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Customer Value

Do you want to hold on to the most valuable customers, make less valuable and prevent high value customers from defecting. customer needs during the customer life cycle? The first step is to determine lifetime customer value and compare that to customer cost. You must understand that customers need accurate information, immediate restoration of service, and durable repairs during the customer life cycle. This implies that meeting these customer needs will cost companies money. Simultaneously, your company needs to define marketing campaigns to attract and prevent high value customers from defecting.

Larry Selden and Geoffrey Colvin described companies who are cashing in on customer profitability (customer value less customer cost) in their article customer profitability (customer value less customer cost) in their article.

  • Fidelity Investments, the world?s largest mutual fund company, installed an automated phone system that identified a customer who does limited business and routed them into longer queues, so the most- better service through shorter wait times when calling. unprofitable customers became profitable, and profitable customers got better service through shorter wait times when calling.
  • Royal Bank of Canada began offering financial advice and planning for settling estates. This service increased the bank's retention of assets from 30% to 50% and attracted new assets equal to another 25%.
In addition to automated phone system routing and directed marketing and services, call centers are popular with customers of Fortune 500 companies.  However, the average cost of an inbound call to a 100-seat call center ranges from just over $7 for agents in the financial services industry to more than $17 for agents in high-tech support centers responsible for technical fixes as reported by Purdue University’s Center for Customer Driven Quality.  Call center managers are looking for improvements in agent turnover, interview techniques and email handling to reduce customer cost.

Companies should estimate customer lifetime value (LTV) in addition to estimating the cost of customers.  In his book, Customers for Life, Carl Sewell estimated that “each new customer that comes through the door of a Cadillac dealership represents a potential LTV of more than $322,000.  The figure is a projection of the number of automobiles the customer is likely to purchase over his or her lifetime, as well as the services those automobiles will require over a lifetime.”  This what is called a loyal customer, those who keep coming back, spending more, and bringing you new customers.

Let Bradley Lambert facilitate sessions with your selected employees who interact with customers during the customer life cycle.  The goals of these sessions are to:
  • Create a formal model of the enterprise to connect company goals with its controllable activities, and
  • Create a process for using customer data to identify actions to improve profitability.
During these sessions the participants will define the customer life cycle and develop a customer cost model consisting of five phases.


  1. Collect Customer Behavior Data
  2. Analyze Data
  3. Identify Alternatives
  4. Take Action
  5. Measure and Report Benefits

Customer Cost Model (an example detail outline)

  1. Collect Customer Behavior Data
    1. Track high value customers
      1. Know what data to collect, why, how much and how it is to be used
      2. Behavior (activity) profile
      3. Demographic characteristics
    2. Types of data:
      1. Latency = the number of days until the customer service calls (making a purchase, calling help desk, visiting a web site,
      2. Recency = most recent activity, ranking customers against each other in order to segment and target them
      3. Frequency = most frequent (total) activity
      4. General = customer ID, units of activity, date of activity
  2. Analyze
    1. Look for variances or changes in behavior to take action with customer (e.g. time between appointments variance to the norm)
    2. Identify trigger points (e.g., customer complaint call, missed appointments)
    3. Link behavior to the customer’s business objectives and to things managers have control of
  3. Identify Action Alternatives by Using Data to:
    1. Predict customer behavior
    2. Encourage customers to do what you want
    3. Decrease customer cost and increase profits
    4. Determine when the customer is about to defect
    5. Determine which customers to contact more often
    6. Predict which customers will respond to incentive programs
    7. Predict future sales expectations (life time value)
    8. Stop spending incremental dollars on the customer when the customer stops taking action or providing feedback
    9. Stop doing what was unnecessary and focus on what was important (serving the customer)
  4. Take Action
    1. Take action only when you have to
    2. Take no action if there is a probability the customer will take no action
    3. Implement business process redesign
    4. Reallocate budget to get more profitable customers
    5. Focus customer marketing campaigns
    6. Determine who, what and when to communicate based on ROI, and behavior predictions
    7. Do something for the customer, e.g., discounts, new service, competitive features, 2nd purchase discounts
  5. Measure and Report Benefits