Page 53 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management Hitesh Jhanji, Lovely Professional University

Notes Unit 3: Analysing Profitability of Customers

CONTENTS
Objectives
Introduction

3.1 Managing Customer Profitability
3.1.1 Customer Profitability Management (CPM)
3.1.2 Customer Lifetime Value

3.2 Base Profit Analysis
3.3 Value Chain Analysis
3.4 Customer Defection
3.5 Summary
3.6 Keywords

3.7 Review Questions
3.8 Further Readings

Objectives

After studying this unit, you will be able to:

 Study customer profitability
 Learn about maintaining and increasing customer profitability
 Assess the process of turning unprofitable customers into profitable ones
 Analyse base profit analysis

 Know what is value chain analysis
 Determine what is customer defection

Introduction

A company can outperform rivals only if it can establish a difference that it can preserve.
It must deliver greater value to customers or create comparable value at a lower cost, or do both.

—Michael E. Porter. 1996.
Organizations use customer profitability analysis to identify the most valuable customers or
customer segments to prioritize marketing, sales and service investments. By studying
profitability metrics such as lifetime value, repeat purchase rate, and churn rate, analysts can
identify profitable segments, uncover defining characteristics of those segments and target
similar populations for acquisition.
Similarly, retention programs may be created for particularly profitable customers. Business
intelligence provides the statistical and data mining capabilities to calculate lifetime value,
identify product affinities for cross-sell campaigns, and perform predictive analysis of profits

48 LOVELY PROFESSIONAL UNIVERSITY