ANALYSING PROFITABILITY OF CUSTOMERS

Relationship marketing practices aims at optimising the combination of business process, people and capabilities that are implemented in various steps A firm is capable of creating and capturing value with its customers while sustaining its own profit growth

The LCV of the customer as a concept is adopted from direct marketing The rule states that top 20 per cent of customers generate 80 per cent of the company’s profit, half of which are lost serving the bottom 30 per cent of unprofitable customers LIFETIME CUSTOMER VALUE (LCV)

A customer-product profitability analysis understands  the hierarchy of relationship with the customer  customer’s viral behavior  customer’s referral value  customer profitability analysis (CPA) Tracking behavior patterns for consumer products may be done  by establishing a variety of listening posts, or  by creating the possibility for multiple points of contact with a customer CUSTOMER-PRODUCT PROFITABILITY ANALYSIS

Four levels of profitability analysis  the customer-base level  the relationship level  the episode level  the activity level Multiple dimension of profitability at different levels gives a clear idea about revenue realisation Episode configuration matrix and Stobachoff curve are the two important tools used LEVELS OF PROFITABILITY ANALYSIS Contd..

The distribution of profitability is a measure of the sensitivity of the customer base Customer-based portfolio analysis can be used to grade the customer bases within the company database

VALUE CHAIN ANALYSIS Value is a quantification of what the customer will get minus what the customer has to pay Value Chain Analysis is also aimed at increasing the profitability of the company based on the computation of the real value possessed by the customer and the net profit made by the company.

VALUE EQUATIONS The value profit chain is based on “value equations” for customers, employees, partners, and investors

In the process of redefining business performance through customer-centric marketing, the choice of what a business measures, communicates values, channels employee thinking, and sets management priorities The measurement hierarchy  Customer Balance Sheet and  Value flow statement VALUE PROFIT CHAIN

CUSTOMER DEFECTIONS Increasing defection rates diminish cash flow from customers to the company. It is also important to measure the rate at which a company is adding goods and new customers to maintain a healthy level of growth.

ANALYSIS OF CUSTOMER DEFECTION The various measurement approaches include Customer Balance Sheet and value flow statement Tracking these balance sheet items over time will depict their biggest opportunities for further improvement

Using life-cycle profit and attrition patterns for similar older customers, the firm can predict the percentage of any new class that produce a profit and a positive NPV for the company REDEFINING BUSINESS PERFORMANCE THROUGH CUSTOMER-CENTRIC MARKETING