Last month we introduced the first in a series of discussions examining the processes and technologies which comprise the blueprint for implementing an enterprise-wide strategic decisioning environment. This month we continue the series by looking at customer value management, an integral part of the decision process management framework.

Customer Value Management

Nowhere is the need for customer value management (CVM) more compelling than in highly competitive industries where businesses must attract, develop and retain valued customers in order to survive. While senior management pays increased attention to improving customer relationships, enterprises must strive to establish core, competitive competencies in customer value management to drive business growth and enterprise value.

The CVM decisioning process optimizes customer franchise portfolio value by attracting and retaining high-value/potential customers and divesting unprofitable ones. Success requires execution on an enterprise level. This column addresses two key areas regarding customer value management: CVM's strategic importance in "high-touch" businesses and the need to operationalize CVM decisioning across the enterprise.

Strategic Importance of CVM

The strategic importance of customer value management is most evident in high-touch business models. High-touch relationships require effective customer value management decisioning processes and, by their nature, also provide needed customer data and investment insights. Data regarding customer revenues and cost-driving behaviors, profiles, demographics, product portfolios, past adoption behaviors and mind-sets can all be leveraged in determining the appropriate allocation of company resources for a given customer or customer segment. Recently deregulated industries, such as telecommunications and financial services, are high touch given the "subscribed" nature of their relationships with their customers. Subscribed relationships involve greater customer commitment and company investment, but also provide critical information on customer behaviors, attitudes and financials to promote increased understanding and optimized customer profitability. Leading companies in both these industries are investing heavily in their CVM capabilities to gain an edge as they compete for the customer.

Other industries, such as airlines and hotels, have moved to a "semi-subscribe" model driven by significant investments in loyalty-based programs as part of their CVM strategies. Airlines continue to focus decisioning around which investments to make in which customers in order to deepen customer commitment, differentiate based on relationship/service and drive profitability.

The most effective companies respond differently based on customer value and avoid over- investing to attract or retain customers. For example, customers may receive different treatments based on their value when they call a company's fulfillment center. While high-value customers might receive better offers or customized service, poor customers may receive nominal incentives or even be encouraged (implicitly) to defect to the competition.

The Internet has redefined the importance of business relationships by making traditional business models high touch. Amazon.com has turned book sales into a high-touch business. It leverages its deep understanding of its 13 million customers to target its services, drive targeted advertisement and placement revenue, and launch entirely new businesses. Similarly, like most e-companies, Travelocity.com considers its most valuable asset to be its customer relationship portfolio of 6 million members and e-mail addresses.

Operationalizing CVM

Operationalizing CVM successfully and across the enterprise requires more than the establishment of a relationship strategy. Unfortunately, most customer value management strategies and processes are defined at such a high level that they all look alike. Success requires defining the processes, data and people changes that need to be made and aligned across the enterprise. Business winners understand infrastructure needs as well as cross-functional processes. They implement these processes and repeatedly refine these capabilities as a competitive weapon.

Though more businesses are embracing the strategic perspectives and potential benefits of CVM, most struggle to truly operationalize their customer-centric strategy across the enterprise. Common barriers include:

  • Most businesses do not have the capability in place to capture the right data, supplement it with the right analytics and disseminate it to front-office operations in a consistent way.
  • Companies are encountering difficulties and complexities in successfully aligning data and capabilities across the technical disciplines of data warehousing, data mining, decision support, campaign management and valuation to enable enterprise customer value management activities.
  • Most organizations have siloed back-office disciplines that limit, or negate, cross-enterprise CVM effectiveness. Successful cross-enterprise CVM decisioning requires integrated data and coordinated analytics among several business functions.

To overcome these barriers, businesses need to drive to a unifying customer knowledge framework. This framework ­ or knowledge engine ­ employs a disciplined approach to the capture, integration and analysis of customer data needed to identify and optimize customer relationships. Next month we'll look at the customer knowledge engine and the technology infrastructure required to implement it.
John Distefano would like to give a special thanks to Patrick Carter, customer knowledge management leader at E&Y consulting, for his insightful contribution to this column. He can be contacted at (303) 628-4439.

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