The value of a customer is not only core to the area of Customer Value Management, but also to many other areas in Marketing:
- Sales. To determine the quality of new customers, shifting commissions schemes and impacting the choice of channels to sell, improving the inflow to the base and optimizing subscriber acquisition costs.
- Care. To determine the quality of customers serviced, drawing investments into certain care channels, determining and monitoring service levels and shifting care policies and KPIs into the right customers (i.e. Average Handling Time – AHT).
- Network. To determine the value of different geographical areas, driving the allocation of network investments and how to deal with network issues, such as dropped calls or network crashes.
- Customer Experience. To determine the value of the customer standing at each touchpoint, adapting experience policies and measuring the outcomes to improve satisfaction and promoters.
- Advertising. To determine the value of the audience, adapting the choice of channels, message and timing, in order to target them more efficiently and effectively.
It is often the case when a small percentage of customers is responsible for a large part of the monthly revenues of a company: for example, 20% of customers may be responsible for 80% of monthly revenues. By proving this, then the question becomes, “how can we better serve those 20% of customers?” But, are we really focusing on the right set of customers? Who are these 20% of the base that drive value?
As an industry matures, the definition of value must also shift. This is exactly what is happening in telecommunications. The standard term for value is the Average Revenue Per User (ARPU). This is basically how much a customer pays every month for the usage of a certain product & service. This term has also shifted recently into ARPA (Average Revenue Per Account), as customers often have more than one line under them, including mobile and fixed services. The “account” terminology has enabled a better understanding of households and closed groups such as families. Targeting an account can thus be very effective.
To fully capture the value of a customer, there are other dimensions that must be taken into the equation:
- Cost. There is no value if cost is not taken into consideration. For example, if a customer pays 20 EUR per month and calls the call center every day, his value to the business will be lower than a customer that pays 20 EUR per month, but does not call the call center. The cost to serve becomes important to determine the value of each customer. Also, a customer that abuses unlimited services and pays a fixed fee for them has a completely different value than a customer that stays well within a normal usage. The reason is that for each minute he uses, there are variable costs associated.
- Lifetime. The value of a customer is proportional to the time he stays as a customer. Thus a customers that initially gives a very high ARPU and soon leaves to competition has a much lower value than a customer that is loyal to a company and stays for years. The longer a customer stays, the more valuable he is. This is also known as Customer Life-Time Value (CLTV).
- Reach. The value of a customer cannot be isolated from the influence he/she generates within his network. For example, a customer can be a decision-maker in the purchasing process for other customers, or he can be an influencer. The idea of “advocate” is important to understand the value of customers. Customers that glue other customers around an idea or a brand are extremely valuable to businesses. The weight of Social Media is also enlarging this phenomena. The value that a customer generates by spending 20 EUR per month but openly criticizing a company’s products & services in Social Media is completely different than a customer that will speak positively about the company. These comments will influence other purchasing decisions from the direct and indirect network of the customer. And this represents “value”.
- Potential. A customer value must also take into consideration the potential beyond the present value. For example, in business valuations, a customer base that is under their true potential has a higher value than one that is at their maximum potential. A customer’s potential can be influenced by maturity stage, disposable income or elasticity, among others.
It is my personal belief that the definition of value will evolve in the areas above mentioned, and more. The companies that can master this evolution before others, truly will have a competitive advantage, in a market where product differentiation is scarce.
Data is the Master.
Calculating a dynamic value to millions of customers is quite a data intensive exercise.
First, ensure data is available. Availability of data allows for a shot at calculating properly customer value. Second, invest in skillful people to handle data. They can make sense out of data and transform it into information. Then, this needs a “Head of” with a clear strategy and path forward. He can guide the people to look in the right places and understand the implications to the business of such information. And last, ensure proper data architecture and tools are at the disposal of the responsible teams.
Warning: the information that is computed CAN be the source of important decisions and steer the company into the right direction. It CAN, because sometimes, it DOESN’T. Complex things make people hesitant and feel “out-of-control”. So it is important to have inside each organization somebody that “angels” data end-to-end. From data analytics to using data as a source for key decisions. At that end stage, it is important to drive data-centric decisions. An organization must shift into a data centric model to truly embrace “customer value”. And this requires political capital and will.