chapter 4 customer value analysis.pdf

7/27/2019 Chapter 4 Customer Value Analysis.pdf

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…………



…………Session CoveraSession Covera

• Share of Customer

•

•

ee

2



…………

Share of CustomeShare of Custome

i s f i e d

e d s S a t

N

Customers Reached

Vs Share of MarketVs Share of Market

i e d

d s S a t i s

N e e

3

Customers Reached



…………Market Share vs Shar Market Share vs Shar

Se

Marketing

Practice &

Philosophy

Product CentricMarketing

1960s

of Customer of Customer

Customer Centric

Marketing

ment Centric

arketing

4

1980s 1990s



…………

Customer LifetiCustomer Lifeti

• Net profit over the LiCustomer

e Valuee Value

e-Time of an Individual

5



…………

Market Share vs

Exam le-Maruti

Market Share vs

Exam le-Maruti

• yp ca uyer o a ar

expenses over the assu

-Product expenses: Purch

-Financial service ex ense

-Servicing and spares

-Fuel

Customer ShareCustomer Share

u ar ncurs e o ow ng

ed 7 years of the cars life-

se price of a car

: Car loans insurance

6



…………

• When Maruti was focus

s are y se ng more ca

of each of its customer’

• Attracting customers is

really competitive• Maruti shifts its focus fr

customer share, by-

-Providing car loans through its

-Car insurance

-Servicing and spare parts

d on increasing market

rs, was arge ng on y

expenses.

expensive as the industry is

m Market share to

ealer network at POS

7



…………

• ow aru s arge ng

incurred by the custom

• So its Customer share c

65%• From a single transactio

there are opportunities

spread over 7 years

o a expenses

r over a seven year period

an increase from 35 % to

n at the beginning of a sale,

for many interactions

8



…………

• e us omer s are

companies to enter i

initiatives include-

• Entry into auto insurance busin

• Increased focus on service and

• Purchase and sale of pre-owned

• N2N-Targeted towards corpor

ocus requ res

to new business areas

.

ss

pare parts.

cars through Maruti true value

te segment for fleet management

9



…………

CLV – Exam leCLV – Exam le

Ex ected Profit from a New

Customer Ye

New Customers 1,

Expected No. of Customers

Average Profit for Each Customer 1,

Profit 1,00Expected Profit from New

Customers 1,00

Average Profit from Each of the

,Use Discount rate 1,00

Cumulative 1,00

,

Discount Rate 25.

Retention

Rate 60.00%r 1 Year 2 Year 3 Year 4

00

600 360 216

00 1,000 1,000 1,000

,000 600,000 360,000 216,000

,000 1,600,000 1,960,000 2,176,000

, , ,,000 480,000 230,400 110,592

,000 1,480,000 1,710,400 1,820,992

10

, , ,

0%



…………Customer L

6000

7000

4000

5000

3000 N P

1000

0

0. 5 0

0. 5 5

0. 6 0

0. 6 5

fe-time Value

. 7 0

0. 7 5

0. 8 0

0. 8 5

0. 9 0

0. 9 5

11

etention Rate



…………

Customer ValueCustomer Value

Source : Prof. Sudhi Seshadri, II

Se mentsSe ments

12MB



…………

Customers AreCustomers Are

1 2 3 4 5 6

Year

rofitable over Timerofitable over Time

premiumProfit from references

Profit from reduced

op. costs

usage

Base Profit

7

13

Source: Reichheld and Sasser



…………

Lo alt StrateLo alt Strate

Butterflies

HighProfitability

• Good fit between offerings & customer ne

• high profit potential Actions :

• Transactional satisfaction

•Milk the accounts as long as they are activ

•Key challenge - cease investing soon enou

Strangers

Low

Profitability

•Little fit between offerings & customer nee

•Lowest profit potential

Actions :

•Make no investment in these relationships

•Make profit on every transaction

Source; Reinartz, W. and V. Kumar (2002), ‘The Mismanageme

ds

Good fit between offerings & customer needsHighest profit potential

Actions :

gh

Build both attitudinal & behavioral loyalty

Barnaclesds •Limited fit between offerings & customer needs

•Low profit potential

Actions :

•Measure both size & share of wallet

•If share of wallet is low, focus on X & Up selling•If size of wallet is small, impose strict controls

14

t of Customer Loyalty’, Harvard Business Review, July.



…………

Diamond + Gold Hilton HHonors

Members

Silver Hilton HHonors Members

Nonmember Business travelers

Convention & Resort Travelers

Bell et al (2002) ‘Seven barriers to Customer Equity Man

--

% Guests % Revenue % Net

ro s

1 6 28

2 5 18

25 21 6

66 61 49

15gement’, Journal of Service Research, August, 77-85



…………

Activit Based Activit Based

c ass es cos n o

Material Cost

For service firms, material

(hotel)

Critical activity centres are

information collected

Activity costs are charged t

customers

ostinostin

and Activity Cost

ost may be zero or low

identified and cost

product or service or

16



…………

osop y oosop y o

• rgan sa on ex s s o per orm

product/service

•In a multi-product or custome

•Costing of activities helps in co

v y ase os ngv y ase os ng

se o ac v es o a va ue o

s environment, products and

sting of products or customers

17



…………

Activit or Cost Activit or Cost

product or customers on tconsumed

• What drives the cost of acti

costs to products• Examples of Activities and

Activity

Purchase OrderingShipping activities Nu

Driver Driver

e basis of the level of activity

vity is important in allocation of

ctivity/Cost Drivers

Cost Driver

Number of Ordersber of shipments

18



………… Customer CostCustomer Cost

• Why do we need separate

– Customers include end-cust – Customers are not identical i

insurance, packing needs, etc.

– Sales terms of customers diff – Customers demand on after-

– Customers may require diffe

Product cost may b

but may differ a

nalysisnalysis

ustomer cost analysis?

mers or dealers/distributorsn terms of cost e.g. product manufactured

,

differ

r -discount, credit period,..ale service differ

ent product mixes or specification

same at the factory gate

19

the customer’s door



…………

Customer Differ Customer Differ

• Revenue Differences –

• Cost Differences

– packing, distribution, afte

– Delivery schedule (just-in-

• Distribution Channel Dif

– industrial customers vis-à-

• Service Level Difference – - ,

ncesnces

-sale service, specification

time)

erences

vis individual customers

20

, .



…………

Profitable CustoProfitable Custo

• Who are rofitable custome

– Are all large customers profita – Are all small customers unprofi

• Are there loss making custo

– Where do we incur loss? Is ther

• cus omer may e ess pro

profitable customer in the fu

– e.g. Overseas customers

mersmers

s?

le?able?

ers for the same product?

any way to cut cost or increase price?

a e o ay u may e a ma or

ure

21



…………

Characteristics of hiCharacteristics of hi

•Order custom products

•Small Order quantities

•Unpredictable order arrivals

•Customized delivery

•Manual Processing

•Large pre-sale and post-sale

support•Require Company to hold inventory

•Pa slowl hi h account receivables)

h cost and hidden rofith cost and hidden rofit

• Order standard products• High order quantities

•

• Standard delivery

• No Change in delivery requirements

•

• Little to no pre-sale and post-sale support

• Replenish as produced

•

22



………… Options for Mana

T es of Customers

Passive

−Product is Crucial

−

Costly to

But pay t

Profits

High

Price Sensitive and few Aggressi

Net Margin

Realized

Low price

customise

Low

Cost to serve

Profitability depends on wheth

Low

Source: Shapiro, Rangan, Moriarty and Ross, " Managing Customers for Pr

ing Customers

Customers above the

cost-plus diagonal are

more rofitable

ervice,

p dollar

e

and lots of

service and features

er and how much the net

High Losses

23

fits (Not Just Sales)", Harvard Business Review, September - October 1987.



…………

• protecting existing highly profit

• re-pricing expensive services,

• discounting, if necessary to gai

customers

• -

cooperative customers

• being patient with currently un

other non-quantif ied benefits to• attempt to capture high profit c

......

able customers

ased on cost-to-serve

n business with low cost-to-serve

rofitable customers that provide

the companystomers from competitors

24



…………SummarySummary

• Share of Customer

•

•

25

chapter 4 customer value analysis.pdf

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