturewillbepresented.CACandChurnwillbepresentedintwodifferentsectionswherethesemetricswillbedefinedandtheirroleascustomermetricswillbedescribed.Furthermore,theoreticalsuggestionsabouthowtoimproveCACandChurnwillbeprovided.Thiswillbefollowedbyasectionaboutfinancialperformanceanddecision‐makingprocesses.HereisCustomerLifetimeValue(CLV)introduced,ametricthatisbasedonbothCACandChurnandisakeyindicatorofafirm’sfinancialperformance.
3.1. Two key customer metrics
Foracompanywithasubscriptionbasedbusinessmodeltwokeycustomermetricsarecommonlyusedtomeasurethecompany’sperformance.ThesemetricsareCustomerAcquisitionCost(CAC)andChurnandtheyarerelatedtothecompany’scustomerbaseandsales,asillustratedinFigure2.CACmeasureshowmuchitcostsforthefirmtogetanewcustomer.Churnisametricthatrelatestotheretentionofcustomersandmeasureshowmanycustomersthatleavesthefirmduringaspecificperiodoftime.Improvingthesemetricswillincreasethecustomerbase,andhencesales.Toattractnewcustomersthecompanyneedtoinvestinmarketingactivitiesthatgeneratemanycustomerstoalowcostandtoretainexistingcustomersthecompanyneedtoinvestinmarketingactivitiesthatpreventcustomersfromcancellingthesubscription.(Guptaetal,2004)
Figure2CACandChurninrelationtothecustomerbaseandsales.Compiledbytheauthors.
Acompany’sdecisionsaffectthesemetricsandsimilarlythesemetricsaffectsthecompany’sdecision‐makingprocesses.Decidingtoinvestinaspecificmarketingactivitywillaffectthemetricsandifthemetricsareaimedtobeaspecificvalue,thiswillaffectthedecision‐makingprocessesregardingmarketinginvestments.Therefore,understandingandactivelyusingthemetricsiscriticalforthecompany’smanagerialdecisionsandtheperformanceofthefirm.(Guptaetal,2004)
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3.2. CAC
CACstandsforCustomerAcquisitionCostandmeasuresthecosttogetanewcustomer.Manydifferenttermsareusedtodescribethismetric,suchasCostPerAction(CPA)andCostPerAcquiredAccount(CPAA);however,inthisreportwehavechosenthetermCAC.TocomputeCACtheentirecostofsalesandmarketingoveragivenperiodisdividedbythenumberofcustomersacquiredduringthatperiod.CACshould,asallothercosts,bekeptlowandweighedagainstthegeneratedvalue.Inasubscriptionbasedbusinessthismetricsmustnotbehigherthantheabilitytomonetizethosecustomers,meaningthetotalvaluethecustomerwillgeneratetothecompany.(Skok,2009)
CACcouldfurtherbeseenasameansofcontrollingmarketingexpensesandensurethatthefirmisnotspendingmoneyontermsthatarenotdrivingthebusiness(Larry,2013).AsCACisacostforthefirm,successfulinvestmentsinthismetricwillsavefutureexpensesandthereforimprovethefirm’sfinancialperformance(Gupta&Zeithaml,2004).WiththissaidafirmmustunderstandhowtoallocateexpensesinordertodrivedowntheCAC.
AccordingtoZohn(2003),mappingoutthecompany’smarketingprocessesandensurethatthemostcost‐effectiveresourcesareusedisafirststeptolowerCAC.Mostcompanieswillachieveamorelowcoststructureonlybyshiftingfromhigh‐costvoiceandprinttolow‐costonlinecommunication.Followingstepshouldbetoexamineeachmarketingactivity*fromacquisitiontoretentiontodeterminewhereequallyeffectivebutlessexpensiveresourcecanreplacetheexistingone.Marketingactivities,inthissense,relatestomarketingmediachannelsforreachingouttotargetedcustomer,whicharethedriversofCAC(Zohn,2003).
Howtoallocatemarketingexpensesacrossdifferentmediachannelsisaclassicproblemintoday’smultichannelenvironment.Inordertounderstandthisproblem,accordingtoReinartzetal.(2005)theindividualcustomershouldbethemeasuredobjective,becausepersuasioniscreatedattheindividuallevelandbecausemediaincreasinglycanbetargetedattheindividuallevel.Furthermore,marketingmediachannelscanbecharacterizedasmoreorlessinterpersonal,wherepersonalsellingcouldbearguedtobethemostinterpersonalsinceitoffertheabilityformessagecustomizationandallowsforpersonalrelationshipbuilding.Priorstudieshaveshownthatmoreinterpersonalchannelswillhaveagreaterpositiveimpactoncustomeracquisitionaswellascustomerretention.(Gupta&Zeithaml,2004)
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Marketingmediachannelscanbedividedintothreecategorize:paid,owned,andearnedmedia,asillustratedinFigure3.Paidmediaincludestraditionaladvertising,suchasprint,television,directmail.Ownedmediaconsistsofpropertiesorchannelsownedbythecompany,suchascompanywebpage,Facebookfanpage*,mobileapps.Thethirdcategory,earnedmedia,aregeneratedwhenthequalityoruniquenessofacompany’sproductmakescustomerspromotethecompanyatnocostthroughexternalorownedmedia;forinstance,wordofmouth*,blogs,Twitter*(Edelmanetal.,2010).Eachmediaoffersdistinctiveadvantages.Paidmediaimmediatelyreachesouttoabroadaudience.Anownedmediagivesthecompanyconcretewaystoengagecustomers.Andearnedmediagivesthecompanyinsightinhowcustomersperceivethemaswellastheircompetitors(Smith,2010).Furthermore,paidandownedmediaarecostrelatedchannels,whileearnedmediaisproducedbyconsumesatnocost.Tocreatepaidmediathemarketingcompany*investinadvertisingcreation,placements,purchasinglogisticsandmanagement,whiletocreateownedmedia,investmentsarerelatedtocontent,technology,responseresources,andmanagement.(Edelmanetal.,2010).Thechoiceofmarketingmediachannelcanhaveahugeimpactontheoutcomeofamarketingactivity,asmarketingmediachannelshavevaryingcostefficiency,differenttargetgroupsandcancreatedifferenteffectsofbrandingorpromotion(Grönlundetal.,2010).
Ownedandearnedmediaisbecomingmoreandmorecommonlyusedbecauseoftheemergenceofsocialmedia*.Ownedisoftenlesscostlythantraditionalpaidmediaand,asalreadymentioned,earnedisproducedatnocost;therefore,thesechannelswellsuitablealternativesforloweringCAC(Sussinetal.,2013).AccordingtoSmith(2010)thebestwaytoworkwithmarketingmediachannelsistouseamixofthethree,whereeachchannelsupportstheothers(Smith,2010).Thispositiveeffectismoreandmoreachievablesincethethreemediachannelsincreasinglyinteractwitheachother,mainlyduetosocialmedia.Paidmediacanserveasfeedersintoownedmedia,wherecompaniescanofferamoreengagingexperienceandamoretargetedstreamofcontactwithcustomers.Furthermore,companiescan,throughbothpaidandownedmedia,encouragecustomer’stoe.g.“share”thingstheylikeandhenceproduceearnedmedia.Thisfanpromotionissometimesspontaneous,however,itisoftenencouragebygivingthecustomersanattractiveoffer,suchasrewardingforacquiringanothercustomerthroughrecommendation.Thus,paidandownedmediaeffortscangenerateearnedmediatothecompany.(Edelmanetal.,2010)
*FinddefinitioninAppendixI
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Figure3Categorizationofmarketingmediachannels.Compiledbytheauthors.
Onlinemarketingtargetsconsumersthatare“inthemoment”.Consumerswhorespondtoanadarealreadyinterestedintheproductandthereforeareconsideredtobeinthebuyingprocess.Thisisbeneficialasthoseconsumershavehighpotentialofpurchasingaproduct.(Baker,2005)
Paidonlinemarketingdramaticallyimprovesthechancethatpotentialcustomersfindthecompany’swebsite.(Heaphy,2011).WhenthecustomerissubjectedtoanadontheInternet,thatadcanleadthecustomerdirectlytothebuyingplace,wherethecustomercanordertheproduct.Thisincreasesthelikelihoodforanactualpurchase.ThedirectlinkbetweentheadvertisementandthebuyingplacecanonlybeachievedontheInternet.(Sauter,2009)
3.3. Churn
Churn,sometimesalsoreferredtoasattrition,isthemetricformeasuringtherateofcustomersleavingtheirsubscription.Hence,itisinanegativewaydirectlycorrelatedtothecustomerbaseandisusuallycalculatedmonthlybydividingthenumberofdefectingcustomersthatmonthbythenumberoftotalcustomers.Thestrategyforthismetricisofcoursetokeepitaslowaspossibletobeabletoretainthecustomerbaseandastablerecurringrevenuestream(Wileman,1999).
AnothertermthatisofimportancewhentryingtounderstandChurnisretention.Thisisthetermforpreservationofcustomersandhence,Churnisameasureoftheretentionrateorthecustomerloyalty(Livneetal.,2011).Havingalowrateofdefectingcustomersisgoodproofthatthecustomersareloyaltothecompanyandtheproductsandservicestheyareofferedregardlessofhow
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smallthecustomerbasemaybe.Withanewproductonthemarketitisimportanttokeeptrackofthecustomerloyalty.IftheChurnratestartstoincreaseitismostlikelythatthecustomersaretakingtheirmoneyelsewhere(Gustavssonetal.,2005).
Havingasmallcustomerbaseitwouldbemorereasonabletotakeactionstoincreasethecustomerbaserathertoretainit.InabsolutetermsthecostofhavingaChurnrateoftwopercentisofcourselessforasmallercustomerbasethanforabiggerone.AlthoughmanagingthecustomerChurnwouldmakethegrowthofnewcustomersmorestablesincefewercustomersareleavingtheirsubscriptions.Furthermore,manystudieshaveshownthatthecostofretainingcustomersislessthanacquiringnewones(Claude,2000)(Huson,1996).Claude(2000)statesthatitcouldbeasmuchas10timesmoreexpensive.
TounderstandwhatmeasuresthatcanbemadetoaffecttheChurnrateandkeepitaslowaspossibleitisimportanttounderstandthedriversofthismetric.Theretentionofcustomersisdependingontheirloyaltytowardstheproductsorbrandandthedriversofcustomerloyaltycanbedividedintotwobigsegments,namelycustomersatisfactionandrelationshipcommitment.Theformeraredefinedastheoverallevaluationoftheproductsorservicesbuiltupovertimeandthelattercaninturnbedividedintotwosmallerparts,namelyaffectivecommitmentandcalculativecommitment.Calculativecommitmentisthemorerationalone,asortofeconomic‐basedcommitment,createdbylackofotherchoicesordifferentkindsofswitchingbarriers.Affectivecommitmentisthesofteronethatdevelopsthroughtheamountofexchangeandpersonalinvolvementthecustomerhaswiththefirm,whichdevelopsahigherleveloftrustandcommitmentintherelationship.Theseformsofcommitmentmakesthecustomersstaywiththecompanyandrepurchaseproductsorservicesevenwhenthesatisfactionislow(Gustavssonetal.,2005).
Oneimportantdifferencebetweenthetwodriversisthatcustomersatisfactionismorebackwardlookingandrelationshipcommitmentismoreforwardlooking.Customersatisfactionisbuiltupovertimeandmeasurestherelationshipuptodate,whereasrelationshipcommitmentisameasureofthestrengthoftherelationshipandthecommitmenttoproceedfurther(Gustavssonetal.,2005).
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Figure4Demonstrationofdriversofretention/loyaltyandimprovementfocustoaffecteachdriver.Compiledbytheauthors.
TolowerChurnandincreaseretentiontherearedifferentactivitiestopursuedependingonwhatdrivesloyalty.Ifcustomersatisfactionisthedriverthereshouldbemeasurestakentoimproveproductorservicequalityorofferabetterprice.Ifhoweverrelationalcommitmentisthedriver,focusshouldbespentonbuildingmoredirectrelationshipstoyourcustomersorcreatingswitchingbarriers(Gustavssonetal.2005).Figure4demonstratesthedriversofloyaltyandtheimprovementfocustoaffecteachdriver.
Menon&O’Connor(2007)arguesthataffectiveandcalculativecommitmentarefundamentallylinked.Sinceaffectivecommitmentiscreatedandfosteredduringepisodesofinterpersonalinteractionsintherelationshipbetweenthecustomersandthefirmitisnotpossibletohaveaffectivecommitmentwithoutfirstensuringsomeextentofcalculativecommitment.Thereforethepresenceofcalculativecommitmentshouldbeviewedasaplatformonwhichtobuildaffectivecommitment.Besidesthatcalculativecommitmentisaprerequisiteforaffectivecommitment,itisalsoarguedthatthepresenceofaffectivecommitmentwillincreasecustomercalculativecommitment(Menon&O’Connor,2007).
Effectiveinterpersonalinteractionsaredrivenbytheassertivenessandaffiliationthatisdemonstratedduringtheinteractionsintherelationshipbetweenthecustomersandthefirm.Hence,tobuildaffectivecommitmentwiththecustomersitisnecessarytolookattheinteractionpoints(i.e.directrelationships).Theseinterpersonalcommunicationchannelsmustthereforebethefocuswhentryingtoimprovetheaffectivecommitmentwithcustomers(Menon&O’Connor,2007).
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Calculativecommitmentiscreatedanddrivenbythecustomers’perceptionofhigh(contractualorfinancial)switchingbarriers,customerswitchinginertiaorthelackofalternativechoicesonthemarket.Hence,itisthecustomers’inconvenienceordifficultytoswitchthatmakescalculativecommitmentoccurandtomanagecalculativecommitmentafirmmustbuildswitchingbarriers(Menon&O’Connor,2007).
WhentryingtoimproveChurnitisimportanttoconsiderwherethefirmoperatesitsbusiness.ForcompanieswithanInternetbasedbusinesstheimportanceofswitchingbarriersbecomeevenmoreevidentandunderstandingtheelectronicenvironmentsurroundingthecompanyisavital.IncontrasttoothermoretraditionalenvironmentstheInternetdecreaseswitchingbarriersandthereareforemostthreereasonsforthis.Firstbecauseofitstransparentnature,whichisfurtherenhancedbycustomers’useofsmartpriceagents(e.g.pricerunner.se,etc.),second,becauseoftheabsenceofphysicaldistancebetweencustomers,suppliersandcompetitorsandthirdbecauseofthelackofpersonalcustomer‐firmrelationships(Wirtz&Lihotzky,2003).
InteractionwithcustomersislimitedtothefirmsownedmediasuchaswebpageandFacebookfanpage.Thelackofinterpersonalinteractioninwebbasedbusinessesmeansthatitisdifficulttobuildanaffectivecommitmentintherelationshipanddevelopemotionaltieswithacustomer.Hence,buildingcustomerswitchingbarriersbecomesanevenmoreimportantpartofretentionmanagementwhenhavinganInternetbasedbusiness.Itisalsoapparentthatimprovingcustomerretentionismoredifficulttoachieveinanenvironmentwherethereisgreattransparencyandcompetitorsisonlyaclickaway(Wirtz&Lihotzky,2003).
TherearefivetypesofswitchingbarriersthatcanbederivedfromanInternetbasedfirm,asillustratedinFigure5;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts(orcontractualcosts).Transactioncostsarethecoststhatarisefromstartinganewrelationshipwithafirmandinvolvelossoffinanciallyquantifiableresources,suchasonetimefeese.g.depositorinitiationfee.Inaddition,switchingmayinvolvereplacementofco‐assets(assetsconsumerhaveboughtthatiscompatiblewiththespecificproduct).Learningcostsprimarilyinvolvesexpensesoftimeandeffort.Thesecostsoccurwhenacustomerneedstofamiliariseandcreatethesamecomfortandfacilitywiththenewe‐storeaswiththeoldone.Onceconsumersbecomefamiliarwithane‐store*,theymightbeunwillingtochangetoanother,particularlyiftheyhavespenttimeandefforttocustomisethesitetotheirspecificrequirements.AccordingtoBalabanisetal.(2004),onlineshoppersdo
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sticktothesamee‐storetosavetimeandefforttoavoidlearninghowtouseanewsitewithnewlayout.Relationalcostsmeansifacustomerfeelsemotionaldiscomfortwhenswitchingtoanewprovider.Thisemotionaldiscomfortcanappearwhenacustomerdon’ttrusttheproviderorfeelinsecurewhenpurchasingaproduct.Trustmaybemoreimportantonlinethaninphysicalstoresascustomersoftenhavetopayinadvanceandthereareuncertaintieswhetherorwhentheproductwillbedelivered.Furthermore,customersmightfeelinsecurewhenprovidingpersonalandcreditcardinformationonline.AneffectofriskforInternetfraud*maybethatcustomershavetorelyonasmallnumberoftrustedproviders.Conveniencebarrierarethecostsassociatedtothecustomer’slossorlackofflexibilitywithalternativesuppliers.Forexampleifacustomerhascertainneedsorareusedtospecificroutinesthatothersupplierscannotordonotoffer.Artificialcostsarecreatedthroughdeliberateactionsbythefirm,suchasloyaltyprogramsandcontractualbarriers.Suchactionscreateeconomicbenefitsforstayingwithaprovider,asconsumersmayloseaccumulatedpoints,discount,orbenefitsthatarenotaffordedtonewcustomers.Hence,creatingincentivesforthecustomertostaywiththeprovider.Similarswitchingbarrierscanbecreatedbycontracts,whenacustomersignsacontractcommittinghim‐selftobeliableforthecompanyandbuyfromthefirmforaperiodoftime,e.g.contractuallyboundtothecompanyuntilapredetermineddate(Pei‐Yu&Hitt,2002)(Balabanisetal.,2004)(Burnham,2003).
Figure5Demonstrationofswitchingbarrierstobuildcalculativecommitment
Aloyaltyprogramaimstoencourageacustomertostaywithafirm,throughtheofferingofhardandsoftbenefits.Hardbenefitsarethosethatincurfinancial
*FinddefinitioninAppendixI
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coststothefirm,forexamplebyofferingmerchandise,whichhelpbuildcredibilityandcustomerattention.Softbenefitsshouldtrytobuildasenseof“specialstatus”withthecustomerbyofferingspecialinformationandrecognition.Thisleadstoadeeperandmorelong‐termloyaltycomparedtothehardbenefits(Balabanisetal.,2004).
Implementingaloyaltyprogramisacommonwaytoencouragecustomerstocomebackandbuymore.Asuccessfulloyaltyprogramidentifies,connectswithandretainsthebestcustomers.AccordingtoMosier(1999)therearethreekeyelementsofeffectiveloyaltyprograms:personalization,emotionaltie,andsoftandhardbenefits.Personalizationmeansthattheloyaltyprogramshouldhaveatargetedmessagetothebestcustomersthatappealstotheirspecificneeds.Thecustomersmustperceiveavalueoftherewardandbesomethingthattheyfeelisusefulinsomeway.Withtherightoffercompaniescanacquirecustomersbutthatdoesnotnecessarilymeansthatthecustomersareloyal.Ifabetteroffercomestheymightswitchtoanothersupplierifthecompanyhavenotconnectedwiththecustomeremotionally.Therefore,itisimportanttocreateanemotionaltietothecustomersbymakingrewardsinteractive,timely,andexclusive.(Mosier,1999)Hardbenefitsaretangibleeconomicrewards,whilesoftbenefitsrepresenttheemotionalandrecognitionaspect.Mosier(1999)arguesthathardbenefitsattractcustomerstojoinaloyaltyprogram,whilesoftbenefitskeepthemthere.Exampleofhardbenefitscanbeanintroductiondiscount,premiumsforaccumulatedpoints,orreducedpriceforbuyingmoreproducts.Softbenefits,ontheotherhand,couldbetoprovideasenseofexclusivityforthecustomerorsendnoticeinadvanceforeventsorspecialpromotions.Themostsuccessfulloyaltyprogramsbalancethesetwotypesofbenefits.(Harris,2000)Implementingaloyaltyprogramcanbeperceivedasexpensiveforthecompany,however,asitismoreexpensivetoacquirenewcustomersthanretainingexistingones,thisinvestmenthaveashortpaybacktime.(Mosier,1999)
3.4. Financial performance and decision‐making processes
Importantfinancialinformationforabusinessispresentedinthecompany’sfinancialstatement,whichtypicallyincludesabalancesheet,incomestatement,andcashflowstatement.Thesestatementsareimportantwhendeterminingthefinancialperformanceofacompanyaswellaswhenmakingstrategicdecisions.(Hillieretal,2010)
Anothertoolthatisimportantforsupportingdecision‐makingprocessesisfinancialforecasting.Ithelpsmanagementtrackthecompany’sfinancialperformance;hence,itprovidesabasefordecision‐makingprocessesasmanagementcanseetheimpactfromadecisiononthefirm’sfuturefinancialperformance.(Whitfield,2011)
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Thetermrevenuemeansincomereceivedfromsalesofgoodsorservicesoveraspecificperiodoftime.Revenuecanbefoundatthetopofanincomestatementandrevenuegrowthisakeyperformanceindicatorforinvestorsandshareholders.(Whitfield,2011)Asubscriptionbasedbusinessmodelgeneratesrecurringrevenuesascustomersarecontractedforaperiodoftime.Besidesreduceduncertaintyasthesupplierknowsitscustomers,thisalsoimprovesthepredictabilityofthefuturerevenuestreams(Sundelin,2008).Thelevelofpredictabilitycanbefurtherimprovedwithfinancialforecastingthattrackrecurringrevenues.AccordingtoSwanson(2008),thebestforecastsarebasedonagoodunderstandingofhistoricaltrendscombinedwithfuturescenariosderivedfromadetailedanalysisofknownfactorsthatcanaffectrevenuesandcosts.
FinancialforecastingcanpredicttheinflowofrevenuesoveraspecificperiodoftimewithrespecttohowmanynewcustomersthecompanyacquiresaswellashowmanyexistingcustomersthatChurn(SaasOptics,2012).Theforecastprovidesaclearvisibilityoffuturerevenuesandhenceclearpictureofthebusiness.Measuringrecurringrevenuesgivesareflectionofthestateofthebusinessanddecisionscanbemadebasedonhowtomaximizetherevenuegrowthsandprofitsofthefirm.Itispossibletotrackannualrecurringrevenues;however,itismoresuitabletotrackmonthlysincethenumberscanchangedramaticallyfrommonthtomonth.(Cowan,2012)
CACandChurn,togetherwithprofitgeneratedfromacustomer,willformathirdmetricrelevantformeasuringacompany’sfinancialperformance,Customerlifetimevalue(CLV).CLVisthelong‐runprofitabilityofacustomerandisdefinedasthediscountedcashflowsfromacustomeroveritsrelationshipwithafirm(Gupta&Zeithaml,2004).Inotherwords,tocalculatetheCLVitisnecessarytoprojectthenetcashflowsgeneratedfromacustomerovertimeandthencalculatethepresentvalueofthosecashflows(Berger&Nasr,1998).Asseeninequation1,thelifetime(1)ofacustomerisoneoverChurnresultingintheaveragemonthsthatacustomerstayswiththecompany.ThenusingthesumofalldiscountedprofitsfromacustomerandsubtractingtheCACwillresultinCLV(2).(Berger&Nasr,1998)
Equation1Formulasforthelifetimeofacustomer(LT)andcustomerlifetimevalue(CLV).
SinceCLVfocusesonthelong‐termprofitsmaximizingthismetricwillmaximizethelong‐termprofitsandfinancialperformanceofthefirm.Knowingwhat
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profitsyourcustomersaregeneratingwillhelpbetterdecisionmakingaboutcustomerselection.Ingeneraldifferentcustomersaregeneratingdifferentamountofprofitstothefirmandoftenthe80‐20ruleisapplicable(80%ofacompany’sprofitsaregeneratedby20%ofitscustomers)andfurthermorethatsomecustomersdestroyvalue.(Gupta&Zeithaml,2004)MeasuringCLVshouldbeanimportantpartofmarketinginvestmentdecisions,suchasbudgetingacustomeracquisitionprogramandunderstandinghowtomaximizethemetricwillprovideabettersupportfortheallocationofmarketinginvestments,asthecompanywillunderstandwhichmarketingactivitiestoinvestin.(Berger&Nasr,1998)
3.5. Summary of theoretical findings
CACandChurncanbeimprovedbyinvestinginmarketingactivitiesthatcanimprovethedriversofthemetrics.Figure6illustratesanoverviewofthedriversofrespectivemetricaswellasimprovementfocusforthedrivers.InvestinginmarketingactivitiesthataffectthedriversinapositivewaywillimproveCACandChurnandhenceCLV.
AsCACisacost,loweringthiswillhaveapositiveimpactonthefirm’sprofitandhencefinancialperformance.Mappingoutacompany’smarketingprocessestoseewhichmarketingmediachannelthatismostcost‐efficientisafirststeptoimproveCAC.Marketingmediachannelscanbecategorizedaspaid,owned,andearnedmedia.Eachmediachanneloffersdistinctiveadvantages,astheyhavevaryingcostefficiency,differenttargetgroupsandcancreatedifferenteffectsofbrandingorpromotion.Onlinemarketingtargetscustomersthatareinthebuyingprocess;hence,ittargetscustomersthathavehighpotentialofpurchasingaproduct.Furthermore,onlinemarketingdramaticallyimprovesthechancethatpotentialcustomersfindthecompany’swebsiteasitenablesadirectlinkbetweentheadvertisementandthebuyingplace,whichincreasesthelikelihoodforapurchase.
TolowerChurnandincreaseretentionbuildingrelationalcommitmentisimportant.Thiscouldbedonebybuildingmoredirectrelationshipstocustomers(affectivecommitment)orcreatingswitchingbarriers(calculativecommitment).CreatingswitchingbarriersisanimportantpartofretentionmanagementwhenhavinganInternetbasedbusiness,asthereislackofinterpersonalinteractioninweb‐basedbusinesses.Itisthereforedifficulttobuildanaffectivecommitmentintherelationshipanddevelopemotionaltieswithacustomer.TherearefivetypesofswitchingbarriersthatcanbederivedfromanInternetbasedfirm;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts(orcontractualcosts).
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Figure6IllustrationofthedriversofCACandChurn,aswellasimprovementfocusforthedrivers.Compiledbytheauthors.
Financialforecastingcansupportdecision‐makingprocessesasitprovidesaclearpictureofthecompany’srevenuegrowthandprofitsasaresultofaspecificdecision.MaximizingCLVcanimproveafirm’sprofitandasCLVisdependentonthecustomermetricsCACandChurn,thesemetricsarecriticaltomanage.UnderstandinghowtomaximizeCLVwillalsosupportdecision‐makingprocesses,asthecompanywillunderstandwhichmarketingactivitiestoinvestin,inordertoimproveCACandChurn.
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4. Empirics
ThischapterofthereportwillpresenttheempiricalfindingsthataredividedintoseparatesectionsforCAC,ChurnandRecurringrevenuemodel.TheCACsectionisintroducedwithadescriptionofMatkasseAB’salreadyperformedmarketingactivities.ThisisfollowedbysuggestionsfromamediaplannerexpertatMediaViewofcostefficientmarketingmediachannels.TheChurnsectionpresentsthefindingsfromthequalitativecontentanalysisofthethreelargestPPGBcompaniesaswellasMatkasseAB.Thenmeasurestoretaincustomersarepresentedbasedoninterviewswiththee‐commercecompaniesMembers.comandMilkandhoney.se.ThesectionabouttheRecurringrevenuemodelpresentshowthemodelhasbeenbuiltfollowedbyasectionwherethemodelistestedtoshowhowitcansupportacompany’smarketinginvestmentdecisions.
4.1. CAC
ThefirstpartofthissectionwilldescribewhichmarketingmediachannelsthatMatkasseABalreadyhaveusedandthesecondpartwillpresentlowcostmarketingmediachannelsingeneralandhowthesecanbetrackedandtraced.
4.1.1. Matkasse AB
ThissectionisbasedonaninterviewwithGustavSvensson,thefounderandCEOofMatkasseAB,130403.
Sofar,MatkasseABhasperformedseveralmarketingactivities,mainlywiththepurposeofattractingnewcustomerstothebusinessbutalsotoretainexistingcustomers.Theyhaveusedbothpaid,earnedandownedmediachannelsforfulfillingthesetwopurposes.
Foracquiringnewcustomersfollowingpaidmediachannelshavebeenutilized(marketingmediachannelsaresummarizedinFigure7):
Directmailmarketing*:Svenssonhimselfhaspostedpromotionalmessagesincustomers’mailboxesandevengivenfreegrocerybagsforcustomerstotry.Hehavetargetedstreetswherehiscurrentcustomerslive,asneighboursmighthaveheardofMatkasseABandhenceareinterestedintryingthebag.Thismarketingactivityhasmoreorlessnotgeneratedanynewcustomers.
Googleadvertising:MatkasseABpurchasestheservicesearchengineoptimization*(SEO)fromanothercompany.Svenssonbelievesthatthisisthemaintrafficsourcethatgeneratesmostnewcustomers.Hefurtherbelievesthatbeplacedontopamongsearchresultsgeneratesmorecustomersthanadvertisinginthetopbarorsidebar,hence,itisabettermarketingmedia
*FinddefinitioninAppendixI
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channelthanGoogleAdWords(describedinsection4.1.2.2.GoogleAdWords).Therefor,MatkasseABonlyspendsasmallamountofmoney(around100SEK)permonthonGoogleAdWords.
Deal‐of‐the‐day*:ThemostrecentmarketingactivityMatkasseABhaveperformedisaLet’sDealcampaign.Let’sDealofferdealsofthedaytoconsumers,wheresuppliersgivesminimum50%discountontheirproducts.MatkasseABoffered100pre‐packedgrocerybagswithdinnerfor2persons.Thereasonforthelimitednumberofbagsisthatdeliveringtoomanybagsduringthesameperiodcanaffectthequalityofcurrentcustomers’bags.Thedealmeant50%discountofordinaryprice.OftheremaininggrossincomeLet’sDealcharges40%.Thedealsoldoutin3hand34minutes.Svenssonestimatesthat5‐6customerswillbedefinitivesubscribers,however,thisresultwillbemoreaccuratelyestimatedafterfourweekswhendeadlinefororderinghaspassed.Hefurtherarguesthatgenerating15newsubscribersfromthedealwouldbeagoodoutcome.
Socialmediaadvertising:MatkasseABdoesnotspendmuchmoneyonFacebook*advertising(notedifferencebetweenFacebookadvertisingandFacebookfanpage)ashebelievesthatitdoesnotgenerateanycustomersatall.However,hearguesthatitisagoodchannelforgeneratingbrandawareness.
Foracquiringnewcustomersfollowingownedmediachannelshavebeenutilized:
Socialmedia:MatkasseAButilizedFacebookandInstagram*asmarketingmediachannelsforreachingouttocustomersasitprovidesviralspread*.TheyhaveaFacebookfanpagewheretheydisplaythemenuforthecomingweek,includingimages,andannouncethelastdayforordering.Afteraweekhaspastcustomerscanvoteforthebestdishonthefanpage.Furthermore,theFacebookfanpageenablesthepossibilityforFacebookusersto“like”*and“share”*thefanpage;asaresult,thefanpagewillappearintheuser’snewsfeedandbevisibletohis/herfriends.Atthetimeofwriting,thereisacontestontheirfanpageencouragingcustomerstomaketheirownpizzaandtakepicturestouploadonFacebook.Thepicturewithmost“likes”winsadinnercookedbyGustavSvenssonworth5000SEK.ThepurposewiththiscontestistoincreasetheviralspreadofMatkasseAB.Furthermore,MatkasseABhaveanIntagramaccount,wheretheyuploadimagesofdishes,ingredients,eventsetc.SvenssonbelievesthatpeoplehavenotunderstoodInstagramwellenoughforittohaveanyeffect.
*FinddefinitioninAppendixI
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Figure7MarketingmediachannelsutilizedbyMatkasseAB.Compiledbytheauthors.
MatkasseABbelievesthatearnedmediachannels1,suchaswordofmouth,havegeneratedthemajorityofcustomerssofar.Asalreadymentioned,MatkasseABhasaFacebookfanpageandthisenables“share”and“like”features,whichcanbeconsideredasearnedmedia.MatkasseABalsooffersdiscountstocustomersgeneratesanothercustomerbyrecommendingtheproduct.Independentwebpagesratingpre‐packedgrocerybagsshowhighscoresforMatkasseABcomparedtocompetitors;theyarerankedasthebestPPGBinGothenburgatwww.matkasse.seandwww.matkasse.com.
MatkasseABtracktheirmarketingwithaStatscounter,aprogramforvisitoranalysisonthewebsites.TheyhavealsoinstalledGoogleanalyticsbutdonotuseityet.
MatkasseABdefineagoodcustomerasacustomerstayingatleast16weeksandpurchaseminimum9grocerybags.Thecriticalpointiswhenthecustomerbuystheirsecondbag,asthatiswhenthecustomerdecidesiftheywanttocontinueornot.Overall,Svenssonconsidershiscustomersbeingveryloyal;nevertheless,theyperformactivitiesforkeepingexistingcustomersaswellaswinningChurnersback.
Svenssonkeepstrackofhisbestcustomersandsometimesvisitsthemwithagiftorsendsagiftwiththeirgrocerybag.Furthermore,MatkasseABhasconsideredimplementingaloyaltyprogram,however,theybelievethatitisnotappropriateuntiltheyreachacertainnumberofcustomers.
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1Earnedmediachannelsarenotillustratedinthepicture,asitisdifficulttocategorizeintospecificmediachannels.
Customersthathavepausedtheirsubscriptionreceiveane‐maileveryweek,includingthecomingmenu,withthepurposetolurethemtostartsubscribingagain.ForcustomersthathaveChurned,MatkasseABcallsorsendsane‐mailofferingthesameofferasfornewsubscribers.
MatkasseABmainlycommunicateswiththeircustomersviaSMS.Atdeliveryday,MatkasseABsendsSMSsaboutdeliverytimenotifyingwhichhourthebagwillbedelivered.Theywanttobeabletosendoutthesemessagesearliertoincreaseconvenienceforthecustomer.
4.1.2. Marketing activities with low CAC
ThissectionisbasedonaninterviewwithAndersKatz,130410,exceptfor”Deal‐of‐the‐day”,whichisbasedonaninterviewwithTeodorAbreu,130502.RecommendedmediachannelsaresummarizedinFigure8.
4.1.2.1. Online marketing is most cost efficient
AsMatkasseABisinanearlyphaseitishighlyprioritizedtoincreasetheircustomerbase.Thisobjectivecanbeachievedbymarketingthecompanythroughdifferentmediachannels,butasthefinancialresourcesarelimitedtheyneedtofindlowcostmediachannels.AccordingtoAndersKatz,CampaignPlanneratMediaView,themostcostefficientmarketingoptionsareonlinemarketing,whereyoupaylessthanfortraditionalmedia,suchasnewspaper,television,directmailmarketing,etc.andreachingmorecustomers.Furthermore,asallordersofprepackedgrocerybagsareplacedonline(e‐commerce),KatzsuggeststhatInternetistheplaceforadvertising.Thereisariskthatacompanymarketsiscompetitorswhen,forinstance,placinganadinanewspaper,sincethepotentialcustomermightonlyperceiveamessagesayingthattheconceptpre‐packedgrocerybagsareattractive,butthecompanybrandisignored.Itiseasiertocapturethepersonsexposedtotheadwithanonlineadass/hecanclickonitintheexactmomentitisexposedandthenbedirectlylinkedtothewebsiteandthebuyingplace.Katzbelievethatyoucanhavehighercontrolovermarketinginvestmentsinonlinemarketingasitiseasytomonitorandtrackwhichmediageneratedwhichvisitor/potentialcustomer.ForacompanyasMatkasseAB,AndersKatzrecommendstwomediachannelstouseformarketing,GoogleAdWordsandonlinebanneradvertising,asthesearebothexamplesofpaidmediathatarecostefficientandreachouttomanypotentialcustomers.
4.1.2.2. Google AdWords
GoogleAdWordsenablescreationofownadstogetherwithakeywordportfolioincludingkeywordsandphrasesthatrelatestothebusiness.Whenaperson“googles”onthosespecificwordstheadwillappearnexttothesearchresults.
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AccordingtoKatz,thisisagoodalternativesincethemajorityofpeoplenowadaysknowabouttheconceptpre‐packedgrocerybagssoitisnotnecessarytomarkettheproductconcept,however,acompanywiththisproductneedtocreatebrandawarenesssopotentialcustomerschoosethatspecificsupplieroveranother.Themarketingcompanyalsohasthepossibilitytocreateanadwithaspecificcampaignorsomethingelsetheywanttocommunicate.ItisfurtherbeneficialsinceitactuallytargetspersonsthathaveactivelydoneresearchonGoogleaboutthespecificproductandaremostlikelyconsideringbeingacustomer,whichincreasesthechanceforturningavisitorintoacustomer.WhenusingGoogleAdWordsonecancontroltheadsoittargetsaspecificcustomer,bychoosingkeywords,region,timeforexposingthead(daysandhours),etc.
ForaGoogleAdcompaniespayperclick,meaningpayingaspecificamounteachtimeavisitorclicksontheadd.GoogleAdWordscanbeexpensiveforacompanyinthepre‐packedgroceryindustrysincethewordsrelatedtothebusinessarecompetitivekeywordsandwillthereforcostmoretoincludeintheportfolio.However,theycouldchoosewordsthataremorerelatedtotheuniquenessofthecompany,forinstancesaucesforMatkasseAB,whichmightbecheaperbutstillreachespotentialcustomerstothebusiness.Themarketingcompanycandecideexactlyhowmuchtheywanttopayeachmonth,i.e.maximumclicks,andhowtheamountshouldbedistributedoverdays.AndersKatz,estimatesthatitwillcostabout20000SEKpermonthforGoogleAdWordstogetafairshareofclicksandexposureaswellasattractivekeywords.
4.1.2.3. Online banner advertising
Themeaningofthesecondmediachannel,onlinebanneradvertising,isself‐explanatory.Basicallytherearetwowaystobuyanonlinebannerad.Onewayistodirectlycontactacompany,e.g.anewspaper,andrequestadvertisingspaceontheirwebpage.Themostattractiveoneshavealotofvisitorsontheirwebpageandcanthereforchargeanexpensivepriceforthead.Theotheralternativeistoutilizeasocalledadvertisingnetwork(annonsnätverk),wherethemarketingcompanycanbuyunsoldadvertisingspacefrompublishers,suchasAftonbladet,Göteborgs‐Postenetc.,inthenetworkforacheaperprice.AsforGoogleAdWordsitispossibletochoosewhereandwhenthebannershouldbeexposed,however,itcannotbecontrolledonwhichwebsiteitwillappear.
Utilizinganadvertisingnetworkis,asalreadymentionedacheaperalternativethanbuyingadvertisingspacefromaspecificpublisher.Thecompanypayfornumberofexposuresofthead,usingametriccalled“costpermille”,meaningthecostofthousandexposures.TheCPMforabannerisnormallywithintherange20–100SEK.
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Banneradvertisingalsoenablesafeaturecalledretargeting*,meaningthattheadisexposedtopreviousvisitors.Whenapersonvisitsacompany’swebpage,dosomeresearch,andthenleavethesite,thisperson’scomputerIDwillberegisteredandremembered.Laterifthissamepersonvisitsawebpagewithintheadvertisingnetworks/hewillbeexposedtoanadfromtheownerofthefirstwebpage.Theintentionisthatthispersonwillberemindedofthecompanyanditsproductandreturntothewebpageandpurchasetheproduct.Thisisveryeffectivemarketingsincethecompanyknowsthatthetargetedcustomerhaspreviouslyvisiteditswebpage,hence,doneresearchabouttheproductsbutwithoutplacinganorder.Asthecustomerisretargetedtheywillgetareminderofbuyingtheproduct.Retargetingischeaperthanadvertisingonspecificpublishers’websites;however,itisnotpossibletohavefullcontroloverwheretheadwillbeexposed.Eveniflackingcontroloftheadvertisingspacethecompanywillknowthattheadwilltargetacustomerthatisinterestedinitsproductass/hehasvisitedthewebsitebefore.Retargetingcostsaround10to20SEKperexposure.
AndersKatzrecommendsacombinationofGoogleAdWordsandbanneradvertisingwithretargeting.ThenthecompanycangetcustomertovisityourwebpagewithAdWordsandthenretargetthemviatheadvertisingnetwork.
4.1.2.4. Facebook
InadditiontoAdWordsandbanners,Facebookisacostefficientmediachannel,whichcouldbearguedisamixtureofthetwo.InaFacebookadevenmoreparametersthanforaGoogleadcanbesetalongwithwhatisdesiredtoachievewiththead;forinstance,wherethepersonlive,age,interests.TheFacebookfeatures“like”and“share”*revealsalotofinformationabouttheusersinterest,whichisgreatinformationformarketingdecisions.AsforGoogleAdWordsthecompanypayperclickforaFacebookad.Itisalsopossibletopayextraforexposinga“statusupdate”inspecificcustomers’newsfeed,eveniftheyhavenotchosentofollowthespecificpage.Forinstance,thecompanycanwritesomethingaboutaproductorofferintheirstatusfieldandthenpayforthisstatustoappearinspecificperson’snewsfeed.CompaniescanalsocreateaFacebookfanpage,whichiscategorizedasownedmedia,wheretheycanupdatetheirfanswithinformation.Thisisalsobeneficialbecauseitenablesfansto“like”or“share”informationfromthepage,whichresultsinexposuretofriendsofthefan.Thistypeofearnedmarketingisveryeffectivemarketingaswordsfromafriendismorerelevantandreliablethananadanditisprovidedtonocost.
*FinddefinitioninAppendixI
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Figure8RecommendationofmarketingmediachannelssuitableforMatkasseAB.Compiledbytheauthors.
4.1.2.5. Effectiveness of the marketing media channels
Itisdifficulttomeasuretheeffectivenessofamarketingmediachannel,whichisimportantwhencomparingthemwitheachother.MediaagenciesuseametriccalledClickFreeRate*(CFR),whichmeasurestheproportionofpeopleexposedtotheadthatclicksonthead.ForGoogleAdWordstheCFRisusually3‐5%,whilebannersonlyhaveaCFRof0,5%.Themainreasonforthisisthatbannersareplacednexttootherinterestingmediasuchasnews,videos,etc.However,abannerisexposedmorefrequentlytoalowerpricesoeveniftheCFRislowmanypeoplehaveprobablyseenthead,whichisimportantforbuildingbrandawareness.OnecouldarguethatGoogleAdWordsgeneratemoreInternettraffictothewebsite,whilebannersincreasebrandawareness.Thetwomediasalsodifferinwhichpotentialcustomerstheytarget.AGoogleadtargetsapersonwhomyouareawarehaveactivelyhasdoneresearchonaspecificproduct/servicebysearchingonspecifickeywords.Thisenhancesthechangeofgettingthepotentialcustomertovisitthecompany’swebsiteandhopefullypurchaseaproduct.Usingbanneradvertisingitisimpossibletoknowhowfaraperson,theadisexposedto,isinthebuyingprocess.Facebookallowsforhugeamountofexposure,possiblyevenmoretargetedmarketingthanGoogleAdWordsandtoalowerprice;thisismainlybecausetheadcanbecustomizetoaveryspecifictargetgroupandhenceavoidirrelevantcustomers.Withthatsaid,
*FinddefinitioninAppendixI
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GoogleAdWordsandFacebookprovidesamoreaccuratetargeting,whilebannersincreasebrandawarenessandwithretargetingcanremindpotentialcustomerstovisitthewebsiteandfindoutaboute.g.currentdeals.
4.1.2.6. Track and trace media channels
Onlinemediaistotrackandtrace,whichissomethingKatzhighlyrecommendsthatcompaniesdo.Understandingwhichmediathatgeneratesthemostnewcustomersorvisitorstothewebsiteenablesoptimizedallocationofmarketingexpenses.Forinstance,letsaythatspending10000SEKonFacebookand10000SEKonGoogleAdWordsonemonthresultsin100newvisitorstracedtoderivefromFacebookwhileonly10newcomesfromtheGoogleAdWords.ShiftingpartoftheGoogleAdWordsbudgettoFacebookadvertisingthenshouldoptimizethedistributionofmarketingallocation.
GoogleAnalyticsisGoogle’sownstatisticalprogramthatgeneratesdetailedstatisticsaboutawebsite’strafficandtrafficsources,andmeasuresconversationsandsales.Theprogramprovidesreportsshowinghowvisitorusethesite,howtheyarrived(fromwhatsource),whichpartofthesiteareperformingwell,whichpartsaremostpopular,andsoon.Togetherallthisinformationwillprovideaverysoliddecision‐baseformarketingstrategies,e.g.allocationofexpenses,customizationofmarketingcampaigns,improvementofadvertiseperformance,etc.Furthermore,GoogleAnalyticsprovidesReturnonInvestment(ROI)analysisshowinghowmuchprofityouhavemadefrommarketingcomparetomarketingexpensesrelatedtothemarketingcampaign.(GoogleAnalytics,2013)
4.1.2.7. Deal‐of‐the‐day
AccordingtoAbreu,previousemployeeatgroupon.com,itisimportanttoemphasizethatgroupon.comisnotasaleschannel;itisamarketingmediachannel.Theirbusinessmodelworksasfollowing:themarketingcompanyofferstheirproducttoconsumerswithadiscount(groupon.comhaveaminimumdiscountlevelof60%).Oftheremaininggrossincomegroupon.com,orothersite,chargesaspecificpercentage(groupon.comcharges50%)forutilizingtheirmarketingmediachannel.Intheendsuchdealdoesnotgeneratemuchincome,Abreuargues.However,marketingongroupon.comisagoodwaytogetcustomerstotrytheproduct.Itisremarkablethatdeal‐of‐the‐daydoesnotenablestargetingaspecificcustomer
4.2. Churn
Thefirstfourpartsofthissection(“Linasmatkasse”,“Middagsfrid”,“Mathem.se”,“MatkasseAB”)willprovidetheinformationcollectedfromthequalitativecontentanalysisofvirtualdocuments.ResultsfromtheanalysisaresummarizedinTable1andpicturesofthefindingscanbefoundinAppendixII.Thefinaltwo
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partsofthissection(“Members.com”,“Milkandhoney.se”)presentshowtwoe‐commercecompaniesstrivetoincreaseloyaltywiththeircustomers.
4.2.1. Linas matkasse
Linasmatkassestartedin2008andtheirturnover2011was312millionSEK,whichmakesthemthelargestPPGBcompanyinSweden.ThegrocerybagscanbedeliveredthroughoutSweden.Linasmatkasseoffersthreeproducts;original,inspirational,andchildfriendlygrocerybagandsomeadd‐onproductslikefruitbagandsnackbags.Thepriceperportionrangesbetween39–48SEK.Threewordsthatbestdescribetheconcept:tasty,healthyandquick.
4.2.1.1. Main page
OnthefrontpageofLinasMatkasse’swebsitevisitorsfindfivetabsinthetopmenu“Aboutus”,“Aboutthebags”,“Order”,“Contactus”andthefinaltab“Login”isforpresentcustomers,wheretheycanfindpersonalinformationregardingtheirsubscriptionof“LinasMatkasse”.Inthemiddleofthepagethereisabanner,whichstatesthatLinasmatkasseisthemostsoldPPGBinSweden(AppendixII–1).
4.2.1.2. Membership & subscription terms
Whenacustomerisregisteredasubscriptionhasstarted,whichmeansthatthenewcustomerhavetoterminatethesubscriptionhim‐selfifs/hewishes.Afterhavingregisteredthe“Login”pageareavailable.LinasMatkasserequires8daysnoticeinadvanceforbookingorcancellationofanorder(AppendixII–2).
4.2.1.3. Delivery
TheydeliverthebageachotherweekonMondaysorSundays,dependingonwhereyoulive,between17.00‐22.00.ResidentsinStockholm,Gothenburg,andMalmöhavetheoptiontoreceivethebageveryweek.Customerscannotchooseiftheywantdeliveriesevenoroddweekduetologisticalissues.Furthermore,LinasMatkassedoesnotofferthepossibilityforcustomerstopickuptheirbagthemselves(AppendixII–3).
4.2.1.4. The menu
Themenuandrecipesaresenttogetherwiththefoodbag,butcanalsobefoundonline,forregisteredcustomersonly,4‐5daysbeforedelivery.Acustomercanonlyseetherecipesfromtheirpreviousorders,notfromallgrocerybags.ForpotentialcustomersthatwanttotryaLinasmatkasserecipe,examplesofrecipescanbefoundonline(AppendixII‐4).
4.2.1.5. Contact
ContactchannelstoLinasMatkassearephoneandemail.Theircustomerserviceisopenduringofficehourswithextendedopeninghoursuntil22.00ondeliverydaysSundaysandMondays(AppendixII–5).
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4.2.1.6. Member’s page/club
BecomingasubscriberofLinasmatkasseyouareautomaticallyamemberoftheircustomerclub“KlubbLina”.Customerscollectpointsforeveryordertheymakeandextrapointsiftheyrecommendtosomeonewhobecomesasubscriber.Theaccumulatedpointscanthenbeconvertedintopremiums,e.g.kitchenequipment,hotelnights,magazinesubscriptions,etc.Theoriginalbagisworth10pointsandthefirstpremiumstartsat20points.Recommendationsgeneratinganewcustomergenerate30points.Thevalidityofthepointsistwoyears.Customersbuyingmorethan16bagsayearbecomesapremiumcustomer,aso‐called“Toppkund”.Thisgivesthecustomersadditionalbenefits,suchasinitial20points,menuswithrecipesfromallgrocerybags,specialdealsonselectedproductsandafreemembershipof“LinasKomIForm”(AppendixII–6).
Asamemberof“KlubbLina”youcanalsojoin“LinasKomiform”wherecustomersgetaccesstovideoswithinstructionsfordifferentgymsessionsforimprovingstrengthandcardio(AppendixII–7).
Membersalsohaveanopportunitytopaymoreforthebagsand"extra”moneywillcontributetoLinasmatkasse’sprojectofgivingfoodtopoorfamiliesinKenya(AppendixII–8).
LinasMatkassefurthermoreprovidesamobilesoftwareapplication*(herebyreferredtoasanApp*)forsubscribers.Thereyoucanfindrecipestoorderedgrocerybagsandnutritionalcontentofthedishes.Furthermore,theaccumulatedpointsinKlubbLinaareshowedintheappandafeaturewherecustomerscan“checkin”onFacebookwhenreceivingabag.ThismeansthatamessagewillappearonthecustomersFacebookpageandhencebedisplayedtofriendsofthecustomers.ThisfeaturecangeneratemorepointtotheKlubbLinaaccount,aseachshareisworth1point.
4.2.2. Middagsfrid
MiddagsfridwasfirsttoenterthePPGBindustryinthesummerof2007.2011theyhadaturnoverof85MSEK.TheirdistributionreachesmostofSwedenandthebusinesshasalsoexpandedtoNorway,Denmark,GermanyandBelgium.TheyofferfourmainPPGB’sonelarge(4personsfor5days),onemedium(4personsfor3days),onesmall(2personsfor4days)andonechildrenfriendlyalternative(2personsforfourdays).Asidefromtheseofferingthereareadd‐onproductssuchasabreakfastbagandsnacks.Theaveragepriceperportionof
*FinddefinitioninAppendixI
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foodisbetween45and72SEK.Threewordsthatbestdescribetheconcept:tasty,healthyandquality.
4.2.2.1. Main page
ThefirstpagewhenenteringMiddagsfrid’swebsiteshowsfivemaincategoriesofnavigationallconnectedtothePPGBservice“Howitworks”,“Thebags”,“Menu”,“Aboutus”and“Order”.Throughthesetabsonecouldfindinformationabouttheirconcept,howandwheredeliveriesaremadeandordertheproductsonline.Certificationinsafee‐commerce(TryggE‐handel),whichisacertificatefromthirdpartyand“Best‐in‐test”awardsthattheyhavewonarepresentedonthetopofthepagealongwithlinkstovisittheirsocialmedia(AppendixII–9).
Clickingonthelink“Aboutus”revealsinformationaboutthecompanyandpresentsdifferentpricesandnominationsthatMiddagsfridhasreceivedduringtheyears(AppendixII–10).
4.2.2.2. Membership & subscription terms
Thereisnobindingtimewhenenteringintoasubscriptionandtopauseorendthesubscriptiononemustnotifythecustomersupportninedaysinadvance(AppendixII–11).
4.2.2.3. Delivery
DeliveriesthesecanbedoneSundayandMondaybetween17‐22inGothenburgandStockholm,andthesmallercitiesonlyhaveMondaybetween17‐22.Nootherdeliveriesarepossible(AppendixII–12).
4.2.2.4. Menu
Theirrecipesandmenu’sarepubliclyavailableonthewebsitefor3weeksinadvance.Oldrecipesarealsodisplayedfornon‐membersaswell.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(Appendix–13).
4.2.2.5. Contact
Customerservicesareavailableonthetelephone,chatandemailandopenduringregularofficehours.Theambitionistoanswerallemailsfromcustomerswithin24hourssortsofquestionsarewelcome(Appendix–14).
4.2.2.6. Member’s page/club
Whenenteringintoasubscriptiononegetsaccesstoamember’spage.Fromhereitispossibleloginandmanagetheaccount,choosedeliverytimesandpauseorterminatethesubscription.Allrecipesarealsoavailablefromthispage.
4.2.3. Mathem.se
Mathem.sewasstarted2009asanonlinegrocerystoreandlatercametoofferPPGB’sthefollowingyear.In2012theyhadaturnoverof65MSEK.Their
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distributionrangeincludesStockholm,Uppsala,Gothenburg,Helsingborg,LundandMalmö.Theyofferarangeoffourdifferentproducts(allforfourpersons),oneoriginalbagfor3or5daysandoneecologicalbagfor3or5days.Asidefromthistheyofferallproductsthatareavailableinaregulargrocerystore.Theaveragepriceperportionoffoodisbetween38and57SEK.Threewordsthatbestdescribetheconcept:healthy,quickandeasy.
4.2.3.1. Main page
Onthefirstpagewhenreachingmathem.setheinformationisrelatedtothegeneralgrocerystorethattheyoperate.Clickingon“Matkasse”givesthefirstinformationabouttheirPPGBofferings.Displayedintheup‐rightcornerthereiscertificationforsafee‐commerce(clickingontheiconforsafee‐commercedisplaysthewholecertificatefromthirdparty)andarewardof“Bestfoodsite2012”fromInternetworld.Alsocustomerreviewsaredisplayedinthefirstview(AppendixII–15).
4.2.3.2. Membership & subscription terms
Orderingaproductcanbedonebothbyphoneandonline.Theorderwillautomaticallystartasubscriptionatmathem.sewithPPGBsbeingdeliveredeveryweek.Asubscriptionwithmathem.secanbeterminatedorpausedatanytime,butthismustbedoneeightdaysbeforedeliverybylogginginto“Mysite”(AppendixII–16).
4.2.3.3. Delivery
DeliveriesareavailablefromMondaytoFriday12.00‐22.00andthecustomercanchoosewhichhourbetweenthesetimesthattheywanttheirproductsdelivered(AppendixII–17).
4.2.3.4. The menu
Menu’sandrecipesareavailableanddisplayedonthewebpagefornon‐membersaswell.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(AppendixII–18).
4.2.3.5. Contact
Mathem.seprovidestwodifferentdirectphonenumbers,onetoorderandtheothertoreachcustomerservices.TheopeninghoursareMondaytoFriday08.00‐22.00and12.00‐22.00onSundays(AppendixII–19).
4.2.3.6. Member’s page/club
Whenorderingfrommathem.seyoucreateanaccountthatonecouldmanagethrough“Mysite”(Minsida).Onthismemberpageitispossibletolookatcurrentorders,createshoppinglistsandadministerdifferentaccountsettings.Thereisalsoabonussystemconnectedto“Mysite”wherethecustomerreceivesonepointforeachkronathattheyspend.Collecting2500pointswillresultina
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bonuscheckof25SEKthatonlycanbespentbuyingproductsonthewebsite(AppendixII–20).
ThroughMysiteitispossibletobuydeliverychecks,whichenablesfreedeliveriesforatimeperiodofeitherthreeorsixmonths.Thechecksalsohavethreedifferentdenominationsbase,silverandgoldwheresilverandbasechecksarerestrictedtocertaindeliverytimesandgoldchecksarenot(AppendixII–21).
Theservicesthatmathem.seoffersarealsoavailableintheirfreeofchargemobileApp,whichisaccessibleforbothAndroidandiPhone.IntheappitispossibletobothpayandorderPPGB’sandaccessinformationthatisstoredinMysite(AppendixII–22).
4.2.4. Matkasse AB
MatkasseABwasstartedin2010bythechefGustavSvenssonand2012theyhadaturnoverof1,3MSEK.TheycandeliverintheGothenburgareaandmostofitssuburbs.Theproductsofferedareoneoriginalbagandonethatisfreefromgluten.Bothcanbeorderedforeithertwoorfourpersonsforfourdaysaweek.Asidefromtheseproductsitisalsopossibletoorderasnackbag.Thepriceperportionisbetween55‐73SEK.Theirnicheistoprovidepre‐cookedsaucesthatthechefhaspreparedhimself.Threewordsthatbestdescribetheconcept:nutritious,qualityandeasy.
4.2.4.1. Main page
Thereareeighttabspresentedonthemainpage“Home”,“AboutMatkasseAB”,“Aboutthebags”,“Order”,“Delivery”,“Contactus”and“Mypages”wherethecustomercanlogintothememberpage.Inthetopsectionofthepagetherearelinkstotheirfanpagesinsocialmedia.ThereisalsoinformationaboutwhythecustomerschoosetheirPPGBaccordingtoacustomersurveybyIntermetra,2013(AppendixII–23).
4.2.4.2. Membership & subscription terms
WhenorderingaPPGBitispossibletochoosewhethertobuyonePPGBorenterintoasubscription.Thesubscriptionscaneitherbeeveryweekoreveryotherweek.Thereisnobingingtimeintheagreements,buttoendorpauseyoursubscriptionthismustbemade5daysinadvanceonthemember’spage(AppendixII–24).
4.2.4.3. Delivery
DeliveriesaremadeonMondaysandcanbedeliveredtoworkplacesduring14.00to16.00andathome16.00‐22.00(AppendixII–25).
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4.2.4.4. The menu
Menu’sandrecipesforthePPGB’sthatarestillofferedfororderareavailableonthehomepage.Morerecipescanbefoundonthemember’spage.Allrecipesareprintedwithpicturesandinstructionsthatcomealongwiththebag(AppendixII–26).
4.2.4.5. Contact
Thecompanycanbecontactedbyphoneduringofficehoursandotherwiseonemail(AppendixII–27).
4.2.4.6. Member’s page/club
WhenenteringintoasubscriptionwithMatkasseABonegetsaccesstoamember’spagewherethereisadditionalinformationabouttheproductseachweek.Theoldrecipesarealsoavailableandpicturesofthefoodthathasbeenorderedpreviousweeks.Itisfromthispagethatthecustomerscanpauseorendtheirsubscription(AppendixII–28).
Table1Overviewofresultsfromqualitativecontentanalysisofvirtualdocuments.
4.2.5. Members.com
ThissectionisbasedonaninterviewwithAlbinJohansson,130416.
Members.comisane‐commercecompanythatsellsclothesandaccessoriesthroughcampaignswith30‐80%discount.Theydiffersfromotherretailersonthemarketbecausetheyrunaclosedwebsite.Closedinthesensethatthecustomerneedstoapplyformembershipbeforetheycanviewthecontentand
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startshopping.Thisisdonetocreateanexclusivefeelingwiththeircustomersandmakethemfeelchosen(Johansson,2013‐05).
Johanssonstatesthatonmembers.comtheycontinuouslyworkonbuildingrecognitionandawarenesswiththeircustomersbysellingwell‐knownbrandstodiscountedprices.Thiswillcreateaviralspreadthatisveryimportant.Whenthesitedeliversmeaningfulcontentitcreatesvaluetothecustomerands/hewillspreadthatinformationtotheirfriends.Sendingoutemailstoourcustomerswereawell‐knownbrandismarketedatadiscountalsocreatesviralspread.Eventhoughmanyofthereceiverswillnotcareaboutthatparticularbrandthiswillsendamessagetothecustomerthatmembers.comsellspremiumbrandstodiscountedpricesanditwillbevaluabletokeepvisitingthewebsiteandreceiveemailstobeofferedmorediscounts(Johansson,2013‐05).
Thebarrierbetweenofflineshoppingandonlineshoppingisdefinitelysmallertoday.Customersfeelmoresecureshoppingonlinethanbefore.Itisimportanttostayincontactwithyourcustomersandremindthemofthenewcampaignsandproducts.Members.comalsouseblogs*tocreatevaluefortheircustomersmakethemreturntothewebsite.Itcanbedifficulttocreatethisvaluebutwhenitsucceedsitisveryeffective.Thecustomerswillreturntothewebsitetoreadtheblogsandareatthesametimeexposedtothecampaigns.Thebloggerswriteabouttheproductsandgivefashiontipsbuttheyalsowriteaboutotherthingsliketraveling.Theaimistocreateanexperienceonthewebsite,wherethecustomervisitsthewebsiteformorethanjustshopping.ThiswillresultinanexperiencethatcreatesmorevaluethanjustshoppingonlineitcreatesclosenesstothecustomerthatotherwiseisdifficulttoachieveontheInternet.JohanssonfurtherstatesthatthereisanotherwebsitethatisparticularlysuccessfulatthisweretheCEOwritesablogandsendpersonalizedemailstothemembers.Thisgivesamorepersonalexperienceandprovidesthecustomerwithafacethatrepresentsthewebsiteandcreatestrust(Johansson,2013‐05).
ItisimportanttobeapartoffashionandthisisdonethroughtheblogsbutalsosocialmediaandmorespecificallytheFacebookfanpageandInstagram.Johanssonstatesthatmembers.comareveryactiveontheirFacebookfanpagewheretheyalmosthave30000likes.Heretheycommunicatewiththeircustomersthroughcampaigns,stylingtips,inspirationanddiscounts(Johansson,2013‐05).
Inactivecustomersreceiveemailsthatremindthemofmembers.com,whichalsocontainsspecialdiscounts.Othertimestheemailsaremorepersonalizedand
*FinddefinitioninAppendixI
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stateswhatthecustomerhaveboughtbeforeandhighlightssimilarproductsthatareoncampaignatthemoment(Johansson,2013‐05).
4.2.6. Milkandhoney.se
ThissectionisbasedonaninterviewwithMaxSvärdh,130419.
MilkandHoneyisaGothenburgbasedbusinessthatsellsclothesandaccessories.Theystartedin2006withbothaphysicalstoreandanInternetbasedstore.
Whenbuyingaproductfromthee‐storethecustomerscreateanaccountandbecomemembersintheircustomerclub.Thecustomercanalsobeofferedamembershipiftheyhavevisitedthesiteformorethan6times.Whenbeingamemberonecanlogontothemembersiteandviewyourordersandgetspecialinformationthatisnotsharedontheregularwebsite.Thisalsopresentsaspecialinterfacethatismorestructuredandadaptedtotheprofile.
Themembersreceiveemailstwotimesaweekwherecampaignsanddiscountsareoffered.Thisistocreateasenseofexclusivityforthecustomersincenooneelsegetsthesameoffers.Theemailscanalsoincludeinvitationstoeventsinthephysicalstorewherefood,mingleanddiscountedshoppingarecombined.Thenumberofcampaignsanddiscountsarelimited,becauseotherwisethecustomer’ssenseofexclusivityinthemembershipisruined.Theemailsalsoworkasareminderofthebrandandthestoretocreateawarenesswiththecustomers.Facebookisalsoagoodcommunicationchannelforbuildingawarenessaswellascloserrelationshipswiththecustomersandlesseffectiveforsales.
Milkandhoney.sehavealsoarrangedcontestfortheirmemberswheretheyareaskedtowriteashortmotivationtowhytheyarethebestcustomers.Thishasreceivedgoodresponseandactivatesthecustomertointeract.
4.3. Recurring revenue model to support decision‐making processes
Thepurposewiththerecurringrevenueforecastarethreefolded.Firstitprovidesaclearpictureoftherevenuegrowthinthecomingthreeyears.SecondthemodelenablesagoodunderstandingofhowCLVareaffectedifCACand/orChurnchange.ThisinturnhelpsmanagementunderstandhowtoallocatemarketinginvestmenttomaximizeCLV.(Carson,130311)
Therecurringrevenuemodelincorporateactualhistoricaldataand,basedonthatdata,assumptionsaremadetoforecastfuturescenarios.Themodelislinkedtothethreefinancialstatements:incomestatement,balancesheet,andcashflowstatement.ActualrevenuesarederivedfromtheincomestatementandtheforecastedrevenuesintheRRMareinputdatatotheforecastedincomestatement.Samelogicisappliedtothenumberofcustomers/ordersandthe
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marketingexpenses.TheRRMismadeonaweeklyleveltogiveasaccurateforecastaspossible.(Carson,130311)
Differentparametersserveasdriversfortheactualandforecastingpart.AsseeninAppendixIII‐1,actualinputdataarenumberofnewcustomers,marketingexpensesandactualChurners.TheseinputdatageneratestheCAC,Churnrate(%),andthetotalnumberofcustomers.However,asseeninAppendixIII–2,intheforecastingpartCACandChurnrate(%)arethedriversgeneratingnumberofnewcustomers,actualChurners,andthetotalnumberofcustomers.Marketingexpensesisadriverintheforecastaswellasthisisthesteeringparameterthatmanagementwilladjustbasedontheirstrategicdecisions.(Carson,130311)
Asalreadymentioned,driversofactualsgeneratesCACandChurnrate(%).CACiscalculatedasmarketingexpensesdividedbynumberofnewcustomers.Churnrate(%)iscalculatedasactualnumberofChurnersdividedbytheaveragenumberoftotalcustomersduringthelastfourweeks(includingthecurrentweek).Intheforecastthesetwoparametersaredriversandbasedonhistoricaldataorexpectedvaluesduetochangedcircumstances.TheoutputdataintheforecastingpartarenumberofnewcustomersandactualChurners.NumbersofnewcustomersarecalculatedasthemarketingexpensesdividedbyCAC.ActualChurneriscalculatedastheChurnratemultipliedbytotalnumberofcustomers.(Carson,130311)
Averagerevenueperuserisalsoincludedcalculatedasthetotalrevenuedividedbytotalnumberofcustomers,toseehowthisisaffectedwhengeneratingdifferenttypeofcustomers.(Carson,130311)
Finally,customerlifetimevalue(CLV)isthekeymetricforthefirm’sfinancialperformance.CLViscalculatedasthediscountedsumoftheprofitsfromonecustomerduringthecustomer’slifetimeminustheCACforthatcustomer.Thelifetimeofacustomeris1dividedbytheChurnrate.Thediscountrate*isbasedonayearlyrateof5%,whichcorrespondstoabankrateatastableaccount.InputdataforCAC,Churnrateanddiscountratecouldbevariedtoseetheresultofcustomerlifetimevalue.Thisfeatureenablesthecompanytoseetheresultfromdifferentscenariosandhencemakeinvestmentdecisionsinaccordancewiththeirmarketingstrategy.(Carson,130311)
4.3.1. Testing the Recurring Revenue Model: An example of Chef & Friend
TodemonstratethefunctionsoftherecurringrevenuemodelafictionalcompanycalledChef&Friendispresentedinthissectionofthereport.Five
*FinddefinitioninAppendixI
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scenarioswillbedemonstratedwhereCACandChurnarealteredtodemonstratehowCLVisaffected.Scenario1,withnoalterationsofthemetrics,Scenario2,withaCACdecreaseof10%,Scenario3,withaChurndecreaseof10%,Scenario4,withaCACdecreaseof20%andScenario5,withaChurndecreaseof20%.ThesescenarioswillhopefullybringunderstandingtohowCACandChurnrelatetoeachother,howtheyrelatetoCLVandhowthismodelcanbeusedasatoolforevaluatingmarketingdecisions.ThedifferentalterationsofthemetricswillaffectCLVindifferentwaysandhenceprovidetheuserofthemodelwithinformationabouttheprofitability,intermsofCLV,ineachdecision.
Chef&Friendisasubscription‐basedbusinesssellingpre‐packedgrocerybagsinGothenburg.Thecompanyoffersafour‐personbagforthepriceof700SEK.Chef&Friendaimtoimprovethefirm’sfinancialperformancebymaximizingCLV.Theyhaveaweeklymarketingbudgetof10000SEKandneedstounderstandhowtheyshouldallocatethisbudgettoachievetheseobjectives.
Therecurringrevenuemodelprovidesatwoyearsforecast.Itisassumedthatthemarketingbudgetremainsunchangedoverthetwoyears,aswellastheChurnrateandCACbecomesfixedafterthemetricsareimprovedtoadesiredrate.Theyearlydiscountrateissetat5%,hence,aweeklydiscountrateof0,09%.AstheaimforChef&Friendistoimprovethefinancialperformanceofthefirm,thekeymetricisCLV.
Scenario1(Noalterations):Chef&Friendcurrentlyhave200customers.TheyhaveaChurnrateof5%andutilizedirectmailmarketingmediachannelswithaCACof500SEK.TestingthesedatafromChef&Friend'scurrentsituationintherecurringrevenuemodelgivesfollowingresult:
Table2ResultsfromScenario1.
IntheircurrentsituationCLVismeasuredtobe702SEK,asdisplayedinTable1.
Scenario2(CACdecrease10%):Chef&FriendhavedecidedtousetheonlinemediachannelGoogleAdWordsinsteadofdirectmailmarketingandhaveestimatedtheCACforthischanneltobe450SEK(decreasing10%).Churnrateof5%isstillremained.TestingthesenewdatafromChef&Friend'sintherecurringrevenuemodelgivesfollowingresult:
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Table3ResultsfromScenario2.
BydecreasingCACwith10%,CLVisforecastedtobe822SEK,whichisa17%increasefromScenario1,asdisplayedinTable2.
Scenario3(Churndecrease10%):ThemarketingmanagerofChef&Friendarguesthatinsteadofspendingtimeandefforttochangemediachannelfromdirectmailmarketing,themarketingbudgetshouldbeinvestedindecreasingtheChurnrate.ThemarketingmanagerusetherecurringrevenuemodeltoseepotentialresultsfromdecreasingChurnto4,5%(decreasing10%)andremainCACat500SEK.
Table4ResultsfromScenario3.
BydecreasingChurnwith10%,CLVisforecastedtobe898SEK,whichisa28%increasefromScenario1,asdisplayedinTable3.
Scenario4(CACdecrease20%):ThemarketingmanagerdecidestocomplementGoogleAdWordswithonlinebanneradvertisingandretargeting.ThiswouldprobablydecreaseCACevenmore.Todothis,allmarketinginvestmentswillbeallocatedtodecreasingCAC;hence,Churnwillremainat5%.ThenewCACisestimatedtobe400SEK(decreasing20%).Followingresultsareachievedwhentestingthedataintherecurringrevenuemodel:
Table5ResultsfromScenario4.
BydecreasingCACwith20%,CLVisforecastedtobe956SEK,whichisa36%increasefromScenario1,asdisplayedinTable4.
Scenario5(Churndecrease20%):AsthemarketingmanagernoticethatdecreasingChurnratehavemoreimpactonCLVthanCAC,hedecidestotryafinalscenariowhereheonlyallocatesthemarketingbudgettodecreasingChurn,
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withthepurposetohaveaChurnrateof4%(decreasing20%).Followingresultsareachievedwhentestingthedataintherecurringrevenuemodel:
Table6ResultsfromScenario5.
BydecreasingChurnwith20%,CLVisforecastedtobe1186SEK,whichisa69%increasefromScenario1,asdisplayedinTable5.
TogetaclearviewofhowCLVisaffectedofdifferentmarketingdecisions,themarketingmanagercomparestheresultfromthescenario2,3,4,and5inagraph(seeFigure9).
Figure9ThegraphdemonstratestheeffectonCLVwhenCACandChurndecrease.
*Thiscolumnpresentsthepercentagechange,ofthemetrics,basedonScenario1.
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5. Analysis
Inthischaptertheliteratureandempiricalfindingsareanalysed.Itisdividedintothreedifferentparts,CAC,ChurnandRecurringrevenuemodel.
5.1. CAC
BoththetheoreticalframeworkandKatzsuggestthatonlinemarketingismorecostefficientthantraditionalmarketing,suchasprints,directmail,television,ascompaniespaylessformarketingactivitiesandreachouttomorecustomers.KatzfurtherarguesthatInternetistheplaceforadvertisingforcompanieshavingthebuyingplaceonline.Thereasonforthisisthatthelinkbetweenadvertisingandthebuyingplaceisminimized;asaconsequence,thelikelihoodforapotentialcustomertobecomeanactualcustomerincreases.Thisstatementisalsosupportedinthetheoreticalframework.Katzfurtherdiscussesthatanotherimportantfactorwhendecidingwhenandwheretotargetthecustomeriswhereinthebuyingprocessthecustomeris.Thisisbecause,thefurtherintotheprocessacustomeris,andthemorelikelyitisthats/hepurchasestheproduct.Thetheoreticalframeworkstatesthatonlinemarketingtargetsconsumersthatarealreadyinterestedintheproductsincetheyhaveactivelydoneresearchabouttheproductorsimilarproductandarethereforeconsideredtobeinthebuyingprocess.
Furthermore,onlinemarketingenableshighercontroloverthemarketinginvestmentsasitiseasytomonitorandtrackwhichmediageneratesmostvisitorstothewebsite.Thisinsightsupportsdecision‐makingprocessesregardingchoiceofmarketingmediachannel.Accordingtothetheory,evaluatingwhichmediachannelsthataremostefficientenablesoptimizedallocationofmarketingexpenses;therefore,themarketerscanensurethattheyspendthemoneyonactivitiesthataredrivingthebusiness.
Thetheoreticalframeworksuggeststhatmappingoutthecompany’smarketingprocessestoensurethatthemostcostefficientmarketingactivitiesareusedisafirststepforloweringCAC.MatkasseABhasuntilnowutilizedbothpaidandownedmediachannelsaswellasmanagedtogeneratepositiveearnedmedia.Furthermore,accordingtothetheoreticalframeworkitisidealtocombinethethreetypesofchannels,whereeachchannelsupportstheother.Forinstance,advertisingonFacebook,whichisapaidmediachannel,enablesalinkbetweentheadandthecompany’sFacebookfanpage,whichisownedmedia.Thetargetedcustomermightthenvisitthefanpageand“like”it;hence,theFacebookfanpagewillbeexposedforotherFacebookusers.Thisactivitygeneratesearnedmediatothecompany.
5.1.1. Matkasse AB’s paid, owned, and earned media channels
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ThepaidmediachannelsMatkasseABhaveutilizedaredirectmailmarketing,searchengineoptimization(SEO),anddeal‐ofthe‐day,asillustratedinFigure10.
Thedirectmailmarketingprocesseshaveinvolvedpostingflyersandofferingfreegrocerybags.Incontrasttoonlinemarketing,thelinkfromreceivinganadinthemailboxtogoonlineandpurchasetheproductislong.AccordingtoKatz,thereisariskthatthepotentialcustomerdoesnotmakeapurchaseifthislinkistoolong.Furthermore,Svenssonclaimsthatwhenusingthismediachannelitisdifficulttoknowiftherightcustomeristargeted,asthereislackofinformationaboutthecustomers’need.Eveniftheyapproachacertainregion,itisstilluncertainifthepersoniseveninterestedintheconcept.Referringtotheargumentoftargetingcustomersfarintothebuyingprocess,thisuncertaintymightresultintargetingwrongcustomersthatarenotyetinthebuyingprocess.
Katzhighlightsanotherriskwithmarketingtoofarfromthebuyingplace.PotentialcustomersthathavenotshownanyinterestinPPGBmightonlyperceivetheadasinformationaboutPPGBconceptandignorethecompanybrand.Asaresult,whentheydecidetosubscribetheymightorderfromanothersupplier.Thus,marketingtoofarfromthebuyingplaceinvolvesariskthatthecompanymarketsitscompetitors.
AsMatkasseABhaveutilizedSEOtheyappearamongthetophitsonGooglewhensearchingforPPGBinGothenburg.SvenssonbelievesthatthisisMatkasseAB’smainsourceforgeneratingInternettraffictothewebsite.Thismediachannelisclosetothebuyingplaceaswhencustomerclicksonthelinktheyaredirectlyforwardedtothewebsitewheretheycanordertheproduct;hence,thelikelihoodthatthepurchaseiscarriedoutincreases.SinceSEOgeneratesvisitorsthathavedoneaGooglesearchaboutPPGBtothewebsite,ittargetsconsumersthatareactuallyinterestedintheproductandthereforearealreadyinthebuyingprocessofaPPGB.AccordingtoboththetheoryandKatz,thisfactorincreasesthelikelihoodofacquiringanewcustomerasittargetspeoplewithhighpotentialofpurchasingaproduct.
ThemostrecentmarketingactivityMatkasseABhavedoneisaLet’sDealcampaign.AccordingtoAbreu,Let’sDealisagoodwaytogetcustomerstotrytheproduct,however,thereisnocontroloverwhichcustomersthedealtargets.Thislackofcontrolcontradictsthetheoryabouttargetingtherightcustomerswithhighbuyingpotential.WithaDeal‐of‐the‐dayadvertisingthereisariskthatthebuyersonlypurchasethedealbecauseofthecheappricewithoutanyintentiontostartsubscribing.
Regardingownedmediachannels,MatkasseABhaveaFacebookfanpageandanInstagramaccount.Accordingtothetheoreticalframework,ownedmediaisbeneficialascompaniescanengagetheircustomersthroughthemedia.MatkasseABengagestheircustomersby,forinstance,allowingthemtovotefortheir
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favouritedishoftheweekand“like”or“share”postwiththeirFacebookfriends.Furthermore,MatkasseABarrangescontestsforvisitorswiththepurposeofgeneratingviralspread.Katzarguesthatthistypeofmediaispreferableasitallowsforuserstotelltheirfriendsaboutthecompany/product.Thistypeofgeneratedearnedmediaisveryeffectiveaswordsfromafriendaremorerelevantandreliablethananadanditisprovidedatnocost.Accordingtothetheoreticalframework,utilizingmediachannelsthatsupportanotherchannelisidealandthisissomethingthatispossiblewithaFacebookfanpage.
EarnedmediaaboutMatkasseABhasalsobeengeneratedthroughratingwebsites,whereMatkasseAB,asasupplierofPPGB,hasachievedtopscore.AccordingtoSvensson,themajorityofhiscustomersareveryloyalandsatisfiedwiththeproduct,whichsupportsthegoodreputation.MatkasseABrewardscurrentcustomersforrecommendingtheconcepttoanotherpersonthatbecomesacustomer,which,accordingtothetheoreticalframework,isawaytoencouragecreationofearnedmedia.
5.1.2. Additional suggestion of media channels with low CAC
Inadditiontoalreadyusedmediachannels,KatzrecommendsGoogleAdWords,onlinebanneradvertising,andFacebookadvertising,asillustratedinFigure10.LikeSEO,GoogleAdWordstargetscustomersthatarefarintothebuyingprocess,asitappearsonthetoporsidebarwhensomeonedoesaGooglesearchonspecifickeywords.GoogleAdWordsalsoenablesadirectlinkbetweenadvertisingandthebuyingplace.AccordingtothetheoreticalframeworkandKatz,boththesefactorsincreasethelikelihoodofacquiringnewcustomers.KatzfurtherarguesthatGoogleAdWordsgenerateslotoftraffictothecompany’swebsite,whichisanotherexampleofwhenamediachannelsupportsanother(paidsupportsowned).Finally,withGoogleAdWordsthecompanycanhavecontrolovertheirCACastheycandecidehowmanyclickstheywanttopayfor;therefore,Katzsuggeststhisalternativeforacompanywithlimitedfinancialresources.
AsforGoogleAdWords,onlinebanneradvertisingmeansaminimizedlinkbetweenadvertisingandthebuyingplace.However,itcannotbecontrolledonwhichwebsitetheadwillappear.Toincreasethecontrolofwhichcustomerstotargetandtominimizethelinkbetweenadvertisingandbuyingplaceevenfurther,Katzrecommendsutilizingtheretargetingfeature.Astheadthenonlywillbeexposedtocustomersthathavealreadyvisitthewebsiteitensuresthatcustomerthatarefarintothebuyingprocessaretargeted.Besidestargetingtherightcustomer,theadbecomesareminderforalreadyinterestedcustomers,whichincreasesthelikelihoodforpurchase.
Toperformevenmoretargetedadvertising,KatzsuggestsutilizingFacebookadvertising.Facebookusersrevealinformationaboutinterest,maritalstatus,
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age,genderetc.,ontheirprofiles.Suchinformationcanbeutilizedbymarketingcompanieswhenselectingwhichcustomerstotarget.Withthisinformation,Facebookadsallowsfortargetingcustomersthatarefarintothebuyingprocess.Thisenablesaminimizedlinkbetweentheadvertisementandthebuyingplace,whichincreasestheprobabilityforapurchase,hence,fulfilsthepurposeofloweringCAC.
Figure10Categorizationofutilizedmarketingmediachannels,aswellasadditionalsuggestionsofmarketingmediachannels.Compiledbytheauthors.
5.2. Churn
Theresultsfromthequantitativecontentanalysiscanbecategorizedintodifferentswitchingbarriers,inaccordancewiththeliterature.TheseresultsareanalysedbelowandFigure11summarizestheanalysis.
Asstatedintheliteraturerelationshipcommitmentbetweenthecompanyandtheircustomersisadriverofloyaltyandhenceanimportantpartofmanagingretention.Therelationshipcommitmentisdividedintwoparts,theaffectivecommitmentandthecalculativecommitment.Toimproveaffectivecommitmentitisnecessarytoimprovethedirectrelationshipwithcustomers,becausethisrelationshipcouldcreateemotionaltiestothecustomers,whichisanimportantfactorwhenbuildingaffectivecommitment.Thisisdonethroughtheinterpersonalinteractionsbetweenthefirmandthecustomeraswellastheaffiliationandassertivenessofthisrelationship.However,calculativecommitmentisaprerequisiteforaffectivecommitmentsoensuringcalculative
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commitmentisvital.Calculativecommitmentisdrivenbythecustomer’sinabilityorinconveniencetoswitchtoanothersupplier.Thefirmcanaffectthiscommitmentthroughbuildingswitchingbarriers.Theliteraturefurtherpresentsfivemainswitchingbarriers;transactioncost,learningcost,relationshipcosts,conveniencecosts,andartificialcosts.
Theliteraturestatesthatlearningcostsoccurwhenthecustomerneedstofamiliarizeandgetaccustomedtoanotherwebsite.Itinvolvesexpensesoftimeandefforttolearnanewlayoutandstructureofawebsite.ThePPGBcompaniesinthestudyhavewebsitesthatarequitesimilar,thestructureisclearandthelayoutisalsoalike.Thereisnoproblemtonavigatethroughthepagesaswellasfindinformationandthecontentisclear.
Theliteraturesuggeststhatrelationalcostsarisewhenthecustomerfeelsemotionaldiscomfortwhenswitchingtoanothersupplier.Whenthecustomerdon’ttrusttheproviderorfeelsinsecureaboutthepurchase.Thisisevenmoreevidentwhenshoppingonlinebecausethecustomerhavetopayinadvanceanddonotknowwhetherorwhentheproductsarrive.ThequalitativecontentanalysisshowthatMiddagsfridandmathem.sedisplayscertificationsfromthirdpartyaboutsafee‐commerceontheirmainpage,whileMatkasseABandLinasmatkassedoesnot.Someofthecompaniesalsodisplaypositiveopinionsfromtheircustomersurveysandsomeofthempresentprizesandawardnominationsthatpresentthecompanyas“Bestintest”or“Themostsoldbag”.
StudyingthesubscriptiontermsofthePPGBcompanies’websitesshowedthatnoinitialfeesorco‐assetswerenecessarytostartasubscription.Allsubscriptionscouldbepausedorendedatanytime;however,thecustomersmustgivenoticeinadvance.Asstatedintheliteratureframeworktransactioncostsarederivedfromcoststhatarisetostartanewrelationshipwithanothersupplierorthereplacementofco‐assets.Contractualbarriersarisewhenthecustomerarecontractuallyboundtoasupplierforapredeterminedperiodoftime.NoneofthePPGBcompaniesapplycontractualbarrierstotheirsubscriptions.
Theliteratureframeworkstatesthattheconveniencecostsarisewhenthecustomersareaccustomedtoacertainroutineorservicethatothersuppliersdonotoffer.Thelackofflexibilitywithotherprovidersmakesitconvenientforthecustomertostaywiththesupplier.ThestudyshowedthatthecustomersfromLinasmatkasseandMiddagsfridcanchoosefromtwodifferentdeliverydaysbutitisnotpossibletospecifytheexacttime.MatkasseABhasdeliveriesonMondayandcanprovidetheexacthouroftimeonedayinadvancebytextmessagesoverthephone.Mathem.sehavethemostflexibledeliverieswherethecustomercanchoosefromallweekdaysandspecifyexacthourofdelivery.
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Accordingtotheliteraturetrustissuesmayarisefromthecustomer’suncertaintythattheproductwillmatchexpectationsorwhens/hefeelsinsecureaboutthepurchase.AllPPGBcompaniesinthestudyexceptfromLinasmatkassepresentsthemenusinadvance.Theytreattheirrecipesassomethingexclusivefortheircustomersandtheonlywaytogetholdofthemenuistobuyagrocerybag.Thismeansthatthecustomersdonotknowwhattheyarebuyinguntiltheyreceivetheproduct.
Thequalitativecontentanalysisshowsthatallcompaniesinthestudyhavetelephoneservicesandemailaddresses,bothintheformofcustomersupport.Mathem.sealsohaveorderingserviceprovidedbytelephonewherethecustomerscancallinandmaketheirorders.Theliteratureframeworkstatesthatbuildingaffectivecommitmentisdonethroughtheinterpersonalcommunicationchannelsthatarepresentintherelationshipbetweenthecustomerandthefirm.Allinteractionmustdemonstrateaffiliationandassertivenesstobeeffective.
AllPPGBcompaniesinthestudyhaveamemberpagethatthecustomersgetaccesstowhentheypurchaseasubscription.MatkasseABandMiddagsfridhaveverysimplememberpageswherethecustomerscanlookatandmanagetheirsubscriptionsbyaccessingupcomingdeliveries,oldorders,recipesfromearliergrocerybagsandpersonalinformation.Theliteraturestatesthataloyaltyprogramshouldbuildincentivesforthecustomertoreturnthecompanyandbuymoreproducts.Theincentivesarebuiltintheformofrewardsthatthecustomersreceivewhenrepurchasingtheproduct.Theserewardscouldbehardbenefits,resultinginafinancialcostforthecompany,orsoftbenefits,byofferingspecialinformationorrecognition.
ComparedtoMatkasseABandMiddagsfrid,Mathem.sehaveasomewhatmoreadvancemembersareaontheirwebsite,whichcould,accordingtotheliterature,beviewedasaloyaltyprogram.ThebonussystemgivesthecustomersonepointforeachspentSEK.Thesepointscanthenbeexchangedforcashthatcanbeusedwhenshoppingatmathem.se.2500pointscanbetradedfor25SEK,whichgivesthecustomer1%inreturnfortheirpurchases,henceafinancialcostforthecompanyandanartificialbarrierforthecustomer.Furthermore,thecustomerscanbuydeliverychecksthroughtheirmembersite.Thesechecksenablesfreedeliveriesforatimeperiodofthreeorsixmonths,hencethecustomercanonlysavemoneyafteracertainamountofdeliveries.S/hemustordermoreproductstoutilizethetimeoffreedeliveriesthatthechecksenable;hence,thisbuildsincentivesforthecustomertocontinuebuyingproducts.
Asstatedintheliteraturepersonalization,alongwithemotionaltieaswellashardandsoftbenefits,aretheelementsforcreatinganeffectiveloyaltyprogram.Inaccordancewiththis,thestudyofLinasmatkasse’sloyaltyprogram“Klubb
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Lina”hasbothsoftandhardbenefits,personalizationaswellasemotionaltie.HardbenefitsarecreatedthroughthepointsthatthecustomerscollectwhentheypurchasePPGB’sandwhichtheylatercanconverttopremiums.Thepremiumsareallrelatedtofoodandcookingandshouldthereforeberelevantforthecustomers,whichcouldaccordingtotheliteraturebeviewedassomeextentofpersonalization.WhenhavingboughtacertainamountofPPGB’sthecustomerscanreachanewlevelwithintheloyaltyprogramcalled“Toppkund”(Topcustomer).Asa“Toppkund”yougetmorebenefitsthanaregularcustomerintheformofspecialdealsonselectedproductsandallrecipesfromthedifferentPPGB’sthatLinasmatkasseoffers,whichcreatessoftbenefitsforthecustomer.
Theemotionaltieiscreatedthrough“Linaskomiform”,afitnessprogramformembersin“KlubbLina”,and“Kenyakassen”wherethecustomersareabletodonatemoneytoaprojectthatdeliversfoodtopoorfamiliesinKenya.BoththeseprogramsprovidethecustomerswithasenseofaffiliationbetweenthemandLinasmatkasseandhence,alsocreateanaffectivecommitment.
Figure11ResultsfromqualitativecontentanalysisofPPGBcompaniescategorizedintoswitchingbarriers.Compiledbytheauthors.
Theconceptofmembers.comisbuiltuplikealoyaltyprograminaccordancewiththeliterature.Thewebsiteisclosedinthesensethatonlymembersgetaccesstoit,whichissoftbenefitsthroughexclusivity.Beingamemberallowsforaccesstodiscountsandcampaigns,whichisafinancialcostforthecompanyandhencehardbenefitsforthecustomer.
Members.com’sideaofcreatinganexperienceforthecustomerswhenshoppingatthewebsiteisbuildinguparelationshipbetweenthecustomerandthecompanywhichisdifficulttoachieveontheInternet.Creatingmorevaluethanonlyshoppingthroughblogs,fashionadviceandothertipswillresultinclosenesstothecustomer.Milkandhoneyhavethebenefitofaphysicalstore
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wheretheycaninvitecustomersformingle,foodandshopping,whichcreatessimilaremotionaltieswiththecustomers.Buildingstrongerrelationshipswiththecustomerswill,inaccordancetotheliterature,buildaffectivecommitmenttothefirm.Creatinganemotionaltietothecustomersisnecessarytopreventthemfromswitchingsupplierandisapartofloyaltyprogramsasartificialbarriers.Furthermoretheinteractionpointsforane‐commercebusinessislimitedtoitsownedmediasuchasthewebpageandsocialmedia,asrelationshipcannotbebuiltface‐to‐face.Hence,buildingemotionaltiesandcloserelationshipswiththecustomersisdifficult.
Theliteraturestatesthatofferingcustomersreducedpriceforbuyingmoreproductsareexamplesofhardbenefitscreatedthroughtheloyaltyprogram.Bothmembers.comandmilkandhoney.seremindcustomersthathavenotvisitedthesiteforaperiodoftimewithemailscontainingdiscountstocreateincentivestocomeback.
5.3. Recurring revenue model
Accordingtothetheoreticalframework,financialforecastinghelpsmanagementtrackfinancialperformanceofthefirmandthetheorysuggestssuchtoolassupportfordecision‐makingprocesses.Inaccordancewiththetheory,thepurposewiththerecurringrevenuemodel,builtbytheauthors,isfirsttoprovideaclearpictureoffuturerevenuegrowth,secondtounderstandhowCLVisaffectedbychangesinCACorChurn,andthirdtoserveasatoolforsupportingmarketinginvestmentdecisionsformaximizingCLV.
Furthermore,thetheorystatesthatafinancialforecastshouldbebasedonhistoricaltrendscombinedwithfuturescenariosderivedfromfactorsthatcanaffectrevenuesandcost.CACandChurnarebothfactorsthataffectrevenuesandcostsandhenceareincorporatedinthemodel.Inaccordancewiththetheory,themodeltakesintoaccounthistoricaldataandforecastsfuturescenariosbasedonchangesinCACandChurn.Therecurringrevenuemodelisfurtherlinkedtothefinancialstatements(incomestatement,balancesheet,andcashflowstatement),asthey,accordingtothetheory,compriseimportantdatafordeterminingacompany’sfinancialperformance.
InthemodelthemetricsCAC,Churn,andCLVarecalculatedasstatedinthetheory.CLVincorporatesCACandChurn;hence,CLVisaffectedbychangesinthesemetrics.ThetheoryfurthersuggeststhatmaximizingCLVwillmaximizethefirm’sprofits;hence,understandinghowtomaximizeCLViscriticalinordertoimprovethefirm’sprofits.AsthemodelenablestestingonhowdifferentCACandChurnratesaffectsCLVthiscanbeausefultooltolearnhowtomaximizeCLV.IfthecompanyaimsforacertainvalueofCLV,utilizingthemodelwillprovideaninsightofwhichvaluesofCACandChurnaredesired.AsCACandChurncanbeimprovedbymarketinginvestments,resultsfromtestsinthe
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modelcansupportdecision‐makingprocessesregardingmarketinginvestmentsasitgivesanunderstandingofwhichmarketingactivitiestoinvestin,inordertoachievedesiredvaluesofCACandChurn
TheexampleofChef&FriendshowsthattheChurnratehasmoreimpactthanCAConCLV,whichcanbeexplainedbythefollowingreasoning.TheChurnratemeasuresthetimeacustomerstayswithaspecificsupplierandthistimelengthwillincreaseastheChurnratedecreases.Thisresultcanalsobeunderstoodfromtheformula,asthelifetimeiscalculatedas1dividedbytheChurnrate;therefore,smallchangesinChurnaffectthelifetimeofacustomerinasubstantialway.AsCLVisthediscountedcashflowsfromacustomeroveritslifetime,increasingthelifetimeofacustomerwillobviouslyincreaseCLV.Thetotalcashflowfromacustomerisaccumulatedovertime;however,CACisafixedamountthatiswithdrawnfromthetotaldiscountedcashflowfromacustomer.
ThetheoryclaimsthatCACmustneverbehigherthanthetotalvaluethecustomerwillgeneratetothecompany;hence,itmustneverbehigherthanthesumofalldiscountedprofitsfromacustomer.ThisstatementisconfirmedbytheCLVformulaasitiscalculatedasthesumofalldiscountedprofitsfromacustomerafterCAChasbeensubtracted;hence,ifCACishigherthanthesumofalldiscountedprofitsCLVwillbenegative.IfCLVbecomesnegativeduetoahighCACthisindicatesthatthemarketinginvestmentshouldnotbemade.TherecurringrevenuemodelenablestestingtheresultonCLVfromaspecificCACandthisknowledgeisusefulforacompany’sdecision‐makingprocessesregardingmarketinginvestments.
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6. Discussion
Inthischapterofthereportdiscussionsarebroughtupbasedonthepreviousanalysis.Theaspectsofthefindingsarepresentedandtheresearchquestionsareansweredsequentially.
6.1. CAC
Toanswertheresearchquestion“Whichmarketingmediachannels,suitableforane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,canlowerCAC?”thealternativesofmediachannelsmustbeevaluatedchannelbychannel.FindingmarketingmediachannelswithlowCACmeansfindingalternativesthatarecheapandgeneratemanynewcustomers.Togeneratemanynewcustomersthemediachannelmustnotonlytargetmanycustomers,itmusttargettherightpersonwithhighestpotentialtobecomeasubscriberofaPPGBcompany.SuchpersoncouldbearguedissomeonethatisthepersonisinthebuyingprocessofaPPGB.Itcouldfurtherbecontendedthatthelikelihoodforapersontobecomeasubscriberisaffectedbythelengthofthelinkfrombeingexposedtoanadandthebuyingplace.
Itisdifficulttosaywhetherdirectmailmarketingisacheapmediachannelornot,asitdependsonwhichmaterialisdistributedandthetimerequiredfortheprocess.However,itisinterestingtodiscussdirectmailmarketing’seffectonfulfillingthepurposeofgeneratingnewcustomers.
Itcouldbeconsideredimpossibletotargetasmanycustomersasonlinemarketingwithdirectmailmarketingasittakesmoretimeandefforttodistributetheadvertisingmaterial.Furthermore,asitisdifficulttoknowtheneedofthepersonreceivingthead,itisariskthatthewrongpersonistargeted.Thisisofcourseariskwithalmostanymediachannel;however,asthereachislimitedonecouldarguethatitisevenmoreimportantthattherightcustomeristargeted.Ontheotherhand,evenifitismorelikelytogetanewcustomerwhentargetingacustomerthatalreadyisinthebuyingprocess,therecanalsobepotentialcustomersthattheconceptissuitableforbuttheyarenotawareofitorneedmoreinformationaboutit.Onlyfocusingontargetingcustomerfarintothebuyingprocesscanresultinneglectingvaluablecustomers.However,intheearlyphasewhereMatkasseABis,withtheobjectivetoincreasethecustomerbase,pickingthelowesthangingfruit,meaningthecustomerswithhighestpotentialofbecomingacustomerwouldbethemostsuitableoption.Finally,asthePPGBindustryhasfewwell‐knownplayers,theseplayers,besidesmarketingthemselves,mightalsomarketthePPGBconcept.Hence,peoplewillbemoreawareoftheconceptovertimeandcomefurtherintothebuyingprocess.
Asthelinkfromadexposuretothebuyingplacecouldbeconsideredlongwithdirectmailmarketing,theprobabilityofacustomeractuallybuyingtheproductafterreceivingtheaddecreases.Thetargetedpersonmightbeinterestedin
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tryingtheconceptofPPGBbut,becauseofthelonglinktothebuyingplace,doesnotfulfilthebuyingprocess.AsMatkasseABisrelativelynewonthemarkettheriskofmarketingacompetitorswhenplacinganadfarfromthebuyingplacecouldbehigh.Ifthereceiveronlyperceivesthemessageabouttheconceptandnotthebrand,theymightchooseoneofthemostwellknownsupplierswhenorderingaPPGB.
SEOhaveresultedinMatkasseABappearingamongthetophitsonGoogle.WithSEO,thelinkfromadexposuretobuyingplaceisshortasiftheviewerclicksonthelinks/heisdirectlyforwardedtoMatkasseAB’shomepage.IfSvensson’sstatementthatthisisthemaintrafficsourceistrue,itisparticularlyimportanttocontinueworkwithSEO.
SEOiscertainlyamediachannelthattargetstherightcustomersasitonlyappearstothemwhomhavedoneaGooglesearchonkeywordrelatedtothePPGB,whichindicatesthattheyareinterestedintheconcept.Ifacustomerknowsabouttheconceptandisinterestedintrying,theywillmostlikelydoaGooglesearchonPPGBinthespecificcityandclickonthelinktooneofthetopones.Asthelinktopurchaseaproductisshort,thelikelihoodtogenerateanewcustomerishigh;therefore,beingontopofthelistwillimprovethelikelihoodsofgeneratingmoresubscriberstoMatkasseAB.
Advertisingthroughadeal‐of‐the‐daychannelasLet’sdealisapreferablealternativeforgettingcustomerstotrytheproductasitensuresthatacertainamountofpersonswillpurchasetheproductwithinalimitedperiodoftime.However,itseemstobeasmallpercentageofthosecustomersthatcontinueswiththeresubscriptionafterwards.Thereasonforthiscouldbethattheywerenotsatisfiedwiththeproduct;however,asMatkasseAB’scurrentcustomersseemstobereallysatisfied,themainreasonisprobablythatittargetscustomersthatonlypurchasesbecauseofthegooddeal.Thiscouldbeconsideredasthedisadvantagewiththismediachannelasitisimpossibletotargettherightcustomers.
TheFacebookfanpageengagescustomersbutmaybemoreimportantly,itencouragescustomerstocreateearnedmediaby“liking”and“sharing”posts.AgoodexampleofthisisthecurrentcontestthatMatkasseABarrangesfortheircustomers.Towinthepricecustomersmustuploadapictureofadishandthepicturewithmost“likes”willwin.ThiswillcreateviralspreadoverFacebookandvisibilityofMatkasseAB’sbusinesstoFacebookfriendsofthecustomer.ThisviralspreadoccurstonocostforthecompanyhenceisconsideredtobeamediachannelwithlowCAC.However,viralspreaddoesneithermeanthattherightcustomeristargetednoristhelinktothebuyingplaceshort,therefor,thismediachannelcannotbearguedisdirectlylinkedtogeneratingmanynewcustomers.Ontheotherhand,onecanassumethatwordsfromafriendismore
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reliablethananadandhenceviralspreadcanhaveapositiveimpactonpotentialcustomerstobecomeactualcustomers.
Ithasalreadybeenarguedthatearnedmediaisbeneficialasitisgeneratedtolowornocost,aswellas,itprovidesreliablemarketingofthecompany.Earnedmediacouldalsoimplydamagingconsequencesifthewordsaboutthecompanyarenegative.AsforMatkasseAB,theirconceptseemstobeveryappreciated;hence,generatedearnedmediaisveryvaluableandshouldbeencourage.Givingrewardforrecommendation,asMatkasseABdoes,isagoodwaytocreateadesirablewin‐winsituationforthesupplierandcurrentcustomers.
Additional suggestion of media channels with low CAC
ThemarketingcompanypayperclickforaGoogleadandcansetamaximumtotalcostforthead;therefore,GoogleAdWordscouldbeconsideredasacheapmediachannel.Asthecompanycanthemselvesdecideexactlyhowmuchtheywanttopay,thismediachannelwouldbesuitableforacompanywithlimitedfinancialresources.
GoogleAdWordscanfurtherbeconsideredveryeffectiveasitcantargetaspecificcustomer.Choosingtherightkeywords,timefordisplay,region,etc.,enableslotofcontroloverwhichtypeofpersontheadtargets.Thus,itispossibletotargetpersonsfarintothebuyingprocess.IfapersonmakeaGooglesearchincludingoneofthechosenkeywordstheGoogleAdcanappearinthetoporsidebar,areasintendedtomaketheadmorevisible.However,theuppermostsearchhitis,withSEO,directlyunderthetopbarandcouldbearguedisasvisibleastheGoogleAd.
GoogleAd,justasSEO,enablesashortlinkfromtheadexposuretothebuyingplaceasjustbyclickingontheadthepersonisforwardedtothecompany’swebsite.Iftheaddescribesacampaignthatthepotentialcustomerperceiveasappealing,onecouldarguethatthispersonisevenfurtherintothebuyingprocesswhenclickingonthead,astheyknowexactlywhattheyshallbuywhentheyvisitthewebsite.
ThefactthatthecompanyhavelimitedfinancialresourcesalsosupportKatzsuggestionofbecomingapartofanadvertisingnetwork,asitisacheaperalternativethanregularonlinebanneradvertising.Eventhoughitcannotbecontrolledwheretheadwillbeexposed,thereareseveralotherparametersthatenablesomecontroloverwhichcustomertheadtargets.Theretargetingfeaturecouldbearguedisthemostspecifictargetedadvertising,astheadisexposedtopeoplethathavealreadyvisitthesite,hencearefurtherintothebuyingprocess.Astheyobviouslyhavethoughtaboutbecomingacustomer,remindingthemwithanadisprobablyveryeffective.Iftheyrevisitthesiteafterbeingexposedtothead,theywillmostlikelymakeapurchase.Baseonthisreasoning,
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retargetingcouldbearguedisagoodwaytolowerCACasitischeapandtargetsthecustomerwithhighestbuyingpotential.
Facebookadvertisingisagoodmediachannelasitcantargetevenmorespecificcustomers.AsforGoogleAdWords,companiespayperclick;however,itcanbeconsideredacheaperalternativeasthespecifictargetingeliminatesirrelevantcustomersthatpotentiallywouldclickontheadevenifnotinterestedinbuyingtheproduct.Ontheotherhand,Facebookadvertisingappearsontheusershomepagewhethertheyhaveactivelydoneresearchforitornot.Evenifthemarketingcompanyknowsthatthetargetedpersonissuitablefortheconcept,thepersonisnotfocusingonPPGBwhentheadappearsandisthereforenotsusceptibletoadvertising.
AstheFacebookadappearsonsocialmedia,thiscangenerateearnedmediaforMatkasseABthroughthe“like”and“share”features.Thisisagoodexampleofwhenonemediachannelsupportsanother,whichisideal.Asalreadymentioned,MatkasseAB’sreputationisverypositive;hence,increasedearnedmediaisadvantageousforMatkasseAB.
TobeabletofindthemediachannelswithlowestCACitiscriticalthatthecompanyunderstandtheeffectoncustomeracquisitionofeachmediachannel,asthemediachannelswithlowestCACarethemediachannelsthatgeneratemostnewcustomerstothelowestprice.Withthatsaid,itiscriticaltotrackandtracethemarketingactivitiesasitcanprovideaclearpictureofwhichmediageneratingwhichcustomers.Suchinsightwillsupportdecision‐makingprocessesregardingwhichmediachanneltochooseinordertoachievethebestoutcome,inthiscase,thegreatestnumberofnewcustomerstothelowestcost.Foracompanywithlimitedfinancialresourcestheimportanceoftrackingmarketingactivitiescouldbeevenmoreemphasized.Ifthecompanyrealisesthattheyspendmoneyonamediachannelthatdoesnotgenerateanynewcustomerstheycanreallocatetheirmarketingexpensestooptimizetheoutcome.
Tosumup,forane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,themostsuitablemediachannelsthattargetsthepersonwithhighestbuyingpotentialtoalowcost,areonlinemediachannels.Therefore,itissuggestedthatMatkasseABcontinuestoinvestinSEOandmaintaintheirFacebookfanpage.Tocomplementtheircurrentmarketingstrategy,itisfurthersuggestedtoinvestmentsinmarketingthroughGoogleAdWords,onlinebanneradvertisingincombinationwithretargeting,andFacebookadvertising.ThissuggestionissummarizedinFigure12.
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Figure12Recommendationofmarketingmediachannelsthataresuitableforane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources.
Inordertooptimizetheallocationofmarketingexpenses,utilizingaprogramtotrackandtraceeachmarketingactivityishighlyrecommended.Asalreadymentioned,trackingandtracingmarketingactivitieswillprovideaninsightinwhichmarketingactivitythatgeneratesmostnewcustomerstoalowcost;hence,itprovideaninsightinwhichmarketingactivityshouldbeutilizedtolowerCAC.Suchknowledgehelpsthecompanyunderstandhowtoallocatetheirmarketingexpenses.
Accordingtothetheory,CACcanbeseenasameansofcontrollingmarketingexpensesandensurethatthefirmisspendingmoneyonactivitiesthataredrivingthebusiness.Ifthefirmexchangeamarketingactivitytoanother,thechangeinCACwillgiveanindicationoftheeffectivenessofthenewmarketingchannel,i.e.ifCACislowerthanbeforethiscouldindicatethatthenewmarketingactivityismoreefficient,intermsofgeneratingnewcustomerstolowcist,thanthepreviousone.However,CAC,asitisdescribedandanalysedinthisreport,doesnottakeintoaccounttheselectionoftargetedcustomersandcanthereforebemisleading.Somecustomerswillgeneratemorevaluetothecompanyifthey,forinstance,staylongerasacustomerorpurchasemoreproducts,whileothercustomerswillonlypurchaseonce.ThevalueofCACwillbethesameasitonlycalculatesthenumberofnewcustomers,whethertheywillgeneratehighvalueornot.Therefore,theCACshouldbeanalysedinrelationtothevalueeachnewcustomerwillgenerate(notethatCLViscalculatedas
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averagecustomerprofit)tobeasufficientmetrictorelyuponwhenmakingdecisionsregardinginvestmentsinmarketingactivities.Inotherwords,relyingtoomuchonCACthatdoesnotincorporatethevalueeachnewcustomerwillgeneratecaninvolveariskofinvestinginthewrongmarketingactivities.
6.2. Churn
Toanswerthesecondresearchquestion,Howane‐commercecompany,withasubscriptionproductandlimitedfinancialresources,cantakemeasurestoretaintheirexistingcustomers,i.e.lowerChurn,itisimportanttounderstandthedriversofloyalty.Thisreporthasfocusedonrelationalcommitmentasadriverofloyalty.Hence,affectiveandcalculativecommitmentisstudied,firstbyhowthisisdoneinthePPGBindustryandsecondifthereissuggestionsfromothere‐commercebusinessesthatcanbeusefultoimplement.FollowingthisstructureitisfirstdiscussedwhichcommitmentsthatexistsandwhyinthePPGBindustry,seconddiscussionisabouthowtwoothere‐commercecompaniesdotobuildthesecommitments,whichendsupinsuggestionsaboutwhichmeasuresthatcanbetaken.
ThequalitativecontentanalysisshowedthatallPPGBcompanieshavesimilarproductstooffertheircustomersandtheirconceptsarealsoalike.Whencomparingthethreewordsthatbestdescribethecompanynoneofthesewordsareuniquebutatleastoneothercompanywoulddescribetheirconceptwiththesameword.Linasmatkasse:tasty,healthyandquick.Middagsfrid:tasty,healthyandquality.Mathem.se:healthy,quickandeasy.MatkasseAB:nutritious,qualityandeasy.ThisshowsthatthePPGBcompaniesareverymuchalikeandthatitwouldbedifficultforthecustomerstodistincttheiroptionswhenresearchingthemarket.Thisgivesimplicationsthatswitchingtoanothersupplierareeasyandthatmanagingretentionthroughbuildingrelationshipcommitmentwiththeircustomersbecomevital.
ThequalitativecontentanalysisshowedthatthePPGBcompanieswebsitesaresimilar.Hence,theyareeasytolearnandinteractwithandthelearningbarriersforcustomersarelow.Thisimplicatesthatthecustomerswonthaveproblemstolearnanewwebsitewhenswitchingsupplier.
Twoofthecompaniesinourstudy,mathem.seandMiddagsfrid,arecertifiedinsafee‐commercebythirdparty.Thefactthattheypayforthisservicewouldimplythattherestillisarelationalcostintermsofsecurityissueswiththecustomersthatneedstobedealtwith,whiletwoofthecompaniesinthestudydonotseethisasaproblem.Certificationsfromthirdpartaresafetymeasuresforthecustomertoeasebuyingdecisionsandkeepthetheirtrust.ThereareimplicationsthatthePPGBcompanieswanttocreateasenseofsafetyandsecurityontheirwebsites.
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Themembershipandsubscriptiontermsisthepartwherecompaniescouldreallyaffecttheircustomersandbuildartificialbarriersintheformofcontractualbarrierstomakecustomersstaywiththeirsubscriptions.Havingtime‐basedsubscriptionsduringanamountoftimewouldsecurerecurringrevenuesandprovidesafeincomesfortheproviders.However,noneofthecompaniesofferssubscriptionsthatbindthecustomerovertime.Thisisofcoursepreferableforthecustomerssincetheycanpauseorterminatethecontractatanytime,whichcouldimplybuildingtrustandsecuritywiththem.Sincethesetypesoftermspresentnocontractualcostsforthecustomersthecompaniesmissopportunitiestobindtheircustomerstosubscriptionsovertime.Bycreatingmonetaryincentivesforthecustomerstheymightbewillingtobindthemselvescontractuallyovertime,whichnoneofthecompanieshavetriedtooffer.
Therearehoweversomecontractualbarriersintermsofhowmanydaysnoticethecustomermusthavetopauseorendthesubscription.Thiscouldcreateirritationwiththecustomersthattheyhavetoplanmorethanaweekinadvancewhetherornottheywanttheproducts.Hence,theirtrusttowardsthecompanyandtheproductscouldalsobedamagedandrelationalcostsdecline.
Itcouldbebeneficialtohaveaflexibledeliveryschedule.Customersthatareaccustomedtochoosingtheirdeliverytimemightstaywiththatprovidersincenooneelsecanofferthesameflexibility.Theyhavecreatedaconveniencebarrierwiththeircustomersthatmakethemstayduetootherwiselossofflexibility.ThiscouldalsobethecasewithMatkasseAB’sdeliverynotificationsthroughSMS.Ifthecustomerisaccustomedtobeprovidedwithacertainserviceandnootherprovideronthemarketcansupplythesametypeofservicethiscreatestheconveniencebarrier.
Linasmatkasseisnotprovidingtheirrecipesinadvance.Notknowingwhatwillbedeliveredcanbecomeatrustissuewiththecustomersincetheirinsecurityofthepurchaseincreasesandrelationalcostsarelowered.Furthermore,itmightbemoreconvenienttoswitchtoanothersupplier.However,ifthemenuispresentedinadvanceandthecustomerdoesnotliketherecipesofthatmenutheyarefreetopausethesubscription.Sothereisatrade‐offbetweeninformingthecustomerofitspurchase,whichmightbuildrelationalcosts,anddisclosesallinformation,whichmightresultinapausedsubscription.
SinceitismoredifficulttointeractwithcustomerswhenhavinganInternetbasedbusinesscomparedtoaphysicalstoreitisimportantthattheavailableinteractionworksandthattherightsignalsarecommunicatedtothecustomers.Onlyhavingemailorchatfunctionswilllimittheinteractionpointsandhencelimitthedevelopmentofaffectivecommitmentwiththecustomers.Thephonecontactcouldbuildtrustwiththecustomersandcreaterelationalcostswith
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themwhenswitchingproviders,butbecauseallPPGBcompanieshavethisservicethecostsarenoteffective.Mathem.sealsoprovidesphoneorderingservice,whichcertainpeoplemightfindpleasant.Havingsomeonetotalktoandaskaboutadvicewhenchoosingamongthedifferentproducts.Italsoprovidesanotherinteractionpointonwhichtobuildaffectivecommitmentthroughdemonstratedassertivenessandaffiliation.Itisimportantthattheservicepeoplemanagingthephonecallswiththecustomersareservicemindedandseekstoassistthecustomerinanyway.Ifthecustomerperceivesthecommunicationasunpleasanttherelationshipandemotionaltietothecompanycouldbedamaged.
Anotherinteractionpointwiththecustomersisthroughthepeoplewhodelivertheproduct.Againthemoodandinteractionbetweenthecustomerandthesepeoplearevitaltorestoreorbuildrelationshipsandemotionalties.Thisinteractionmightbetheonlycommunicationthatthecustomerhaswiththecompanyanditisthereforevitalthatitdoesnotdamagetherelationshipbutratherbuildsitup.
BothLinasmatkasseandmathem.sehasamobileappthatisavailableforsubscribers.Thishasthepotentialofbecominganewcontactchannelbetweenthecompaniesandthecustomers,wheretheycancreatevaluablecontentthatincreasesaffectivecommitmentandawarenesswiththecustomers.AnotherformofcommunicationiscreatedthroughtheAppwherethecompaniescansendpushnotifications*tothecustomers.Utilizingthischanneltocreatesomethinginterestingandthatcreatesvaluewillstrengthentherelationshipbetweenproviderandcustomer.
Themember’spageorclubsiswherethecompaniesreallycanbuildartificialbarriersthroughloyaltyprogramsandloyalcustomerdiscounts.Mathem.sehaveexploitedtheirmemberclubinareasonablygoodway,butthecompanythatstandsoutwhenitcomestoartificialbarriersisLinasMatkasse.Theyhavethewholespectraofasuccessfulloyaltyprogramprovidingbothhardandsoftbenefits,personalizationandemotionalties.
CalculativeandaffectivecommitmentdoesexistinthePPGBindustryandsomeofthecompaniesarebetteratretentionmanagementthanothers.Whenitcomestocalculativecommitmentandswitchingbarrierstherearerelationalcosts,throughtrustandsecurityissues,artificialbarriersthroughloyaltyprogramsandconveniencecoststhroughthecustomersperceivedlackofflexibilitywithotherproviders.Therearehowevernoorverylowpresenceoflearningandtransactioncostsaswellastheotherpartofartificialbarriersthatiscontractualbarriers,asillustratedinFigure13.Sincecalculativecommitmentisaplatformonwhichtobuildaffectivecommitmentitisimpliedthatthereis
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affectivecommitmentwiththecustomersaswell.Asarguedbelowtheseimplicationsarehowevernotthatstrong.
Figure13EachswitchingbarriersdegreeofpresenceontheanalysedPPGBcompanies’websites.Compiledbytheauthors.
TheaffectivecommitmentcouldbeconsideredasweakwithinthePPGBindustrysincemostoftheinterpersonalcommunicationsarethroughcustomerservicesbytelephoneandemail.Thiscanhardlybeenoughtocreateanemotionaltietothecustomersandstrengthentherelationship.AnewinteractionpointarehoweverbuiltthroughApps,whichsomeofthecompanieshavereleased.Usingthesechannelstocreatefurthervaluetothecustomerscouldproveimportantwhendevelopingaffectivecommitment.
Thee‐commercecompaniesintheclothingbusinesshaveusedinterestingstrategiestoimprovetheaffectivecommitmentwiththeircustomers.HavinganInternetbasedbusinessmakesitdifficulttocreatecloserelationshipswiththecustomersanddevelopemotionalties.Howeverbothmembers.comandmilkandhoney.sehavetriedtoachievethisindifferentways.
Members.comhavetriedtocreateashoppingexperienceforthecustomerswheretheyvisitthewebsiteforotherreasonsthanonlyshopping.Usingblogsthatwriteaboutfashionadvice,stylingtips,travelingorother,forthecustomer,relevantcontentwillhopefullycreateaninterestofthesitethatotherwisewouldnotexist.Whenthisinterestisachievedwiththecustomertheywillhopefullydevelopacloserrelationshiptothewebsiteandthecompany.
Milkandhoney.sehavethebenefitofcomplementingtheironline‐basedstorewithaphysicalstore.Theyinvitemembersoftheircustomerclubtoeventsinthephysicalstorewherethepeoplecanmingle,haveasnackandshopatthesametime.Thisisanexampleofutilizingphysicalinteractionswiththecustomerstocreateacloserrelationshipwiththemandthecompany.
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ThesecompaniesattempttocreateaffectivecommitmentwiththeircustomersissomethingthatthePPGBindustrylack.Therefore,theyshouldtrytolearnfromtheseexamplesandapplysimilarretentionstrategiestoachievestrongerandmoredirectrelationships.
Summinguptherecentdiscussion.TheliteratureframeworksuggeststhattoimproveChurnandincreaseretentionitisimportanttoincreasethecustomerloyalty.Themostinterestingdriversofloyalty,arguedinthisreport,iscalculativecommitmentandaffectivecommitment.ThePPGBcompanieshavesomecalculativecommitmentwiththeircustomersthroughswitchingbarriers.OfthefivedifferentbarriersthatarepresentedinthisreporttheartificialbarriersaretheonesthatthePPGBcompaniescantakeactivemeasurestoaffecttoincreasetheloyaltywiththeircustomers.Linasmatkassearethebestexamplefromthequalitativecontentanalysisincreatingthesebarriersthroughtheirloyaltyprogram.Hence,otherPPGBcompaniesshouldstudythisexamplewhentheywanttoincreaseswitchingbarriersandimproveChurn.Contractualbarriersaretheotherimprovementareawhenincreasingcustomerloyaltythroughcalculativecommitment.ThisisamoredelicateareaforthePPGBcompanies.Therearenocontractualbindingtimewhenenteringintoasubscription.IfthiswerecreatedbyaPPGBcompanyasanactiontoincreasecalculativecommitment,theupsidewouldbemorepredictablerevenuessincethecustomerswouldbecontractuallyobligedtobuyproductsforanamountoftime.ThedownsidewouldbethatthecustomersmightchooseanotherPPGBcompanythatdoesnothavecontractualbarrierswiththeirsubscriptions.Whethertheupsidesaremoreappealingthanthedownsidesaredifficulttoimply,butifthecustomerscouldgetsomemonetaryincentivestoenterintoabindingagreementforaperiodoftime,intheformofcheaperproductsthismightbeanattractiveidea.Creatingartificialbarrierstoincreasecalculativecommitmentandhence,customerloyaltybyworkingwithloyaltyprogramsandcontractualbarriersarethedefinitesuggestionsforthePPGBcompanies.
TheotherimprovementareaforthePPGBcompaniesisaffectivecommitment,whichiscreatedthroughmoredirectandcloserrelationshipwiththecustomers.Thee‐commercecompaniesstudiedinthisreportaremoresuccessfulinthisareathanthePPGBcompanies.Therefore,thePPGBcompaniesshouldtakemeasurestocreatemoreaffectivecommitmentthroughstudyingtheexamplesgiveninthisreport.Thereareforemosttwodifferentsuggestionsofactionsthatarerelevanttocreatemorevalueforthecustomersthanjusttheproducts.First,makingthecustomervisitthewebsiteforotherreasonsthanonlyshopping.Deliveringcookingtipsandadviceonhowtobeabetterchefcouldforexamplehavethiseffect.Second,creatingcloserandmoredirectrelationshipswiththecustomers,byforexamplearrangingeventswherethefirmandcustomerscanengageinphysicalinteractionscouldbeasuccessfulwayofachievingthis.
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Managingthesebarrierswillbebeneficialforthechurnrate,butevaluatingthemeasurestakenisnoteasy.Itisdifficulttodeterminehowbeneficialitwillbeandhowtotrackandtraceinvestmentsmadetoaffectchurn.Manymarketinginvestmentswillprobablyhaveapositiveeffectonchurnrate,butitwouldbedifficulttotracewhatspecificinvestmentthatgavetheimprovement.IfaPPGBcompanyweretoimplementaloyaltyprogramandcontractualbarrierswiththeirsubscriptionsitwouldbeproblematictoseehoweachinvestmentaffectedthechurnrate.Insteadthecompanywouldhavetomaketheseinvestmentssequentiallytotracetheimpactonthechurnrate.Thisisoneoftheweaknesseswiththismetric.
Itisfurthermoredifficulttoknowwhichcustomersthatreacttowhichactivities.Somemightlovetheideaofaloyaltyprogramthatgivesdiscountsorotherincentives.Thesetypesofactivitiesmightnotaffectothercustomersatall.Itwouldbemostbeneficialtofindswitchingbarriersthatcouldcontributetoapositiveretentionwiththebroadestrangeofcustomers.Tomakeaproperevaluationofthisitwouldbenecessarytoinvolvethecustomersinasurveyofsomekind.
6.3. Recurring revenue model
Theshortanswertotheresearchquestion“HowcanacompanyincreasereliabilityofmarketinginvestmentdecisionsbyunderstandingtheimpactofCACandChurnonthefinancialperformance?”isarecurringrevenuemodel,asaRRMprovidesaclearpictureofhowCACandChurnaffectsCLV,hence,thecompany’sprofits.Arecurringrevenuemodelcanbedesignedinvariousways;however,thefocuswillbeonthespecificmodelpresentedinthisreport.
ThefundamentalsoftherecurringrevenuemodelarethatCACandChurnareinputdataintothemodelandCLVisoutputdata.Thismeansthatdifferentscenarios,basedonchangesinCACandChurn,canbetestedandresultindifferentvaluesofCLV.AsCLVisdefinedasakeymetricformeasuringafirm’sfinancialperformanceasitmeasuresthefirm’sprofits,themodelenablesanunderstandingoftheimpactonCLVfromdifferentCACand/orChurnrates.Withthefundamentalgoalofincreasingafirm’sprofits,onecouldarguethatmarketinginvestmentdecisionsshouldbemadebaseduponwhichmarketinginvestmentresultinhighestCLV.MarketinginvestmentsindifferentmarketingactivitieswillhaveavariousimpactonCACandChurnandwillinturnhavevariousimpactonCLV;therefore,understandingtheserelationshipswillhelpmanagementunderstandwhichmarketingactivitiestoinvestin.Withthatsaid,usingtherecurringrevenuemodelpresentedinthisreportwillincreasethereliabilityofmarketinginvestmentsdecisionsbyenablinganunderstandingoftheimpactofCACandChurnonCLVandthefirm’sprofits.
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InthecasestudyofthefictitiouscompanyChef&FriendscenarioswithvariousvaluesofCACandChurnaretestedintherecurringrevenuemodel.ThisstudydemonstratestheabilitytoseetheeffectonthecustomerbaseandCLVfromCACandChurn.However,therearesomeuncertaintiesthatneedtobespecifiedtogetmorereliableresults.
TheRRMisnotmorereliablethanthedataitisbasedon,hence“garbageingarbageout”isimportanttoconsider.WhenevaluatingtheeffectonCLVfromCACandChurnonemustconsiderthesizeoftheinvestmentforimprovingeachmetric.Assumingthataspecificmarketinginvestmentwouldimprovebothmetricsequallyisnotrealisticastherearevariousmarketingactivitiestoperformandeachmarketingactivitywillgeneratedifferentresults.
ToachieveamorereliableresultfromthemodeltheCACandChurnvaluesmostincorporatemoreparameters,suchasCACforspecificmarketingmediachannelandimprovementinChurnfromaspecificswitchingbarrier.Togetthisdata,onemustgoonestepbackwardsandevaluateeachspecificmarketingactivityovertimeandperformthemarketingactivityseveraltimes.Forinstance,createaFacebookadonemonth,e.g.December,mightgeneratealotofcustomers;however,anothermonth,e.g.Julymightnotgenerateanycustomersatall.InDecember,peoplemightpurchasetheproductasagiftforfamilyandfriendswhileinJulymostpeoplehavevacationandthereforeaPPGBisnotsuitableforthemoment.Howtheadisdesignedwillforsurealsohaveanimpactontheeffectasitmighttargetdifferentcustomers.Whatistryingtobesaidisthatthereareseveralparametersthatcaninfluencetheeffectfromanadandthemarketingactivitymustthereforebeperformedseveraltimesinordertoobtainareliableaveragevaluetoutilizeinthemodel.
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7. Conclusion Thisreporthashighlightedtheimportanceofcustomermetricsandhowtoimprovethem.Themetricsarehelpfultomanagethecustomerbaseofandrelatetotheacquisitionandretentionofcustomers.SinceCACandChurnprovidesinformationaboutthedevelopmentofthecustomerbasetotheonemakingdecisionsaboutmarketinginvestments,thesemetricsarevitalwhentryingtoaffectcustomerbase.
Theindustryofpre‐packedgrocerybagsisacurrentareawithine‐commerce,butithasnotbeenthatwidelystudied.Thisreportcontributestotheunderstandingofcustomermetricswithinsimilarindustriesofe‐commerceandsubscriptionbasedbusinessmodels.Manystudieshavebeenmaderegardingcustomermetrics,butnotexclusivelywithinthespecificcontextthatthisreportiscontributingto.Aqualitativestudy,likethisone,israrelygeneralizabletoawidercontext,aswillbeconcludedfurtherdowninthischapter.
Forane‐commercecompany,withasubscriptionbasedproductandlimitedfinancialresources,itisimportanttoutilizemediachannelswithlowCAC,inordertoincreasetheircustomerbaseinacostefficientway.ThisreportevaluatesmarketingmediachannelsandcontributeswithsuggestionsofthealternativesthatcouldbesuitabletoachievealowCAC.
ThemainconclusionisthatonlinemediachannelsisthemostsuitableforaPPGBcompanyinthedescribedsituation,asonlinemediachannelsaremostoftencheaperandenablesmorespecifictargetingthantraditionalmediachannels.Itisfurtheremphasizedthatonlinemediachannels,comparedtotraditionalmediachannels,increasethelikelihoodofacquiringanewcustomer,asthelinkbetweenadvertisingandthebuyingplaceisminimized.Toincreasethelikelihoodofacquiringacustomerevenfurther,itissuggestedtoutilizemediachannelsthattargetspotentialcustomerthatarealreadyinthebuyingprocessofsubscribingtoaPPGB.
Theimportanceoftrackingandtracingthemarketingactivitiesisalsohighlightedinthereport.Understandingtheeffectofeachmarketingactivitywillsupportdecision‐makingprocessesregardingchoiceofmediachannelandenableoptimizedallocationofmarketingexpenses.Itisimpliedthatvariousmarketingactivitieshavedifferentoutcome,intermsofcostefficiency,andmarketingexpensesshouldbeallocatedtotheactivitiesthataremostcostefficient,hence,resultinlowestCAC.Trackingandtracingthemarketingactivitieswillthereforeprovideavaluableinsightforoptimizingcompany’sallocationofmarketingexpenses.
CreatingcalculativecommitmentthroughswitchingbarriersshouldbeanimportantpartofthePPGBcompanies’retentionstrategies.Thisreport
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highlightstheabsenceoflearningbarriers,transactioncostsandcontractualbarriers.Otherbarrierssuchasrelationalcostsandconveniencecostsarepresent.TherearealsoimplicationsthatthePPGBcompaniescouldlearnfromeachotherregardingtheartificialbarrierofaloyaltyprogram.Linasmatkasseisthesinglemostprominentcompanyinthisareaaccordingtoourstudy.
Asuccessfulretentionstrategyshouldalsoincludemeasurestocreateaffectivecommitmentwiththecustomers.Thisiscreatedthroughthecustomer/firminteractionpointsandaimstodevelopemotionaltiesanddirectrelationships.SincetheinteractivecommunicationchannelsarerestrictedontheInternetthisisdifficulttoachieve.However,thetwoe‐commercecompaniesinterviewedinthisreporthaveshowedcreativeattemptstoachieveaffectivecommitment,whichshouldbestudiedbythePPGBcompanies.
Usingarecurringrevenuemodeltoforecastafirm’sfinancialperformancecanincreasethereliabilityofmarketinginvestmentdecisions.ThemodelprovidesagoodunderstandingofhowCLVisaffectedifCACand/orChurnareimproved;hence,themodelprovidesatoolforthemanagementdecision‐makingprocessesregardingmarketinginvestments.
Thefindingspresentedinthisreportarenottobegeneralizedtoawidercontextwithoutcarefulconsiderations.Aqualitativestudyinvolvesthedeeperresearchofsmallergroupsandisorientedtowardsaspecificsettingandcontext.Sincethisreporthasusedaqualitativeapproachforallfindingspresentedupuntilnowthisargumentisapplicablehereaswell.Therefore,allconclusionsarelimitedtoane‐commercebusinessandthecontextthatthesecompaniesactwithin.ThemediachannelsthatarerecommendedforloweringCACwouldbethemostgeneralfindings.Usingonlinemediachannelscouldbeasuccessfulmethodformoreeffectivemarketinginvestmentsincustomeracquisition.Theaspectofe‐commerceaswellashavingasubscriptionbasedbusinessmodellimitstherecommendationsregardingretentionstrategies.ThefactthattheempiricalfindingsarebasedonacontentanalysisfocusedoncompanywebsiteswithinthePPGBindustrymakestheserecommendationslimitedtodirectcompaniessolelywithinthisindustry.Therecurringrevenuemodelcouldbeusedasatoolformarketingdecisionswithinothere‐commercebusinesseswithsubscriptionbasedbusinessmodels.Therecurringrevenuesareaprerequisitefortheuseofthismodel.
AsstatedinthebackgroundthePPGBindustryisarelativelynewbusinessthathasgrowninpopularitytherecentyears.Rightnowtheacquisitionofcustomersaremostimportantbutasthebusinessevolvesitwillbemoreimportantwiththeothersideofmanagingthecustomerbasethatisretentionmanagement.Thebestcompaniesatdevelopingtheircustomerbasearetheoneswiththelargestrevenuesandstudyingthesewillgivesmalleractorsthepossibilityofexpanding
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aswell.TherearemanycustomersthathavenotyettriedthePPGBconceptsotherearestillalotofgainstobeharvestedbyfocusingonattainingnewcustomers,buttherealwinnerswillbethosewhoactivelyinvestinbothsidesofthemanagementofthecustomerbase,namelycustomeracquisitionandretention.
7.1. Suggestions for further research
TheresearchhasstudiedhowmarketinginvestmentscanaffectCACandChurn,andbasedonthathowCACandChurnaffectCLV.Thefirstparthasresultedinsuggestionsofmarketingactivitiesthatcanbeperformedtoimprovethemetrics.Thesesuggestionsarequalitativeanddonotinvolvequantitativedata,suchasCACforaspecificmarketingactivityorsizeofamarketinginvestmentforloweringChurntoadesiredlevel.Forthemodeltobemoreaccurateandrealisticthesedataisneeded.Therefore,suggestionsforfurtherresearcharetoquantifyproposedmarketingactivitiesinmonetaryterms.Incorporatingsuchdataintotherecurringrevenuemodelwillprovideamoresoliddecision‐baseformarketinginvestments.
Furthermore,itwouldbeinterestingtoinvestigatemoreabouttherelationshipbetweenthetwometricsandhowtheyaffecteachother.Basedonthatresearchitcouldbeofinteresttodiscusstwomatters:First,howtobalanceinvestmentsindriversofcustomeracquisitionversusretentioninordertomaximizethefirm’sprofits.Second,ifitisaspecifictimewhenitismoreimportanttofocusononemetricratherthantheother.Forinstance,whentheindustryisrelativelynewitcouldbemoreimportanttofocusonacquiringnewcustomersratherthanretainingexisting,inordertogetalargemarketshare.
Finally,thisstudyhasstudiedrelationshipcommitmentinthePPGBindustryinthelevelofthefirm.FurtherresearchonswitchingbarriersinthePPGBindustryfromacustomer’sperspectivewouldcontributewithanadditionalanglewhenbuildingasuccessfulretentionstrategyforaPPGBcompany.
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8. List of References Articles
Baker,C.(2005)WeighingOnlineMarketing’sBenefits.MultichannelNews,vol.26,iss.21,pp.91.
Balabanis,G.,Reynolds,N.,Siminitras,A.(2004)Basesofe‐storeloyalty:Perceivedswitchingbarriersandsatisfaction.JournalofBusinessResearch,vol.59,iss.2,pp.214‐224.
Berger,P.,Nasr,N.(1998)Customerlifetimevalue:Marketingmodelsandapplications.Journalofinteractivemarketing,vol.12,iss.1,pp.17‐30.
Burnham,T.,Frels,J.,Mahajan,V.(2003)Consumerswitchingcosts:atypology,antecedents,andconsequences.AcademyofMarketingScience,vol.31,iss.2,pp.109.
Claude,B.(2000)CombatingcustomerChurn.Telecommunications,vol.34,iss.3,pp.83.
Dacey,J.(1997)SavvyMarketingforCPAs.ThePracticingCPA,vol.21,iss.6,pp.3.
Gupta,S.,Zeithaml,V.(2004)CustomerMetricsandTheirImpactonFinancialPerformance.MarketingScience,vol.25,iss.6,pp.718‐739.
Gupta,S.,Lehmann,D.R.,Stuart,J.A.(2004)ValuingCustomers.JournalofMarketingResearch,vol.41,iss.1,pp.7‐18.
Gustavsson,A,Johnson,M.,Roos,I.(2005)Theeffectsofcustomersatisfaction,relationshipcommitmentdimensionsandtriggersoncustomerretention.TheJournalofMarketing,vol.69,iss.4,pp.210‐218.
Harris,E.(2000)Recognize,Reward,ReaptheBenefits.SalesandMarketingManagement,vol.152,iss.9,pp.109.
Heaphy,J.(2011)HowFabricatorsCanBenefitfromOnlineMarketing.Kitchen&BathDesignNews,vol.29,iss.10,pp.64.
Huson,Stephen(1996)Thefallofthevaluedcustomer.CellularBusiness,vol.13,iss.5,pp.22.
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Livne,G.,Simpson,A.,Talmor,E.(2011)DoCustomerAcquisitionCost,RetentionandUsageMattertoFirmPerformanceandValuation?JournalofBusinessFinanceandAccounting,vol.38,iss.3‐4,pp.334‐363.
Menon,K.,O’Connor,A.(2007)Buildingcustomers’affectivecommitmenttowardsretailbanks:TheroleofCRMineach’momentoftruth’.JournalofFinancialServicesMarketing,vol.12,iss.2,pp.157‐168.
Mosier,A.(1999)KeepingCustomers.Incentive,vol.173,iss.9,pp.160.
Moskin,J.(2013)Everythingbutthecook.NewYorkTimes,pp.D1.
Pei‐Yu&Hitt(2002)MeasuringswitchingcostsandthedeterminantsofcustomersretentioninInternet‐enabledbusinesses:Astudyoftheonlinebrokerageindustry.InformationSystemsResearch,vol.13,iss.3,pp.255.
Reinartz,W.,Thomas,J.,Kumar,V.(2005)BalancingAcquisitionandRetentionResourcestoMaximizeCustomerProfitability.TheJournalofMarketing,vol.69,iss.1,pp.63‐79.
Sauter,J.(2009)Conversionrate:Onlinemarketing’sHolyGrail.TheDailyRecord.
Smith,D.(2010)BrandMarketingOnline:Paid,Owned,Earned–IsaWebsiteAloneSufficientforaBrandOwnedMediaPresence?MarketingWeeklyNewspp.102
Swanson,C.(2008)Long‐termFinancialForecastingforLocalGovernments.GovernmentFinanceReview,vol.24,iss.5,pp.60.
Wileman,A.(1999)What’sacustomerworth?ManagementToday,pp.95.
Wirtz,B.W.,Lihotzky,N.(2003)CustomerretentionmanagementintheB2Celectronicbusiness.LongRangePlanning,vol.36,iss.6,pp.517‐532.
Zohn,J.(2003)CustomerAcquisitionCost–AKeyMarketingMetric.NationalPetroleumNews,vol.95,iss.4,pp.37.
Whitfield,R.,Duffy,A.(2011)Extendedrevenueforecastingwithinaserviceindustry.InternationalJournalofProductionEconomics,vol.141,iss.2,pp.505‐518.
Books
Bryman,A.,&Bell,E.(2011).BusinessResearchMethods.NewYork:OxfordUniversityPressInc
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Hillier,D.,Ross,S.,Westerfield,R.,Jaffe,J.,Jordan,B.(2010)Corporatefinance.Europeanedition.UnitedKingdom:McGraw‐HillEducation(UK)Limited.
Osterwalder,A.,Pigneur,Y.,Clark,T.(2009)BusinessModelGeneration:AHandbookforVisionariesGameChangers,andChallengers.Hoboken:JohnWiley&Sons,
Thesis
Grönlund,E.,Carlberg,H.(2010)Bortabra,menhemmabäst–Enundersökningavegnaochköptamedier.Stockholm:Handelshögskolan.
Reports
Cowan,D.(2012)MeasuringHighGrowth,RecurringRevenueBusinesses.Report:BessemerVenturePartners.Pdf:http://www.bvp.com/sites/default/files/measuring_growth_businesses_with_recurring_revenue.pdf
Edelman,D.,Salsberg,B.(2010)BeyondPaidMedia:Marketing’sNewVocabulary.Report:McKinseyQuarterly
Sussin,J.,Sarner,A.(2013)TopUseCasesandBenefitsofSocialforCRM2013.Report:GartnerGroup.
SvenskHandel(2011).Matpånätet‐Utvecklingenavdensenskadagligvaruförsäljningenpåinternet.Pdf:http://www.svenskhandel.se/Documents/Rapporter/2011/Mat‐pa‐natet‐2011.pdf
Websites
GoogleAnalytics(2013)Gaininsightthatmatter. http://www.google.com/analytics/features/index.html(130501).
Larry,K.(2013)CostPerAction–LearnMoreAboutCostPerAcquisitionMarketing.WordStream.http://www.wordstream.com/cost‐per‐action(130326).
Rappa,M.(2000)BusinessModelsontheWeb.ManagingtheDigitalEnterprise.http://www.ecommerce.ncsu.edu/topics/models/models.html(130213).
SaasOptics(2012)Howtocalculatemonthlyrecurringrevenueforamonthlysubscriptionbusiness?CalculateMRR‐MonthlySubscriptions.http://www.saasoptics.com/SaaS‐opedia/saas‐opedia/how_to_calculate_MRR‐
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monthly_subscriptions/how_to_calculate_MRR‐monthly_subscriptions.html(130517).
Skok,D.(2009)StartupKiller:theCostofCustomerAcquisition.ForEntrepreneurs.http://www.forentrepreneurs.com/startup‐killer/(130315)
Sundelin,A.(2008)Subscriptionbasedbusinessmodels.TheBusinessModelDatabase.http://tbmdb.blogspot.se/2008/12/subscription‐based‐business‐models.html(130212)
Interviews
Carson,Gregory.Investmentmanager,GUHolding.Interview,130311.
Katz,Anders.Campaignplanner,MediaView.Phoneinterview,130410.
Svärdh,Max.CEO,Milkandhoney.se.Phoneinterview,130419.
Johansson,Albin.Productmanager,Members.com.Phoneinterview,130416.
Svensson,Gustav.FounderandCEO,MatkasseAB.Interview,130403.
Abreu,Teodor.SalesRep,Groupon.Phoneinterview,130502.
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Appendix I ‐ Definitions Definitionofwordsusedinthereport
Word Definition
App See”Softwaremobileapplication”
Blog AdiscussionorinformationsitepublishedontheInternetthatiscontinuouslyupdatedwith“posts”.Theblogoftenregardsaspecificsubject,butthisisnotalwaysthecase.
ClickFreeRate(CFR) RelatedtomarketingontheInternetandmeasurestheproportionofpeopleexposedtotheadvertisementthatclicksontheadvertisement.
Customerbase Thegroupofcustomersorconsumersthatabusinessserves.
Deal‐of‐the‐day Ane‐commercebusinessmodelthatoffersproductsatadiscountforaperiodoftime,often24to36hours.
Directmailmarketing Communicationsentfromthefirmtothecustomerviathepostalserviceorotherdeliveryservice.
Discountrate Therateusedtodiscountafuturemonetaryvaluetothevalueoftoday.
E‐commerce ElectroniccommerceisanindustrywherethebuyingandsellingofproductsandservicesisdoneovertheInternet.
E‐store AnelectronicstoreintheformofawebsitewhereproductsorservicesissoldontheInternet.
Facebook Anonlinesocialnetworkingservice,whereuserscancreatepersonalprofilesandaddotherusersasfriends.Usersinteractonthewebsiteanduploadpictures.Userscanalsopersonalizetheirprofilebyliking(“like”)andsharing(“share”)othersinformationontheirprofile.
Facebookfanpage ApartofFacebookwherecompaniescancreatefanpagestocommunicatewiththepeoplewho“like”
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theirfanpage.
Financialperformance Theprofitabilityofafirm
Instagram Anonlinesocialnetworkingservice,whereuserstakepictures,applyfiltersanddisplayontheirprofiles.Otheruserscan“like”andcommentonthepictures.ThepicturescanalsobesharedthroughFacebookandTwitter.
Internetfraud TheuseofInternetservicestocommitfraud.
Loyalty(customerloyalty)
Thecustomerspreferenceforaparticularfirmorproductandthecommitmenttorepeatpurchaseofthatparticularfirmorproduct.
“like”(Facebook) See“Facebook”.
Marketingactivity Activitieswiththepurposetomarketthecompanytocustomersorpotentialcustomers.
Marketingcompany Thecompanywhousesmarketingtoattractnewcustomers.
Marketingexpenses Expensesrelatedtomarketingactivities.
Marketingmediachannels
Mediumusedtoreachcustomersandpotentialcustomers,suchasnewspapers,television,directmail,etc.
Mobilesoftwareapplications
Softwareapplicationsdesignedtorunonsmartphones,tabletcomputersandothermobiledevices.
Pushnotifications Messagescommunicatedtomobiledevicesthroughmobilesoftwareapplications.
Recurringrevenue Revenuesgeneratedfromrepeateddeliveryofaproductorservice.
Retargeting Itisanonlinemarketingfeaturetargetingspecificcustomersthathasvisitedawebsitebefore.Theadvertisementistargetedtobeexposedtopreviousvisitorsofawebsite.
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Searchengineoptimization
Theprocessofaffectingtheresultsgeneratedbyasearchenginetogetbettervisibilityintheresultlist(Higherranking).
“share”(Facebook) See“Facebook”.
Socialmedia Socialmediareferstothemeansofinteractionsamongpeopleinwhichtheycreate,shareandexchangeinformationandideasinvirtualcommunitiesandnetworks.
Twitter Anonlinesocialnetworkingservicethatenablesuserstosendandreadtext‐basedmessagesofupto140characters.
Viralspread(marketing) Marketingtechniquethatusessocialnetworksandothertechnologiestoproduceawarenesswithcustomersandothermarketingobjectivesthroughself‐replicatingviralprocesses.CanbedeliveredbywordofmouthorenhancedbythenetworkeffectsoftheInternet.
Wordofmouth Unpaidformofpromotion,wheresatisfiedcustomersspreadpositivemessagesofacompanyorproduct.
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Appendix II – Screenshots from qualitative document analysis
AppendixII‐1
AppendixII‐2
AppendixII‐3
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AppendixII‐4
AppendixII‐5
AppendixII‐6
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AppendixII‐7
AppendixII‐8
AppendixII‐9
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AppendixII‐10
AppendixII‐11
AppendixII‐12
AppendixII‐13
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AppendixII‐14
AppendixII‐15
AppendixII‐16
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AppendixII‐17
AppendixII‐18
AppendixII‐19
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AppendixII‐20
AppendixII‐21
AppendixII‐22
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AppendixII‐23
AppendixII‐24
AppendixII‐25
AppendixII‐26
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AppendixII‐27
AppendixII‐28
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Appendix III
AppendixIII‐2
AppendixIII‐1
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Appendix IV – Interview guides
InterviewguideusedtointerviewAlbinJohanssonandMaxSvärd
Skulledukunnaberättaliteomföretagetochdinrolldär?
Varförtrorduatterakunderkommertillbakatillerhemsida?
Varförtyckerdudetärviktigtattarbetamedattökalojalitetenhoserakunder?
Hurgörniförattbyggalojalitethoserakunder?
Harnispecifikastrategierförattbyggalojalitethoserakunder?Varförharnidetochvadärsyftetmeddessa?
Vilkaaktivitetergörniförattföljadessastrategier?
Hurutvärderarnidessaaktiviteter?
Hurgörniförattmätalojalitetenhoserakunder?
InterviewguideusedtointerviewGustavSvensson
Skulledukunnaberättaliteomföretagetochdinrolldär?
Vadharnigjortförmarknadsföringsinsatserhittillsförgenereranyakunder?
Hurkommunicerarnimederakunder?
Hurarbetarnimedsocialamedier?
Hurföljerniupperamarknadsföringsinsatser?
Hurgörniförattmätahureffektivaeramarknadsföringsinsatserär?
Hurföljerniupparbetetmedatteffektiviseraeramarknadsföringsinsatser?
Hurgörniförattbyggalojalitethoserakunder?
InterviewguideusedtointerviewAndersKatz
Skulledukunnaberättaliteomföretagetochdinrolldär?
HurskulledurekommenderaettföretagattsänkaCAC?
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Vadfinnsdetförmediakanalerattanvändasigavnärmanmansomettföretagmarkandsförsig?
Vilkaavdessaskulledusägaärmestkostnadseffektivaochvarför?
Vadärfördelarnarespektivenackdelarnameddessamediakanaler?
Hurkanmansomföretagblibättrepåattföljauppochutvärderasinamarknadsföringsaktiviteter?
Hurskullenirekommenderaettföretagattmätaeffektivitetenisinamarknadsföringsinsatser?
InterviewguideusedtointerviewTeodorAbreu
Skulledukunnaberättaliteomföretagetochdinrolldär?
HurfungerarenGrouponkampanj?
VilkatyperavföretagväljerattgöraenGrouponkampanj?
VarförväljerföretagattgöraenGrouponkampanj?
VarförskulledurekommenderaGrouponsommarknadsföringskanal?
HurutvärderarmanenGrouponkampanj?