Customer Profitability and Demand Chain Strategies

This value-based strategic technique applies well in both business-to-consumer (B2C) and business-to-business (B2B) commercial environments. Ventana Research is of the opinion that adoption of an ongoing account management mind-set is the most important differentiating factor in either environment. A customer value-based account management approach is more likely to be a de facto best practice in top performing B2B organizations. A finite customer/prospect base and direct personal contact with each customer is more typical. Even without a supported value-based strategy, top performing account reps will judgmentally determine which customers are marginally more fruitful customers and prospects at a given point in time. A B2C organization’s larger customer universe makes such an ad hoc approach impractical, increasing the value proposition of a software-based solution.

Assessment

Among those organizations that have established a foundation of customer value and/or customer profitability, Ventana Research asserts that such metrics should be dynamically maintained and used more often as the basis for cross-functional business initiatives. Those that have not built customer value metrics should do so. Regular assessment of enterprise and business unit P&L will drive new business initiatives, and, in a similar vein, changes in product profitability are often the basis for shifting organizational objectives. Clearly, customer profitability dynamics should drive strategies across the demand chain. We further recommend that value-based strategies best bring about performance improvement when account management processes are linked to sales management. Customer acquisition efforts and those aimed at retention are best treated as a single process continuum, defined to encompass all components of the customer-facing demand chain.

See also:

Customer Profitability is Not a Financial Metric
Demand chain perspective often accelerates resolution.

Sales Effectiveness And Customer Profitability
Using planning and analysis to optimize account coverage.

Customer Profitability Revisited
A strategic initiative for finance executives

The Customer Drives the Demand Chain
Customer intelligence is becoming a priority.

Jack Hafeli is VP & Research Director - Customer Intelligence & Demand Chain Performance at Ventana Research