Five steps to creating customer value focus:
- Gain insights into customer’s preferences (e.g., products, services, channels, pricing, promotions, terms, etc.), their real-time behaviors across multiple channels of interactions and social media and their profitability and potential lifetime value to the organization.
- Define a customer value strategy and action plan. Leverage customer insights to improve their profitability, lifetime value and advocacy.
- Align business delivery model and channel mix to optimize cost-to-sell and cost-to-serve based on customer’s profitability, lifetime value and preferences.
- Align operational processes to engage and delight customers at every touch-point by providing what is truly valuable to the customers — e.g., speed, accuracy, responsiveness, seamless experience, ease of access, improved terms, SLAs, etc.
- Align investment allocation process to allocate investments to customer value improvement projects on an ongoing basis.
Companies need to be constantly monitoring customer behavior across multiple channels and social media.
Companies need to create analytical insights into their customers’ profitability and lifetime value.
Building customer value focus enables companies to find smarter ways to meet the increasing customer expectations and protect and grow their profit and revenue.
Distinguish between profitable and unprofitable customers
While most companies today perform some level of profitability analysis, it is important to ensure their profitability models include all relevant drivers (e.g., cost-to-serve) to provide a holistic and accurate view of profitability and potential lifetime value by customer. Customer profitability analysis usually reveals three categories of customers:
- Highly profitable. The top 20% of customers tend to generate between 150% and 300% of total profits.
- Moderately profitable. The middle 70% of customers usually break even.
- Unprofitable. The remaining 10% of customers actually lose 50% to 200% of the total profits.
Understanding of profitability by customer allows companies to develop action plans to improve that profitability, enhance relationships with the most valuable customers and divorce unprofitable customers when and if it makes sense.
Create perceived value for customers
Value proposition analysis is typically done at customer segment or sub-segment level and can include several components of total value creation, such as:
- After-sales services
- Customer experience (accessibility, ease of doing business, etc.)
This level of understanding helps organizations optimize investments while improving total perceived value for customers.
While companies can find ways to increase customer base and even make a profit from customers in the short run, success in the long run requires building capabilities that can sustain and continuously grow the customer and profit base.
Sustainability happens when the functional silos can collaborate to focus on the customers.
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Answers to your questions,
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Avoid losing customers
Tough economic conditions, increasing customer expectations and global competition mean that companies must create analytical insights into their customers’ profitability and lifetime value.