Customer value and management strategy

Too often we see articles and blogs claiming expertise in customer value and customer profitability management that are regurgitating lessons learned at business school instead of in the trenches of business. Simple two-by-two martices that show "how you should use customer value to manage customers" are only illustrations - we fear for those who take them as strategies.

Why ? Because these "strategies" are one-size-fits-all ideas that frankly are too naive to be a basis for proper customer management strategy. There is a vast amount of judgement and nuance implicit in the calculation of cusomter value, and these judgements that go into making calculations of customer value have a direct impact on how the results can be properly used. For example if one is using current value to rank customers in a matrix this does not reflect lifetime customer value. Similarly if actual pricing is used in the modeling of value strategic and tactical discounting may afect customer ranking in unintended ways. As a practical illustration it is not uncommon for banks to price term deposits at negative margins in times of tight money - this can drive an investment customer value into negative position quickly - does this reflect properly the customer management objectives for these clients or is the boiler-plate strategy defective ?

Also the infamous strategy matrices fail to consider mission critical dimensions of information such as corporate strategy, product strategy and delivery channel strategy. For example loss leaders in product lines and market entry discounting in channels is common strategic management activity. These dimensions of information are normally not considered in the preparation fo customer value data, are not reflected in the values calculated and will misallocate resources if simple strategy matrix formulae are applied.

The long and the short of it is that there is no substitute for professional judgement in both the preparation and interpretation of customer value metrics and strategy. Beware of the academic "truths" being promoted in business schools today - they are not sufficiently context-sensitive to apply to a real business !

- David B. McNab