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Managing Customers for Profit
- Chapter1: Introduction
- Chapter2: Maximizing Profitability
- Chapter3: Customer Selection Matrix
- Chapter4: Managing Customer Profitability
- Chapter5: Maximizing Customer Profitability
- Chapter6: Managing Loyalty and Profitability Simultaneously
- Chapter7: Optimal Allocation of Resources across Marketing and Communication Strategies
- Chapter8: Pitching the Right Product, to the Right Customer, at the Right Timegies
- Chapter9: Preventing Attrition of Customers
- Chapter10: Managing Multichannel Shoppers
- Chapter11: Linking Investments in Branding to Customer Profitability
- Chapter12: Acquiring Profitable Customers
- Chapter13: Managing Customer Referral Behaviour
- Chapter14: Organizational and Implementation Changes
- Chapter15: The Future of Customer Management
CLV Dataset
The data set contains the purchase history of 100 customers for certain hardware,
software, and services products during the period 2001 - 2004. The data is organized in
such a way that the date of purchase, product purchased, product category, and purchase
amounts are given for each customer for each purchase occasion. For instance, customer 1
purchased Desktop PC (hardware category) for $500 during February 2001 (indicated by Feb-01).
In addition to the transaction history, the data set also includes information such as number and
type of marketing touches, and the contribution margin for each product.
This dataset is given in the excel file "CLV_data.xls".
Projection of Contribution Margin
In order to project contribution margin in a given year, we need to build the model for contribution margin. This is done by doing a linear regression with 'Contribution margin in 2004' as dependent variable and variables like 'tenure till December 2003', 'average contribution margin per year for the period 2001-2003', and 'the average purchase frequency'. This model using the available data showed the following relationship as significant.
PredCM2004 = -17 + 0.76 * AvgCM2003 + 4*Tenure0103 + 23*Avg_Purchase_Freq, where
PredCM2004 = Predicted Contribution Margin in 2004
AvgCM0103 = Average CM (per year) for 2001-2003
Tenure0103 = Tenure till December 2003.
Applying this model, the predicted contribution margin in 2005, 2006, and 2007 can be computed. The values of predicted contribution margins are obtained by simply entering the values for Average CM and Tenure for appropriate time periods in the worksheet "Enter values" in the excel file named "CLV_Cal.xls".
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The CLV calculator calculates the lifetime value of a customer . You have 2 options to use the CLV Calculator
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Dr V. Kumar (VK) is the Richard and Susan Lenny Distinguished Chair Professor of Marketing, and Executive Director, Center for Excellence in Brand and Customer Management, Robinson College of Business, Georgia State University. He was recently ranked amongst the top 5 marketing scholars worldwide based on his research productivity.
Dr. Kumar has been recognized with many teaching and research excellence awards and has published numerous articles
in premier journals of marketing such as the Harvard Business Review, Journal of Marketing, Journal of Marketing
Research, Marketing Science, and Operations Research. He has won several awards for his research publications
in scholarly journals including the Donald R. Lehmann Award twice for the best paper published in the Journal of
Marketing/Journal of Marketing Research in a 2-year period and the MSI/Paul H Root Award twice for the Journal of
Marketing article contributing to the best practice of marketing.He has co-authored over 100 articles,
book chapters and books (titled Managing Customers for Profit, Marketing Research, International Marketing
Research, Essentials of Marketing Research, and Customer Relationship Management: A Databased Approach).
Dr. Kumar is currently on the editorial review board of several scholarly journals and has lectured on marketing-related
topics in various universities and organizations in America, Europe, Australia and Asia. His current research
focuses on retailing, international diffusion models, customer relationship management, customer lifetime
value analysis, sales and market share forecasting, international marketing research and strategy, marketing
resource allocation, sales promotion and interaction orientation. Dr. Kumar is also a consultant to many
Fortune 500 firms where he has helped large corporations design suitable marketing strategies to identify the
most profitable customers. His work with IBM and P&G has been recognized by INFORMS as award winning entries in
the 2006 and 2007 Practice Prize Competition, respectively. Recently, Dr Kumar was conferred with two Lifetime
Awards from the American Marketing Association Special Interest Groups for his contributions to the field of
Marketing Strategy, and Interorganizational Marketing. Dr Kumar received his Ph.D. from the University of Texas at Austin.
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Do you know how CRM is applied in industry? The links shown below are practical examples of how CRM is being applied across different industries. Please click on the links below for specific examples within that industry
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Please refer to the sources cited in each chapter for modeling details.
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Whilst corporations continue to strive to improve customer loyalty and customer profitability, the conventional customer profitability model offers a great opportunity for enhancement. Based on my experience over the last two decades, across three different industries, quite often, the link between customer satisfaction, customer loyalty and customer profitability is tenuous. Secondly, since customer satisfaction and loyalty are measured across the customer base, corrective actions are designed uniformly for all customers. However, neither the customers nor the customer behavior is uniform!
With organizational resources being scarce and improvement of marketing ROI being a key challenge for business managers, it is imperative to have a fresh perspective to customer relationship management (CRM) with customer profitability as its focus and the notion that different customers should be managed and satisfied differently. This profit-based strategy draws upon robust CRM research that lays emphasis on future customer value. The future value of customer profitability can be measured through customer life-time value (CLV) metric. Dr. Kumar has developed innovative quantitative approaches to calculate CLV, which can be leveraged for CRM decisions relating to customer acquisition, retention and attrition.
CLV is a powerful tool that could potentially be the source of competitive advantage for organizations and provide the armory to win in the market-place. This book is recommended for business managers, interested in nurturing long-lasting relationships with customers to drive profitable growth.
Sangeeta Pendurkar
Chief Marketing Officer, HSBC Bank Middle East Limited
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"Dr. V Kumar is one of the world's leading experts in Customer Relationship Management. In this book, he offers practical guidance to managers on how to implement CRM strategies in their own firms. It is a "must have" book for anyone interested in developing profitable and stronger relationships with their customers."
Russ Winer
Executive Director Marketing Science Institute
and
William Joyce Professor of Marketing
Stern School of Business, New York University
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"Not only I have had the opportunity to participate in one of Dr. Kumar's presentations on Managing Customers for Profit but we also followed through with him in bringing the know-how to our company. We definitely see tremendous value in his concepts and strategies described in this book as evidenced by successes seen in other companies. Currently, we are implementing the framework prescribed in his book in India."
Maninder Singh Juneja
Senior General Manager
Head - Retail Channel Liabilities Group
ICICI Bank Limited, India
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"This book is the antidote that marketers have needed to satisfy the pressing demand for accountability. The concepts and metrics are grounded in the realities of customer behavior, while speaking the language of senior management"
George S. Day
Geoffrey T. Boisi Professor; Professor of Marketing
Co-Director, Mack Center for Technological Innovation
Director, Emerging Technologies Management Research Program
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"Executives are too often guided by backward looking, short-term metrics. This book shows how a focus on CLV can change management toward long term results by providing a fresh perspective on customer targeting, retention and loyalty. Highly recommended--it shows you the way toward strategic customer thinking."
Dave Aaker
Vice-Chairman, Prophet
Author of Brand Portfolio Strategy
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"Marketing leaders face many pressing challenges and opportunities in a rapidly changing global business environment and, as a result, are always on the lookout for fresh insight, new learning and real-world experiences that they can leverage. Dr. Kumar's new book is a must read for marketing managers in B2C as well as B2B focused businesses who are looking for a strategic approach to maximizing customer profitability. V. Kumar's book provides a different and proven model. Marketers should to read it".
Dennis Dunlap, CEO, American Marketing Association, Chicago, IL
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"Customer management has become a key business function as organizations seek to complement an understanding of what they do with their brands and mix with a deep knowledge of those to whom they do it: customer management. Dr Kumar's book is an essential resource for those who wish to optimize their customer investments. Strategically, it ties customer facing activities to the firm's objectives. Operationally, it has an insightful analysis of the activities that will lead to the achievement of those objectives. And in terms of accountability, it has the marketing metrics to calibrate success in execution, including diagnostic information for learning organizations. Dr Kumar's pre-eminent academic credentials combined with his extensive industry practice are married to make this book of immense value to both academics and practitioners."
John Roberts
Scientia Professor
Faculty of Business, University of New South Wales
SYDNEY AUSTRALIA
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"This is a milestone book in marketing. Most companies claim they are focused on customers. But even those who are probably do not take a scientific approach to customer management. Professor V. Kumar is the acknowledged expert on the science of customer management. This important book (1) raises all the key questions in managing customers, (2) provides the analytical tools for optimization, and (3) illustrates these tools with a number of company examples."
Philip Kotler
S. C. Johnson Distinguished Professor of International Marketing
Kellogg School of Management
Northwestern University
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"Firms that view their customer base as a portfolio and manage that portfolio most effectively will continue to outperform those that do not... In this important and comprehensive look at how to manage customers for profit, V Kumar lays out the issues, dispels the myths and provides templates for success. I recommend you read this book before your competitors beat you to it."
Gary L. Lilien
Distinguished Research Professor of Management Science and
Co-founder and Research Director, Institute for the Study of Business Markets (ISBM)
Penn State
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One of the best books in marketing that analyzes and demonstrates how to simultaneously manage both customer loyalty and company profitability by targeting and reallocating the 4 Ps of Marketing.
Jagdish N. Sheth
Charles H. Kellstadt Professor of Marketing
Goizueta Business School
Emory University
Atlanta, GA
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Delivering lasting client value is at the heart of profitable businesses today. Managing Customers for Profit provides a compelling, empirically tested approach to significantly enhance traditional customer relationship management initiatives. I highly recommend this book to all those interested in cultivating lasting profitable growth relationships with current and future clients.
Tim Bohling
Vice President, Market Intelligence
IBM Americas
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Today's hyper-competitive financial services marketplace makes it more important than ever to manage our business in order to maximize the lifetime value of our customer relationships. VK has been a leading practitioner as well as a pioneer in extending the state of the art in this area. Now with the publication of this book he has put together a compelling overview of the fundamental theory and key tools required to optimally manage customer relationships.
Jim Pedrick, Senior V.P. Strategic Marketing, ING Financial Services
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