crm - lesson 04 - types of customers and customer value

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Lesson 04 - CRM - Types of Customers and Customer Value: Value Drives Value

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Customer Relationship ManagementLesson 04 – Serial No. 3 of Session Plan

Types of Customers and Customer Value: Values Drive

Value – Lesson 04Customer Relationship Management byAlok Kumar, Chhabi Sinha and Rakesh

SharmaChapter 2

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Chapter Objectives• To reiterate the importance of customer

segmentation in CRM.• To suggest more relevant new sub-bases of

segmentation• To highlight the meaning and types of customer

value as relevant for any company practising CRM

• To underline the importance of customer-value management and elucidate how simple techniques like customer lifetime value can improve the profitability of the customer.

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Customer Segmentation Re-examined

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Customer Segmentation Re-examined – (1/3)

• Pareto principle bears testimony to the fact that not all customers are equal and therefore not all of them should be treated equal.

• Two strong keywords with the concept of CRM relate to ‘selectivity’ and ‘partnership.’ #

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• Selectivity types of customers typically hinge on the loyalty attribute and their link to profitability is through their length of relationship or their purchase intent or whether they recommend to others. Customer segmentation of this type is behavioral and is most critical in CRM. The usual geographic, demographic or psychographic segmentation come useful at the second or third level of sub-segmentation.

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• Behavioral segmentation is usually in terms of loyalty, frequency of use etc.

• Another important segmentation in the context of CRM is the number and choice of communication channels.

• A related segmentation is nature and frequency of communication expected by the customer.

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Types of Customers and Their Relationship Styles

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Types of Customers and Their Relationship Styles – (1/2)

• According to Jones and Sasser, customers behave in four different ways:1.Apostles (= one sent to preach the gospel)2.Terrorists/Defectors (defector = one who leaves a

country or organisation for another one)3.Mercenaries (= hired for money; actuated by the

hope of reward; too strongly influenced by the desire of gain; one who is hired)

4.Hostages (= one kept in the hand of enemy as a pledge)

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Types of Customers and Their Relationship Styles – (2/2)Mercenaries:Happy and contended customers who are not loyal To the company and tend to shop around and compare. On a lookout for better opportunity.

Terrorists/Defectors:Customers who are disappointed in their business relation with the company and tell everybody about their bad experience. Leave the services without informing, virtually lost.

Hostages:Disgruntled customers. Due to certain exit barriers, unable to change their service provider though dissatisfied

Apostles:Highly contended, loyalcustomers whose contactwith potential customers is more valuable than any salesman.

Loyalty HighLow

Satis

fact

ion

High

Low

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Types of Relationships With Mercenaries, Apostles, Defectors and Hostages – (1/2)

• (1/4) Price-centred relationships – hinge on the delivery of the ‘best deal’ in the marketplace. Mercenaries fall in this type of relationship

• (2/4) Need-centred relationships – offer personalisation of channels, interfaces and service processes. Need-centred relationship is expected by an Apostle in favourablecircumstances and by a Defector in case of a service failure.

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Types of Relationships With Mercenaries, Apostles, Defectors and Hostages – (2/2)

• (3/4) Value-centred relationships – depend on intensive and extensive collaboration. A collaborative value-centred relationship is a series of dialogue and interaction between an enterprise and a customer over an extended period of time. Value-centred relationship is reserved for Apostles.

• (4/4) Product-centred relationships – focus on delivery of customised products, services and solutions. Product-centred relationships are usually appropriate either for Apostles with a strong value proposition or for Hostages.

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Loyalty as a Basis for Segmentation

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Linking Profitability and Loyalty –(1/3)

• High profitability and short term customers (Butterflies)

• Low Profitability and short term customers (Strangers)

• Long term customers and low profitability (Barnacles) (= a companion not easily shaken off)

• High profitability and long term customers (True friends)

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• Butterflies:– Good fit between company’s offerings and

customer’s needs– High profit potential

• Strangers– Little fit between company’s offering and

customer’s needs– Lowest profit potential

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• Barnacles:– Limited fit between company’s offerings and

customer’s needs. Yet, they don’t want to leave. – Perhaps, a drag to the firm

– Low profit potential• True friends:

– Good fit between company’s offering and customer’s needs.

– Highest profit potential

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Customer Value: Concept and Characteristics

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Customer Value: Concept and Characteristics – (1/5)

• An effective CRM strategy starts with segmentation based on what different customer groups value and what will make them loyal.

• Customer value is the customer’s perception of what outcome he expects in a specific situation with the help of a product or service offering in order to achieve a desired purpose or goal.

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• Five new approaches to customer value have been identified. These are:– The total value of their relationship with your

company– The potential value of their relationship– The profitability of their relationship– The insights they can provide to your

company– The influence they can wield over other

customers

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• There are a few fundamental lessons that must be remembered in connection with customer value:– (1/8) Value is customer-defined– (2/8) Customers differ in who they are, what

outcomes (value-in-use) they seek, and therefore, what value they place on different benefits of an offering.

– (3/8) Value is opaque

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– (4/8) Value is contextual. Context has three dimensions:

• The end user• The end-use situation, and • the environment.

– (5/8) Value is multidimensional– (6/8) Value is a trade-off at the hand of a

customer: Trade-off between total benefits he gets and the cost he incurs

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– (7/8) Value is relative - customers evaluate value relative to available alternatives, particularly the next-best alternative. (BASE –best available substitute or equivalent)

– (8/8) Value is a mindset – the organisation should have a mindset that everything it does should revolve around its customers, not its products. #

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Types of Customer Value – (1/2)

• Jagdish Sheth and Banwari Mittal have suggested three roles of a customer, viz.: user, payer and buyer. – Customers as users seek performance, social

and emotional value.– Customers as payers want price value, credit

and financing values.– Customers as buyers desire service value,

convenience and personalisation value.

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Types of Customer Value – (2/2)

• Customers derive value from three sources:– Economic– Functional and– Psychological

• The relative importance of these three types of values varies across products as well as the life cycle of the same product.

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Economic Value – (1/2)• Economic value is generally the focus in B2B markets. A

fundamental source of value is the economic benefit a customer derives from using the product over its lifetime. There are four noteworthy points:– First, the company is communicating a tangible measure of

benefit in terms of savings.– Second, economic benefit, in general, is evaluated by comparing

the total life cycle costs of the products, not just the initialpurchase price

– Third, the most convenient time frame on which to compare the these benefits is the life of the new product.

– Fourth, economic benefit is always comparative.

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Economic Value – (2/2)

• However, economic value is not the only benefit on which products are purchased. Other factors are:– Compatibility– Complexity– Observability– Risk – (financial, social and so on)– Divisibility (can customers try a small

portion?)

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Functional Value

• It is defined by those aspects of a product that provide measurable functional or utilitarian benefits to customers. That is value is provided by performance feature of a product.

• Rupee value of a feature is usually difficult to show, but researchers using conjoint analysis techniques can learn preferences of customers for various features.

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Psychological Value

• Psychological value focuses on intangible benefits of a product as against the tangible benefits of the other two. For example, brand names, associations, images etc.

• As markets mature and tangible differences among competing brands become negligible, psychological benefits become the chief differentiator. Even technology intensive companies have come to know the importance of psychological value their customers desire.

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Other Various Value Definitions –(1/3)

• Customers’ definition of value:– Low price– Whatever I want in a product or service– The quality I get for the price I pay– What I get for what I give.

• Philip Kotler has defined value as:– Product value– Service value– Personnel value– Image value

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• Barnes has given the following values:– (1/9) Choice based value: that is, available

choices to customers in terms of:• How they deal with the company• How they pay• How they want them to be shipped• How they receive information

– (2/9) Employee based value– (3/9) Information value

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• Barnes has given the following values:– (4/9) Association value– (5/9) Relationship value (as a supplier)– (6/9) Customer unique value– (7/9) Experience value– (8/9) Product-for-price value– (9/9) Access or convenience value #

crm - lesson 04 - types of customers and customer value

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