Page 34 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 2: Customer Value

understand its competitive position on each of these attributes. Few firms can clearly identify Notes
these areas of competitive strengths or weaknesses.

Customer Value Leads to Growth

Growth is important to virtually every business, and there are only a few generic approaches to
growth. A firm can acquire new customers or rely on old customers. A firm can expand into the
sale of new products and services or rely on the traditional product mix. The success of each
approach to growth is dependent upon one thing, delivering better value than the competition.
The growth matrix of the customer value includes four combinations:
Existing Customers - Existing Products: This growth strategy probably has the greatest potential
for growth but is often overlooked. Very few businesses have a 100% share of a customer’s
expenditures.
Normally a customer will purchase from several competitors.

Example: A grocery shopper may shop at four grocery stores during a month. Or a lady
may purchase clothes at four or five stores. Or a couple may dine at numerous restaurants. In
each case, a particular store may have only 30 - 40% of a customer’s expenditures.
If a firm could move from an average share of expenditure of 30% to an average share of
expenditure of 40%, it would have a 33.33% sales increase. And if it went from 30% to 60%, its
revenues would double. Unfortunately, many firms assume that all customers are loyal, devoted,
and make 100% of their expenditures with a firm. However, this is seldom the case. Most firms
have no idea of what share of expenditure they are getting from their customers. Studies have
shown that the best predictor of share of spend is the customer’s perception of value. The greater
the customers’ perception of value, the greater will be the share of pocketbook of a firm.

Existing Customers - New Products: This growth strategy occurs when a firm tries to build upon
an existing relationship with customers by offering new products. It could be a restaurant that
adds a home delivery or take-out option to a dining operation. It could be a grocery store that
adds floral, video rentals, and film developing. It could be a telecommunications firm offering
an array of new services, such as caller identification, voice messaging, or call forwarding.
The key to success here is that the new products must be a logical extension of the core competency
of the firm and create good value for the customer. The economic landscape is littered with the
remains of firms that fiercely clung to the “traditional mode of operation” and were passed by
firms willing to innovate with new value propositions.

Unfortunately the customer’s desires are often not readily apparent. The implication is that a
firm must understand how a customer perceives a value proposition and to tie the new product
to that perception.
Existing Products - New Customers: The focus of this growth strategy is on market expansion
through the acquisition of new customers. Domestically, this means capturing more shares
from traditional competitors.
In slow growth markets, this is usually quite difficult. But the key success factor remains the
same; create better value for the customer than the competition.
The most common marketing strategy is to hire a sales force and invest them to acquire new
customers. Make no mistake, acquiring customers through internal growth or acquisition is
critical for the long term growth of a firm. But those newly acquire customers must be retained
to be valuable. And retaining new customers can be accomplished only be delivering good
customer value relative to the competition.

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