In his Are You Selecting Your Customers…Or Are They Selecting You? presentation at CSIA 2010, Dean Streck, CEO of V I Engineering, offers ways to assess the value of your customers. Based on this analysis, you may reach the conclusion that some of your customers are more valuable than others. And, some, well, they just aren’t worth keeping.
Beyond the dollar value assigned by a Customer Lifetime Value assessment, it may be helpful to rank your customers according to the ‘Loyalty Ladder’. The higher the position on the ladder, the more that the customer prefers and actually advocate the use of your services:
- Loyalty Ladder
- Willing to pay a premium
- Enthusiastic Advocate
- Actively seeks to expand relationship
- Invests in the relationship
- Buys a bundle of products
- Switcher – will buy if the price is right
- Skeptic – willing to be convinced
- Cynic – won’t buy at all
Customer Management Effort (CME) Matrix
You can then position the customer in a matrix comparing their loyalty position and the cost of managing that customer. The combined result obviates which customers are the ‘most’ valuable (a.k.a. partner) and well as the ‘least’ valuable (the Switcher).
Start by identifying the customer management activities required to support a relationship at each rung. Then, quantify the buyer benefits associated with each ladder rung. You can then calculate the cost incurred in moving a customer from one rung to another using a combination of historical data and account manager’s experience. And, map Customers Current Position.
You can also devise strategies for moving customers to the partner level. For instance, perform a Root Cause Analysis for a customer. Are there difficulties due to competitive effort, ineffective account management, or simply idiosyncrasies? Based on the results, you can define activities and timelines to move the customer to a more valuable position.
Finally, you must determine how to deal with the least valuable customers. Perhaps, you can engage them in a frank conversation about how they are too difficult or expensive to retain your services any longer. If they are unwilling to help you change this situation, you may be better off ‘firing’ them and find a better customer. But, keep in mind that shifting customers and industries can be very costly and time consuming.
Dean concluded his presentation in much the same way he began. We have the customers that we have because we choose the orders and transactions that we take. In the end:
Who we are -> Who we can then serve -> Who we serve -> Who we are