Customer Delivered Value

Costs

Psychic

Energy

Time

Monetary

Total
Value

Image

Personnel

Services

Product

Total
Why Satisfaction Is Not Enough

Are your customers satisfied

!o" do you #no"

Could your customers $e more satisfied

What are you doing a$out this

What a$out your com%etitors

Customer Relationships
Customer Relationship Management (CRM) process
of managing information about customers and
managing all customer touch points
Touch point customer encounters brand, product,
personnel
How many bugs are one bug too many?
Customer Relationships
ramewor! for one"to"one mar!eting
#$ %dentify prospects and customers
&$ 'ifferentiate customers with respect to
their needs and their (alue to your firm
)$ *bser(e+interact with indi(idual customers
to learn
,$ Customi-e products, ser(ices, messages
Transaction"ocused (s$
Relationship"ocused .elling
.elling /lement Transaction"ocused .elling Relationship"ocused .elling
&ocus Solicitation of one'time sales Customer retention
Performance measures (eturn on Investment )(*I+, value
of sales, $atting average
-ifetime value
*rientation Transactions Customer relationshi%s
Time hori.on Short'term -ong'term
Customer service -ittle em%hasis as transactions are
#ey
Strong em%hasis as long'term
relationshi%s are #ey

Source/ Ada%ted from Sargent, Adrian )0112+, 3Customer -ifetime Value and Mar#eting
Strategy/ !o" to &orge the -in#,4 The Marketing Review, 2, 506'5517
Customer Relationships

Reduce rates of customer defection deli(er

personali-ed ser(ice

%ncrease longe(ity of relationships in(ol(e

customers

/nhance customer growth potential cross"sell, up"

sell

Ma!e low profit customers more profitable

terminate, reduce features, pay more
Customer Relationships
Reduce Customer 'efection
#$ 0now the retention rate define it
&$ 1nderstand causes of defection and
ascertain which can be managed
)$ /stimate profit lost when a customer
defects
,$ 2hat will it ta!e (cost) to reduce
defections?
3$ 4isten to customers
56ot e(erything that can be counted
counts, and not e(erything that counts
can be counted7
8lbert /instein
Customer 4ifetime 9alue
Customer /:uity total of discounted
lifetime (alues of all the firm;s
customers

9alue customers; assessment of utility

<rand customers; assessment of image

Relationship customers; willingness to stay

with brand
Congratulations, =ou;re Hired>

Customer 8

?urchase @3,AAA

Ma!es # purchase per

year

.igned a 3 year contract

1ses our product in a

non"critical support role

?ro(ides eBposure for

our product to
thousands of potential
customers each year

Customer <

?urchase " @#,AAA

Ma!es # purchase a
month

.igned a & year contract

1ses our product as

part of their !ey ser(ice
to their customers

*nce purchased our

product is only seen by
this customer
How much are you, as a customer,
worth o(er your college lifetime?

@CDA at a pi--a parlor o(er your years in

college, not @#A per (isit

@#A3A at the hair stylist during your years in

college, not @)3 per (isit

@#EF& at a gas station during your years in

college, not @#E per fill"up

@)AAA at the boo!store o(er your years in

college, not @F3 per boo! or @)F3 per
semester
How .alespeople 1se
Customer %nformation

To impro(e customer strategies

To grow, retain, or win customers

To maBimi-e customer lifetime (alue

(C49)

'ata about the customer is the fuel to

the C49 engine
4ifetime 9alue 8pproach

2hen salespeople use the information they ha(e deri(ed and

accessed from e(ery contact the customer has with the sales
organi-ation, they ha(e the opportunity to impro(e their relationships
with customers and successfully ta!e a lifetime (alue approach
Customer Retention with C49

Customer lifetime (alue is applicable

only if salespeople are focused on
de(eloping and maintaining
relationships

8 daily commitment from both the

salesperson and the sales organi-ation
is re:uired to retain customers
Customer Relationship Management
(CRM)

0ey aspects of a CRM program

0nowing how much customers are worth

0nowing where customers are in their life

cycles

0nowing customersG total profit potential

Em$racing C-V Princi%les

When customers are vie"ed as assets,

C-V conce%ts ena$le sales%eo%le to
estimate the monetary value of customers

The foundation for %rofita$ility and sales

sustaina$ility lies in the retention of
customers
8 .hift in ocus

rom ac:uisition to retention

%t costs less to ser(e loyal customers than

to ac:uire and ser(e new ones

The profitability of customers is related to

the length of the relationship with those
customers
EA"&A Rule
&A percent of customers pro(ide
EA percent of the profits
How Mar!eters 1se Customer 4ifetime 9alue
to Huide Their <eha(ior
0ey Customers
Customers that 8re
Candidates for Hrowth
.mall Customers
.alespeople must ma!e
choices about which
customers are worthy
of large in(estments
to mo(e them to
!ey customer status
.alespeople must ma!e
choices about which of these
customers represent growth
opportunities and should
recei(e attention
These are the firm;s best customers, yielding
the largest re(enue$ Thy often offer little room
for growth, so the firm may simply act to maintain
eBcellence in relations through pro(ision of ser(ice
These customers often represent the best growth
opportunities$ Mar!eters should eBpand efforts
with these and try to wor! with salesforce to
allocate resources to these customers
These customers account for a (ery small percentage
of re(enues$ They may e(en represent a loss of
re(enue$ Mar!eters can choose to deacti(ate
them or continue co(erage if they offer higher
future (alue
Customer 4ifetime 9alue (C49)

Customer lifetime (alue is the net profit

earned from sales to a gi(en customer
during the time that customer
purchases from the sales organi-ation

C49, as a sales focus, is about how the

customer is treated o(er time

4ifetime (alue is a measure of

customer loyalty
0nowing The Customer 4ifetime 9alue
0nowing the C49 helps salespeopleI

'etermine how much to spend to ac:uire a new customer

'etermine the le(el of customer ser(ice needed

'etermine how much focus should be placed on customer

retention

.hift focus from one"time sales to the creation of closer

relationships with customers

Retain more customers than their counterparts

0eep their customers for longer periods of time

'e(elop more profitable customers

Hain referrals from customers with whom solid

relationships eBist
8uilding 8loc#s of -ifetime Customers
8 Relationship
ocus
0nowledge
of Customer
4ife Cycles
Customer
'elight
*(er Time
Customer
4oyalty
)Schlesinger, Sasser 9 !es#it 2::6)
Clic# on each com%onent
Conceptuali-ing
Customer 4ifetime 9alue

C49 includes the total financial contribution of a

customer o(er the lifetime of that customer;s
relationship with a sales company

Calculating a customer;s lifetime (alue re:uiresI

0nowledge of the cost of ac:uiring the customer

Computations of the stream of re(enues forthcoming

from the customer

Computations of the recurring costs of deli(ering ser(ice

to that customer
C-V )The A%%roach+
Recurring
Costs
Recurring
Revenues
Net Margin
Life Span
of Customer
Cumulative
Margin
Acquisition
Cost
Lifetime
Value
1nderstanding the
54ifetime7 ?art of C49

Comparing R*% to C49

Return on %n(estment (R*%)

represents a way to measure the
immediate result of any sales effort

C49 uses relationship capital to

assess the long-term (alue of the
customer
*(er the long"term, customer retention
occurs when salespeople ma!e offers
and the customer accepts those offers
o(er time
1nderstanding the
59alue7 ?art of C49

8s salespeople gain an understanding

of their customer groups, they can
attempt to create (alue byI

8c:uiring new customers

%ncreasing re(enues

Retaining customers

Reducing recurring costs

Reducing ac:uisition costs

1sing C49 Concepts

To determine customer profitability,

salespeople can use C49 concepts to
segment customers into groups based
onI

Re(enues generated

%ncluding fre:uency of purchase and beha(iors

Costs incurred

?roducts purchased, channels used, ser(ice

le(els
Calculating C49

.alespeople can use R*% and C49 to

guide their sales strategies
Calculating C49

8nnual Re(enue per Customer

@&,,AAA

8nnual Costs per Customer @#E,AAA

8nnual 6et ?rofit per Customer @D,AAA

8(g$ Customer 4ifetime (=ears) D

Total 6et ?rofits @)D,AAA

Customer 8c:uisition Costs @#,,,AA

Return (C49) @&#,DAA

REVENUE Year 1 Year 2 Year
Customers 2!! 1"! 11!
Retention Rate #"$ %#$ #&$
'urc(ases)*ear 1&% 1&+ 2&
Average ,nvoice -2%. -2. -/!.
Spen0ing Rate -/1&%. -%!&1. -+2.
2otal Revenue -12!. -+12!. -1!12!.
C3S2S
4irect 'ercent #!$ %2$ "1$
4irect Costs -"12/. -"%"/. -"1#!.
Acquisition
Cost 5-1"!!6 -!!. ! !
2otal Cost -%12/. -""%". -"1#!.
'R37,2S
8ross 'rofit -21+%. -""". -/2"!.
4iscount Rate 1&!! 1&2! 1&//
N'V 'rofit -21+%. -2+%. -2+"1.
Cum N'V 'rofit -21+%. -"1"+. -111!.
L,7E2,ME VALUE 1!&+1. -/&+. -#&#.
Lifetime Value Calculation
Customer 4ife Cycle
The series of steps a customer goes through
when she considers purchasing, using, and
maintaining loyalty to a product or ser(ice
describes the customer life cycle
Three Main Hoals of
The Customer 4ife Cycle 8pproach
#$ 8ttain new customers and increase the
number of relationships
&$ %ncrease the profitability of those
relationships
)$ %ncrease the duration of profitable
relationships
Creating Customer 4ife Cycles

Collecting and analy-ing data

?urchase fre:uency

Recency

8(erage purchase si-e

6umber of customer (isits and contacts

o(er time
Customer 'elight

Customer delight occurs when a

salesperson goes abo(e and beyond
customers; eBpectations

Tangible and intangible benefits (e$g$,

eBtraordinary ser(ice) beyond the functional
features of a product
our 2ays to 9iew 4oyalty

<ased on the accomplishment+performance

of the product+ser(ice o(er a period of time

<ased on awareness of a deeply held

commitment to repurchase regularly

%nfluenced by feelings or partiality toward the

product+ser(ice and+or the salesperson

%nfluenced by a propensity toward the

product or ser(ice
<uilding 9alue for Customers

or customers

9alue is the source of long"term prosperity

or salespeople

9alue is sales
Moneti-ing <enefits

.alespeople can strengthen their

presentations by showing prospects that the
cost of a proposal is offset by added (alue

'iscounts

Mar!up

R*%

Cost"benefit

?aybac!
'iscounts

'iscounts are a reduction in price from

the list price

Juantity

Cash &+#A net )A

Trade

Consumer
Mar!up and ?rofit

Mar!up is the actual dollar amount added to

the product;s cost to determine its selling
price

Hross profit is the money a(ailable to co(er

the costs of mar!eting the product, operating
the business, and profit

6et profit is the money remaining after the

costs of mar!eting and operating the
business are paid
/Bample of Mar!up on .elling ?rice
in the Channel of 'istribution
;2< Cost from retailer ;2< Cost from retailer
;<711 = Cost to manufacturer
>0711 = Mar#u% )0?7@ %ercent+
;6711 = Selling %rice to "holesaler
;<711 = Cost to manufacturer
>0711 = Mar#u% )0?7@ %ercent+
;6711 = Selling %rice to "holesaler
;6711 = Cost from manufacturer
>0711 = Mar#u% )0070 %ercent+
;:711 = Selling %rice to retailer
;6711 = Cost from manufacturer
>0711 = Mar#u% )0070 %ercent+
;:711 = Selling %rice to retailer
;:711 = Cost from "holesaler
>@711 = Mar#u% )51 %ercent+
;2<711 = Selling %rice to consumer
;:711 = Cost from "holesaler
>@711 = Mar#u% )51 %ercent+
;2<711 = Selling %rice to consumer
M8618CT1R/R
2H*4/.84/R R/T8%4/R C*6.1M/R
or direct from the manufacturer
Return on %n(estment (R*%)
R*% is an additional sum of money eBpected from an
in(estment o(er and abo(e the original in(estment

8 percentage of the in(estment

8 dollar return on in(estment or

.a(ings reali-ed
R3, 9 Net profits 5or savings6 : ,nvestment
Cost <enefit 8nalysis

8 cost"benefit analysis is a list of the

costs to the buyer and the sa(ings the
buyer can eBpect from the in(estment
?aybac! ?eriod

?aybac! period is the length of time it

ta!es for the in(estment cash outflow
to be returned in the form of cash
inflows or sa(ings
'a*;ac< perio0 9 ,nvestment : Savings 5or profits6 per *ear
Customer 'efections
and Retention ?rograms

4ost customers are called customer

defections

.alespeople should ha(e a program of

segmenting lost customers by their
reasons for defection

8 customer retention program should

be a core acti(ity of sales organi-ations
Customer 'efections
i(e reasons why customers defect
#$ .ome customers are attracted to
competitors
&$ .ome customers are bought
)$ .ome customers mo(e
,$ .ome customers are unintentionally
pushed away
3$ .ome customers are intentionally pushed
away
1sing C49 to
Reco(er 4ost Customers

8 !ey to reco(ering lost customers is for

salespeople to ma!e sure the customers are
worth ha(ing bac!, and then to ha(e a plan
for reco(ering them

6ot all customers are candidates for a win"bac!

program
1sing C49 To .elect
6ew Customers

<y e(aluating a customer;s potential

re(enue and li!elihood of defection,
salespeople canI

'etermine the o(erall eBpected (alue of a

customer

%dentify which customers are worth

pursuing in a designated period of time
Customer -ifetime Value Creation Program
Planning Strategy Im%lementation

Create cross'functional
teams to achieve value
creation results

Communicate internally
a$out customer lifetime
value creation ideas

Agree on realistic
o$Aectives for value
creation

Create a detailed
im%lementation %lan that
includes a calendar,
resources reBuired, and
tools to $e used

Analy.e churn behavior C

the degree to "hich
customers turn over

Dather financial data

a$out customers

Calculate the lifetime

value of a customer

Segment customers
$ased on calculations of
lifetime value

Simulate the use of value

creation levers "ith each
segment

Create a steering
committee to ensure
im%lementation

Create a team for each

action %lan develo%ed

-aunch test %rograms and

%ilot %rograms

Measure results

AdAust %lans according to

results o$tained
*ther 9alue Creation ?rograms

.atisfaction sur(eys

Reacti(e contacts

.pecial in(itations

9alue"added ser(icesI

?roduct differentiation

.er(ice differentiation

Relationship differentiation
our ?rinciples of .uccessful
9alue Creation ?rograms
#$ The better salespeople !now their
customers, competitors, and the mar!et, the
higher the li!elihood they will succeed
&$ Today;s customers are less susceptible to
the influence of mar!eting
)$ Customi-ing sales programs is only
effecti(e if such customi-ation is based on
rele(ant information
,$ 9alue is much more powerful than image
Customer relationships
are based on trust
Customers e(aluate products based on eBperience
not awareness
The Rele(ance of Customer
4ifetime 9alue To .alespeople

4ifetime (alue demonstrates that it

costs less to ser(e loyal customers
than to ac:uire new ones

4ifetime (alue fa(ors up"front

preparation and long"term profitable
relationships

%nformation that helps salespeople

attract and retain customers is (aluable
Competing on 9alue
Competing on 9alue
#$ Concentrate
&$ Customi-e
)$ Consult
'ifferentiating 2ithin
Customer .tandards
#$ ?roduct"dri(en (alues are
homogeneous
&$ 8pplications K 9alue"adders
)$ <asis for (alue"creation is end use
9alue (s$ .elling

9alueI The added competiti(e

ad(antage you bring to your
customers$

.ellingI Transacting (alue$

Hardwire =our Customers

ocus on being the best in the world at

pro(iding (alue

'e(elop clear listening strategies

Hardwire what is learned so all employees

can deli(er what is sought

.hare goals

Collaborate

Customer interaction reputation should be

treated Lust li!e a brand
ocus =our /fforts
Customers 0o
not value
=(at *ou
0o not 0o
>ell
=(at *ou
0o >ell
Customers
0o value
S23'
?uil0 capa;ilit*
or partners
nee0e0@@
2(is is it@AA
S23'
?roduct+.er(ice 9alues .ignal
How a Company .hould ?erform
?asic 4iscriminator EnergiBer
'
o
s
i
t
i
v
e
N
e
g
a
t
i
v
e
N
e
u
t
r
a
l
Nonnegotia;leC *ou
must perform as
>ellD ;ut not muc(
;etter t(an
competitors
Not applica;le Not applica;le
So >(at@ Retain
value nee0e0 for
ot(er customer
groups
2olera;leC *ou must
perform no >orseD
;ut not muc( ;etter
t(an competitors
4issatisfierC perform
;etter t(an
competitors an0
correct pro;lem soon
EnragerC correct
pro;lem at an* costD
capitaliBe on
competitorsE
enragers
EFciterC perform
;etter t(an
competitor
4ifferentiatorC
perform ;etter t(an
competitors if value
is important to
customers
?utting .ubstance %nto =our 9alue
Create a values
inventor*
Evaluate *our
values
Anc(or *our
values
Communicate
*our values
Go> 0oes it serve t(e customer@
=(at values are most important to customers@
Go> 0o our values matc( up against
competition@
2o >(at)>(om are customer values tie0@
Go> man* anc(or points 0o customers
(ave@
=(at communications intro0uce value@
=(at communications reinforce value@
0ey Juestions
9alue"?rofitability Relationship

2hat methods do you use to assess

the impact of (alue on profits?

'o your methods pro(ide consistent,

(alid and reliable results?

2hat factors lead to (ariability in the

(alue"profitability relationship?

2hat is the optimal spending le(el on

(alue to maBimi-e profitability?
0ey Juestions
9alue on the *ffensi(e

2hat is the optimal spending le(el on

(alue to enhance your reputation?

8re eBpenditures on (alue more

effecti(e than eBpenditures on
ad(ertising?

How can your company signal high

(alue to customers?
0ey Juestions
9alue on the 'efensi(e

2hat is a loyal customer?

2hat is the role of (alue in defensi(e

mar!eting?

How does (alue compare in effecti(eness

with other retention strategies (e$g$, price)

2hat le(els of (alue are needed to retain

customers?

How can turno(er"prone customers be

identified?
0ey Juestions
9alue 'ri(ers

2hat customer contact points are most

responsible for perceptions of (alue?

2hat are the !ey (alue dri(ers in the

purchase process?

2here should in(estments be made to

affect (alue, purchase, retention and
profits
9alue is intangible,
therefore it is not easily
measured
.uccessful 9alue %nno(ation

8ssess the mar!et 5fit7

6eeds

'emands

%nternal strengths

Match capabilities

Ris! of high (alue

i(e 0ey %ssues
Related to 9alue
#$ Measurement
&$ 9alue creation strategy
)$ ?eople resources
,$ Communication
3$ Ris! a(erse culture