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AGBS

Amity Global Business School


MBA, Semester 4 Customer Relationship Management Shalini Gautam

Customer Economics

AGBS

Not all customers are of equal economic value. Companies earn: 150% of the profits from one third of the customers Break even on the middle third of the customers Run significant losses on bottom third of the customers
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AGBS Economic Value of a customer

Present value of the stream of cash flow generated by the individual - Initial cost of acquiring the customer __________________________________ Economic value of an individual customer __________________________________

Economic Value of a customerAGBS


Positive Cash Flow

Negative Cash Flow Time

Customer Equity

AGBS

Cost of Acquiring, Retaining & Developing (ARD) customers - Revenues obtained from customer __________________________________ Customer Equity __________________________________

Customer Value Distribution


No. of customers

AGBS

Heavy Losses Modestly unprofitable Modestly profitable

Highly Profitable

Breakeven

Range of Customer Profitability


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Ways to improve companys bottom-line


AGBS

Stop doing business with people who persistently generate losses Develop an economically sound plan for moving modestly profitable customers into the high profit sector Create a plan for retaining customers in the profitable sector and developing their economic value still further
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Bucket Theory of Marketing

AGBS

New Customer Revenue +Existing Customer Growth -Defected Customer Revenue -Declining Customer Revenue __________________________________ Overall Revenue Growth ___________________________________
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Customer Attitude Measure

AGBS

What do customers think of your proposition? What opinions do your customers have of your competitors capabilities? Do their views differ by product group or customer segment?

Customer Retention Measures

AGBS

How do your current customer retention rates compare with previous years & with those of your competitors? What are the triggers of customer defection? To which competitors are customers defecting? How do the characteristics, behavior and values of defecting customers contrast with those that remain?
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Customer Value Measures

AGBS

What are the current and potential lifetime values of you new and existing customers and how do they differ by customer or product segment? What percentage of your business volume and value does the top 20% of customers represent? What is the cost of replacing a lost customer compared to that of retaining an existing one? What would happen to profits if the retention rate increased by 5%/10%?
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Potential Benefits of various measurements

AGBS

Helps to identify the customers who are adding value To determine which customers to acquire and which to avoid Helps to develop more profitable product & service propositions Helps to target customers for up selling and cross selling Helps to divest customers
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Some customer truisms

AGBS

Different customers contribute different levels of value to each and every oganisation The value of an active customer generally increases the longer that customer remains active The difference in value between the high and low performers can be very large The difference in the potential, but unrealized value of customer varies significantly
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