Managing customer value (lecture 4) Flashcards
What is the main topic of Kumar et al (2018) a theory of customer valuation: concepts, metrics, strategy and implementation?
This article looks at customer value for measuring, managing, and maximizing customer contributions, by proposing a customer valuation theory. (CVT) based on economic principles that conceptualizes the generation of value from customrs to firms. The author reviews ythe established economic theories for valuing investor assets and draws a comparison tp valuing customer contributions
–> The author discusses ways that a customer can add value to the firm indirectly through incentivized referrals, social media influence and feedback
What does the customer valuation theory inform about?
- The conceptualization of value generation from customers
- the ways and means available to generate and maximize value from customers
CVT can be used to
- Value customer assets
concept behind customer evaluation and related financial benefits - mANAGE CUSTOMER PORTFOLIOS
identifying the metrics to ascertain value of customers - Nurture profitable customers
establishment of strategies that will aid in growing customer value
1: calculating customers, assuming they can be more than their direct value 2 then build customer portfolio 3 move and nurturing customers
What are challenges in valuing customers?
- Firms need reliable method to identify and invest in the right customers
- configuring a portfolio of the most valuable customers is easier said than done
- Constantly reevaluate the portfolio to ensure future gains (rebalancing of customers is not a feasible strategy)
In which components is customer value measured (according to Kumar)
- Direct economic value
o The economic value of customer relationship itself (this is what you do when you calculate CLV rust et all formula) - simply trying to see how much money you make on a customer
- Depth of direct economic value
o How the initial economic value has been augmented by customers own purchases
o All customers have certain value and we can also cross sell, and sell them other products so if we bring that in how we can upsell/cross-sell
o Upselling and cross-selling
Upselling is the practice of encouraging customers to purchase a comparable higher-end product than the one in question, while cross-selling invites customers to buy related or complementary items. - Breadth of indirect economic contribution
o How the economic value has been augmented by other ways than customer own purchases
o Referrals , influencing, feedback
Next to the components, the CVT also uses 3 other elements in the model
- Concepts -> How to value customers as assets
- Metris is about what is the portfolio of customers
- Strategies -> How do you manage this portfolio
What are three broad strategies to manage the customer pyramid?
- Keeping customers in the pyramid
- Reducing the rate of customer defection
- Increasing the longevity of customer relationship - Moving customers up in the pyramid
- Keeping customer, but also sell other products -> cross/upselling
- Enhancing the growth potential of each customer through share of wallet
- Making low profit customers more profitable or terminating them
3, Making top tier more profitable
- Focusing disproportionate effort on high-value customers
What is the customer pyramid?
A model based on customer lifetime value
On top the most profitable customers and at the bottom the least profitable customers;
Platinum
Gold
Iron
Lead
Kumar et al (2018) state in the article ‘You only have a few true friends (platinum customers) and a lot of dead weight (lead customers)
What is retention equity?
The customers tendency to stick with the brand above and beyond objective and subjective assessments of the brand: rust et al ‘How strong are people glued to your brand’
What are sub-drivers of retention equity?
- Loyalty programs
- Special recognition and treatment programs
- Affinity programs
- Community building programs
- Knowledge building programs
What are the benefits of CVT?
When firms can precisely link their actions to customer value and ultimately to firm/shareholder value, they can begin to realize the potential of valuing customers as assets. Benefits of this:
- For the firm = Able to attract and retain most valueble customers, nurture customers into skilled resource base, prevent from switching etc.
- For the customer = Connect with firm, collaborate etc.
- For the Environment = easier to align and allocate the optimal amount of resources towards customer
- For the society = Clear line of communication in terms of what to expect
- For the employees = instrumental in providing better customer experiences leading to customer engagement
What are the managerial implications?
- CVT is applicable in various scenarios spanning multiple markets, business settings, regional context and industries
- Managers are enriched with improvements that can result in better implemntation
What are key insights/results from the article of Kumar et al 2018?
- Firms should build relationships with true friends as their potential for long term profitability is higher
- Referred customers have higher customer value then non referred group’
- Customer value of the recommender can be increased with help of customer referral program that include reards and incentives
- Kumar bases desired customer group on profitability (but what about loyalty?!) Loyalty does not necesarily result in higher profitability
- The key model in Kumar includes 9 dimensions which are used to calculate customer value which can make the calculation complete, but do we have the data to realize this?
