Creating outstanding customer value

Companies trying to do more with less are focusing precious resources on activities that get them through a down economy.

Much of the discussion is about customer retention - how to keep customers in times when everyone is reducing costs and overhead.

Okay, but which customers should you keep. Which customers are profitable? Which ones are costing you the most to serve? Do you know?

RETHINKING CUSTOMER VALUE

Not all customers, even all loyal customers, bring equal value to the firm. According to Sabrina Helm in the Journal of Relationship Marketing:

This is true for all companies but particularly for professional services firms who have fewer clients and may have less clearly demarcated levels of service.

DEFINING CUSTOMER PROFITABILITY

In customer value circles, customer equity is defined as the total of the lifetime discounted values of all your firm’s customers. Customer profitability is an individual customer’s worth, defined as sales minus the cost to get the sale and the cost to manage the ongoing relationship.

How can firms identify profitable customers?

FIRST, HOW DO YOU THINK ABOUT  CUSTOMERS?

While senior management often talk about their different types of customers, many don’t take the necessary steps to actually strategically align their company’s efforts to each customer type (segment).

In fact, it’s just impossible to do anything strategically with your customers if you think of them  as one big homogenous group. Worse, it’s very inefficient.

ALIGN BY CUSTOMER SEGMENT

In contrast, when companies segment their customers they can align their marketing strategy by customer segment and get these benefits:

• Clients self-qualify

• Your marketing spend is more targeted and efficient

• Success is much easier to measure and direct

• Low-value segments easier to discard; high-value ones easier to introduce

• Concentration within segments leads to deeper specialization which attracts higher-value clients

DOES THIS GIVE PROFITABLE CUSTOMERS?

Not in itself, but now you can begin to measure customer profitability. You can discover what segments are profitable, which ones need your resources and even which customer segments to kill.

The good news is that for firms who have not yet taken this approach, results can be very dramatic with relatively little effort.

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