Customer Value Analysis – are they sufficient?

Customer Value Analysis – are they sufficient?

In these times of lows and highs, it is imperative that there is a good balance between internal and external stakeholders of any organization. There are always a lot of talks and discussions on the ‘internal’ stakeholders and how to handle them in terms of salary cuts, resource sharing, extended hours, motivational programs etc.

But what do we have in place to look at our external stakeholders?

Out external stakeholders include our vendors, service providers, and of course our customers.
Typically, our vendors and service providers are joined to us at the hip via various partnerships, MoU’s Contracts, etc, and these provide a way of exercising our needs and provide good data to prioritize and negotiate current and future partnerships.
How about our Customers?

In these times, it is important that we get their say also and see how we can provide for their needs. They too are undergoing the lows and highs and they too are considering how to minimize costs and increasing savings. So, how can one organization aid in the perfect balance where they are able to decide on how and where they are to concentrate on the needs of the customers; which in turn would impact how our internal strategies would shape up?

One way of getting insights is via Customer Satisfaction Analysis. But in many cases, the CSS data is never sliced and diced in a proper manner, often resulting in the wrong conclusion. Also CSS is typically for our existing customers and depending on the person who is contacted in the customer organization, the results would vary.  There are methods and means of doing a good CSS, but the focus should be beyond the standard CSS and should get into what is known as Customer Value Analysis.

A Customer Value Analysis (CVA) is a way by which the organization’s sales force determines the positioning of their existing and prospective customers in terms of their need, segmentation, their frequency and monetary value of their interactions with the organization or its products/services, segmentation, etc.
These analysis vary depending on the domain, but there are a few which are common across many domains. Some of them are:

RFM Analysis – Recency, Frequency, Monetary Value analysis
Value Based Segmentation – The segmentation of the customers based on the value that they generate to the organization
Value Migration Analysis – The analysis of how the need of the customer has moved from one segment to another.

Each of them are a huge topic and there are many more methods that are used for a good analysis. You can google these to get more information.

The Main Challenge

In all these analysis, there is a huge focus from the perspective of the customer, but in relation with the organization, its products and services. So the foci is always from the perspective of the ‘I’ or the ‘Organization’ and seldom from the ‘You’, ‘We’ or the ‘Customer’.

There are always arguments that the focus is always the customer, but the fact is that it IS the customer, but in many cases, from the perspective of what my organization wants and needs to do in order to get better profits.  This is mainly due to the strict targets and profit sharing system that is existing between the sales organization and the company – where for short term profits, long term strategies are ignored. Especially in the situation where every person is busy creating pseudo legacies for a line item in their resumes for the next plush job – which has all the signs of the great growth and profit margins in their previous company, no one looks or can look at the long term benefits to the organization. This can only be realized when we look at the stories like Satyam, Enron etc. Of course the blame game is endless and there is always a moot point on who is to be blamed, the crux is to have mechanisms in place to ensure that any customer analysis has a long term outlook rather than the short term one.

This would vary depending on the kind of market and domain, but the important thing that is lacking in the current way of analysis is “Profitability of the Customer”

How has the customer profited from our product/services?
How have we profited from the sale of these and products/services to this customer?
What is loyalty for me and for my customers in terms of profitability?
What should be my strategy if the customer gets profitable with my product/service?
What should be my strategy if the customer is NOT profitable with my product/service?
Is there a trend in terms of how profitability of my customers are impacting their relationship with my organization?
Is there a way by which I can share my profitability with my customer and provide for a new set of relationships?
Can I, based on my profitability projections of my customers be able to establish a strategic relationship with them?

These questions around profitability can go on till all the questions and concerns of both my organization and my customer is answered. Of course, there are no strict rules here and the questions would vary based on many parameters, but this outlook would bring in an entirely new perspective into how the CVA is to be done.

This would in-turn facilitate the strategies on what we are to do to grow our organization internally.

I hope you find this useful. Do let us know how your organization implements CVA?