Marketing driven growth and decline
Posted: Tue Jul 26, 2005 12:12 pm
Posted by ""Kim Warren"" <Kim@strategydynamics.com>
In the talk last week in Boston, I suggested that reinforcing feedback
managers often identify between marketing and customers can only
generate growth, not decline. [ ^Customers -> ^revenue ->
^marketing-spend > ^Customers ]. I claimed that this structure could not
give rise to decline, since there is no mechanism for customers to be
lost.
Several people who spoke to me afterwards were concerned by this
suggestion, pointing out that marketing spend can also prevent customers
being lost. I would like to check I have not got this wrong, so here's
the reasoning ...
First, to complete the loop above properly, we should add 'customers won
per period' [since stocks can only be changed by way of their flows]. To
reflect marketing's impact on reducing customer losses, then, we would
have to add a separate flow of 'customers lost per period', which
implies we have two loops, not one.
I don't think we can safely merge these two flows [gains and losses]
into a single flow of 'net customers won'. The two audiences are
generally somewhat different - current customers have experience of our
product/service, while potential customers do not, so each group will be
affected differently by any marketing we do. There's also a big
difference between winning 100 customers on the one hand, and winning
1000 + losing 900 on the other hand, so if this might be going on, we
really need it to be explicit.
Secondly, I am not sure it is common for customers to be lost *because*
they were not marketed to. Customers leave a supplier for other reasons,
such as price, quality problems, competitors' efforts and so on. So for
marketing to reduce customer losses, we would have to include these
other causal factors, which are not within the feedback loop.
.. or have I got something wrong ?
Kim
Posted by ""Kim Warren"" <Kim@strategydynamics.com>
posting date Mon, 25 Jul 2005 13:01:05 +0100
In the talk last week in Boston, I suggested that reinforcing feedback
managers often identify between marketing and customers can only
generate growth, not decline. [ ^Customers -> ^revenue ->
^marketing-spend > ^Customers ]. I claimed that this structure could not
give rise to decline, since there is no mechanism for customers to be
lost.
Several people who spoke to me afterwards were concerned by this
suggestion, pointing out that marketing spend can also prevent customers
being lost. I would like to check I have not got this wrong, so here's
the reasoning ...
First, to complete the loop above properly, we should add 'customers won
per period' [since stocks can only be changed by way of their flows]. To
reflect marketing's impact on reducing customer losses, then, we would
have to add a separate flow of 'customers lost per period', which
implies we have two loops, not one.
I don't think we can safely merge these two flows [gains and losses]
into a single flow of 'net customers won'. The two audiences are
generally somewhat different - current customers have experience of our
product/service, while potential customers do not, so each group will be
affected differently by any marketing we do. There's also a big
difference between winning 100 customers on the one hand, and winning
1000 + losing 900 on the other hand, so if this might be going on, we
really need it to be explicit.
Secondly, I am not sure it is common for customers to be lost *because*
they were not marketed to. Customers leave a supplier for other reasons,
such as price, quality problems, competitors' efforts and so on. So for
marketing to reduce customer losses, we would have to include these
other causal factors, which are not within the feedback loop.
.. or have I got something wrong ?
Kim
Posted by ""Kim Warren"" <Kim@strategydynamics.com>
posting date Mon, 25 Jul 2005 13:01:05 +0100