Customer-led

Strategies
(Group 9)
Tejas Gosavi
Rishi Raheja
Ankita Singh

Introduction
What is a customer led strategy?
A customer-led strategy is built around the existing customers, and growth is generated by
identifying new products which can be successfully sold to these customers.

Which customers should form the basis for future growth?

Customer groupings from which the company can generate sustainable super profits
Long-term customer account profitability (CAP) analysis to be carried out to
- Indicate the relative profitability of different groups of customers
- Support strategic decisions regarding which customer segments should be invested in, etc.
(Should not be used as an attempt to apportion the net profit of the total business among the
different customers.)

Relationship Marketing
Develop a long-term relationship with the customers
The relationships must be considered as long-term assets by the company
A shift from customer acquisition to retention and development

How to attract and retain these valuable long-term customer?

The company must create more value for these customers than the competition
The balance between the value created for the customer and from the customer should be
carefully managed
Customer value can be defined as the perceived benefit obtained by the customer less the
price paid and other costs (e.g. time, inconvenience) incurred in order to own the good or
service
Long term customers also provide indirect benefits like referrals and referencability thus being
financially worthwhile despite generating apparently less than required direct returns

Market segmentation
In any customer-led strategy, the marketing strategy process starts with carrying out a market
segmentation exercise
The positioning strategy is based on the differential advantages of the defined attractive
Trends
in marketing
segments
it decides to target
strategies
From
One size fits all
Mass Production
Through

Inside out planning

Product
Differentiation

To

Outside in planning

Market segmentation

And Possibly
Mass customisation
Individual
segmentation
Product differentiation is still not really market
segmentation as it is bending demand to the
will of supply in that it is still production-oriented
True market segmentation seeks to identify what customers really want and then matches
the companys products to these specific requirements (mass customisation)
Role of Marketing finance:
- To ensure these redefined market segments are financially attractive
- To highlight those that have the greatest potential for generating super profits

Segmentation can objective or

subjective
Objective
Geographic (eg. regionally)
Size (eg. Total Sales revenue)
Organisation type (eg.
International, national)
age, gender, sociodemographics

Subjective
Buying methods
Distribution requirements
Level of importance of the product to the customer
Level and importance of innovation and flexibility
Style of key decision-makers (e.g. risk-taking professional
or risk averse family member)
Degree of loyalty, stage of development (e.g. high growth
versus mature or declining)
Degree of systems compatibility.

The more rapidly growing method of segmenting consumer markets is based around
psychographics; these relate to life styles, personality types and self-concepts
There are also segmentations that are particularly relevant to certain industries:
Occasions for purchase or use (known as situational context)
Buying/usage intensity
True market segmentation seeks to identify what customers really want and then
matches the companys products to these specific requirements

Customer Account profitability analysis

Pre-requisite for a customer-led strategy : identify most
profitable customers
Customer grouping done as per significant similarities
Compare all areas of significant differences among
customer groups
Aim is to highlight the financial impact of the different
characteristics of market segments and of the different
ways in which customers are serviced

Customer Account profitability analysis (Cont.)

Attributable costs of all the significant
differences must be ascertained & charged to
the relevant customer groups

Level of directly attributable costs differs

depending upon the size of the customer
grouping.

Relationship Marketing
Research type
expenditure:
Investment
expenditure:
Maintenance
expenditure:

to identify the characteristics of the most attractive

customer groupings or market segments.
to win business from these target groups of customers
and then to develop a long-term relationship with
them.
to defend this long-term relationship against
competitors while ensuring that its full potential is
fulfilled.

Advantages of retaining Customers

Cost : part of investment in the customer
Cost of acquiring new customers is higher
Increase in purchase by long term customers
Source of business referrals
Less negative publicity by dissatisfied customers if more customers are retained
Entry barriers for competitors
Examining relationship marketing : Customer Complaint
Same day response to customer complaint
Number of customer complaints
Complaining customer still with the company after 6 months

Customer Value
Customer
Value

Perceived benefit obtained by the customer less the price

paid (monetary and non-monetary) that the customer makes to
own the product
Customers perception of value is based on more than
specification, features and price and that value perceptions are
formed over time and can be affected by outside
influences.

Cost to
Custom
er
Perceiv
ed
Benefit

High
Customer
Value

New
Customers
Existing
customers

Acquired
Retained
&
Develope
d

Custome
r
Profitabi
lity

Increase in customer value increases shareholder value up to

a critical point
Identify the critical turning point manage customers at
different stages in their life-cycle

Customer Profitability Analysis

What?

CAP Analysis are commonly used to identify relative profit contributions from
the customer groupings with highest long term profit can be generated

Why?

Due to limited resources such as time and money, it is more profitable to focus
on target groups rather than the entire population

How?

Following the diagram below, the group is segmented into the following
categories

Customer Profitability Analysis

(Contd)

This initial analysis enables the company to develop specific strategic thrusts for each stage of the life cycle, and marketing
finance should be developing similarly tailored financial evaluation measures and control techniques.
The key thrusts are as follows:

Case Study : D&M Confectionery Ltd

D & M Confectionery Ltd was a regionally based, privately owned company that specialized in
marketing and distributing cakes
At this stage, the company had cash on deposit at the bank as it collected the cash from its
customers before it had to pay its suppliers, and its needs for capital investment were relatively low
Its delivery system was therefore not very efficient, but it was customer-oriented and very flexible,
and its relatively high profit margins meant its early growth was financially successful
They identified a potential demand for a new range of high-quality cakes that could be sourced from
Danish bakeries.
It soon became clear that these national supermarkets wanted only the imported product, and they
wanted to brand it themselves. They also intended to order centrally so that D & Ms van sales force
would be merely delivery drivers, and they wanted an efficient and effective distribution service from
D&M
This proved to be a big change in the existing business strategy and current sources of value-added,
as well as requiring significant investments in warehousing, more and larger trucks and new
computer systems to cope with the dramatically increasing volumes and tighter delivery timing
requirements

There was also a significant increase in the working capital tied up in the business, as the
supermarkets demanded much longer credit terms than had been granted to D & Ms original
smaller customers, many of whom had paid in cash at the time of delivery
The big supermarkets negotiated substantial volume discounts on their already reduced prices;
they were not buying D & Ms branded goods, and their selling out price was much more important
to them than to the much smaller retailers that D & M was used to dealing with.
During this period of dramatic change, D & M decided to concentrate all its Danish sourcing with
one supplier in order to simplify the administrative processes and operational issues
When D & M revealed its lack of profitability to its bank, the bank became concerned about its level
of exposure and asked questions about the timing of future payments to this Danish supplier
The supplier agreed to extend its credit period, but wanted to be reassured about the strength of D
& Ms customer relationships by meeting these key customers
Within 3 months, the Danish supplier had agreed with these supermarkets to deliver to them direct,
bypassing D & M completely
Inevitably D & M went into liquidation because its original business could not possibly support the
dramatically increased fixed cost base taken on for the new market segment