Chapter 5 Review
AK47
mcr2e_chapter_5_slides.pptxManaging Customer Relationships: A Strategic Framework
Chapter 5
Differentiating Customers: Some Customers Are Worth More than Others
Course Title Instructor
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
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Chapter 5 Preview
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
IDIC Review
The Two Fundamental Differences between Customers
Why Differentiate?
Customer Lifetime Value
Growing Share of Customer
Most Valuable Customers
Customer Value Categories
Dealing with Tough Customers
Managing the Mix of Customers
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Action
Analysis
…customers as unique addressable individuals
…by value, behavior and needs
…more cost -efficiently and effectively
…some aspect of the company’s behavior, offerings, or communications
Identify
Differentiate
Interact
Customize
Review: IDIC Framework
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The Two Fundamental Differences between Customers
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
1. Different value to the enterprise (Chapter 5)
2. Different needs from the enterprise (Chapter 6)
All other ways of differentiating customers – demographics, behaviors, transactional histories, and attitudes – are all tools and concepts used to get at these two fundamental differences
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Why Differentiate?
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
To treat each customer differently is the essence of managing customer relationships
Different customers have different needs
Different customers represent different values to the enterprise
Customer value is future oriented
Actual value
Potential value
Customer differentiation helps an enterprise increase customers’ actual value and realize customers’ potential value
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Customer Lifetime Value
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
LTV: The net present value of the expected future stream of financial contributions from the customer
LTV is calculated according to the customer’s trajectory: positive contributions (product and service purchases, as well as non-monetary referrals) minus expenses (cost of maintaining a relationship)
In practice, no company can calculate LTV precisely
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Growing Share of Customer
Unrealized potential value:
The amount by which the enterprise could increase the value of a particular customer if it applied a strategy for doing so
Aspects of a customer’s unrealized potential value:
Business with competitor
Additional relevant product lines
Cost to serve
Undefined needs
Referrals and non-monetary contributions
Customer growth over time
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Most Valuable Customers
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
Pareto principle: the top 20% usually accounts for 80% of company’s business
LTV is difficult to calculate, so some companies use a proxy variable to rank customers in rough order of LTV
RFM: most common proxy variable
R: Recency
F: Frequency
M: Monetary value
The goal of value differentiation is not a historical understanding, but a predictive plan of action
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Customer Value Categories
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
Most Valuable Customers
Retain
Most Growable Customer
Grow
Low-Maintenance Customers
Streamline/automate services
Super-Growth Customers
Retain and mine for more
Below-zero customer
Make them profitable
Churn them out
Ethical concern: Should we “fire” unprofitable customers?
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Dealing with Tough Customers
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
Four primary strategies:
1. Customize services and products
2. Innovate perpetually and cost-efficiently
3. Develop personal relationships within the customer organization
4. Appeal directly to end users
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Managing the Mix of Customers
Managing Customer Relationships: A Strategic Framework, Second Edition
Don Peppers and Martha Rogers
What kind of new customers should be acquired?
Mass-market method: All customers
Customer-strategy enterprise: More high-value and high-growth customers, less low-value customers
Creating a valuable customer base
Rank customer by value
Invest consistently in acquisition, development, and retention (get, keep, grow)
Use different strategy for differently valued customers
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