Customer Value: Setting the Gold Standard

If customers are essential to profitability, why do so few companies put them at the focal point of performance management? Here's a practical guide to help your organization use metrics to drive higher customer value.

Getting that alignment requires the organization to turn its attention to cause and effect. What drives customer value? What are the characteristics of profitable, marginal, and unprofitable customers? What can the organization learn from customer attributes and behaviors? How does it explain variations in internal organizational attitudes and behaviors? Which organizational behaviors can be identified that have operational influence on outcomes with customers? These are all standard examples of customer segment analyses. However, they take on new meaning when applied to customer segments defined on profitability. When your organization can develop optimal strategies based on a clear understanding of profitability by customer as well as by product group and channel or vertical target market, the real value of the metric derivation begins to surface.

Cross-functional objective-setting by profit segment is one objective that resonates with virtually any senior business management team. By extending the fundamentals of segmented target marketing into the sales and service functions, you can bring cross-functional alignment on the customer profitability dimension. In this scenario, all customer-facing operations are armed with consistent knowledge; supporting systems differentiate customers and modify prescribed behaviors on the basis of profit potential going forward. The organization can establish goals for qualifying prospects on a profitability basis and migrating existing customers into more profitable segments. Each profit segment can receive specialized targeted treatments that reflect not only marketing messaging and promotional offers, but also specialized sales support materials and value propositions as well as customer service procedures and practices.

Commitment and Execution

A customer value-based strategy only works as part of a deeper commitment to the customer as focal point of the business. Transitioning an organization from a traditional product-centric mindset is a nontrivial change management challenge. Very often it requires some positive manifestation of change reflected in the organizational structure itself. For instance, why not establish business development teams defined on customer profitability segments, just as many organizations have product development and marketing teams?

The execution of new strategies in any organization requires that people, processes, and technology be brought into alignment with the new objectives. Building strategies on customer profitability is no different. IT enablement is critical to making it happen.

Jack Hafeli is VP and research director of Ventana Research's Customer Intelligence and Demand Chain Performance Management practice. He has more than 25 years of experience in driving decision support, OLAP, and BI into customer-centric solutions for both software vendors and service organizations.

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