Barring "Unknown Unknowns," 2008 Will Be the Year of Customer Valuation

I was delighted to see you put your thoughts out there for the new year, Graham, it's refreshing to think that there is some mileage left in the customer profitability metrics space. After working in this space for over 10 years, I was getting concerned that the whole topic is getting a little tired.

Of course models are generally still pretty crude in most organizations, and there are indeed interesting new wines to be put in the old bottle as with the referral value concepts Kumar is working with (but beware the double-count). But that isn't where I think the really big traction lies... most companies still use this rich information in very limited ways. The potential to operationalize these insights is enormous, and can have large impact on results. Unfortunately those who know how don't talk about it much, because how they actually do something with the information has become something of a trade secret in many companies.

As a final thought, and since we are looking to the future, I also hope that the customer view willbe complemented by greater insights into cannibalization, velocity and attrition in the new year. That's where we've been spending a lot of R&D and it looks very interesting indeed.

All the best in the New Year, Graham and fellow readers !

Dave McNab
___________

Customer Flow of Funds
Customer Value Measurement and Management

Since all of our customers are inside a box, it would be nice to derive a set of metrics to determine the size and shape of the ideal customer's box so we can figure out which potentials customer belong in that box or a similar box.

That's a great post Graham...The valuation of social networks is throroughly contemporary...Some social media buzzwords for 2008, as predicted by Pete Blackshaw would be relevant to your fourth prediction from the CRM standpoint.I kindof like "friendiligence", "converstations" and "social mediation". As he says
"Brands now have multiple entry points for meaningful dialogues or conversations with consumers. These are essentially converstations. Brands fully immersed in CGM or social media may have dozens of conversations, from the consumer affairs interfaces and toll-free numbers to the corporate blog. They all matter, and every brand manager should know his or her converstations."

Too good....and as you say

"to be harnessed to drive innovation, marketing and customer self service".....
That sums it all.........

David, Small Business, Vandana

Thanks for your comments. They are much appreciated.

They prompted me to return your wisdom in kind with a fifth prediction.

• Valuing social networking platforms

As companies get to grips with the dynamics of social networks, they will recognise the value of providing their own platform where customers can network together. For example, Dutch airline KLM's Flying Blue frequent flyer programme offers a Golf Community for frequent flyers to get together to play golf when abroad on their travels. They also offer similar communities for frequent flyers in Africa and China too. As customers start to use such social networking platforms, companies like KLM can introduce other carefully-selected partners to the platform to offer their own value-adding services, thus creating a multi-sided market similar to the early days of Amazon or eBay. Multi-sided markets give the platform owner the opportunity to add value to customers, to add value to partners and to extract a small fee from one or both parties for doing so. Done carefully, this can be a big value generator. For example, a recent valuation of Air Canada found that Aeroplan, its frequent flyer programme was worth 50% more than the airline itself!

I predict that as companies become comfortable with enabling social networks, that they will look to use them to create value through developing multi-sided markets.

What do you think?

Graham Hill
Independent CRM Consultant
Interim CRM Manager

Great topic (about customers) to end one year and start a new one with. I believe 2008 should be called “A Year of the Customer” instead of “The Year of the Customer.” All years since commerce started, have been “years of the customer.” Certainly, CRM programs were developed to sell to more customers and more to current customers. A business only survives and grows if this is happens because it is they who determine what will be sold, when it will be sold, when, how often and for how much.. However, it does not stop at this point. Customers depend on what their customers buy and when, how often and for how much, and that determines what your business sells, when, how often, how much and for how much.

This is not a new concept. Daniel Defoe (of Robinson Crusoe fame) wrote this in, what I believe to be the best book ever written on business, “The Compete English Tradesman” in the early 18th Century:

“It is debated much among men of business, whether trade is at this time in a prosperous and thriving condition, or in a languishing and declining state; or, in a word, whether we are going backwards or forward. I shall not meddle with that debate here, having no occasion to take up the little space allowed me in anything remote from my design. But I will propose it as I really believe it to be: namely, that we are rather in a state of balance between the extremes; I hope we are not much declined, and I fear we are not much advanced. But I must add, that if we do not immediately set about some new methods for altering this depending condition, we shall soon decline; and on the contrary, if we should exert ourselves, we have before us infinite advantages of improving our commerce, and that to a great degree.”

“ . . . . a well-experienced tradesman had rather see his warehouse too empty than to full; if it be too empty he can fill it when we pleases . . . but a thronged warehouse is a sign of the want of customers, and of a bad market, whereas an empty warehouse is a sign of a quick demand.”

With this in mind, maybe CRM should be, if it could be, a way to track what one’s customers’ customers buy . . . as this is where the money comes from to pay for one’s CRM efforts.

AlanAlan J. Zell, Ambassador of Selling, Attitudes for Selling
azell@aol.com
http://www.sellingselling.com
Winner of the Murray Award for Marketing Excellence
Member, PNW Sales & Marketing Group
Member, Institute of Management Consultants

Alan

Thanks for your comment. It is much appreciated.

I agree with you entirely that every year is the year of the customer. It is patently obvious for most businesses, that value is only created during touchpoints with customers. When value is exchanged with them (usually for money). Sadly, it has become a truism that companies talk about putting customers first but then proceed to put themselves first. Customers are used to this flim-flam and don't believe what must companies promise. They are still disappointed though when it is not delivered.

Your point about the extended value chain is interesting. The one company that really has taken this to heart is Toyota. It looks intensively both upstream at its suppliers and their suppliers, and downstream at its customers and their customers too. Other lean companies also do this as part of the lean philosophy.

If you are interested in the extended value chain, I recommend you look at two books:

Womack & Jones
Lean Solutions: How Companies and Customers Can Create Value and Wealth Together
Which describes how customers drive the lean consumption process (and by implication how customers' customers drive that).
http://www.lean.org/Bookstore/ProductDetails.cfm?SelectedProductID=131

Womack & Jones
Seeing the Whole: Managing the Extended Value Chain
Which provides a workbook to think through and map the extended value chain in your business using lean principles.
http://www.lean.org/Bookstore/ProductDetails.cfm?SelectedProductID=74

I own and use both books in my work. Both are available from the Lean Enterprise Institute in the USA

Graham Hill
Independent CRM Consultant
Interim CRM Manager