Page 56 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 3: Analysing Profitability of Customers

1. Product or brand profitability analysis, Notes
2. Market sector, or customer account, profitability analysis, and
3. Customer profitability analysis.
An understanding of customer profitability can provide a valuable opportunity to better manage
cost structures and the quality of customer revenue streams. The resources used to serve customers
typically have a degree of flexibility enabling them to be reshaped relatively easily to serve
different customer groupings.

Building Loyalty Programmes for CPM

Effective loyalty programmes target both customer attitudes and customer behaviour. These
programmes utilise customer profitability management to drive the desired behaviours from
targeted customer segments. Carlos Dunlap (2004), Director of Strategic Services for Maritz
Loyalty Marketing, describes the following eight steps towards building customer loyalty
programmes designed to nurture an organisation’s most profitable customers:
1. Situation Analysis: Conduct a thorough examination of the present environment in order
to provide a sound foundation from which to commence. Questions to ask include:
(a) What is the organisation’s long-term vision and goals?
(b) How is business conducted on a daily basis, and how are profits earned?
(c) What customer data is currently captured, and how is this achieved?

(d) What market and competitive drivers affect current loyalty programmes?
(e) What is the current brand recognition, and how is this promoted?
(f) How many lines of business exist in the organisation, and do these have different
business models, products, and target customers?
2. Gap Analysis: Determine how the organisation’s best customers are to be managed for
growth. Data types gathered may include:

(a) Customer demographics;
(b) Purchasing/activity levels;
(c) Customer segments;
(d) Customer activity scores;

(e) Profit analyses;
(f) Recency, frequency and monetary information.
This data can be used to build profiles of the organisation’s best customers and to identify
gaps existing between the current and the desired positions.
3. Projected Earnings: Profiles for the organisation’s most profitable customers may used to
project earnings based on established loyalty marketing models. The lines of business
envisaged, and targeted key customer segments may also be identified.
4. Program Impact Assessment: Profitability goals may be set for the proposed loyalty
programmes. At this point programmes may be designed which aim at changing customer
behaviour. Potential cross-selling and up-selling opportunities can be identified, along
with opportunities for segment migration, customer retention and acquisition.

LOVELY PROFESSIONAL UNIVERSITY 51