Elie ofek, Eitan Muller, and Barak Libai
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780226618296
- eISBN:
- 9780226394145
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226394145.003.0010
- Subject:
- Economics and Finance, Financial Economics
This concluding chapter serves as a review of the material covered throughout the book and addresses issues often encountered when implementing the various concepts in practice and in different ...
More
This concluding chapter serves as a review of the material covered throughout the book and addresses issues often encountered when implementing the various concepts in practice and in different business settings. The presentation takes on a “Frequently Answered Questions” (FAQ) format, i.e., it outlines each issue as a question readers may be wondering about and then provides a comprehensive answer to it. FAQs are organized as follows: those pertaining to the diffusion of innovations, those dealing with customer lifetime value (CLV), and those related to the innovation equity framework. Examples of diffusion FAQs include: Can I use the various diffusion models covered in the book for any type of innovation? I am ultimately interested in running the analysis for my specific brand; should I start with assessing diffusion at the category level or go directly to the brand level? Is the social force always positive? Examples of CLV FAQs include: How can I obtain reasonable estimates for the CLV parameters? Are some of the CLV parameters likely to change over time? If so, how? The chapter ends with a check list that delineates the key steps to follow, and important issues to be aware of, when crafting innovation equity assessments.Less
This concluding chapter serves as a review of the material covered throughout the book and addresses issues often encountered when implementing the various concepts in practice and in different business settings. The presentation takes on a “Frequently Answered Questions” (FAQ) format, i.e., it outlines each issue as a question readers may be wondering about and then provides a comprehensive answer to it. FAQs are organized as follows: those pertaining to the diffusion of innovations, those dealing with customer lifetime value (CLV), and those related to the innovation equity framework. Examples of diffusion FAQs include: Can I use the various diffusion models covered in the book for any type of innovation? I am ultimately interested in running the analysis for my specific brand; should I start with assessing diffusion at the category level or go directly to the brand level? Is the social force always positive? Examples of CLV FAQs include: How can I obtain reasonable estimates for the CLV parameters? Are some of the CLV parameters likely to change over time? If so, how? The chapter ends with a check list that delineates the key steps to follow, and important issues to be aware of, when crafting innovation equity assessments.
Elie ofek, Eitan Muller, and Barak Libai
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780226618296
- eISBN:
- 9780226394145
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226394145.003.0004
- Subject:
- Economics and Finance, Financial Economics
This chapter explains how marketing efforts, such as price cuts and advertising, can affect innovation equity by impacting its various building blocks: the long-run market potential, the speed of ...
More
This chapter explains how marketing efforts, such as price cuts and advertising, can affect innovation equity by impacting its various building blocks: the long-run market potential, the speed of diffusion, and the customer lifetime value. Moreover, marketing effects on customer lifetime value can occur at any phase: acquisition (adding new customers), development (increasing profits from existing customers), and retention (getting customers to stay longer). One way to gauge the impact of marketing actions is to examine where along the consumer decision making process they are likely to have the most influence (awareness, interest, evaluation, confidence, adoption). The chapter further explains how marketing activity often involves customer management trade-offs. For example, lowering price can expedite customer acquisition efforts yet have a negative effect on customer development. The innovation equity framework provides an expedient way to analyze these trade-offs and helps understand the implications of losing a customer on future profitability, particularly when such attrition occurs early in the product life cycle. To illustrate the key concepts, the chapter provides several examples, such as Sony’s PlayStation and Dropbox, and numerical analyses of how a price cut, subsidy or change to the customer referral scheme impact innovation equity.Less
This chapter explains how marketing efforts, such as price cuts and advertising, can affect innovation equity by impacting its various building blocks: the long-run market potential, the speed of diffusion, and the customer lifetime value. Moreover, marketing effects on customer lifetime value can occur at any phase: acquisition (adding new customers), development (increasing profits from existing customers), and retention (getting customers to stay longer). One way to gauge the impact of marketing actions is to examine where along the consumer decision making process they are likely to have the most influence (awareness, interest, evaluation, confidence, adoption). The chapter further explains how marketing activity often involves customer management trade-offs. For example, lowering price can expedite customer acquisition efforts yet have a negative effect on customer development. The innovation equity framework provides an expedient way to analyze these trade-offs and helps understand the implications of losing a customer on future profitability, particularly when such attrition occurs early in the product life cycle. To illustrate the key concepts, the chapter provides several examples, such as Sony’s PlayStation and Dropbox, and numerical analyses of how a price cut, subsidy or change to the customer referral scheme impact innovation equity.
Elie ofek, Eitan Muller, and Barak Libai
- Published in print:
- 2016
- Published Online:
- May 2017
- ISBN:
- 9780226618296
- eISBN:
- 9780226394145
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226394145.003.0003
- Subject:
- Economics and Finance, Financial Economics
This chapter begins by establishing that each first-time adoption of an innovation can be thought of as the start of a customer-firm relationship in which the adopter generates a stream of profits ...
More
This chapter begins by establishing that each first-time adoption of an innovation can be thought of as the start of a customer-firm relationship in which the adopter generates a stream of profits for the firm. The financial value of this profit stream is termed the customer’s lifetime value. Four main elements drive customer lifetime value: the per-period profit margin, the retention rate, the discount factor, and the acquisition cost. Linking the number of new customers expected to adopt in a given time period, by using the basic diffusion model developed in chapter 1, with the future profits each acquired customer is expected to generate, by using the customer lifetime value model, yields the monetary value of all new customers adopting in that period. Conducting this analysis for every period over the desired time horizon, applying financial discounting to future contributions, and summing the results yields the innovation equity of a new product or service. Innovation equity, the book’s central framework, is thus a monetary assessment of the total future cash flows—across customers and time—associated with the diffusion of an innovation. The chapter concludes with an example showing how to evaluate the innovation equity of XM Satellite Radio.Less
This chapter begins by establishing that each first-time adoption of an innovation can be thought of as the start of a customer-firm relationship in which the adopter generates a stream of profits for the firm. The financial value of this profit stream is termed the customer’s lifetime value. Four main elements drive customer lifetime value: the per-period profit margin, the retention rate, the discount factor, and the acquisition cost. Linking the number of new customers expected to adopt in a given time period, by using the basic diffusion model developed in chapter 1, with the future profits each acquired customer is expected to generate, by using the customer lifetime value model, yields the monetary value of all new customers adopting in that period. Conducting this analysis for every period over the desired time horizon, applying financial discounting to future contributions, and summing the results yields the innovation equity of a new product or service. Innovation equity, the book’s central framework, is thus a monetary assessment of the total future cash flows—across customers and time—associated with the diffusion of an innovation. The chapter concludes with an example showing how to evaluate the innovation equity of XM Satellite Radio.
