Database Reference
In-Depth Information
computer peripherals, and much more. The customer capital model leads to greater customer
value once the firm understands how to apply it as a business model.
5.
Customer attrition
: To reduce defection rates and patterns through identification of defec-
tion parameters (both controllable and uncontrollable); focus on
at-risk
customers; arrange
loyalty schemes, programs, and events; felicitate and reward loyal customers; improve cus-
tomer satisfaction ratings; extend customer lifetime; discover customer
wish lists
to propose
effective customized solutions; and improve customer spend. Despite questionable on-time
reliability and poor customer service, the airline industry has been able to foster high loyalty
by instituting barriers to the customer's exit including increasing customer's cost of switch-
ing to the competitors. For instance, frequent-flyer programs pitch the customer's status in
the next year dependent upon the mileage clocked in the current year.
To grow, an enterprise needs to acquire customers at a rate greater than its defection or attrition
rate. Unlike customer satisfaction, the attrition rate being unambiguous is an excellent predictor
of long-term (non)profitability. To increase its profits, an enterprise must place as much emphasis
on reducing customer defections as it does on new customer acquisitions.
1.2.6.1 Customer Value (CV)
Customer Value (CV) is the long-term financial value that a customer delivers to a business and,
therefore, is a result of the following factors:
◾
All income streams, right from the initial purchase through all the subsequent purchases
◾
All directly variable costs associated with managing the customer
◾
The envisaged length of the customer's relationship with the enterprise
◾
The customer's propensity to recommend the company to other prospective customers
◾
The resulting final value discounted, at an appropriate rate, to calculate the net present value
Customer value could be of different kinds:
1.
Historic value
: What has been the total CV till date?
2.
Current value
: Assuming the current customer behavior to remain the same, what will be the
CV in the future?
3.
Potential value
: What could the customer be worth if we cost-effectively cross sell, increase
their useful life with the company, and encourage them to recommend us?
4.
Influence value
: What is the value of the sales that the customer indirectly influences through
reference, referrals, and the like (see note “Power Law and Small Worlds Networks [SWN]”)?
CO-CREATION OF CUSTOMER VALUE
Co-creation or co-production of customer value occurs when enterprise delivers the
value desired by the customer with the active participation of the customer. This is
such a signiicant concept that it would need another topic in itself to explore it to its
full potential and depth. In the co-creation of value, the customer contributes time, effort,
or resources essential for the selection, production, packaging, and delivery of the offering or
