Customer Profitability and Demand Chain Strategies - InformationWeek

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Customer Profitability and Demand Chain Strategies

Creating cross-functional customer value-based initiatives.

VentanaView

Summary

Demand chain strategies built upon customer value metrics such as profitability or lifetime value provide examples of the effective application of Ventana Research’s PerformanceCycle framework for driving performance improvement. Ventana Research suggests that cross-functional marketing, sales, and service strategies that are created to engage value-based customer segments could help organizations realize impressive return on customer information assets. We further suggest that an account-management attitude toward customer relationships is an important ingredient in a successful deployment.

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Customer value and profitability metrics provide a PerformanceCycle foundation of “understanding” in the Ventana Research performance management framework. Measurable performance improvement comes only through leveraging this understanding to optimize processes and applying technology to bring the organization into greater alignment.

Ventana Research finds that best practices in the demand chain at top performing organizations are optimized with robust applications built on a solid interpretation of cause-effect relationships. What are the determinants of customer value? What are the characteristics of profitable, marginal and unprofitable customers? What can be learned from customer attributes and behaviors? What are the relative responses to organizational actions, attitudes, and behaviors? What organizational behaviors can be identified that have influenced positive, profitable interactions with customers?

These are all straightforward examples of customer segment and market response analyses that take on new meaning when applied to customer segments defined on profitability. When organizations derive optimal strategies from a clear understanding of profitability by customer, as well as by product group and channel or vertical target market, the real value of customer value-based metrics begins to surface.

Cross-functional objective setting by profit segment is an approach that resonates with virtually any senior business management team. When the fundamentals of segmented target marketing are extended into the sales and service functions, cross-functional alignment is brought into the customer value dimension. In this scenario, all customer-facing operatives are armed with consistent knowledge and support systems that differentiate customers and prescribe modified behaviors based on profit potential going forward.

The marketing department targets its efforts to reach and capture leads with higher profit profiles, not just higher response rates. The sales department qualifies prospects based on profitability expectations, not only revenue. Account management is goaled on migrating existing customers into more profitable segments, not just retention or cross-sell rates. Service center practices are optimized to align with value-weighted customer satisfaction scores. In these examples, each profit segment receives specialized treatment that reflects not only differentiated marketing messages and promotional offers, but also specialized sales support materials and customer service procedures and practices. This is clearly doable only with scalable applications and IT infrastructure.

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