Page 61 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes to predict market trends and assess current organisational performance. Customer loyalty
can be quantified using an aggregation of loyalty measures such as repeat purchases, no.
of different products purchased, relationship duration, and loyal customers.
3. Customers – Loyal, e.g. (a) number of current customers not purchasing, or intending not
to purchase, new competitor products as a % of total current customers, or (b) % of
customers of particular duration or longer. This measure provides an indication of
customer retention/loyalty. The first formula could be used where repeat purchases are
not measurable due to the nature of the product or service offered. Typically this can be
measured by survey.
4. Customer Relationship – Duration, is the average duration of relationships of an
organisation with its customers or, the duration of relationships with key/individual
customers

5. Customer – Projected Retention, is commonly measured via surveys and is expressed as
the ‘number of customers over the past year who intend to repurchase as a % of total
number of customers’. This measure provides an indication of projected customer retention/
loyalty and may be effective in the measurement of current customer satisfaction as opposed
to measurements relating to customers already lost.
6. Customers – Value of Key Customers, e.g. (a) value of total sales or contracts to key
customers as a % of total value of gross sales or contracts, per period, or, (b) value of sales
or contracts gained through referrals from key customer as a % of total sales or contracts.
This is a measure of the performance of identified key customers, allowing the effectiveness
of special relationship strategies to be assessed and refocused as necessary.
7. Customer – Repeat Purchasers, e.g. (a) number of repeat purchase customers over the past
year as a % of total number of customers or, (b) Value of repeat sales as a % of total sales
or, (c) % of purchases by current customers. This measure provides an indication of customer
retention/loyalty.
8. Customer Account Profitability, e.g. profit from customer account/sales turnover of
customer account. This is a measure of the value of specific customer accounts.
9. Customer Acquisition Cost, e.g. average cost of attracting new customers. This is a measure
of the cost involved in attracting or retaining customers.
10. Return on Investment (ROI), e.g. net profit before taxes/total assets. This measure provides
an indication of how well profits are being generated from use of the organisation’s
resources. A measure commonly used to compare performance between organisations;
ROI is useful for assessing an organisation’s competitive advantage. In this context it can
be used to track the success of a CPM initiative.
11. Market Share Projection, e.g. projected % total market sales accounted for by company’s
products. This is a measure of projected market share, commonly used in setting goals or
targets in new product promotions or when penetrating new markets with existing products.

3.1.2 Customer Lifetime Value

In the past two decades, the firms tended to focus on either cost management or revenue growth.
When a firm adopts one of these approaches it loses out on the other (Rust, Lemon, & Zeithaml,
2004). For instance, if a firm focuses only on revenue growth without emphasis on cost
management, it fails to maximize the profitability. Similarly, cost management without revenue
growth affects the market performance of the firm.
What is needed is an approach which balances the two, creating market-based growth while
carefully evaluating the profitability and return on investment (ROI) of marketing investments.

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