Main Points, Issues and Ideas of the article
In today’s world, the competition is fierce and shareholders demand high return on investment. Thus, there is a need to maximize profitability. Increasing revenues while minimizing costs are ways to boost profits. The article “Managing Customer Value” suggests that customers might be the key to improve profits.
Customers are assets to firms; they generate revenues. However, some assets generate more revenues than other. In order to foster maximum returns from the customers, it becomes imperative to understand the differences between customers groups. Recognizing this diversity will enable value extraction from the investments.
Unfortunately, most companies are unable to distinguish between the profitable and the unprofitable customers. One approach in measuring and managing customer value is the “Customer Value Management Cycle”. This cycle consists of 5 steps.
1. Customer segmentation; A proper segmentation drives profits by tailoring values to fit different customer needs. Thus, marketing should be correlated to different behaviors that steer customer profitability. Segments are dynamic and should be continuously refined as understanding of customers increases. Finally, including potential customers in the segments is also advantageous as it can help the company meet the needs of these customers.
2. Segment margins; Value from segmenting the customer base will be maximized when the profitability of these segments is measured. This in turn will allow formulating the right strategy and effective management. An effective method to increase margins is to locate the highest costs and figure out if there are possibilities to allocate these costs to customers.
3. Customer Lifetime Value (CLV); Customers generate cash flows in the current and future periods. Though, at the beginning of the relationship, large