Investing in customers

Résumé du document

Investment is the choice by the individual to risk his savings with the hope to acquite a profitable gain. Indeed, in the best cases, the acquisition of an asset is the consequence of the expectation of future flows of income that will exceed the initial cost of the acquisition. Customer, as a current or potential source of income for the firm, is seen as the "raison d'être? of the supplier. Thus, investing in customers relationship seems to be one of the ways to distinguish from competitors and thus, to generate and maximize revenue. Those investments influence customers' perception, customers' satisfaction and customers' loyalty. The definition of customers as "off-balance-sheet intangible assets? and as "the expected sum of discounted future earnings? (Gupta et al., 2004) trigger off various issues. First, they are intangible, unpredictable and consequently their own will constitutes a risky feature to the concerned firm.

Extraits

[...] Kumar, V. & Morris, G. (2007), “Measuring and maximizing customer equity: a critical analysis”, Journal of the Academy of the Marketing Science, 35:2, 157-171. Kumar, V. & Petersen, J.A. & Leone, R.P. (2007), valuable is word of Harvard Business Review, 85:10, 139-146. McGovern, G.J. & Court, D. & Quelch, J.A. & Crawford, B. [...]

[...] Target: which customers will we focus on? The model of CLV or the other methods enumerated in the previous part enable to have an assessment customer's relationship value. After this valuation of the customer, the firm needs to choose the customers they want to focus on. According to David Bell and John Deighton, the marketing concern with the profitability of individual customers allows more efficiency with which supply could match with demand. Indeed, the less anonymous customers are the more it becomes possible to advocate allocation of resources away from low-value customers and toward the highest-value ones. [...]

[...] This is possible thanks to - collecting information about customers (published data, due diligence . ) and - taking into consideration all the direct and indirect costs associated with - the product or service - and with customers themselves. Thus, a company can choose between two strategies: either giving up with the unprofitable customers to the benefit of high value customers, or finding a way to make them profitable. This seems to be a quite dangerous approach because if no solution is found to make these customers profitable, it is conceivable for the authors to neglect a segment of customers, known as unprofitable. [...]

[...] Given this assumption, we can guess that marketing has a financial effect on the shareholder value. It remains to assess this value creation and this is the purpose of this part. We start through different financial tools. First, we see the most common way, albeit not always the most used, to assess the customer value and called Customer Lifetime Value. Then, we examine the advanced models proposed to alleviate the disadvantages of the CLV calculation. Finally, we review the challenges that concern the evaluation of the shareholder value by customer relationships The basic model: Customer Lifetime Value In their research, Hogan, J.E. [...]

[...] Gupta, S. & Lehmann, D.R. & Stuart, J.A. (2004), “Valuing customers”, Journal of Marketing Research, 41:1, 7-18. Hogan, J.E. & Lehmann, D.R. & Merino, M. & Srivastava, R.K. & Thomas, J.S. & Verhoef, P.C. (2002), “Linking customer assets to financial performance”, Journal of Service Research, 26-36. [...]