The document discusses the 80:20 rule, which states that 20% of customers account for 80% of profits. It argues organizations should focus on retaining profitable "true friend" customers by increasing customer lifetime value through frequent communication, prompt issue resolution, and cross-selling. To do so requires understanding customer profitability through metrics like acquisition costs, revenue streams, and recurring costs. The role of the CIO is highlighted as an important enabler who can leverage information technology to gain insights into customer behavior and needs to better target the most profitable segments.

1. The 80:20 Conundrum
- Identifying and keeping profitable
customers
Vijay Srinivasan, Chief Operarting Officer
Enterprise Services – Corporates, West
and
Divya Sethi, National Head – VSAT Sales
BHARTI AIRTEL

2. Session spread
• The Concern: Why are we discussing this ?
• The Facts: Lets have a closer look !
• The Concept: Serving the true friends….with profitability
• The other side of the coin
• The Implementation: Increasing Customer Lifetime Value
in services
• CIO as ENABLER – at the centre of the Business

3. 80:20 Principle
“ In any series of elements to be controlled, a
selected small fraction in terms of number of
elements almost always accounts for a large
fraction in terms of effect ” -
Italian economist Vilfredo Pareto

4. Interpreting the 80:20 Rule
• 20% customers in any market yield 80% of the profits
• These are the customers that need to be retained by
organizations
• On the other hand, the remaining 80% customers are
relatively under-served and therefore represent a huge
business opportunity
• Organizations could therefore build a business strategy
around either of these segments, or sometimes Both

5. Lets have a closer look !
• Banking
- Credit Card companies data mining for the high usage customers and
targeting for promotions
• FMCG/Airlines
- Loyalty Programs and Memberships
• Governments
- Attracting Industries for share of pie
• Telecom
- Datamining on usage patterns helps companies create innovative
promotions for specific users
know your customer….to capture and retain them !

6. Mirror Interpretation: Unaddressed opportunities
• Telecom
• Expansion (Explosion ?) phenomenon: High ARPU circles targeted first
• FMCG:
• Cavinkare: Tried to address the other 80% of the market with the small
sachet proposition
• Nirma: Tried to address the product gap existing in the detergent segment
• Travel and Tourism
• Low Cost Airlines
• Budget Hotels
……We will never be short of opportunities

7. The other side of the coin !
20 % of the customers Only 20 % of the market
get 80% of the business is addressed efficiently
…..Fresh look at the addressable markets

8. Why are we discussing this ?
• Competitive scenario in most industries
- More than 15 years after liberalization - most industries are deregulated
• Exposure to global business environment
- Competition is not just domestic but global
• Acquisition costs on the rise
- Increasing need to grow penetration and have efficient distribution
• Huge Pressure on Margins
- Cut throat competition, Efficient regulation
From product centric market…….customer centric markets

9. Customer rules
• Buying power of customer on the up
- Open markets
- Global customers
- Multiple substitutes
• Reasons for defection
- Service encounter failures
- Response to failed service
- Pricing
- Competition
- Involuntary switching/other factors
…Customer is KING

10. But, is every customer equally profitable?

11. Contribution to Overall Profitability
Contribute to more
than 100% of profits Break even
customers
Customers
Customers contributing
requiring
negatively to profits
investments
…Customer Segmentation is a must !
Source: R.S Kaplan and S. Anderson , “Time Driven Activity Based Costing”

12. Customer Groupings
Butterflies True Friends
• Milk these accounts as • Invest maximum time and
Customer Profitability
long as they are active effort to serve these customers
• The Key is to recognize • Communicate frequently,
when to stop investing in respond promptly in case of
the relationship issues
Strangers Barnacles
• Analyze the size of
• Do not invest in these potential business
customers
• Cross sell if potential is
• Maximize the profit on large; else minimize
each transaction investment
Period of Association
– The Reinartz & Kumar Model
Source: Harvard Business Review, April 2002

13. Serving the True Friends….with profitability
Aim to ….
• Attain new customers and increase the number of
relationships
• Increase the profitability of those relationships
• Increase the duration of profitable relationships
…...Increase the Customer Lifetime Value

14. Calculating customer lifetime value
• Calculating a customer’s lifetime value requires:
- The cost of acquiring the customer
- Stream of revenues from customer
- Computations of the recurring costs of delivering service to that
customer
Life Span
of Customer
Recurring Cumulative
Costs Margin
Lifetime
Net Margin
Value
Recurring Acquisition
Revenues Cost

15. Telecom Infrastructure Planning
Technology
Infrastructure Planning
Customer Requirements Business Strategy

16. ENABLER
But, who enables this ?

17. IT as the ENABLER !!
…….Growing Importance of IT in Business
Strategy

18. Multidimensional role of the CIO
Business
Solution
Provider
Technology Change
Leaders Enablers
Planners

19. CIO as the ENABLER !
• An integral part of the Strategic think
tank of the organization
• Acts as the backbone of operations of
organizations
• Forays into newer areas leverage IT to
derive maximum efficiencies
Quality
Research
Information
• Newer Information Systems and Technology and
Communication Technologies helps Networking
organizations reach out to the masses.