CULTIVATING CUSTOMER RELATIONSHIP
Maximizing customer value means cultivating long-term customer relationships. In the past, producers customized their offerings to each customer. The tailor fitted a suit and a cobbler made shoes for each individual. The industrial Revolution ushered in an era of the mass production. To maximize economies of scale, companies made standard goods in advance of orders and left it to individuals to fit into whatever was available. Producers moved from built-to-order marketing to built-to-stock marketing.
Companies are now moving away from wasteful mass marketing to more precision marketing designed to build strong customer relationships. Todayâ€™s economy is supported by information businesses. Information has the advantages of being easy to differentiate, customize, personalize, and dispatch over networks at incredible speed.
As companies have grown proficient at gathering information about individual customers and business partners (suppliers, distribution, retailers), and as their factories are designed more flexibly, they have increased their ability to individualized market offerings, messages, and media. Mass customization is the ability of a company to meet each customerâ€™s requirementsâ€”to prepare on a mass basis individually designed products, services, programs, and communications. While Leviâ€™s and Landsâ€™ End, were among the first clothing manufacturers to introduce custom jeans, now there are many players in the mass customization market:
Â· Nike lets consumers customize athletic shoes for $10 more. A shopper with two different size feet can even get a non-matching pair.
Â· At Reflect.com, the Web site for Procter & Gamble spin-off Reflect True Custom Beauty, consumers answer a set of questions and then get custom-blended foundation, moisturizer , shampoo, or other cosmetics and skin-care products.
Â· Interactive Custom Clothes, which began making made-to-order jeans and pants in 1996, has grown so fast that it had to stop taking orders in 2003. The company is now trying to find an apparel manufacturer or retailers partner to help ease the load.
Customer equity has roots in many different marketing conceptsâ€”direct marketing and database marketing, service quality, relationship marketing, brand equity. Its unique focus is on understanding the value of the customer to the firm and how to manage the customer as a strategic asset to increase overall firm value for shareholders.
Customer equity can be seen as the expected lifetime value of a firmâ€™s existing customer base plus the expected future lifetime value of newly acquired customers. This basic CLV model can be modified to incorporate several other dimensions, such as Individual customer risk, the social effects of the word of mouth, and competitive and environmental effects that can dampen customer retention rates.
A special issue of the Journal of Service Research devoted to articles on the topic of customer equity included contributions by top academics working on that topic. The papers covered a wide range of issues, among them how to implement customer equity management:
1. Assemble individual-level, industry-wide consumer data. Pooled customer information by all industry competitors can provide insight into crucial considerations such as an individualâ€™s share of requirements. The benefits of broad industry cooperation can offset the costs from the loss of company â€“specific knowledge.
2. Track marketingâ€™s effect on the balance sheet, not just the income statement. Accounting principles that recognizes the customer asset are needed. The challenge is that CLV calculations depend on assumptions about a host of factors, such as the future income stream from a customer, appropriate cost allocations to a customer, discount factors, and the expected economic life of a customer.
3. Model future revenues appropriately. Decisions about the timing and probability of revenue flows have important implications.
4. Maximize (donâ€™t just measure) CLV. Marketers must implement marketing initiatives to maximize the value of the customer franchise (e.g. loyalty, programs, customer reactivations, and cross-selling).
5. Align the organization with customer management activities. For example, some catalog retailers or credit card companies commonly separate the prospect acquisition team from a customer conversion team from those responsible for ongoing customer retention and servicing. Another team may even be assigned to work on reactivation of dormant accounts.
6. Respect the sensitivity of customer information. Consider decentralizing customer information storage and having data reside with the consumer, on personal computers or smart cards. Also, allow consumers the right to audit and contest the accuracy of their profiles.
7. Develop CRM from an efficiency tool into a service improvement tool. The most successful CRM implementations revaluate and refine all customer-facing business processes; develop and motivate al service and support personnel; and select and tailor appropriate technologies.