ANALYSING PROFITABILITY

OF
CUSTOMERS
Relationship marketing practices aims at
optimising the combination of business
process, people and capabilities that are
implemented in various steps

A firm is capable of creating and

capturing value with its customers while
sustaining its own profit growth
 LIFETIME CUSTOMER VALUE (LCV)

The LCV of the customer as a concept is

adopted from direct marketing

The 20-80-30 rule states that top 20 per cent

of customers generate 80 per cent of the
company’s profit, half of which are lost serving
the bottom 30 per cent of unprofitable
customers
CUSTOMER-PRODUCT PROFITABILITY ANALYSIS

A customer-product profitability analysis

understands
 the hierarchy of relationship with the

customer
 customer’s viral behavior
 customer’s referral value
 customer profitability analysis (CPA)

Tracking behavior patterns for consumer

products may be done
 by establishing a variety of listening
LEVELS OF PROFITABILITY ANALYSIS

Four levels of profitability analysis

 the customer-base level
 the relationship level
 the episode level
 the activity level

Multiple dimension of profitability at different

levels gives a clear idea about revenue
realisation

Episode configuration matrix and Stobachoff

curve are the two important tools used
Contd..
The distribution of profitability is a measure of
the sensitivity of the customer base

Customer-based portfolio analysis can be

used to grade the customer bases within the
company database
 VALUE CHAIN ANALYSIS

Value is a quantification of what the customer

will get minus what the customer has to pay

Value Chain Analysis is also aimed at increasing

the profitability of the company based on the
computation of the real value possessed by the
customer and the net profit made by the
company.
 VALUE EQUATIONS

The value profit chain is based on “value

equations” for customers, employees,
partners, and investors
 VALUE PROFIT CHAIN

In the process of redefining business

performance through customer-centric
marketing, the choice of what a business
measures, communicates values, channels
employee thinking, and sets management
priorities

The measurement hierarchy

 Customer Balance Sheet and
 Value flow statement
 CUSTOMER DEFECTIONS

Increasing defection rates diminish cash flow

from customers to the company.

It is also important to measure the rate at which

a company is adding goods and new customers
to maintain a healthy level of growth.
 ANALYSIS OF CUSTOMER DEFECTION

The various measurement approaches include

Customer Balance Sheet and value flow
statement

Tracking these balance sheet items over time

will depict their biggest

opportunities for further improvement

REDEFINING BUSINESS PERFORMANCE THROUGH
CUSTOMER-CENTRIC MARKETING

Using life-cycle profit and attrition

patterns for similar older customers,
the firm can predict the percentage of
any new class that produce a profit
and a positive NPV for the company