Page 276 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 11: CRM Measurements

To perform the analysis discussed in Reichheld (1996), companies need to collect defection data, Notes
sales data and gross profit, marketing and expense data in a way that can be attributed to
customers.

Example: Data needs to be analyzed by customer cohort (grouping customers into periods
of acquisition. All customers acquired in 2002 would be in the 2002 cohort and reported on). This
type of analysis helps identify and manage loyalty problems pertaining to a specific acquisition
period. Customer-facing activities can then be tailored to customers based on their loyalty.
Reichheld Offers Two Key Loyalty Measurement Documents: A customer balance sheet and a
customer value flow statement. The balance sheet looks like this:

Customer Category Number % of Revenue NPV
Beginning Balance
+ New customers
+ Gainers
– Decliners
– Defectors
Ending Balance

The term new customer refers to customers acquired. The term gainer refers to the customer
who bought more in this period. Decliners refer to those who bought less and defectors refer to
customers who left. The customer value flow statement captures the following information
about a company’s customer and some of its key competitors:

Price Quality drivers Retention
Share of wallet Gain Yield
New customer NPV Current customer NPV Defector NPV
Average profit per customer Average revenue per customer

The gain rate is the ratio of new customers to the current customer base. The yield rate is the
percentage of customers who actually convert to buyers, or sign up. As do Rust et al. (2001),
Reichheld discusses the use of an acquisition/defection matrix that shows how many customers
defect from one company’s brand to another.
To collect defection data, understand what are the components of quality and service from a
customer’s perspective, and enumerate which measures will represent the company’s value
proposition’s success (in addition to the measures discussed here), requires ongoing customer
surveying and other qualitative research techniques with their concomitant data collection
approaches.
Customer Satisfaction: For the past several decades, businesses have been determining customer
satisfaction to help improve their customer-facing activities and predict and improve financial
performance. Customer satisfaction, then, is an antecedent to some form of loyalty behaviour.
Customer satisfaction has been defined as a “satisfactory post-purchase experience with a product
or service given an existing pre-purchase expectation” (Vavra, 1997).

Vavra (1997) offers a model for customer satisfaction in which satisfaction is an antecedent to
repurchase behaviour and has several antecedents as well. The most important antecedent is
prior experience that “serves as a ‘memory bank’ of all the previous experiences with a product
or service.” Several factors can influence prior experience, such as the customer’s demographic

LOVELY PROFESSIONAL UNIVERSITY 271