Customer Insights & Co-creation
Module 6
Customer Engagement Framework
Customer engagement is defined as the behavioral manifestation of a customer's connection to a brand, beyond purchase. It involves four sequential components:
The Four 'I's of Customer Engagement
| Component | Definition | Example Activity |
|---|---|---|
| Involvement | Personal relevance and interest in the brand. | Reading blogs or watching category videos. |
| Interaction | Two-way exchange of information. | Posting comments or using a brand app. |
| Intimacy | Emotional connection developed through interactions. | Feeling a sense of belonging to a brand community. |
| Influence | Likelihood to advocate for the brand. | Writing reviews or referring friends. |
Analytical Models for Customer Lifecycle
Firms use specific analytical models across the three stages of the customer lifecycle to manage engagement.
| Lifecycle Stage | Objective | Analytical Models Used |
|---|---|---|
| 1. Acquisition | Attracting the right customers. | Response Models: Logit/Probit; Segmentation: Clustering. |
| Development | Increasing existing customer value. | Cross-Sell/Up-Sell; Share of Wallet (vs. Size of Wallet); Shopping Journey Analysis (In-store path). |
| 3. Retention | Preventing customer churn. | Hazard Models: Predicting defection timing; Churn Prediction. |
Customer Engagement Value (CEV) Framework
CEV argues that a customer's value extends beyond purchase behavior (CLV) to include participation and advocacy.
| Value Component | Description | Strategic Focus |
|---|---|---|
| CLV (Lifetime Value) | NPV of all future profits from purchases. | Transactional Revenue |
| CRV (Referral Value) | Value from acquiring new customers via referrals. | Customer Acquisition |
| CIV (Influence Value) | Value from influencing others' behavior (Social Media). | Brand Awareness |
| CKV (Knowledge Value) | Value from feedback and ideas for improvement. | Product Innovation |
Co-Creation and Mass Customization
Digital technologies enable firms to move from "Make and Sell" to "Sense and Respond" through co-creation.
The 4 Types of Mass Customization
| Type | Product Change? | Repr. Change? | Description & Example |
|---|---|---|---|
| Collaborative | Yes | Yes | Firm works with individuals to create unique products. Ex: Custom suits. |
| Adaptive | Yes | No | Standard product altered by user during use. Ex: Adjustable car seat. |
| Cosmetic | No | Yes | Standard product packaged differently. Ex: Personalized engraving. |
| Transparent | No | No | Customization without customer knowing (based on data). Ex: Hotel preferences. |
The IKEA Effect
A psychological phenomenon where consumers place a disproportionately high value on products they partially created or assembled themselves.
- Mechanism: "Labor leads to love." The effort invested translates into perceived value.
- Implication: Co-creation creates deeper emotional bonding and loyalty beyond product fit.
- Example: LEGO Ideas, where users design sets, creates immense engagement and valuation.
Innovation and Growth Strategies
Innovation is no longer limited to R&D; it involves rapid cycles with customers.
Case Study: Landmark Group (Insights) Landmark Group uses "Landmark Rewards" to collect transactional, demographic, psychographic, and feedback data. They use the "Who, What, Why" framework:
- Who? Segmentation.
- What? Market Basket Analysis.
- Why? Feedback/NPS.
Ansoff Matrix (Digital Role)
| Strategy | Market | Product | Digital Role |
|---|---|---|---|
| Market Penetration | Existing | Existing | Increasing usage via apps/loyalty. |
| Product Development | Existing | New | Using CKV (Knowledge Value) for features. |
| Market Development | New | Existing | Reaching new segments via digital channels. |
| Diversification | New | New | Entirely new digital business models. |
Ultra-Quick Revision (Exam Essentials)
Key Concepts & Distinctions
| Concept A | Concept B | Key Distinction |
|---|---|---|
| CLV | CEV | CLV is financial (purchases); CEV includes Referral, Influence, and Knowledge value. |
| Adaptive | Collaborative | Adaptive is user-adjustable; Collaborative is custom-built with the firm. |
| Lead Users | Average Users | Lead Users face needs months/years ahead of the general market. |
| NBA | Next Best Action | Using predictive analytics for optimal N=1 personalization. |
Must-Know Terms
- IKEA Effect: Valuing things more because you helped build them.
- Market Basket Analysis: Identifying associations between products (Bread Butter).
- Hazard Models: Predicting when a customer is likely to churn.
- CEV: Holistic value including CLV, CRV, CIV, and CKV.