Book: Managing Customers as Investments

Are You Spending More on Your Customers than They are Really Worth? authors Gupta and Lehmann ask.

Based on my experience, Why Should We Care? is the return question.  Lots of companies apparently do not care, at least not yet.  But someday these companies will “hit the wall” with the traditional focus on acquiring new customers, and then they will care.  Just a Case of History Repeating, don’t ya know. 

When I published the 3rd edition of my book, I was pretty sure the business world had finally made it past “Why Should We Care?” and would be on to “How Do We Do This?”.  Wrong, as Bryan and Ron constantly remind me.  Before the book reviewed below was published, I was using what I called the “portfolio approach to managing customers” idea to set up the Current Value / Potential Value model.  Spent an entire chapter on the idea.  Apparently, that was not quite enough to answer the “Why Should We Care” question.  My bad.  Turns out the same idea is worthy of an entire book.  Sigh…

So for those of you who are more interested in the “Why Should We Care?” (90% of You?) as opposed to the tactical “How Do We Do This?” presented in the Measuring Engagement Series, I give you the following book:

 

This is a 6 Chapter, no nonsense, 165 page book that is heavily annotated with the kinds of “proof” you need to potentially get your Boss to care about this topic.  I mean, the boss-person can just hit the EndNotes (another 33 pages with the Appendix) and find out how the theories, formulas, and examples in this book have all been well documented by a slew of hard core academics and Consultainers alike.  These references to various studies, books, papers, and so on probably have more impact than say, sending an e-mail to the boss titled “Interesting Stuff” with a link to my blog…

The book is easy to read and shoves all the “Math” into the Appendix so whether you’re using the right or left brain you can follow right along – ignore the math and just Grok the pictures, or get right down into full-blown proofs with your Calculus shoes on.  Have it your way, as they say.

Just look at these Chapter Titles:

1.  Customers are Assets – no argument there from me.  Want definitive proof?  Here it is.

2.  The Value of A Customer – do you know the value of yours?  Here is an easy – and I mean easy – way to estimate this value.  Call it Lifetime Value “Light” –  it’s way better than what you have now, I bet.

3.  Customer-Based Strategy – Oh, to develop Strategy and actually do something based on the Value of the Customer, as opposed to whining about how they are “in control”.  This is the best chapter in the book.  Customers can only take control if you give it to them, you know.  And that’s a Strategy problem.

4.  Customer-Based Valuation – they’re talking firm valuation here, for the purposes of acquiring companies or selling them.  As I said before, Wall Street uses the Current Value / Potential Value Model.

5.  Customer-Based Planning – as in building Customer Value right into the Business Plan, so the execution is rock solid.

6.  Customer-Based Organization – sure, the tough one.  How you make it all work in the org.  A bit of the Analytical Culture thing.

The Gupta and Lehmann book is great because it takes what I’ve learned through 20 years of “exposure” (Why You Should Care) and explains it in corporate speak, creating links to stock prices and all kind of other good stuff the CFO would really like to hear about, like projecting future sales, estimating the buyout value of the firm, evaluating acquisitions, and so forth.  All from the same kind of customer analysis we just worked through in the Measuring Engagement series.  Really.  Except they hide all the numbers from you – unless you go looking for them.

Oh, and did I mention this info is all well documented by a slew of hard core academics and Consultainers alike?  Seriously though, there are over 120 footnotes that at the very least provide you a library of solid references and case studies on the topic of using customer value data to drive increased profits.

So, if you’re a Marketer trying to create a bridge to Finance, get a copy for your friend over there.  If you’re an analyst trying to get a deeper understanding of why customer analysis matters to the business side, get a copy for yourself.  If all of a sudden you are in charge of “CRM” or “Customer Experience” or whatever they are calling running a business that doesn’t shred its own customers these days, get this book for the sake of your company.  The book really is a great read and might help you make sense of all the disparate and seemingly conflicting marketing and service ideas you read about today.

And while you’re at Amazon, get a guide for the people who will have to turn all this Customer Value Data into Profits for you – mine.

Share:  twittergoogle_plusredditlinkedintumblrmail


Follow:  twitterlinkedinrss

6 thoughts on “Book: Managing Customers as Investments

  1. Based on my experience, the answer to the first question is “we don’t have the slightest clue”. While many firms have customer segmentation schemes, few of them are able to use these segmentations to determine the value (real monetary value, not qualitative judgments) of customers, nor can they even begin to estimate how much they spend across segments.

  2. Ron,

    Are you saying they can’t determine customer value – as in for some technological reason, they simply cannot access the data they need?

    Or they won’t determine customer value – as in they are uninterested / do not understand what value the exercise brings to them / don’t know what to do with the info if they had it?

    Or?

    It’s not clear to me how a company could be sophisticated enough to do customer segmentation but not understand customer value…seems like the customer value component would have to be part of any useful segmentation!

  3. I’m saying more the former (can’t) than the latter (won’t). But with a good dose of “don’t”. They simply don’t measure how much they spend on specific customer segments. Keep in mind, I’m dealing mostly with financial services firms who focus marketing efforts on products, not customers. So they know how they spend (presumably) on products, but couldn’t tell you how much they spent by type of customer.

    And the segmentation that many financial firms use is “value” — as in, segmenting customers by number of products owned (assuming the more products a customer has, the more valuable s/he is). Is this “sophisticated” in your definition? I kinda doubt it.

    A colleague of mine likes to ask our clients and prospects if they “know who their best customers are and if they’re spending the right amount on those customers”. Most people honestly answer “no”.

  4. Hmmm…and I was under the impression financial services was one of the places where data-driven CRM was actually generating great payback – Fifth Third, Hibernia cases come to mind.

    I must be missing another component of the story – IT upgrade cycles or something…

  5. There are a whole list of things I could detail about issues with customer value, but in the end they all roll up to 1: anything you can measure about the customer will be based on actual behaviors. The real value is in their ‘intents’. You may have a whole slew of ‘low value’ customers who actually could/should be high-value but because of X (something you have control over but are unaware or too focused on silly other things :), they are not. You may have high-value customers who are still largely undercapitalized.

    Likewise, as was mentioned (somewhat indirectly) above, if you’re not going to tie the measure to a differentiation of treatment (ala. Frequent Flyer programs and sub-strata within), then it’s of no real value.

    Does the book address these issues?

  6. Which book, Gupta’s or mine?

    I agree with all the statements you made above. As I said, the Gupta book is a higher level Strategic work, more appropriate if you need to convince people why all this is important – tie it to stock price, etc. Mine is a more tactical book, how to you measure and act on these behaviors?

    Both books use nearly identical frameworks: customers have Current or Realized Value, and Customers have Potential Value – just like any other asset. Using these two measures of value, you can operate against the customer base as a portfolio of assets, making financial decisions based on the behavior – both historical and predicted – of customers.

    For example, the situation you addressed above – low value customers with high intent who could be high value – are the customers in the lower right box of this diagram from my book:

    http://www.jimnovo.com/images/value-model.jpg

    Reading the sample PDF will give you the full background on this model:

    http://www.booklocker.com/pdf/224s.pdf

    Hope that helps..

Leave a Reply

Your email address will not be published. Required fields are marked *