Measuring Customer Value

Instructions

Read and analyze the following article, which can be accessed by clicking the link below.

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Breur, T. (2006). The importance of focus for generating customer value. Journal of Financial Services Marketing, 11(1), 64–71. Retrieved from https://search-proquest-com.libraryresources.columbiasouthern.edu/abicomplete/docview/195285738/3DD8404D9B984970PQ/1?accountid=33337

Write a summary of the article to include the purpose of the article, how research was conducted (if any), the results, and other pertinent information from the article. Additionally, respond to the questions below.

Aggregate company performance numbers are not always the best way to measure performance. What are the most useful performance criteria to determine how a company is doing along its strategic marketing process?
How does the author describe how a firm measures profitability at the individual customer level?
Why is this method for measuring customer value important?
Even though this article is written about the financial services industry, how might these principles be used in another industry?

Your response should be a minimum of two to three pages in length, and answers to the questions above should be formatted in essay format. Use APA style when writing your review. Cite any direct quotes or paraphrases from the article, and include any references used in your review on a reference page.

Sample Answer

 

Measuring Customer Value

Summary

The article “The importance of focus for generating customer value”, the author embraces both the hard and soft approaches to customer value. Consequently, the author presents the System Theory as the most appropriate framework for analyzing and integrating customer value. Creating value for the customer is crucial because a satisfied customer is less likely to switch to a competitor. As such, there should be no conflict between the value from and value for the customer. As such, a company can create value by fulfilling customer needs or finding the rights customers for the company’s offering. A company achieves that by pursuing a specifically-selected customer value proposition.

The author asserts that aggregate performance criteria are deficient in that they are ineffective in providing a reliable picture of a company’s financial performance. The aggregate numbers provide inadequate information support operational level decision-making.  A company should utilize criteria established at the individual customer level along with the aggregate performance figures. The understanding that some customers are more profitable than others necessitates the application of a framework that measures profitability at the individual customer level. As such, the company has to calculate cost and revenue at the individual customer level. Measurement of individual customer profitability is crucial to enable a company to target the right market segments. Additionally, such measurements help in determining both the customer’s current and future profitability. The shift in marketing paradigm emphasizes the development and maintenance of customer relations as well as the management of the customer lifecycle.

A company can only be considered to be profitable is it can consistently deliver superior value to customers in a way that cultivates customer loyalty and keeps that customer’s business for a prolonged period. Based on the Systems Theory, a company achieves marketplace success by matching the customer value proposition (CVP) with its capacity to meet customer needs. Therefore, the company focuses on core competencies in creating value for customers. Operating outside the core competencies introduces inefficiencies that lead to increased customer acquisition costs. Providing customer value facilitates growth which enhances understanding of success factors and in turn allows for the creation of more value for customers. An undifferentiated growth strategy increases costs, erodes margins and makes it harder for the company to tap into new market segments. The company should target customers who will take an extended offer by utilizing by utilizing an activity-based costing scheme and a longitudinal breakdown of cross-sell. The company should target the customers that it can successfully cross-sell to. Companies can cultivate customer loyalty by meeting the ever-changing needs of consumers through adaptation and innovation. Keeping customers for the long-term is an indication of a match between the CVP and customer needs. The author states that in case there is a mismatch between CVP and new customer acquisition, companies should install barriers, demarket and differentiate on price.

Questions

The most useful performance criteria for evaluating how a company is doing along its strategic marketing process are criteria determined at the individual customer level. The criteria utilize individual customer data rather than aggregated figures.

The measurements of profitability at the individual customer level requires the company to calculate both cost and revenue at the individual customer level. This can be a challenging undertaking because it can be difficult to establish precise variable costs at the customer level. Therefore, the company needs to develop a method to fairly approximate the costs per individual customer in case the consolidation of variable costs for individual customers is unfeasible. The company will develop an allocation scheme that will factor in the distribution of fixed costs among the customers. There is a need to calculate the discounted cash flow expected from individual customers in the future. This measure takes into account the future profitability of the customer. Furthermore, the criteria calculate the long-term value of the customer.

The method for measuring customer value is important because it allows the company to target the right market segments. The method allows the company to assess the cross-sell and up-sell potential of customers to determine the customers that generate the highest payoff for the company. The method is important because it guides how the company will spend its marketing resources to achieve a high return on investment. Subsequently, the method is useful as a framework for enabling the efficient marketing spend of a company.

The principles are useful for other industries outside the financial services industry because they can enable companies to create more value from customers while drawing financial value from those customers. The principles are useful as a basis for guiding which consumer segments the companies should target to increase profitability and achieve long-term value through customer loyalty. In this way, companies outside the financial sector can utilize the principles to develop customer profitability. The principles are also important for the companies since they encourage a focus on the companies’ core competencies to increase customer value and thereby grow profitability over time. Furthermore, the principles will guide how companies utilize their marketing resources to attract high-value customers.

 

 

Reference

Breur, T. (2006). The importance of focus for generating customer value. Journal of Financial Services Marketing, 11(1), 64–71. Retrieved from https://search-proquest-com.libraryresources.columbiasouthern.edu/abicomplete/docview/195285738/3DD8404D9B984970PQ/1?accountid=33337

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