個案總覽

Free customers who are subsidized by paying customers are essential to a vast array of businesses, such as media companies, employment services, and even IT providers. But because they generate revenue only indirectly, figuring out the true value of those customers - and how much attention to devote to them - has always been a challenge. Traditional customer-valuation models don't help; they focus exclusively on paying customers and largely ignore network effects, or how customers help draw other customers to a business. Now a new model, devised by professors Gupta, of Harvard Business School, and Mela, of Fuqua School of Business, takes into account not only direct network effects (where buyers attract more buyers or sellers more sellers) but also indirect network effects (where buyers attract more sellers or vice versa). The model calculates the precise long-term impact of each additional free customer on a company's profits, factoring in the degree to which he or she brings in other customers - whether free or paying - and the ripple effect of those customers. The model helped an online auction house make several critical decisions. The business made its money on fees charged to sellers but recognized that its free customers - its buyers - were valuable, too. As competition heated up, the company worried that it wasn't wooing enough buyers. Using the model, the business discovered that the network effects of buyers were indeed large and that those customers were worth over $1,000 each - much more than had been assumed. Armed with that information, the firm increased its research on buyers, invested more in targeting them with ads, and improved their experience. The model also helped the company identify the effects of various pricing strategies on sellers, showing that they became less price-sensitive over time. As a result, the company raised the fees it charged them as well.

Brands are on the wane. Many consumer goods companies blame the big-box discount retailers, but the Wharton School's Leonard Lodish and the Fuqua School's Carl Mela have a different explanation. Their research suggests that companies have damaged their brands by investing too much in short-term price promotions and too little in long-term brand building. To rescue their brands and increase profitability, corporate managers must arm themselves with long-term measures of brand performance and use them to make smarter marketing decisions. Several factors explain the shortsightedness of brand management: the increased availability of weekly, or even hourly, scanner data, which show a clear link between discounts and immediate boosts in sales; the relative difficulty of measuring the effects of advertising, new product development, and distribution--all of which can contribute to a brand's long-term health; the short tenure of most brand managers; and the near-term orientation of Wall Street analysts. Although discounts do increase sales in the short term, they ultimately lower profit margins. If a product is often discounted, consumers learn to buy it only when it's on sale. Moreover, when one firm increases its discounts, others usually follow suit, lowering everyone's margins. Executives can monitor a brand's long-term performance by watching a dashboard of measures. Only after examining such measures, for example, did managers at Clorox discover that the company's heavy discounting and decreased advertising had caused a steady decline in overall bleach sales and profit margins. In response, Clorox reduced discounting and increased television advertising, moves that ultimately strengthened the brand and reversed the firm's downward trends.