CHAPTER 2

Types of Customers and Customer

Value: Values Drive Value

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 CUSTOMER SEGMENTATION
REEXAMINED
 Pareto principle bears testimony to the fact that not all
customers are equal and therefore not all of them should
be treated equal.
 Two strong keywords with the concept of CRM relate to
‘selectivity’ and ‘partnership.’

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 TYPES OF CUSTOMERS AND THEIR
RELATIONSHIP STYLES
 According to Jones and Sasser, customers behave in four
different ways:
1. Apostles
2. Terrorists/Defectors
3. Mercenaries
4. Hostages

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CLASSIFICATION OF CUSTOMERS INTO FOUR TYPES
ACCORDING TO LOYALTY AND SATISFACTION

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 TYPES OF RELATIONSHIPS WITH
MERCENARIES, APOSTLES, DEFECTORS
AND HOSTAGES

 Price-centered relationships
 Need-centered relationships

 Value-centered relationships

 Product-centered relationships

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 LINKING PROFITABILITY AND
LOYALTY
 High profitability and short term customers (Butterflies)
 Low Profitability and short term customers (Strangers)

 Long term customers and low profitability (Barnacles)

 High profitability and long term customers (True friends)

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 CUSTOMER VALUE
Five new approaches to customer value have been
identified. These are:

 ‘The total value of their relationship with your company

 The potential value of their relationship

 The profitability of their relationship

 The insights they can provide to your company

 The influence they can wield over other customers

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 TYPES OF CUSTOMER VALUE
 Economic Value
 Functional Value

 Psychological Value

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TYPES OF CUSTOMER VALUE AS GIVEN
BY BARNES
 Choice based value
 Employee based value

 Information value

 Association value

 Relationship value

 Customer unique value

 Experience value

 Product-for-price value

 Access or convenience value

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 CUSTOMER LIFETIME VALUE (CLTV)
Dimensions of CLTV:
 The duration of the ‘customer lifetime.’

 The firm’s share of wallet among its customers.

 The firm’s success in frequency, up and cross selling to

its customers.
 The firm’s costs of acquiring, serving, selling to and
retaining its customers.

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 CLTV CALCULATIONS
 Calculating value
 Simply put then, the LTV of any given customer can be
expressed as:
LTV = total revenues – (fixed costs + variables costs).
 Revenue is fairly straightforward to measure – one
simply adds up to the total of all of the orders placed
with the organization.

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 CLV =Average transaction value * Frequency of
purchase * customer life expectancy
 Link between the customer retention rate and the average
customer lifetime
 Average customer lifetime (years) = 1/ 1-retention rate

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In particular, companies can think of adopting two types
of communication channel strategies based on LTV
calculations. These are:

 Graduated account management strategy

 Channel migrator strategy

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 YIELD OPTIMIZATION
 It is no secret that, when calculating which products a
customer may have a propensity to buy, our best
customers will be candidates for a range of differing,
sometimes competing products.
 Which then should be in the portfolio and in what order
do we offer these to the customer?

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 CUSTOMER VALUE MANAGEMENT
It is a systematic approach to:

 Understand what causes customer purchase and

repurchase behaviour.
 Predict the future purchase behaviour of customers and
potential customers, and
 Maximize future purchase behaviour by managing the
predictors.

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 PROCESS OF DETERMINING CUSTOMER
VALUE

1. What do target customers value?

2. Of all the value dimensions that target customers

want, which are most important?

5. What are
3. How well or poorly are we doing in delivering the target
the value that target customers want? customers
likely to value
in the future?
4. Why are we doing poorly or well on important
value dimensions?

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 IN A CUSTOMER VALUE MANAGEMENT
ROADMAP, THERE ARE FOLLOWING
MANAGEMENT PHASES:

 Needs and value based segmentation

 Value proposition development

 Product and service delivery

 Business operations metrics

 Integrated channel strategy

 Customer service

 Expanding customer relationship and

 Migrate customers to new channels/segments

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