Week 11 - Chapter 6 - Measuring and Managing Customer Relationships
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What are the 5 steps of the customer value management cycle?
- 1. Manage customer segmentation
- 2. Measure customer margins
- 3. Measure customer lifetime value
- 4. Measure customer impact
- 5. Manage customer profitability
What is manage customer segmentation in the customer value management cycle?
- Dividing customers into segments for decision-making purposes.
- Analyze those segments for profitability.
What is measure customer segment margins in the customer value management cycle?
- Measure revenue and gross profit by each customer segment.
- Determine whether the highest-cost line items can be reasonably allocated to customers or segments.
What is measure customer lifetime value (CLV) in the customer value management cycle?
Determine the lifetime value of the customer reflected in the net present value of all expected cash flows associated with the customer.
What is the customer lifetime value (CLV)?
The present value of profits over the expected lifetime of the customer or segment.
What is measure customer impact in the customer value management cycle?
Identifying the value the customer brings to the company through customer influence and customer knowledge.
What is customer influence?
Refers to the influence the customer has, either through intentional action or passive behavior, on other customers, on employees, or on other stakeholders of the firm.
What is customer knowledge?
Refers to the actionable knowledge that can be gained by the company, either through analyzing customer behavior or through direct customer input.
What is manage customer profitability in the customer value management cycle?
Use all of the previous steps to supply innovative segmentation and interpretation of results to determine true profitability.
The CLV framework can be modeled using what 3 main components?
- Contribution margin
- Marketing cost
- Probability of purchase
What are MSDA expenses?
What are the characteristics of a whale curve graph?
- Horizontal axis: Cumulative percentage of customers, ranked from most-to-least profitable
- Vertical axis: Cumulative net operating profit
- Left end: Most profitable
- Right end: Least profitable
What is the purpose of a whale curve?
Displays most profitable and least profitable customers and how they contribute to net operating profit.
How can unprofitable customers become profitable?
- Improve processes used to produce, sell, deliver, and service the customer.
- Deploy menu-based pricing to allow the customer to select the features and services it wants.
- Enhance the customer relationship to improve margins and lower the cost to serve that customer.
- Use more discipline in granting discounts and allowances.
How can companies manage customer relationships?
Persuade them to use a greater scope of the company's products and services.
What are the characteristics of a pricing waterfall chart?
- Vertical shapes: Represent a dollar amount
- Right-most shape: Represents the actual net price
- Left-most shape: Represents the dealer list price
What are the critical parameters for calculating customer lifetime value?
- Initial acquisition cost
- Profits or losses earned each year
- Any additional costs incurred to retain the customer each year
- The duration of the relationships
What are non-financial metrics to measure customer performance?
- Customer satisfaction
- Customer loyalty
- Net promoter score
What is the net promoter score?
- The percentage of customers who are promoters (score of 9 or 10) less the percentage that are detractors (score of 1 through 6).
- Note: You actually find the difference in the percentages.
What are characteristics of high cost-to-serve customers?
- Order custom products
- Small order quantities
- Unpredictable order arrivals
- Customized delivery
- Change delivery requirements
- Manual processing; high order error rates
- Large amounts of pre-sales support (marketing, technical, and sales resources)
- Large amounts of post-sales support (installation, training, warranty, field service)
- Pay slowly (have high accounts receivable from customer)
What are characterstics of low cost-to-serve customers?
- Order standard products
- High order quantities
- Predictable order arrivals
- Standard delivery
- No changes in delivery requirements
- Electronic processing(EDI) with zero defects
- Little to no pre-sales support (standard pricing and ordering)
- No post-sales support
- Pay on time (low accounts receivable)
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