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CUSTOME PORTFOLIO MANAGEMENTCUSTOME PORTFOLIO MANAGEMENT

CRM Value Chain

Customer Portfolio Analisis

Customer Intimacy

Network Development

(SCOPE)

Value Proposition

Development Manage The Customer Life

Cycle

Leadership and Culture

Data And IT

People

Processes

Profitability

Customer

Prim

ary

Stag

esSu

ppor

ting

Con

ditio

ns

CUSTOMER PORTFOLIO

IS THE COLLECTION OF MUTUALLY EXCLUSIVE CUSTOMER GROUPS THAT

COMPRISE A BUSINESS’S ENTIRE CUSTOMER BASE

Customer Portfolio Analysis

Classify customers into different groups that are then managed on a portfolio or collective basis– Different customer different service– Profit performance– Resource effectiveness

Who is The Customer ?

• B market Vs C market

• Existing Vs Untapped customer

Market Segmentation

• Dividing up a Market into more or less homogeneous subsets for which it is possible to create different value proposition

• Outcome of a segmentation is an identification of the value potentials of each identified segment

• Intuitive– Brainstorm segmentation variables

• Age, gender, lifestyle• Standard industrial classification (SIC), size, location

– Produce word-profiles– Compute sizes of segments– Assess company/segment fit– Make targeting decision

• One/several/all segments?

INTUITIVE BASED SEGMENTATION PROCESS

• Data based– Obtain customer data (internal-external)– Analyze customer data– Identify high/medium/low-value customer segments– Profile customers within segments

• Age, gender, lifestyle• Standard industrial classification (SIC), size, location

– Assess company segment fit– Make Targeting Decision

• One/several/ all segments?

DATA BASED SEGMENTATION PROCESSES

Market Segmentation Process

1. Identify the business you are in

2. Identify relevant segmentation variables

3. Analyze the market using these variables

4. Asses the value of market segments

5. Select target market(s) to serve

IDENTIFY THE BUSINESS YOU ARE IN

• From the customer point of view

• Identify markets and competitors– Benefit competitors– Product competitors– Geographical competitors

IDENTIFY RELEVANT SEGMENTATION VARIABLES AND ANALYZE THE MARKET

• Consumer markets– User attributes (demography, geographical, psychographic attributes)– Usage attributes (Benefits sought, volume consumed, share of

category spend)

• Business markets– SIC– Dispersion, size, Account status, Buying process, Buying criteria,

propensity to switch, share of customer spend in category, geography, Buying selling

ASSESS THE VALUE IN A MARKET SEGMENT AND SELECT WHICH MARKET TO SERVE

1. HOW ATTRACTIVE IS THE OPPORTUNITY ?– Size of segment, segment growth rate, price sensitivity of

customers, bargaining power of customers, customers’ current relationship with suppliers, barriers to segment entry, barriers to segment exit, number & power of competitors, prospect of new entrants, potential for differentiation, propensity for customer switching

2. HOW WELL PLACED IS THE COMPANY AND ITS NETWORK TO EXPLOIT THE OPPORTUNITY ?

– Does the opportunity fir the company’s objectives, mission, vision & values? Does the company & its network possess the operational, marketing, technological, people & other competencies, and liquidity to exploit the opportunity?

Mc Kinsey / General Electric Customer Portfolio Matrix

Attr

activ

enes

s of

mar

ket S

egm

ent

Fit to company and network competencies

High

Medium

Low

Strong Average Weak

Attractive markets Medium priority markets Unattractive markets

SALES FORECASTING

• QUALITATIVE METHODS:– Customer surveys– Sales team estimates

• TIME-SERIES METHODS:– Moving average– Exponential smoothing– Time-series decomposition

• CAUSAL METHODS:– Leading indicators– Regression models

ACTIVITY BASED COSTING

• CUSTOMER ACQUISITION COSTS– Sales calls, visits, free samples, engineering advice, guarantees

• TERM OF TRADE– Price discounts, advertising & promotion support, slotting allowances

(cash paid to retailers for shelf space), extended invoice due dates

• CUSTOMER SERVIOCE COSTS– Handling queries, claims & complaints, demands on sales people &

contact center, small order sizes, high order frequency, JIT delivery, part load shipments, breaking bulk for delivery to multiple sites

• WORKING CAPITAL COSTS– Carrying inventory for the customer, cost of credit

LIFETIME VALUE ESTIMATION

• LTV = m -------------------1 + i - r

r

LTV = Lifetime value

m = margin or profit from a customer per period (e.g.per year)

r = retention rate (e.g. 0.8 or 80%)

i = discount rate (e.g. 0.12 or 12%)

Data Mining Defined

• Creation of intelligent from large quantity of data– Clustering– Decision trees– Neural networks

THE PARETO PRINCIPLE OR 80:20 RULE

0

10

20

30

40

50

60

SALES

CUSTOMER PROFITABILITY

-20

-10

0

10

20

30

40

50

60

PROFIT

SHAPIRO et al CUSTOMER CLASSIFICATION MATRIX

PASSIVE CARRIAGE TRADE

BARGAIN BASEMENT AGGRESIVE

LOW

LOW

HIGH

HIGH

COST TO SERVE

RE

CE

IVE

D P

RIC

E

• Fiocca’s CPM Model: STEP 1

Key Difficult

Strategic Importance of the account

Diff

icul

ty in

man

agin

g th

e cu

stom

er

Non Key Difficult

Key Easy Non Key Difficult

High

High Low

Low

3 12

6 45

9 78

Customer’s Business Attractiveness

Relationship Strength

H

M

L

S M W

HOLD THE POSITION

WITHDRAW

IMPROVE REALTIONSHIP

ATRENGTH

• Fiocca’s CPM Model: STEP2

ADDITIONAL CPM TOOLS

• SWOT

• PESTE

• 5 Forces

• BCG Matrix

BCG MATRIX

CASH COW DOG

QUESTION MARK

Relative market share

Mar

ket g

row

th r

ate

STAR

STRATEGICALLY SIGNIFICANT CUSTOMERS

1. HIGH FUTURE LIFETIME VALUE CUSTOMERS

2. HIGH VOLUME CUSTOMERS

3. BENCHMARK CUSTOMERS

4. INSPIRATIONS

5. DOOR OPENERS

Seven core customer management strategies

• Protect the relationship

• Re-engineer the relationship

• Enhance the relationship

• Harvest the relationship

• End the relationship

• Win back the customer

• Start a relationship