Our fathers worked for the boss. When they left the office at five o’clock, they left their job worries behind. But today’s managers and employees work and worry nearly 24/7 -- and probably for someone other than their bosses on the organizational chart.
What has caused this shift, and who is this new boss? The answers to these questions are the Internet and the recently empowered customer, respectively. The Internet, with its powerful search engines and near-instant gratification, has irreversibly shifted power from sellers to buyers. And every supplier of products and services is scrambling to become more customer-focused.
I recently discussed this topic with
Paul Greenberg. one of the gurus of the customer relationship management (CRM) community. Paul wrote "
CRM at the Speed of Light: Essential Customer Strategies for the 21st Century," arguably the most popular book in the CRM field. I shared with Paul my belief that a reason employees are shifting their attention from their boss to their customer is because improving customer value is now recognized as the main lever to increased profits.
However, although the primary reason for improving customer value is ultimately maximizing shareholder value, to accomplish it is an optimization game.
As suppliers increasingly micro-segment their customers and sales prospects, they need more accurate intelligence on the current and future potential profitability of thier products, service lines, channels and customers. The idea here is not just to know which types of customers to grow or acquire and which not to. It's also how much to spend growing and acquiring the desired types.
If you bribe loyal customers and prospects with unnecessary deep discounts and excessively costly differentiated services, or if you neglectfully fall short on offerings or services to non-loyal customers and prospects and thus risk their abandonment, you destroy shareholder wealth.
A company's sales and marketing investment is ultimately a financial optimization problem. This is why an effective managerial accounting system to understand the profitability of a customer and its potential customer lifetime value (CLV) is another one of the key components of the Performance Management portfolio of methodologies.
Paul made the point that the ambiguity and between customer value and shareholder value, which counter-intuitively are not positively correlated, has created confusion in the marketplace; but regardless of which of the two groups benefits more, increased use of analytical technologies will be crucial for organizations to achieve the right balance.
If your interested in more on measuring customer value, you may want to take a look at a white paper I wrote for SAS, "
How to Measure and Manage Customer Value and Customer Profitability." I welcome your thoughts as well!
Gary Cokins
