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Customer Relationship Management




                    Notes

                                      Task  Ask a businessman, how does he calculate his customer’s satisfaction?


                                   Self Assessment

                                   Fill in the blanks:
                                   13.  Measurement frameworks can have three ……………………. that describe them.

                                   14.  Full form of CLV is …………………….
                                   15.  Customer’s equity has three drivers and they are …………………… , …………………… ,
                                       …………………… equity.


                                       


                                     Case Study  Customer Lifetime Value: An Example

                                           ompany A came to B co. Pvt. Ltd. losing US $3 million a year and looking to make
                                           changes that would increase revenue, while streamlining operations. By taking a
                                     Ccloser look at some basic numbers, the company was able to suggest some relatively
                                     small, yet significant, changes – resulting in a US $4 million shift in just a year’s time.

                                     We started by dividing out Company A’s revenue based on new customers and returning
                                     customers (by looking at how many customers were invoiced in the prior year). Then we
                                     took an educated guess on the Cost of Goods Sold (COGS), marketing and sales. On those
                                     numbers, the key is not over thinking your calculations, but to come up with a reasonable
                                     estimate. Finally, we noted that Company A had about an 80% renewal rate, meaning the
                                     average customer lasted about 4 or 5 years.
                                     Looking at these numbers, B Co. Pvt. Ltd. could see that Company A was netting about
                                     $8,000 per customer in lifetime value. When the company looked at the expenses for all
                                     the other departments, it was evident how Company A was losing $3 million annually.

                                     But with these numbers in front of us, the company could also layout a plan for Company
                                     A to increase its net margin per customer:
                                         Acquire fewer  (5% decrease), more targeted customers, by focusing on regional
                                          sales
                                         Develop deeper customer knowledge and more products, with the goal of increasing
                                          sales by 8%
                                         Decrease cost  of goods sold by 5% through more efficient travel and  scheduling
                                          support

                                         Shift from a sales  model in which everyone sells to all customers,  to an account
                                          management model focused on matching sales talent with buyers and products (i.e.
                                          rural accounts v. urban accounts, instead of all accounts in  a particular region),
                                          decreasing sales costs by 14%
                                         Decrease overhead costs by  8% through  realigning internal  cost structures  (for
                                          instance, each presentation put together by marketing now had to be paid for by the
                                          particular account, instead of having unlimited access to marketing services)
                                                                                                         Contd...



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