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CPM
• A customer portfolio is the collection of mutually exclusive customer groups that
comprise a business’s entire customer base.
• In other words, a company’s customer portfolio is made up of customers
clustered on the basis of one or more strategically important variables.
• One of strategic CRMs fundamental principles is that not all customers can, or
should, be managed in the same way, unless it makes strategic sense to do so.
• Customers not only have different needs, preferences and expectations, but also
different revenue and cost profiles, and therefore should be managed in
different ways.
• Customer portfolio management (CPM) aims to optimize business
• performance across the entire customer base.
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Objectives of CPM
• The goal of CPM process is to cluster customers into groups so that
differentiated value propositions and relationship management
strategies can be applied.
• One outcome will be the identification of customers that will be
strategically significant for the company’s future.
• We call these strategically significant customers (SSCs).
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CPM Strategies
There are many strategies that can be used in CPM these include:
• market segmentation,
• sales forecasting,
• activity-based costing,
• customer lifetime value estimation and
• data mining.
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• market segmentation
1. Market segmentation
• sales forecasting,
• activity-based costing,
• customer lifetime value estimation and
• data mining
• Market segmentation is the process of dividing up a market into
more-or-less homogenous subsets for which it is possible to create
different value propositions.
• The company can decide which segment(s) it wants to serve.
• Market segmentation processes can be used during CPM for two main
purposes.
• They can be used to segment potential markets to identify which customers
to acquire,
• to cluster current customers with a view to offering differentiated value
propositions supported by different relationship management strategies.
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Market segmentation process
• In the context of CRM, market segmentation process involves the
following four stages:
• 1. identify the business you are in
• 2. identify relevant segmentation variables
• 3. analyse the market using these variables
• 4. select target market(s) to serve.
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Identify the business you are in
• Is a manufacturer of kitchen cabinets in the timber processing industry, or the home-
improvement business?
• Is NRZ in the rail business or transportation business?
• A customer-oriented answer to the question will enable companies to move through the market
segmentation process because it helps identify the boundaries of the market served, it defines
the benefits customers seek
• If a kitchen manufacturer defines its business as home-improvement, it is now in a position to
identify its markets and competitors at three levels:
• 1. Benefit competitors : other companies delivering the same benefit to customers. These might
include window replacement companies, heating and air-conditioning companies and bathroom
renovation companies
• 2. product competitors : other companies marketing kitchens to customers seeking the same
benefit
• 3. geographic competitors : these are benefit and product competitors operating in the same
geographic territory.
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Identify relevant segmentation variables
and
analyse the market
Basis for Segmenting Consumer Markets
• Geographic
• Demographic
• Psychographic
• Behavioral
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• Geographic
• Demographic
Market Segmentation • Psychographic
• Behavioral
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• Geographic
• Demographic
Market Segmentation • Psychographic
• Behavioral
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• Geographic
• Demographic
Market Segmentation • Psychographic
• Behavioral
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• Geographic
• Demographic
Market Segmentation • Psychographic
• Behavioral
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Market Segmentation
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Market Segmentation
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Targeting
• Target marketing is the act of evaluating and selecting one or more of
the market segments to enter.
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Factors to consider when
evaluating segments
1. Accessibility- links eg road, networks etc
2. Growth potential- can we attract more customers
3. Competition- intensity of rivalry
4. Sustainability- potential profitability
5. Uniqueness of the segment
6. Company objectives and resources
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Market Targeting
• Undifferentiated marketing
• Differentiated marketing
• Concentrated marketing
• Micromarketing
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Market Targeting
Target Marketing Strategies
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• Companies need to forecast their sales to make good
decisions on staffing, purchasing, retail store locations, and a
host of other marketing decisions.
• The sales forecast is the basic tool of managerial accounting
and is used to compute expected cost of goods sold, planned
output levels, and expected profits for a given time period.
• Your goal in sales forecasting is to be as accurate as possible.
• Just a handful of things that can influence sales e.g price,
product performance, promotion, competitor actions, interest
rates and even the weather. For example, when it is warmer
people drink more soft drinks compared to when it is colder. A
hot summer often yields high soft drink sales.
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Sales forecasting techniques
• They can be largely grouped into two
• Qualitative techniques
• Quantitative techniques
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Qualitative sales forecasting
• It is a type of forecasting that is based on judgemental or
subjective techniques because they rely more on opinion and
less on mathematics in their formulation.
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TYPES OF QUALITATIVE
TECHNIQUES
a. Consumer or user survey method
b. Panel or jury of executive opinion
c. Sales force composite
d. Delphi method
e. Product testing and market testing
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a. Consumer or user survey
• A method which involves asking customers about their likely
purchases for the forecast period, sometimes referred to as market
research method.
• It is normally used for industrial products were there are fewer
customers by sales force on a face to face basis.
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b. Jury of executive opinion
• Is when executives from various corporate functions are involved in
forecasting sales e.g., finance, marketing, sales, production, and logistics)
meet to generate forecasts.
• In simpler terms the panel’s members meet face-to-face and discuss openly
their views on the forecasts required, with the aim of reaching a consensus.
advantages
it is relatively simple to implement.
it is quite valuable when there is no historical demand data available (e.g.,
new product forecasts).
it makes use of the rich data represented by the intuition and judgment of
experienced executives.
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c. Delphi method
• A structured communication technique, originally developed as a systematic,
interactive forecasting method which relies on a panel of experts.
• The experts answer questionnaires in two or more rounds. After each round, a
facilitator provides an anonymous summary of the experts’ forecasts from the
previous round as well as the reasons they provided for their judgments.
• The input of experts, either internal or external to a company, is solicited and
proceeds as follows:
1. Each member of the panel of experts who is chosen to participate writes an answer
to the question being investigated (e.g., a forecast for product or industry sales) and
all the reasoning behind this forecast.
2. The answers of the panel are summarized and returned to the members of the
panel, but without the identification of which expert came up with each forecast.
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d. Sales force composite
• This method involves each sales person making a product by product
forecast for their particular sales territory.
• Thus individual forecast are built up to produce company forecast,
then individual forecast are combined and modified.
• It is sometimes termed as grass root approach.
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e. Product testing and test
marketing
• Normally used for new or modified products for which no previous
sales figure exist and where it is difficult to estimate likely demand.
• Product testing involves placing the pre-production model with a
sample of potential users before hand and noting their reactions to
the product over a period of time asking them to fill in a diary noting
product deficiencies and how it worked.
• Test marketing involves the limited launch of a product in a closely
defined geographical test area.
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QUANTITATIVE
SALES
FORECASTING
TECHNIQUES
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TIME SERIES
• It is a collection of data recorded over a period of time which can be
weekly, monthly, quarterly or yearly.
• It involves:
1) SEASONAL FLUCTUATIONS
2) CYCLICAL FLUCTUATIONS
3) IRREGULAR/ RANDOM VARIATIONS
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1. SEASONAL FLUCTUATIONS
• Many sales, production and other series fluctuate with the seasons.
• The unit of time reported is either quarterly or monthly.
• This patterns tend to repeat themselves each year.
• Sales can be forecasted on the basis of the likely repetition of the
trend
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2. CYCLICAL FLUCTUATIONS
• Is a process in which a series of events happen again and again in the
same order.
• This is when historical sales records can be used to anticipate future
sales.
• For example sales for OK supermarkets are high between 24 of every
month to 5 of the next month. This trend is cyclical
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3. RANDOM/IRREGULAR
FLUCTUATIONS
• This is the type of time series that occur impulsively, i.e. randomly.
• Forecasts are randomly based.
• These are non recurring events like natural disasters, e.g. tsunamis,
volcanoes and tornadoes.
• They are so unpredictable and they do not take a certain course of
action or prototype.
• Irregular variations cannot be harnessed through any statistical
studies or made available in statistical anticipations.
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b. Causal Techniques
• It is assumed that there is a relationship between the measurable
independent variable and the forecasted dependent variable.
• The forecast is produced by putting the value of the independent
variable into the calculation.
• Causal techniques include:
• Leading Indicators,
• Simulation
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• Leading Indicators: This method seeks to define and establish a linear
regression relationship between some measurable phenomenon and
whatever is to be forecasted
• Simulation: It uses a process of iteration, or trial and error, to arrive at
the forecasting relationship
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• market segmentation
3. Activity-based costing
•
• sales forecasting,
activity-based costing,
• customer lifetime value estimation and
• data mining
• The third discipline that is useful for CPM is activity-based costing.
• Activity-based costing (ABC) is an approach to costing that splits costs into
two groups: volume-based costs and order-related costs.
• Volume based (product-related) costs are variable against the size of the
order, but fixed per unit for any order and any customer. Material and direct
labour costs are examples.
• Order-related (customer-related) costs vary according to the product and
process requirements of each particular customer.
• Because the goal of CPM is to cluster customers according to their strategic
value, it is desirable to be able to identify which customers are, or will be,
profitable.
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• Costs do vary from customer to customer.
• Some customers are very costly to acquire and serve, others are not.
• There can be considerable variance across the customer base within
several categories of cost:
• customer acquisition costs
• terms of trade eg price discounts,
• customer service costs eg handling queries, claims
• working capital costs eg carrying inventory for the customer, cost of credit.
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ABC example
• Consider 2 companies both buying goods worth $5000
• Company A makes no demands and so the seller makes a gross profit
of $2000
• Company B however makes demands: customized product, special
overprinted outer packaging, just-in-time delivery to three sites,
provision of point-of-sale material, sale or return conditions and
discounted.
• In as much as the sale value of $5000 is the same, gross profit maybe
reduced to $1000, due to these selling costs.
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Role of ABC in CRM
• CRM needs ABC because of its overriding goal of generating profitable
relationships with customers. Unless there is a costing system in place to
trace costs to customers, CRM will find it very difficult to deliver on a
promise of improved customer profitability.
• Overall, ABC serves customer portfolio management in a number of ways:
• when combined with revenue figures, it tells you the absolute and relative levels of
profit generated by each customer, segment or cohort
• it guides you towards actions that can be taken to return customers to profit
• it helps prioritize and direct customer acquisition, retention and development
strategies
• it helps establish whether customization and other forms of value creation for
customers pay off.
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• market segmentation
4. Lifetime value estimation • sales forecasting,
• activity-based costing,
• customer lifetime estimation
• data mining
• The fourth discipline that can be used for CPM is customer lifetime
value (LTV) estimation
• LTV estimates provide important insights that guide companies in
their customer management strategies.
• Companies want to protect and ring-fence their relationships with
customers, segments or cohorts that will generate significant mounts
of profit.
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•
Data mining
market segmentation
• sales forecasting,
• activity-based costing,
• customer lifetime value estimation and
• data mining
• The fifth discipline that can be used for CPM is data mining.
• Data mining can be thought of as the creation of intelligence from
large quantities of data.
• Customer portfolio management needs intelligent answers to
questions such as these:
• 1. How can we segment the market to identify potential customers?
• 2. How can we cluster our current customers?
• 3. Which customers offer the greatest potential for the future?
• 4. Which customers are most likely to switch?
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CPM in the business-to business context
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Summary
• Customers are different
• The study of different customer groups is called CPM
• The strategies of CPM include: Market segmentation, Sales
Forecasting, ABC, CLV and Data mining.
• Different customers can be classified differently using several
customer bases.
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