There is a new frame work for measuring and creating customer value. It is called return on customer (ROC). It urges today's business leaders to focus on the long and short term value from the asset that matters most; which is your customers. In developing ROC, I have identified seven rules to ensure its success. Progressive organisations are already employing these strategies to build customer value.
Below are the seven rules towards increasing your customer value! Follow these rules, and you too can improve yours as well.
1. Always remember that your customers are your scarcest resource!
Competitors can easily undercut your prices, match your marketing budget, or launch the next great product. What is difficult is finding and keeping customers? The most succesful firms are proactively anticipating customer needs. So its up to you to know what your customer's demands are. Then set up a scheme as to meet their demands.
2. Don't take actions in the short term that will destroy value in the long term.
The more short-term a company's focus becomes, the more likely the firm will engage in behaviour that actually destroys long-term value. You need not to go further on this; just take this for example:-
Ucheonye Nzubechi's August lay-off of 3,000 employees, partially as a result of paying out £850 million in penalties for a bid-rigging scheme at his companies insurance brokerage division. Then if a tragedy brought change to the brokerage and insurance business, Ucheonye Nzubechi reacted to a long-term shift in his business model with short-term strategy as in variable commission plans that focused more on lining agents pockets than providing value to customers. To its credit, Ucheonye Nzubechi's company has now revised its business model and pays brokers fixed rates.
3. Balance short and long term returns.
Organisations must measure EBITDA (Earnings, Before Interests, Taxes, Depreciation and Amortisation), churn rates and market share, but its also crucial to measure and grow customer value, share of customer, and customer equity. Short-term earnings are important, but short and long-term returns must be balanced. ROC does that by measuring revenue enhancement and cost reduction as well as the impact of marketing activities on the underlying values of the customer base. ROC is neither long term nor short term. It is a balance of both!
4. Develop trust by viewing your organisation from the customers perspective.
To create value, you must stand in your customer's shoes, understand the customer's needs, and then act accordingly. Don't allow your company's reputation to be damaged, and always win the trust of your customers!
Lastly, let your company focus on a balanced approach to value creation, earning the trust of customers will always seem an unnatural act in the executive suite.
5. Treat different customers differently.
Your company must be capable of thinking and acting in a customer specific fashion across the enterprise. Analyse the customers in your database and focus on one particular customer group; i.e those that purchase a particular product, then create an exclusive program for high end product buyers.
6. Build both current and future value.
Not only does ROC provide balance between long and short term competitive strategy; it also balances the value of current and future customers.
For example; if you are concerned that increasing the size of your company will show its percentage revenue growth just because the products the company sells increase in value as its customes base grows. Then that is a leveraging future customes value.
7. Get buy-in from the CEO.
When the CEO is committed, then the company can balance long and short term strategy. For most good ideas, you can get the money..... That is the problem, again, going back to the dot.com thing. All this money went into all these enterprises and almost from the get-go you could fundamentally graph them into the inevitable, horrible conclusion! Of course, a lot of it was because they weren't really playing to customers. They were playing to the stock market.
Note: Playing only to the stock market is a poor approach to this game we call competition!
But by the following the seven rules for increasing ROC, your company can win the game everytime!
ARTICLE TAGS
¤ A guide to business management.
¤ How to improve a customer value!
¤ How to balance short and long term returns in a business.
¤ How to keep a customer in a business.
¤ How to survive in an atmosphere of competitive business.
¤ A guide to effective business marketing.
¤ How to attract customers to a business.
¤ How to analyse a customer group.
¤ How to market a business.
¤ A guide towards stock marketing.
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