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Bite!

Faithful to your brief and quick to respond, our strategic thinking and intelligent communications mean that we can offer creative and responsive services that are tailor-made to your business.

Managing Customers Profitably

We are all aware of the value of our customers and the importance of using customer relationship management systems in our businesses. However now, more than ever before, we need to understand the profitability of customers so we can build on those that are profitable.

There are three ways companies can calculate customer profitability:

  • customer probability analysis (value of the customer in a prior year)
  • customer lifetime value ( net present value of future profit), a forecasting activity)
  • customer equity (net present value of a customer portfolio with a forecast of future revenues)

Do you know the “costs to serve” as these can be varied – have they a key account manager or are there additional sales and marketing costs to attribute?

The key rules include:

  • understand the profitability of customers
  • manage the customer portfolio for profit
  • acquire more profitable customers

A customer’s relationship with a company may extend across several departments or business units so identifying profitability can be complex.The most valuable are those who combine high lifetime revenues with low costs to serve. With this information businesses can identify what offers can be made without eroding revenue streams. If the sales team are rewarded on top-line sales and not on bottom-line profits then it is possible customer incentives are increased to the customer without securing incremental revenue.

Customer satisfaction

Please remember just because a customer is satisfied it does not mean absolutely everything is well. Research showed that customers who are satisfied still may have issues and concerns. Businesses need to balance shareholder value and delivering customer satisfaction. At low levels of customer service improvements can be reflected in satisfaction and retention – this is not always true when customer service levels are high already.

Strategies

Build strategies:

  • long–term contracts
  • shared information systems
  • for high–revenue but high cost demanding customers consider incentives to move to cheaper channels such as the internet – have we all been here with the banks?
  • commodity customers that are low revenue, low cost do not need costly incentives or new value propositions
  • low lifetime revenues but high costs to serve such as in retail banking branch networks may need an alternative approach such as intermediaries
  • acquire profitable customers and profile – do they share any characteristics such as behaviour patterns, market segments etc and adapt your marketing
  • be careful with sales incentives – giving a discount can hurt in the long run and lead to unprofitable customers

The more you know about your customers the better and the more targeted the marketing and sales activity so that you can secure and retain your profitable customers.  In addition, if you have time, look at the 2010 John Lewis ad that closes with “our lifelong commitment to you”

http://www.youtube.com/watch?v=jYOsWWKHZVw