Course Title

Instructor

Managing Customer Experience and Relationships: A Strategic

Framework

Chapter 5
Differentiating Customers: Some Customers Are Worth More Than
Others

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
1 Rogers
 Chapter 5 Preview
IDIC Review
The Two Fundamental Differences between Customers
Why Differentiate?
Customer Lifetime Value
Growing Share of Customer
Most Valuable Customers
Customer Value Categories
Dealing with Tough Customers
Managing the Mix of Customers

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
2 Rogers
Review: IDIC Framework

Identify Differentiate Interact Customize

…customers as unique …by value, …more cost - …some aspect of the

addressable individuals behavior and needs efficiently and company’s behavior,
effectively offerings, or
communications

COPYRIGHT © 2009. ALL RIGHTS PROTECTED AND RESERVED. 3

 The Two Fundamental Differences
between Customers

1. Different value to the enterprise (Chapter 5)

2. Different needs from the enterprise (Chapter 6)

All other ways of differentiating customers –

demographics, behaviors, transactional histories, and
attitudes – are all tools and concepts used to get at
these two fundamental differences

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
4 Rogers
 Why Differentiate?
 To treat each customer differently is the essence of
managing customer relationships
 Different customers have different needs
 Different customers represent different values to the enterprise
 Customer value is future oriented
 Actual value
 Potential value
 Customer differentiation helps an enterprise increase
customers’ actual value and realize customers’ potential
value

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
5 Rogers
 Customer Lifetime Value
 LTV: The net present value of the expected future stream
of financial contributions from the customer
 LTV is calculated according to the customer’s trajectory:
positive contributions (product and service purchases, as
well as non-monetary referrals) minus expenses (cost of
maintaining a relationship)
 In practice, no company can calculate LTV precisely

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
6 Rogers
 Growing Share of Customer
Unrealized potential value:
The amount by which the enterprise could increase the value
of a particular customer if it applied a strategy for doing so
Aspects of a customer’s unrealized potential value:
Business with competitor
Additional relevant product lines
Cost to serve
Undefined needs
Referrals and non-monetary contributions
Customer growth over time

Managing Customer Relationships: A Strategic Framework, Third Edition, Don

7 Peppers and Martha Rogers
 Most Valuable Customers
 Pareto principle: the top 20% usually accounts for
80% of company’s business
 LTV is difficult to calculate, so some companies use a
proxy variable to rank customers in rough order of
LTV
 RFM: most common proxy variable
 R: Recency
 F: Frequency
 M: Monetary value
 The goal of value differentiation is not a historical
understanding, but a predictive plan of action

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
8 Rogers
 Customer Value Categories
 Most Valuable Customers
Retain
 Most Growable Customer
Grow
 Low-Maintenance Customers
Streamline/automate services
 Super-Growth Customers
Retain and mine for more
 Below-zero customer
Make them profitable
Churn them out

 Ethical concern: Should we “fire” unprofitable customers?

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
9 Rogers
 Dealing with Tough Customers
Four primary strategies:
1. Customize services and products
2. Innovate perpetually and cost-efficiently
3. Develop personal relationships within the customer
organization
4. Appeal directly to end users

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
10 Rogers
 Managing the Mix of Customers
 What kind of new customers should be acquired?
 Mass-market method: All customers
 Customer-strategy enterprise: More high-value and high-growth
customers, less low-value customers

 Creating a valuable customer base

 Rank customer by value
 Invest consistently in acquisition, development, and retention (get,
keep, grow)
 Use different strategy for differently valued customers

Managing Customer Relationships: A Strategic Framework, Third Edition, Don Peppers and Martha
11 Rogers