Session 11 –

con’t…catch up!
VERY IMPORTANT SESSION….KNOW WELL…..

Dr. Mona L. Sabuco, MBA

 Performance Management & Metrics
Objectives
 Gain an understanding of
Customer Value Management
 Continue to build a tool kit of items
that will be helpful for you in your
career development for PM
 Continue to work on your PM PLAN
project due in Session 15
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Check List & Due Dates:
End of 11th Session Week
 Reading Assignment
• PM –Part 7 - Chapter 24, 25 and 26
• BD – #11 Facebook
 Discussion Submitted
 Journal Worked On
 Article Due: Locate a current article on
ANY topic in the reading assignment. Provide
a 1-3 slide PPT on: Key Area's of the article,
Relevance to PM – how would you apply what
you learned from the article to your firm;
References –if applicable
 Part 7:
 Today the cost department of the average busiens sis looking on as a right arm of first
importance in management. Without the cost department today 90% of our business
would be out of existence…the cost department of the future is going to have more effect
on the business and on the general management of business than any other single
department….And, gentlemen, in my opinion the major portion of the work the cost
department of the future is going to be applying recognize principles of cost analysis to
sales expenses, for there is the greatest evil in present-day industry, the high cost, the
extravagant, outrageous cost of distribution
 James H Rand, President Remington Rand Company, 1921

• Chapter 24
• Chapter 25
• Chapter 26 NOTE: For the duration of the class PM
will mean Performance Management
• #11 Facebook

VERY IMPORTANT PART….KNOW ALL WELL…..

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 Chapter 24
From Working for the Boss to Working for the
Customer…
 PM runs end-to-ed as the complete, closed-loop planning and design,
marketing, selling and customer order fulfilling cycle. One of the critical
component is the portfolio of PM methodologies is the customer
relationship management (CRM). This is a good place to look for KPI’s.
 Need to balance financial and personnel resources with growing sales
with higher-potential existing customers and acquiring new high-profit
customers who share characteristic with their existing high-profit
customers.
 Technology, like the internet, can change your relationship with your
customers. The Internet has shifted power from suppliers to buyers
and the shift also includes changes in location…such as global vs
regional.

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 Chapter 24
From Working for the Boss to Working for the
Customer…
 Need to understand customer’s buying preferences…data gathered
from where?
 The idea here is not just to show the types of customers to grow or
acquire and which not to, but also HOW MUCH to spend growing and
acquiring the desired types. This is KEY. Where does this data come
from?
 To create grater shareholder wealth, a firm must analyze its customers
portfolio in new ways to discover new profitable revenue-growth
opportunities…You must assess, consolidate, and analyze the
necessary customer data that exists in VARIOUS business systems.
 When the customer data is holistically reviewed and analyzed, it helps
in the overall PM evaluation to give a clear vision on the firm’s PM

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 Chapter 24
From Working for the Boss to Working for the
Customer…
 Discussion Discussion &
Assignments
• Slide 4: Who are your higher-potential existing customers
in the firm you are doing for the final project? And who
might be the new high-profit customers who share
characteristic with their existing high-profit customers?
VERY
• Slide 5: Where is customer data kept in your firm that you IMPORTANT
are doing your final project on? Finance, Marketing, DISCUSSION
AND
Operations data? Where? ASSIGNMENT
 Assignment – Not to be turned in… ACTIVITY…A
MUST DO
• Look for companies that have best practices around PM
measurements What are they using for CRM’s? What is
the data collected and what is the tool/technology they are
using to gather such data?

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 Chapter 25
Profitability of Customers Today and Beyond…
 Note the questions asked on page 159. These are important to
know and to have answers from. They should come from the
profitability report.

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 Chapter 25
Profitability of Customers Today and Beyond…
 Activity Based Cost Management (ABC/M) resolve cost distorting
errors of allocating expenses using broad numbers. However, the
methodology of allocating MUST BE proven otherwise you have the
same issues of the broad allocation.
 To better understand revenue and resulting profit margin info,
businesses need to be able to define segmented reports on the fly.
This is where the technology used become so important. However,
it can be done on Excel spreadsheets IF you know how to use Excel.
Many small firms only use Excel.

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 Chapter 25
Profitability of Customers Today and Beyond…
 Migrating customers to a higher profitability is key….
• Know the list on p. 163-164…use Exhibit 25.3, p. 164
 Mange each customer’s cost to serve to a lower level
 Improve/streamline customer facing processes/service models
 Look to see if you can establish a surcharge for or reprice expensive cost-to-
serve activities
 Reduce services: Find labor intensive ones that add little value..cut them
 Introduce new but related product lines/services
 Raise prices
 Abandon products/service lines not used much
 Improve/streamline internal bus processes (use Lean Six Sigma)
 Off customer profit-positive service level options with varying prices
 Increase investments on activities where customers shows preference for
 Ups ell or cross-sell customer’s purchase mix toward richer, higher marging
products or service lines
 Discount proices to gain more business with low cost-to-serve customers

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 Chapter 25
Profitability of Customers Today and Beyond…
 Options to raise the profit cliff curve…
The important point is that the
ABM provides fact-based
data from discovery and
questions can be asked….
Remember: In the absence of
facts, anyone’s option is a
good one…even if it is not
right. What is needed is data
being used to inform the
decisions

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 Chapter 25
Profitability of Customers Today and Beyond…
 Computer technology enables transaction-based customer
profitability reporting….
• Two main sources
 Customer purchase history from the sales order management system for the top-
line revenuse and product costs
 And operational systems, such as an enterprise resource planning (ERP) system
for product and cost-to-serve events driver quantities
 Note that the data must be accurate…so ensuring the accuracy of the data is key
when using any system and it must be done before PM management is
accomplished…good data = better outcomes; bad data= bad outcomes
• Note for advanced systems there are other tools that can help such as
ETL or extract, transform and load to help cleanse data

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 Chapter 25
Profitability of Customers Today and Beyond…
 Discussion
Discussion &
• Slide 7: Pull the profitability report for your firm and see Assignments
if you can answer any of the questions? What other
questions might you ask from your report?

 Assignment – Not to be turned in…

• Watch: Simple ABC
 https://www.youtube.com/watch?v=P2wU1d_vhW4
• Put questions from Slide 9 into a table and see if you can
see any areas to focus your final project plan towards
• Seek out information on ERP type of systems…what is out
there to be used? Does your firm use one system over
another?

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 Chapter 26
Optimizing Customer Lifetime Economic Value

 VERY IMPORTANT CHAPTER…know well….

 Business is not longer about increasing sales…it is about increasing the profitability from sales.
• What does this mean to you?

 Companies should start to identify the difference in the cost to serve between different types of
customers (called the fully loaded costs of serving a customer.
 Important to understand….customers sometimes become unprofitable as a direct result of the way the
business operates in its relationship with them
 Companies should improve in several areas to develop successful strategies that focus on customer
value but also ensure sustaining continuous shareholder wealth creation
 At the strategy level, many companies remained focused on pushing out production rather than
drawing in customers.
 Superior companies provide a differentiated customer experience to drive loyalty and gain a
competitive advantage.
 To deliver a total customer experience, unique and value proposition are consistently offered across all
touch points with customers , regardless of varying sales channels.

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 Chapter 26
Optimizing Customer Lifetime Economic Value
 A financial view of customers must be added to a behavioral view…
 A way for investors, shareholders and a management team to think about measuring a company’s
promise for long-term economic value growth performance is to measure and manage it customers
and the economic value they bring to the bottom line of the financial income statement.

 B2C – 5 Major Forces to place immense pressure…know how to handle – any metrics that might help
in understanding these forces?
1. Customer Retention
2. A shift in the source of competitive advantage
3. 1-to-1 marketing
4. Expanded product diversity and customization
5. Power shift to customers

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 Chapter 26
Optimizing Customer Lifetime Economic Value
 Good customer intelligence systems can help firm’s make smarter deciisons faster. A workflow or
business process without the ability to measure, analyze and improve its effectiveness simple
perpetuates the problem
 Know:
• How many customers do you have?
• How much profit is earning from each customer or customer segment today and in the future
• What kind of new customers are being added, what is the growth rate of these additions?
• How and why are customers migrating through segments over time?

 Peppers and Rogers say:

• “To remain competitive, you must figure out how to keep your customers longer, grow them into bigger customes, make them
more profitable and serve them more efficiently”

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 Chapter 26
Optimizing Customer Lifetime Economic Value
 Customer Lifetime Value: Viewing customers as an investment…
 CLV - New equation…can you work it?

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 Chapter 26
Optimizing Customer Lifetime Economic Value
 Discussion
Discussion &
• Slide 7: Pull the profitability report for your firm and see Assignments
if you can answer any of the questions? What other
questions might you ask from your report?
• Know slide #26
• Know B2C issues…any way to over come them?
• Slide 15: Can you answer these questions for your firm?

 Assignment – Not to be turned in…

• Slide 16: Try to calculate this for a customer segment in
your firm. What are your findings? Do you believe this
to be helpful?

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 Performance Management & Metrics

Additional
 Additional Resources Resources

 CLV – another view….

https://www.youtube.com/watch?v=9EN9aHQsqBA

 CLV – another view - using Excel….

https://www.youtube.com/watch?v=d_ITwKiruJE

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11: Facebook

Big Data In Practice….

 11: Facebook

Discussion &
Assignments

 Name 3 things that you learned from this example of Big

Data In Practice…
 How do these things relate to your company?
 How do these things relate to PM? What is the impact?

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 Questions…

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