Progress Amd Priorities In Customer Equity Management

Customer equity has tools in many diüerent marking concepts— drretí iraíteÉig and database marketing. seirvtce qugNy, relationship marketiny. brand equity. Us unique incus. iMMfttiT. is on understanding ¡he value of lhe custodier 10 me limn aod bpw to manage we cuslomer as a strategic asset to increase overall firm value for shareholders

Customer equity can be seen as lhc expccted lifetime value of a firm's fisting customer IBSB pins me empatie«] tutors Ultime value oi newly acquifetí customers. This basic CIV modei ran be modified to incof párate several oilier dimensions, such as individual customer (teli, the social e'lecis oi (he ™<d o< mouth, and competitive antl environmeniai effects mat can dampen customer retention rales.

A special issue or llie Journal of Service Research devoted to anieles an the topic 01 cystoma equity indudetL cxmtrilswlloiii. by too academies working en thai fopác. The pipers covered a wide range oi issues, amoog mem tw to i^emenl customer equity management;

1. Assemble individual-level, industry'Wide consumer dala.

Pooled cuslomer informaron Uy all ¡nduslry oompei.'tors can provide insight into crucial consderalsns sucti as an individual's share oi requirements, The benefits Of broad mdiratry cogiera-tion cart eilset me coste from the loss of company-spec fit knowledge.

Z Track marketing is tiffed on the balance sheet, not just the income statement. Accwrrling principies lhal recognize Hie customer asset are needled. Tne challenge a mal CLV calcula -lions depend on assunpiions about a host of I actors, such as the luturc income slrcam from a customer, appropria cosl alkJ-cations te a customer, disoouni lacm, and the expected economic life oi a customer.

3, Model future revenues appropriately. Decisions itoout (he 6im ■ intf and probability 01 revenue flows have irnportam ioitf ictffris.

4, Maximize (don't just measure) CLV. M arrêter s musi n ple-menl marketing mitiaiives to maaimiïe the value of the customs franchise (e.g., lovaity programs. customer reactivations. and cress'seiiMig).

5, Align the organization with customer management activities, For example, sonne caîaiog retailers or ced l: caid companies commonly separate the prospect acquisition team irom a Customer conversion team Irom those resjjOrtSible 1er ongoing customer reteulion and servicing. Another team may even be assigned lo work on reactivation oi dormant accounts.

f>. Respect the sensitivity ot Customer information. Cans :ler ¡(¿centralizing cuslomer information storage and having dala reside with ine consumer, on personal computers or smail Cantfe. Also, allow consumers Ihe right to audit and comegt Ihe accuracy of their profiles.

1. Develop CRM from an efficiency tool into a service improvement toot. The mosi s-.jccessfu CRM imptemenlaiions reevaluate and refine all customer-lacing business processes: develop and mçlrtâla all service and support personnel, and select and tailor appropriate tecrmologies.

Saonw.' Special ¡hoc w Cusiow E<jui^ Management Joma' of services Research 5. nt i J.iurtusl 2(1021.

ulut they know about each valued custom or, companies Ciiu custom i/c market offerings, services, programs, messages, and media. CUM is important because a major driver of company profitability is the aggregate value of the Company's cuslomer base.50 A pioneer in lire application of CRM techniques is Harrnlifc Entertainment.

in 1997. Harrali's Entertainment Inc.. in Las Vegas, launched a pioneering loyalty program that pulled all customer date mlo a centralized warehouse and provided sophisticated analysis lo teller understand the value el lhe 'investments Hie casino makes in its crrstomers. Harraivs now has Ime-iuned its Total ftewards system td actiipve near-reaMime analysis: As customers interact wiih slol machines, check into casinos or buy meals, they receive reward offers based on the predictive analyses. The company has now Identified hundreds o( cuslomer segments among its more man 25 miriion slot players. By targeting offers to highly spetilic customer segments, Hgrrah's boosted its markeI share by six percentage points and increased net income by 12.4 percenl.evendur-t ing, ttug diflicutt post-maikst in ZQC2.lf

Sumeof the groundwork for customer relationship manage men I was laid by Don I'eppers and Martina Rogers in a sifies of books.32 l*cppcrs ami Roge rs outline a four-step framework far one-to-one marketing that enn be adapted to CRM marketing as follows:

Identify your prospects urift ciistomers. not go after everyone. Build, maintain, and mine a rich Customer database vvitli in forma I inn derived from all the channels and customer touch points.

Playing trie stots at Hatrartfc Gietohea Casino in North Caroling rnnf.O : ir-lomcns areplflbiQH nSrtol ¡t fflpdiGt'nShsO SflgntMlirtg iysferr. ITiil :-rs hfcurun's tartiel oflers BfuiiwraUs nt msiomer stj^nienls amo :i He 25 nil. si: it players a Differentiate cnstoiiters in terms of (1) their needs and 12) their value to yottr company, Spend proportionately more eftbrt on the most valuable customers (MY'Cs). Apply Activity liased Costing and calculate customer lifetime value, list ¡mate net pre sen l value of all future profits coining from purchases, margin levels, and referrals, less customer-specific servicing cos^

Internet with hutividitnl customers to improveyourhiotvledge about their individual needs find to hitiid stronger relationships. l uruiulate customised offerings that are communicated In a personalized way,

Customize prodnctx, services, and messages to each customer. facilitate cusi«rnerf company interaction through the company contact center and Web site, table 5,1 lists the main differences between mass marketing and one-la-one marketing.

A key driver ii1'-.harehotder value is rhe aggregate value of the customer bits«Wi n i lit ig c< u 11| 9a tiies itn prove t h e veiI tie o I' their cus toi ner base by exccHing at stratvjjcs sudi as the following;

Reducing the rate of customer defection* lvliole roods, the world's largest retailer of uaiural and organic Foods, woos customers with a commitment to marketing i he best foods and a team concept for employees. Selecting and training employees to he knowledgeable and friendly Increases the likelihood that the inevitable shopping questions from customers will be answered satisfactorily.

Increasing the longevity of the customer relationship. I'lie more Involved a customer is witil the company, the more likely be or site is to stick around. Some com panics treat their customers as partners— especially in business-to-business markets- -soliciting their help in the design of net* products or Improving their customer service, instant Web Companies (flA'CO). a Clianhasseti, Minnesota, direct-mail ptinier, launched a monthly Customer .Spotlight program where guest companies provide an overview of their business and direct-mail programs and comment on RVCO practices, products, and services, lU'CO's staff not only gains exposure to customers, bur also develops a broader perspective on customers' business and marketing objectives and how to add value and identify options that help meet their customers' goals.®? d Lnhcineing the growth potential of each customer through "sluire-of-ivullet." cross-soiling, and up-selling. 1 Ilarley- Davidson sells more than motorcycles and tiding supplements (such as gloves, leather Jackets, helmets, and sunglasses], Harley dealerships sell [iiore than n,i>[)(t irems of cloth i n g somt1 ever11 lave their Own fit ting remins. I.iceused goods sold hy others range from the predictable (shot glasses, cue balls, and 2pp0 cigarette lighters) to tin- more surprising hems (cologne, dolls, and cell phones). 1 larley-branded merchandise amounted Ki more than S211 million ill company sales in 200$.

Making low-profit customers more profitahlr tir terminating ihem. lb avoid the direct need for terminal ion, unprofitable customers can bo made in buy more or in larger quantities, forgrs certain features or services, or pay higher amounts or fees. Hanks, phone companies. and travel agencies are till now charging for once-free services to ensure minimum customer revenue levels,

¡■'oensing disproportionate effort an high-value customers, the most valuable customers can be treated in a special Way, Thoughtful gestures such as hirtInlay greet ¡tigs, small gifts, or invitations to special spurts pr arts events can send a strong signal to the customer,

Attracting, Retaining, and Growing Customers

Customers are becoming harder to please. They are smarter. more price conscious, more demanding, less forgiving, and they are approached by many more competitors with equal nr better offers. The challenge, according to Jeffrey GUomcr, is not necessarily to produce creating customer valut. satisfaction amo loyaliy

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