Strategies De Gestion De Portefeuille


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Strategies De Gestion De Portefeuille

  1. 1. Customer Portfolio Management Master MOI University Nanterre 2009 Lars Meyer-Waarden Professor University of Strasbourg/Ecole de Management Strasbourg http//:meyer-waarden. com Bibliography For more information my website 2 1
  2. 2. Bibliography Customer Relationship Management A Databased Approach V. Kumar Werner J. Reinartz 3 Contents Chapter 1: Introduction: From Mass Marketing to Customer Relationship Management (CRM) Chapter 2: Implementing customer portfolio management Database management Performing Database Analytics Customer Value Metrics and Segmentation Chapter 3: From product portfolio management to customer portfolio management Chapter 4: Conclusion 4 2
  3. 3. Chapter 1: Introduction: From Mass Marketing to Customer Relationship Management (CRM) Development in marketing 6 3
  4. 4. Form mass MKT to relationship MKT Why: Market Saturation Strong competition & Multiplication offers Shorter Product life Cycles Development information data bases 7 What is relationship marketing? Relationship marketing involves creating, maintaining and enhancing strong relationships with customers and other stakeholders. 8 4
  5. 5. Implications of Changes in Business Environment Focus on customer-centric instead of product-centric strategies 9 Relationship Marketing « Instead of selling a product to a maximum of customers…. Client 1 1 Product Client 2 Client 3 10 5
  6. 6. Relationship Marketing Concentration on clients,and sales of a maximum of possible products/services to their expectations personnalisation (1-2-1 or 1-2- few) Product 1 1 Client Product 2 Product 3 Cross selling is when new, related or even unrelated products are offered to the customer. Beneficial strategy for profit maximization from current customer base. Up-selling is the promotion of more expensive products or services over the product or service originally discussed or purchased. 11 Example of a Customized Offer Copyright© 2010 Pearson Education, Inc. 12 Publishing as Prentice Hall 6
  7. 7. Every client is an asset Thus maintaining clients becomes the principal activity in companies 13 Highly satisfied customers Tend to be more loyal customers Generate more profits over their lifetime of patronage 14 7
  8. 8. Satisfaction-Loyalty-Profit Chain Product Performance Customer Retention / Revenue / Service Performance Satisfaction Loyalty Profit Employee Performance Source: Strengthening the satisfaction-profit chain”, Eugene W Anderson, Vikas Mittal. Journal of Service Research, Nov 2000. Vol 3, Iss.2, p 107 15 Declining Customer Satisfaction- Example S c he dule d Ho us e ho ld Co mme rc ial P arc e l De live ry P e rs o nal P ublis hing/ Airline s Applia nc e s B a nks Co mpute rs 90 90 90 90 90 Ne ws pape rs 90 85 85 85 85 85 85 80 80 80 80 80 80 75 75 75 75 75 75 70 70 70 70 70 70 65 65 65 65 65 65 -8.4% -3.5% -2.7% -2.5% -9.0% 60 -12.5% 60 60 60 60 60 1994 1996 1998 2000 2002 1994 1996 1998 2000 2002 1994 1996 1998 2000 2002 1994 1996 1998 2000 2002 1994 1996 1998 2000 2002 1994 1996 1998 2000 2002 (American Customer Satisfaction Index) with products and services Source:, University of Michigan 16 8
  9. 9. The Reasons Why Loyal Customers Generate More Profits Loyal Customers … 1. Increase their spending over time 2. Cost less to serve than new customers 3. Generate word-of-mouth advertising or referrals 4. Are less price sensitive than new customers 17 Typical profit pattern in financial services and other high acquisition cost industries 18 9
  10. 10. Mass MKT vs Relationship MKT Focus on relationship and regular Focus on transaction transactions Short term orientated Long term orientated Priority: Acquisition new clients Micromarketing Fine Market Share segmentation with precise Product Differentiation and Product knowledge about customers which Management have the most important probability Focus on transaction and products to response (database) Interactive Dialog Mass distribution, Mass advertising, Mass production, Communication in Priority: client retention/loyalty one sense Client Differentiation and Customer Product portfolio management Portfolio Management Key Indicateur : market share Focus on clients Personalized, individualised distribution, advertising, production, Communication in 2 senses : Mass customisation Customer portfolio management Key Indicateur : Customer Share & 19 Customer Life time value What is customer relationship management? Business strategy designed to identify and maximize customer value. Capture customer data and interact with the customer simultaneously Involves managing detailed information about individual customers. Develop specific strategies for interaction with each customer Develop better relationships with profitable customers Target customer needs to maximize the customer’s experience and overall customer satisfaction. Locating and enticing new customers that will be profitable Finding appropriate strategies to deal with unprofitable customers, including termination of relationships 20 10
  11. 11. Chapter 2: Implementing Customer Portfolio Management Allocate resources based on customer value - and through a deep understanding of their needs. The results are deeper, richer customer interactions driven by more personalized and targeted value propositions that better meet customer expectations. Operationalisation Phase 1. Acquisition clients Datawarehouse construction by using a loyalty program (CRM tool used by marketers to identify, award, and retain profitable customers) Phase 2. Segmentation clients Datamining (Identification, Evaluation best clients) Phase 3. Customer Portfolio Management: – Resource allocation based on economic value of customer Selection retention & development best clients; Development average clients; Abandon bad clients Phase 4. Interactions – Exchange of information and goods between customer Phase 5. Personalisation/Mass Customisation according to segments: – Needs – Customer Lifetime Value 22 11
  12. 12. Database Management Operationalisation database – For relationship marketing it is necessary to know every client – Construction and management database – Database technology made it possible to track customer transactions, actions and Lifetime Value of a Customer – Functions: storage, analyses 24 12
  13. 13. Customer Database Defined A customer database is a list of customer names to which the marketer has added additional information in a systematic fashion. 25 A Customer Database is… The heart of all direct and interactive marketing activities. The key to developing strong customer relationships and retaining customers. 26 13
  14. 14. Primary Objectives of a Customer Database To get to know customers better Perform Marketing Research Profile Customers To sell different products or services to existing customers Cross-Selling To introduce new products or services Develop A Customer Communication Program Generate New Customers Send Customized Offers To distribute information about an upcoming event or sale To manage customer lifecycles To keep customers satisfied and happy Retain Best Customers 27 Database Management Understand Develop Markets & Customers Offer Customer Intelligence Market Strategy and Segmentation Ta Ta Ta Ta w Channel Integration ar ar ar ar ar no Customer rg r r r Data Warehouse K Market -Focused ett e et et Organisation Explore Find Enjoy Buy Se Se Se Se Se Se Se Se Se Sales Force Communication rv rv rv rv rv rv rv Effectiveness viii viiic Centre iiic ll ce ce Se Service Force e e e e e Marketing Programmes Effectiveness Retain Acquire Customers Customers 28 14
  15. 15. Database Management - Constitution Surveys, coupons, cookies, phone calls, subscriptions, scanning, loyalty programs,…) Customer’s Name Purchase Frequency Address Reactions to promotions , Telephone Number Satisfaction survey E-Mail Address Life cycles Demographics Preferences & Needs Psychographics Loyalty Programme Past Purchases (Transaction Customer Lifetime Value Data) Programme de fidélisation Media of recruitment Purchase dates Purchased products Expenditures 29 Performing Database Analytics 15
  16. 16. Performing Database Analytics Data Mining – Defined: The process of using statistical and mathematical techniques to extract customer information from the customer database to draw inferences about an individual customer’s needs and predict future behavior. – Online Analytical Processing (OLAP) 31 What’s the Secret to Database Analytics? For Marketers to… 1. Be able to identify their “most” and “least” valuable customers; 2. Clarify demographic and behavioral statistics that apply to each population. 32 16
  17. 17. Link Between CRM and Database Marketing Database Marketing Customer Databases – Identify and analyze customer population – Group based on similarities – Recommend separate marketing campaigns for different groups CRM – Applies database marketing techniques at customer level – Develops strong company-to-customer relationships 33 Customer Value Metrics and Segmentation 17
  18. 18. What is market segmentation? Market segmentation involves dividing large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs. Selection / Scoring by potential aiming at resource allocation optimisation (turnover, profit, loyalty development, recruitment, probable reaction) 35 Segmentation and Target Marketing #1 #2 Market Segmentation: Divide the market into segments of customers & develop segment profiles Target Marketing: Select the most profitable segment to focus on 36 18
  19. 19. Benefits of Segmentation: Consistent with the premises of the marketing concept and customer orientation Enables the firm to focus its marketing resources Helps the marketing firm gain strong competitive advantages through expertise in serving specific customer segments 37 Levels of market segmentation and Target Marketing – Mass marketing Assumes market is homogenous and uses the same product, promotion and distribution to all consumers. – Segment marketing Adapting a company’s offerings so they more closely match the needs of one or more segments. – Niche marketing Adapting a company’s offerings to match the needs of one or more sub-segments more closely where there is little competition. – Micro marketing Marketing programmes tailored to narrowly defined geographic, demographic, psychographic behavioural segments. – Local Marketing Tailoring brands and promotions to the needs and wants of local customer groups. – Individual marketing Tailoring products and marketing programmes to the needs and preferences of individual customers. – Mass customisation Preparing individually designed products and communication on a large scale. 38 19
  20. 20. Target Marketing Strategies 39 Variable for Segmenting consumer markets Geographic Demographic Behavioral 40 20
  21. 21. What is geographic segmentation? Geographic segmentation means dividing the market into different geographical units such as nations, regions, states, counties, cities, or neighbourhoods. 41 What is demographic segmentation? Demographic segmentation means dividing the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. 42 21
  22. 22. Customer lifecycle segmentation Acqusition/ Development Maturity Decline/Re-Activation Learning Purchases vary according to: Example: – Babies - Time (fashion, preferences, needs, – Children learning, forgetting) – Teens - Age (opinions, attitudes, tastes) – Students - Generation (Values & Beliefs) – Young Professionals – Confirmed Professionals (with children) 43 – Seniors Customer Value Hierarchy 44 22
  23. 23. What is behavioural segmentation? Behavioural segmentation means dividing the market into groups based on their knowledge, attitudes, uses or responses to a product. – Usage rate/Purchase Frequency – Purchase Amount – Purchase Recency – Loyalty status/CLV – Method or location of their purchases – Method of payment they choose – “Cookies” placed on their computers 45 Customer Based Marketing Metrics for Behavioral Customer Portfolio Segmentation –Acquisition rate (%) = (N prospects acquired/N of prospects targeted) x 100 – Acquisition cost = Acquisition spending ($) / N of prospects acquired – Inter-purchase time = Time in days or months – Retention rate (%) = (N customers in cohort buying in (t)| buying in (t- 1) / N customers in cohort buying in (t-1) ) x 100 – Defection rate (%) = 1 – Avg. Retention rate – Win-back rate (%) = Proportion acquired customers in a period who are customers lost in an earlier period – Survival rate t (%) = (Retention rate t * Survival rate t-1) x 100 – Lifetime Duration in days, months or years 46 23
  24. 24. Customer Based Marketing Metrics for Behavioral Customer Portfolio Segmentation – Share of Wallet (%) = Expenditures individual i from firm j / Σ Expenditures individual i from all firms of the category x 100 – Size of Wallet ($) = summation of value of sales made by all the J firms that sell a category of products to the focal customer Share-of-Wallet Size-of-Wallet Absolute expenses with firm Buyer 1 50% $400 $200 Buyer 2 50% $50 $25 Absolute attractiveness of Buyer 1 eight times higher than buyer 2 47 Customer Based Marketing Metrics for Behavioral Customer Portfolio Segmentation – RFM value – Customer Lifetime Value – Customer Equity 48 24
  25. 25. RFM Recency, Frequency and Monetary Value-applied on historical data Recency -how long it has been since a customer last placed an order with the company Frequency-how often a customer orders from the company in a certain defined period Monetary value- the amount that a customer spends on an average transaction Empirical Rule: – All clients having purchased during the last 12 months are worth twice those who purchased 24 months ago. – All clients having purchased 2 times during the last 12 months are worth twice those who purchased only once. – All clients having purchased for 1000 Euros during the last 12 months are worth twice those who purchased for 500 Euros. 49 RFM Method - Regression Method Regression techniques to compute the relative weights of the R, F, and M metrics Relative weights are used to compute the cumulative points of each customer The pre-computed weights for R, F and M, based on a test sample are used to assign RFM scores to each customer The higher the computed score, the more profitable the customer is likely to be in the future This method is flexible and can be tailored to each business situation Dynamic segmentation in: Good, Mean and Bad clients Switch of 50 one to another class 25
  26. 26. Recency Score 20 if within past 2 months; 10 if within past 4 months; 05 if within past 6 months; 03 if within past 9 months; 01 if within past 12 months; Relative weight = 5 Customer Purchases Recency Assigned Weighted (Number) (Months) Points Points 1 2 20 100 JOHN 2 4 10 50 3 9 3 15 SMITH 1 6 5 25 1 2 20 100 MAGS 2 4 10 50 3 6 5 25 4 9 3 15 51 Frequency Score Points for Frequency: 3 points for each purchase within 12 months; Maximum = 15 points; Relative weight = 2 Customer Purchases(#) Frequency Assigned Weighted Points Points 1 1 3 6 JOHN 2 1 3 6 3 1 3 6 SMITH 1 2 6 12 1 1 3 6 MAGS 2 1 3 6 3 2 6 12 4 1 3 6 52 26
  27. 27. Monetary Value Score Monetary Value: 10 percent of the $ Volume of Purchase with 12 months; Maximum = 25 points; Relative weight = 3 Customer Purchases Monetary Assigned Weighted (Number) Points Points 1 $40 4 12 JOHN 2 $120 12 36 3 $60 6 18 SMITH 1 $400 25 75 1 $90 9 27 MAGS 2 $70 7 21 3 $80 8 24 4 $40 4 12 53 RFM Cumulative Score Customer Purchases Total Weighted Points Cumulative (Number) Points 1 118 118 JOHN 2 92 210 3 39 249 SMITH 1 112 112 1 133 133 MAGS 2 77 210 3 61 271 4 37 308 Cumulative scores: 249 for John, 112 for Smith and 308 for Mags; indicate a potential preference for Mags The higher the computed RFM score, the more profitable the customer is expected to be, in the future John seems to be a good prospect, but mailing to Smith might be a misdirected marketing 54 effort 27
  28. 28. Customer Lifetime Value Customers should be viewed as an investment as without them there is no business Every client is an asset with past and future revenues (puchases) and costs – Acquisition costs (advertising, recruitment,..) – Loyalty costs (Loyalty schemes, quality) 55 Two CLV examples Leclerc: an average family spends 50€ per week on groceries 3.000 €/per year and 30.000 € lifetime expenditure in 10 years) VW: Lifetime expenditure if a car (Golf = 20.000 €) is purchased every 5 years: 200.000 €. But a good customer is worth even more, since satisfied customers tell on average another 3-5 customers about the company. 56 28
  29. 29. Calculation Customer Lifetime Value- Net Present Value models As the discounted stream of net revenues that a customer will generate over the period of his lifetime of patronage with a company=> Multi-period evaluation of a customer’s value to the firm The information needed to calculate CLV is derived from transactions recorded in a customer database Recurring Revenues Contribution margin Recurring costs Lifetime of a customer Lifetime Profit LTV Discount Acquisition rate cost 57 Calculation CLV- Net Present Value models t T  1  LTV = ∑ CM t =1 t   1+ δ  LTV = lifetime value of an individual customer in $, CM = contribution margin, δ = interest rate, t = time unit, Σ = summation of contribution margins across time periods Information source: CM and T from managerial judgment or from actual purchase data. The interest rate, a function of a firm’s cost of capital, can be obtained from financial accounting Evaluation: Typically based on past customer behavior and may have limited diagnostic value for future decision-making 58 29
  30. 30. Calculation CLV- Future orientated models CLV analysis involves distinguishing active customers from defectors and then predicting their lifetime and future levels of transactions according to their observed past purchase behavior As the cumulated past and expected future profit by client (RFM models, multivariate logit or probit models, or stochastic models as Markov Chains or Pareto/NBD) : – CLV = Acquisition Value + Σ Past Profits + (Σ Future Profits) CM LTVi = − AC 1 − Rr + δ CM = contribution margin, Rr = Retention rate 59 CLV Targets Maximize the net present value of both current and future customers If a marketing effort results in the acquisition of new customers who will generate value over time the action is desirable The maximization of CLV consists of optimizing of the customer portfolio: the acquisition, retention, and add-on selling processes (Blattberg et al., 2001) balance the acquisition of new customers with the retention of existing ones (Blattberg & Deighton, 1996) Measure the value of a firm on the basis of the value of its current and future relationships (Gupta et al., 2004) Segmentation & allocate marketing spending for long-term profit Customer-focused approach for measuring firm value Customer equity 60 30
  31. 31. Customer Equity Customer equity is the total combined customer lifetime values of all the company’s customers. 61 Attrition/Defection Attrition = Cessation of activity (Mean 20% annually) – Address change (20% / year) ==> database maintaining – Mortality,Dissatisfaction, Lost of needs or other life cycle, deal proneness, variety searching) – Relation duration: high mortality for new clients than decrease and natural increase with age Attrition depends on various factors – Client characteristics (acquisition mode, inertia, habits, attitudes…) – Relationship length : strong mortality for new clients Measure: Attrition rate – Systematic surveys (satisfaction) – Econometric modelisation with Survival Analysis (Recency, Frequency, Monetary) 62 31
  32. 32. Measure defection by survival analysis Survival tables (Kaplan 1966) Cox model (1972) S(t)=[S0(t)]eBX where h(t)=h0(t)*eBX X = indépendant co-variables 63 Chapter 3: From product portfolio Management to Customer Portfolio Management 32
  33. 33. Product Portfolio analysis The product portfolio: – The collection of businesses and products that make up the company Portfolio analysis: – Step 1: Analyse the current product portfolio – Step 2: Shape the future product portfolio 65 Development of Product Portfolios 66 33
  34. 34. Customer Portfolio analysis The customer portfolio: – The collection of clients that make up the company Questions of Portfolio analysis: – How to maximize profits across various customer segments ? – How to optimise customer acquisition and retention ? Step 1: Analyse/Segment the current customer portfolio Step 2: Shape the future customer portfolio (acquisition valuable customers, development of good clients and clients with potential) 67 Customer Portfolio Analysis - Linking Customer Acquisition, Relationship Duration, and Customer Profitability Relationship Duration Acquired Customer Customers Profitability Prospects Non-acquired Customers Acquisition Process Retention Process -Firm actions -Customer actions -Competitor actions -Customer characteristics 68 34
  35. 35. Customer Portfolio Analysis balancing between Acquisition and Retention In contexts with high acquisition costs (Telecommunication) it costs about 5 times more to acquire a new customer than it does to keep an existing one (Bolton & Drew 1990). It is thus more cost effective to concentrate marketing efforts on customer retention and relationship building than on gaining new customers In other contexts with low acquisition costs (Grocery Retailing, Mail Order Business) it does not cost about more to acquire a new customer than it does to keep an existing one (Reinartz 1999). It is thus important to balance acquisition and retention resources. 69 Customer Portfolio Analysis balancing between Acquisition and Retention For a healthy portfolio acquisition and retention are necessary !!! 70 35
  36. 36. Customer Portfolio Analysis balancing between Acquisition and Retention Transactional Approach: Relational Approach : exit barriers, relationship Preference (attitude/ satis- marketing, individualisation, create value faction) Clients Revenues Value 1 2 3 4 Acquisition/New Clients with - Experiantial clients: potential : marketing Heterogenity Relationship - Inactive clients management Development Relaunch/ Abandon Identification Selection behavior discrimination control retention 71 Reallocation of Resources Based on Customer Value & Acquisition costs High High High Low High Always a Share Lost for Good One Shot Transactional Loyalty and Relationship Marketing Marketing Retention costs Always a Share Lost for Good One Shot Transactional Loyalty and Relationship Marketing Marketing Low Low High Low Low Low Acquisition costs High 72 36
  37. 37. Customer Retention and Acquisition Strategies Allocate resources between existing and new customers Retention Strategy: Acquisition Strategy: Keep existing customers Attract new customers Market decisions: Market decisions: -Segment your customers by -Target the customers based on lifetime value the model of existing customers -Retain your best customers -Develop new markets -Develop one-to-one marketing Product decisions: Product/Service decisions: -Highlight your price/ product offer -Develop relationship marketing -Have a clear positioning on the -Retain your clients with superior market quality service -Develop attractive branding -Develop tailor-made products -Give incentives to add initial -Cross-sell and up-sell value to the new customer -Cross-merchandise 73 Retention and Acquisition Media Retention Media Acquisition Media Direct Mail: TV: - Direct response TV (DRTV) Mailings: - TV spots - Single-product - Home shopping channels - Multi-product - Digital TV - Miscellaneous Radio: - Direct response radio (DRR) - - Birthday cards - Radio spots - Thank-you notes Telemarketing: - Invitations - Outbound Enclosures: - Inbound - Statements Print Media : - Parcels - Press / newspapers - Magazines Telemarketing: - Insert - Outbound Direct mail : - Inbound - Mailings Catalogues - Inserts Internet Newspapers / bulletins Exhibitions / field marketing 74 37
  38. 38. CRM Strategies & marketing mix according to lifecycles Acqusition Retention Recovery Interaction/Dialogue Récompense/Satis- Exit Barriers faction Products Product- Personalisation Incomaptibility with Codevelopment Products & Service competitor products Cross Selling L/t waranties Communication Call Center/ Toll Free Customermagazines Telephonemarketing Number Eventmarketing Individual Internetforum Dialog via forums & communication for mails recovery Distribution Internet 24-h-Service Complaint Expressbelieferung Management Dialog via forums & Recovery mails l/t contracts Subscriptions After Sales Service Price Pricediscrimination Q Rebates Price waranties Price decrease Loyalty Rebates LP 75 Balancing Acquisition and Retention Resources The amount of investment in a customer and how it is invested has an impact on acquisition, retention and customer profitability Investments in customer acquisition and retention have diminishing marginal returns The relative effectiveness of highly personalized communication channels is much greater than the less personalized communication channels . Under spending in acquisition and retention is more detrimental and results in smaller ROIs than overspending A suboptimal allocation of retention expenditures will have a larger detrimental impact on long-term customer profitability than suboptimal acquisition expenditures The customer communication strategy that maximizes long-term customer profitability maximizes neither the acquisition rate nor the 76 relationship duration 38
  39. 39. Profile Analysis for customer acquisition Used to define and compare the profile of campaign responders with the actual profile of the company’s best customers and prospects Considers the input (generally geographic, demographic or psychographic) and clusters names into groups with similar tastes and preferences Statistical techniques as automatic interaction detection (AID) and chi-square automatic interaction detection (CHAID) also used in analysis 77 Customer Portfolio Management according to customer lifecycles Acquisition Development Retention Retention Abandon/ Re- CLV Mailing or e- Professionals activation Mailing ou Clients with e-mailing mailing, visit with strong strong value potential Loyalty Telephone Program, Visit marketing, Young visit Professionals Students 78 Lifecycle 39
  40. 40. Customer Portfolio Management according to Decile Analysis Decile Analysis 40.00% 35.18% 35.00% 30.00% Response Rate 25.00% 22.52% 19.96% 20.00% 15.00% 11.08% 8.98% 10.00% 6.74% 4.42% 5.00% 2.26% 1.78% 0.90% 0.00% 1 2 3 4 5 6 7 8 9 10 Deciles The Decile analysis distributes customers into ten equal size groups For a model that performs well, customers in the first decile exhibit the highest response rate 79 Customer Portfolio Management according to Lift Analysis Lift Analysis 3.50 3.09 3.00 2.50 1.98 2.00 1.75 L ift 1.50 0.97 1.00 0.79 0.59 0.39 0.50 0.20 0.16 0.08 0.00 1 2 3 4 5 6 7 8 9 10 Deciles Lifts that exceed 1 indicate better than average performance Less than 1 indicate a poorer than average performance For the top decile the lift is 3.09; indicates that by targeting only these customers one can expect to 80 3.09 times the number of buyers found by randomly mailing the same number of customers yield 40
  41. 41. Customer Portfolio Management according to Share of Wallet /Size of Wallet High Maintain and guard Hold on Share-of-wallet Target for Do nothing additional selling Low Small Large Size-of-wallet The matrix shows that the recommended strategies for different segments differ substantively. The firm makes optimal resource allocation decisions only by segmenting customers along the two dimensions simultaneously 81 Customer Portfolio Management according to the profit contribution of customers 150% 150% 100% 100% 100% 79% 50% 58% 50% 30% 28% 14% 0% 5% 0% Loyals Divided Loyals Multi-Loyals Occasionnal 82 41
  42. 42. Customer Portfolio Management according to the profit contribution of customers 1000 860 800 600 435 (in $'s) Revenue 400 per year 161 159 200 Annual 17 profit 0 -67 -200 Tier A Tier B Tier C Example of a firm with a highly heterogeneous customer base: -Tier A represents 27% of the customer base, Tier B 42% and Tier C the remaining 71%. - More than a quarter of the customers are unprofitable and need to be subsidized by the highly profitable ones 83 Customer Portfolio Management according to CLV Profit Contribution CLV analysis to determine the segment value according to their profit contribution 100% 90% 80% 70% 60% S e g me nt D S e g me nt C 50% S e g me nt B 40% S e g me nt A 30% 20% 10% 0% 1 2 3 4 84 42
  43. 43. Customer Portfolio Management according to Profit Contribution and Potential Retention Key Target Reactive Abandon 85 Reallocation of Resources Based on CLV High High High Low High Face to Face Meetings: Face to Face Meetings: Currently meets once every 6 months Currently meets once every 4 months Optimal meeting frequency is once Optimal meeting frequency is 1 every 2 month month Direct Mail/Telesales: Direct Mail/Telesales: Current Interval is 13days Customer Value Current Interval is 21 days Optimal Interval is 14 days Optimal Interval is 4 days Face to Face Meetings: Face to Face Meetings: Currently meets once every 6 months Currently meets once every 6 months Optimal meeting frequency is once Optimal meeting frequency is once every 24 months every 2 months Direct Mail/Telesales: Direct Mail/Telesales: Current Interval is 20 days Current Interval is 100 days Optimal Interval is 100 days Optimal Interval is 20 days Low Low High Low Low Low Potential High 86 43
  44. 44. Customer Portfolio Management according to CLV & Attrition 100 10000 Preys Treasure Conquest strategy Loyalty programs 2500 Potential A 1000 B Control/screening Customer development Loyal Dogs 0 Attrition 100 87 Portfolio Management according to Attitudes–Behaviour 88 44
  45. 45. Customer Portfolio Management according to tolerance of critical negative incidents and defection risk Risk of Risk of defection defection high low Risk of defection high 89 Customer Portfolio Management according to Risk of defection Source C. Benavent & D. Crié 90 45
  46. 46. Customer Portfolio Management according to Risk of defection Source C. Benavent & D. Crié 91 Customer Portfolio Management - Differentiated customer relationships 92 46
  47. 47. Customer Portfolio Management according to purchase orientations Purchase Orientation Econo- Relatio- Fonctio- Habit- Hedo- mical nal nal Loyal nistic Ident. Relational 0 ++ - 0 + Gratification Economical ++ 0 = 0 0 Hedonical 0 + - 0 ++ Fonctional 0 0 ++ 0 0 Distr.-Inform. + 0 + ++ 0 93 Customer Portfolio Management, Marketing Planning and Resource Allocation Individualisation or Mass customisation / Versioning/ Discrimination price according to: Needs CLV/Very Good, Good bad clients Value/ Cost Client Value Programme VGC 2nd tier gratifications 3rd tier 1st tier gratifications gratifications GC BC 94 47
  48. 48. Minicase: Catalina - Changing Supermarket Shopper Measurement Catalina Inc. a Florida-based company that specializes in supermarket shopper tracking and coupon issuing Built its business model on issuing coupons to grocery shoppers online when they checkout at the cashier System consists of a printer connected to the cashier’s scanner as well as a database The information on each shopping basket that checks out via the scanner is then stored in the database 95 Minicase: Catalina (contd.) Using the person’s credit card number or check number, the database links individual shopping baskets over time The system then allows both manufacturers and retailers to run individualized campaigns based on the information in the database For customers who use Catalina as a secondary store.- the decision to allocate a gift of say $10, for shopping for 4 weeks in a row spending at least $40, per week in the store Goal is to selectively target those shoppers where the store only captures a low share-of-wallet and to entice them to change their behavior 96 48
  49. 49. Minicase: Akzo Nobel, NV- Differentiating Customer Service According to Customer Value One of the world's largest chemical manufacturers and paint makers The polymer division, which serves exclusively the B-to-B market, established a “tiered customer service policy” in the early 2000’s Company developed a thorough list of all possible service activities that is currently offered To formalize customer service activities, the company implemented a customer scorecard mechanism to measure and document contribution margins per individual customer Service allocation, differentiated as: – services to be free for all types of customers – services subject to negotiation for lower level customer groups – services subject to fees for lower level customers – services not available for the least valuable set of customers 97 Minicase: American Airlines Leading scheduled air carrier, First to implement a frequent flyer program (AAdvantage) Uses Database Marketing & Portfolio Analyses for efficient customer acquisition, development and retention Purpose: – To induce current members to spend more of their flight dollars with American Airlines – To efficiently target new prospects and convert patrons of competing airlines Strategy: Segmentation Segmentation with different classes of passengers Each passenger segment (economy, business and first class passengers) desires a different set of benefits AA will respond to different segments using different marketing strategies Strategy: Cooperation with the credit card company American Express – To identify attractive customers who are not American Airlines flyers – Provide attractive offers to these prospects for inducing them to try American Airlines 98 49
  50. 50. Summary From a strategic perspective, CRM is the process of selecting the customers a firm can most profitably serve and shaping the interactions between a company and these individual customers Assessing Customer Value is critical to CRM and than for Customer Portfolio Management Customer Portfolio Management’s goal is to optimize the current and future value of the customers for the company Building a complete customer database incorporating all the relevant customer information from different departments and external sources is very crucial for a successful Customer Portfolio Management 99 Summary Effective Database analysis is important for successful Customer Portfolio Management Data from active and inactive customers are important to ensure efficient marketing function Marketing databases allow marketers to analyze customers and classify them into different groups to implement different marketing programs effectively Databases also enable marketers to determine critical factors influencing customer satisfaction and take measures to retain existing customers at lowest cost Firms use different surrogate measures of customer value to prioritize their customers and to differentially invest in them Firms employ different customer selection strategies to target the right customers 100 50