3118bPresn F-Customer Equity

8/2/2019 3118bPresn F-Customer Equity

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Amity Global Business SchoolMBA, Semester 4

Customer Relationship Management

Shalini Gautam


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Customer Economics

Not all customers are of equal economicvalue. Companies earn:

150% of the profits from one third of thecustomers

Break even on the middle third of thecustomers

Run significant losses on bottom third ofthe customers


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Economic Value of a customer

Present value of the stream of cash flowgenerated by the individual

- Initial cost of acquiring the customer

__________________________________

Economic value of an individual customer

__________________________________


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Economic Value of a customer

PositiveCashFlow

NegativeCash

Flow

Time


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Customer Equity

Cost of Acquiring, Retaining &Developing (ARD) customers

- Revenues obtained from customer

__________________________________

Customer Equity

__________________________________


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Customer ValueDistribution

No. ofcustomers

Range of Customer Profitability

Breakeven

HeavyLosses

HighlyProfitable

Modestly

unprofitable

Modestly

profitable


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Stop doing business with people whopersistently generate losses

Develop an economically sound plan formoving modestly profitable customersinto the high profit sector

Create a plan for retaining customers inthe profitable sector and developing theireconomic value still further

Ways to improvecompanys bottom-line


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Bucket Theoryof Marketing

New Customer Revenue

+Existing Customer Growth

-Defected Customer Revenue-Declining Customer Revenue

__________________________________

Overall Revenue Growth___________________________________


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What do customers think of yourproposition?

What opinions do your customers have ofyour competitors capabilities?

Do their views differ by product group orcustomer segment?

Customer AttitudeMeasure


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How do your current customer retention ratescompare with previous years & with those ofyour competitors?

What are the triggers of customer defection? To which competitors are customers

defecting?

How do the characteristics, behavior andvalues of defecting customers contrast withthose that remain?

Customer RetentionMeasures


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Customer ValueMeasures

What are the current and potential lifetimevalues of you new and existing customers andhow do they differ by customer or productsegment?

What percentage of your business volume andvalue does the top 20% of customers represent?

What is the cost of replacing a lost customer

compared to that of retaining an existing one? What would happen to profits if the retention rate

increased by 5%/10%?


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Potential Benefits ofvarious measurements

Helps to identify the customers who areadding value

To determine which customers to acquire

and which to avoid Helps to develop more profitable product &

service propositions

Helps to target customers for up sellingand cross selling

Helps to divest customers


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Some customer truisms

Different customers contribute different levels ofvalue to each and every oganisation

The value of an active customer generally

increases the longer that customer remainsactive

The difference in value between the high andlow performers can be very large

The difference in the potential, but unrealizedvalue of customer varies significantly

3118bPresn F-Customer Equity

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