02 MM21c4 PPT Adjusted

© Noel Capon, 2016. All rights reserved.
PRESENTATION 2 OF 26 / 1
CHAPTER 2
The Value of Customers
OPENING CASE: ROYAL BANK OF CANADA (RBC)

Chapter Roadmap
© Noel Capon, 2016. All rights reserved. PRESENTATION 2 OF 26 / 2
Why Customers Are So Important for the Firm

Options for Being Selective
CLV Increasing CLV Acquiring New Customers
Addressing Customers About Customers
Calculating CLV Increase the Profit Margin the Current Customers Customer Profitability
Firm Earns from Customers
Potential Customers Customer Suitability
Increase Customer Retention
Rate – Reduce Customer
Defection Rate
How Customer Retention
Works
Profit Margins and Customer
Retention
How to Bind Customers Closer to the Firm

Customer Relationship
Customer Loyalty Programs
Management
Developing a CRM System Value of Rewards Programs:
Customers
Control of, and Access to, the
Customer Database Value of the Rewards
Program: The Firm
Assessing the Value of
Customers and Designing Firm
Actions
• Customers are the firm’s core assets

When the firm creates value for customers, and retains them…
Customers create value for the firm
• Customers are the critical source of cash inflows

They buy more products & services
As long as the firms continues to deliver customer value
• Globalization is driving increased emphasis on creating

shareholder value
The firm must determine how to use CLV to enhance
shareholder value
Two Faces of Value
Products and services create Customer value attracts,

customer value retains, and grows customers
By being attracted, grown,

and retained, customers in
turn create value for the
firm and its shareholders
Starbucks Stock Price Performance
Amazon Stock Price Performance
Netflix Stock Price Performance
Apple Stock Price Performance
Nokia Stock Price Performance
Kodak Stock Price Performance
© Yahoo Inc.
Samsung Stock Price Performance
Core Topics
• Why are customers so important for the firm?
Customer Lifetime Value (CLV)
• How can the firm bind customers closer?

Customer Relationship Management (CRM)
Profit Margin
Increasing Profit Margin Aid to the Firm

• Customer selection • Learning
• Customer satisfaction • Network externalities
• Customization • Positive word of mouth and
referrals
• Raise prices
• Referral programs
• Reduce operating costs
Customer Retention
Small changes in customer retention drive major changes in sales and

market share
• CLV: Illustration — Increase customer retention
• Impact on firm growth
• Profit margin growth
• Impact of market share
• Duration effect (bonds)
• Relationship to customer satisfaction
Addressing Current Customers and Potential Customers
• Some customers bring value to the firm; some do not

• Measuring customer profitability is critical
• A critical firm challenge is to identify the right customers
Options
Addressing Current Customers and Potential Customers
How to Acquire Customers

• Independent marketing activities
• Affiliations
• Channel strategies
• Firm and business-unit acquisitions
Customer Revenue and Profit Rules
80:20 Rule
80 percent of revenues
20 percent of customers
Customer Revenue and Profit Rules
Unprofitable/Low-Profit Customers: Options

Selling Non-Selling
• Part-time sales force • Traditional direct marketing
• Shift to telesales • Electronic contact – e-mail, web sites
• Assign to agents/distributors • Raise prices
• Outsource selling effort • Stop serving
• Alliances
Customer Suitability
Issues
• Capacity constraints Insufficient ability to serve all customers
• Competition Customers may be potential competitors
• Evolving strategy Customer may not be a target with the new strategy
• Foreclosing options Potential customer will refuse to do business
• Impact on the firm’s reputation “Is there a Rolex in Carrefour?”
• Impact on the offer Rule breakers create a bad image
• Firm Instability May lead to a difficult relationship
• Non-payer High collection costs; write off receivables
• Potential costs High service or customization costs
Customer Relationship Management
Definition
Customer relationship management is the ongoing process of identifying and
creating new value with individual customers and sharing these benefits over a
lifetime of association with them.
Features
Definition
Features
• Combination of marketing, customer service, and quality management
• Goal is to form mutually beneficial relationships between the firm and its
customers
• Technology plays an important role in CRM, but CRM is not about
technology
• CRM techniques can be applied to other firm stakeholders – suppliers,
shareholders, and current and potential employees
The Customer Database
Customer Customer Customer Customer Customer

Customer Customer
Contact Purchase Reponses to Value Value
Identifier Characteristics
History History Firm Decisions Received to the Firm
Jane Doe
John Smith
XYZ Inc.
XYZ influencers
and decision
makers
PRESENTATION 2 OF 25 / 23
The Customer Database

Event-Driven Marketing
Triggers. Do not require a customer decision but are often valuable for
activating straightforward business processes, like credit card expiry (send
a new card) or reaching a pre-determined inventory level (reorder)
• Scheduled events. Provide the firm communication opportunities, like
the end of a contract (offer/negotiate new contract), birthdays and
anniversaries
• Significant events. Represent significant changes in customer life
stage, like marriage, divorce, first child, first job
Customer Loyalty Programs
Design Factors
Value for the Firm
• Creates competitor barriers
• Gains insight into customer behavior
• Lowers cost to serve loyal customers
• Makes loyal customers less price sensitive
• Encourages loyal customers to spend more
• Stimulates positive word of mouth from loyal customers
• Increases sales by purchase acceleration closer to the goal
CHAPTER 2

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© Noel Capon, 2016. All rights reserved.

The Value of Customers

OPENING CASE: ROYAL BANK OF CANADA (RBC)

Why Customers Are So Important for the Firm

How to Bind Customers Closer to the Firm

• Customers are the firm’s core assets

• Customers are the critical source of cash inflows

• Globalization is driving increased emphasis on creating

Products and services create Customer value attracts,

By being attracted, grown,

• How can the firm bind customers closer?

Increasing Profit Margin Aid to the Firm

Small changes in customer retention drive major changes in sales and

• Some customers bring value to the firm; some do not

How to Acquire Customers

Unprofitable/Low-Profit Customers: Options

The Customer Database

Customer Customer Customer Customer Customer

The Customer Database

The Value of Customers

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