Fundamentals Of Customer Orientation PDF

9.1 FUNDAMENTALS OF CUSTOMER ORIENTATION: Research shows that a market-oriented culture provides a solid foundation for value- creating capabilities leading to sustainable competitive advantage. A business is market- oriented when its culture is systematically and entirely committed to the...

9.1 FUNDAMENTALS OF CUSTOMER ORIENTATION: Research shows that a market-oriented culture provides a solid foundation for value- creating capabilities leading to sustainable competitive advantage. A business is market- oriented when its culture is systematically and entirely committed to the continuous creation of superior customer value. Specifically, this entails collecting and coordinating information on customers, competitors, and other significant market influencers (such as regulators and suppliers) to use in building that value. The three major components of market orientation are: a) customer orientation b) competitor focus c) cross-functional coordination 9.2 STEPS TO BUILD CUSTOMER ORIENTATION ARE: Customer Needs Assessment Through Market Research/Surveys Competitor Analysis Customer Segmentation Developing/Launching Products With Better Customer Value Management Customer Value Management: Customer value management is managing each customer relationship with the goal of achieving maximum lifetime profit from the entire customer base. Customer value management enables companies to take full advantage of the economics of loyalty by increasing retention, reducing risk, and amortizing acquisition costs over a longer and more profitable period of engagement. Although customer value management seeks to increase the aggregate value of the customer base, this is accomplished customer by customer. Not every individual customer will be profitable, but each must be managed to maximize overall profit, even when the management consists of identifying which customers have little value to the business, and focusing development and retention efforts elsewhere. CVM shifts the focus of the enterprise from managing products or marketing campaigns to managing the profitability of each individual customer over the entire life of the relationship. While CVM can and does lead to better product offerings and more targeted campaigns, a customer value manager will ask different questions than a traditional marketing manager. Instead of asking, “Who will respond to a 10% off promotion?”, a customer value manager is driven to understand, “Who is this customer, and what can I offer to increase their lifetime value?”. Making this shift requires companies to move from giving lip service to one-tone marketing to actually developing the analytical and operational capabilities to do it. But those that do so can expect increased profits, not only in the short term, but for years to come. The customer value management cycle can be broken down into three stages: a) Right customers (acquisition) b) Right relationship (development) c) Right retention (keeping valuable customers) Right Customers: The customer value management cycle starts with acquiring the customers who will be most valuable to your business. Who are these customers? Most often those who will do repeat business with your company for a long time. In many industries the break-even period is a year or more, and rising. Companies can no longer afford to indiscriminately recruit customers without examining their long-term value. Your best source of intelligence about the customers you want is deep analysis of your current customers – the people on whom you already have extensive data. Fine- grained segmentation and analysis of your customer base reveals hidden characteristics and trends that affect value. Perhaps certain customers have been regarded as low-value because they make only small purchases. Finer segmentation that includes frequency of purchase might reveal that a subset of these customers have a very high lifetime value, because they have regularly made these small purchases every week for the past ten years. Such deep understanding of who are your best customers, and why, enables you to go after the new customers your company can most profitably serve. Right Relationship: Even with the most well-chosen customers, managers must develop the relationship. Customers who don’t receive the right touch or get too many conflicting offers lose rather than gain value. Just because Jack and Frank live in the same zip code does not mean they are both in the market for home office furniture at the same time. Ideally marketers would be able to spot these differences, targeting Jack with the right offer at the right time, without annoying Frank with another promotion for something he does not want. For any business, the right relationship is one that maximizes that customer’s lifetime value. A simplified view of customer lifetime value is: LTV = purchase size x frequency x duration So the businesses goal of customer relationship management is to increase the size and frequency of purchases and extend how long the customer continues to buy. Since marketers can’t know the duration of a relationship until it is over, they use loyalty measures to estimate how long customers will stay. Right Retention: Effective retention means retaining the right customers, not every customer. Managers need to focus their retention actions on customers with the highest lifetime value. Spending precious resources to retain marginally profitable or unprofitable customers actually hurts the overall value of the customer base, especially if these retention efforts succeed. Right retention is therefore rooted in knowing which individuals are most valuable, and why. Accurately analyzing lifetime value helps managers take the long view, giving equal weight to customers who are already doing a high volume of business and those who purchases are modest, but whose actions indicate loyalty and profitability over time. CVM tips: Coordinate messages across all points of customer contact to ensure a consistent, but not redundant, experience