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What to do with Unprofitable Customers? Customer Lifetime Value, Customer Metrics of Adverse Behavior, and Feasible Strategies for Managing Unprofitable Customers

2017-05-23 Business & Economics
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Release : 2017-05-23
Genre : Business & Economics
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Book Rating : 369/5 ( reviews)

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Book Synopsis What to do with Unprofitable Customers? Customer Lifetime Value, Customer Metrics of Adverse Behavior, and Feasible Strategies for Managing Unprofitable Customers by : Anna Balashova

Download or read book What to do with Unprofitable Customers? Customer Lifetime Value, Customer Metrics of Adverse Behavior, and Feasible Strategies for Managing Unprofitable Customers written by Anna Balashova. This book was released on 2017-05-23. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2016 in the subject Business economics - Offline Marketing and Online Marketing, grade: 1,3, University of Münster, language: English, abstract: In this paper, I analyze how customer metrics like Customer lifetime value (CLV) are linked to strategies for managing unprofitable customers. Valuing customers or their behavior, respectively, has become an indispensable issue for any commercial activity. When determining causes and reasons of the customers’ contribution to firm value or performance, the customer base usually is analyzed and evaluated, whereas profitable and unprofitable customers are identified. Especially the subject of unprofitable customers, the methods to single them out and their input on the firm’s financial performance have been thoroughly discussed in the literature. Because regular financial metrics have restricted diagnostic potential, relying on customer metrics appears more suitable for determining customer’s profitability. There are diverse methods for evaluating customers, such as previous period customer revenue, past customer value, customer lifetime duration and customer lifetime value (CLV). CLV examines customer profitability from a prospective perspective, foreseeing future customer behavior and discounting future cash flows. CLV and its measurement models, depending on the kind of customers and products obtained by the company, provide a basis for strategic and tactical decisions. Customer’s persistent adverse behavior can lead to unprofitable outcome and should be considered by determining profitability on the base of CLV. There are several strategies for handling unprofitable customers. Before applying one of these, it is necessary to measure potential benefits and losses, as the chosen strategy can have a longrun effect on the firm’s clientele. There are some interconnections between various CLV measurement models, other customer metrics and strategies applied to unprofitable customers.

The Right Way to Manage Unprofitable Customers

2020
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Release : 2020
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Book Synopsis The Right Way to Manage Unprofitable Customers by : Vikas Mittal

Download or read book The Right Way to Manage Unprofitable Customers written by Vikas Mittal. This book was released on 2020. Available in PDF, EPUB and Kindle. Book excerpt: Problem customers can cost your business lots of money, but quickly ejecting them may not be the best way to relieve the burden. Mittal, of Rice University, Sarkees, of Penn State, and Murshed, of Towson University, explore the ins and outs of customer divestment. Using real-world examples, the authors show how deciding to end a relationship with a customer segment or individual can increase profitability, improve employee morale, address capacity constraints, and bolster a business strategy. However, divestment also comes with potential downsides for various constituencies, including employees and remaining customers, both of whom may wonder whether they're next. In addition, ethical and legal consequences -- and the risk of bad publicity -- always loom. Before you rush to action, say the authors, walk through their five-part customer divestment framework. First, reassess the context of present customer relationships, looking beyond simple profitability. You may find that the most productive option is to educate customers rather than drop them. In some cases, if you renegotiate the value proposition with them, both of you will win. In other instances, you'll want to migrate customers to other subsidiaries or providers, as long as the move is undertaken -- and perceived to be conducted -- in good faith. If it becomes necessary to terminate a customer relationship, use a direct, interpersonal approach. No business can afford to squander its customer base, so divestment should not be boiled down to determining merely who is profitable and who is not -- the strategic consequences are too weighty. In the end, the decision about whether to divest might prove to be the toughest customer of all.

Managing Customers Profitably

2009-01-22 Business & Economics
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Release : 2009-01-22
Genre : Business & Economics
Kind : eBook
Book Rating : 364/5 ( reviews)

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Book Synopsis Managing Customers Profitably by : Lynette Ryals

Download or read book Managing Customers Profitably written by Lynette Ryals. This book was released on 2009-01-22. Available in PDF, EPUB and Kindle. Book excerpt: This book is a response to a need in the market place in the fast-growing field of customer profitability analysis and the profitable management of customer relationships. It combines innovative approaches to calculating the value of customers, with the management strategies necessary to make and keep customers profitable. It includes easy-to-follow instructions on how to calculate customer profitability, including worked examples (non-technical) and discusses strategies and their applications for organizations to manage customers profitably. Based on cases and feedback from the KAM Club and other research, there will be many business-to-business as well as business-to-consumer examples. The book assumes some level of numeracy in its readership. The contents include: Assessing product costs, costs to serve and how these can be estimated, and how to deal with customer-specific overhead costs. It discusses the uses and limitations of the use of customer profitability analysis, and illustrates how to calculate customer lifetime value using two methods, one with actual numbers and one which estimates relative customer lifetime value. Provides an innovative approach to calculating the lifetime value of a customer by taking risk into account. Demonstrates how to recognise and value the relationship benefits of customers, such as word of mouth. Brings into discussion the idea that how customers are managed, links to their profitability. Describes how financial portfolio analysis and theory apply to marketing and how, their application to marketing relates to the optimisation of marketing spend.

Strategic Value of High-Cost Customers

2013
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Release : 2013
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Book Synopsis Strategic Value of High-Cost Customers by : Upender Subramanian

Download or read book Strategic Value of High-Cost Customers written by Upender Subramanian. This book was released on 2013. Available in PDF, EPUB and Kindle. Book excerpt: This is the online appendix to the paper titled "Strategic Value of High-Cost Customers" that is forthcoming in Management Science. The abstract for the paper is given below. This online appendix provides the proofs for extensions when customers are forward-looking, when there are three customer cost-types, when firms can discriminate amongst their ex-customers, when customers exhibit inertial loyalty or brand loyalty, when customers also differ in their price-sensitivity and when some customers are too costly to serve. Many firms today manage their existing customers differentially based on profit potential, providing fewer incentives to less profitable customers and firing unprofitable customers. While researchers and industry experts advocate this practice, results have been mixed. We examine this practice explicitly accounting for competition and find that some conventional prescriptions may not always hold. We analyze a setting where customers differ in their cost-to-serve. We find that when a firm can discriminate amongst its customers while the rival cannot, customer base composition influences the rival's poaching behavior. Consequently, even though a low-cost customer is more profitable when viewed in isolation, a high-cost customer may be strategically more valuable by discouraging poaching. Therefore, contrary to conventional advice, it can be profitable for a firm to retain unprofitable customers. Moreover, some customers may become more valuable to retain and receive better incentives when they are less profitable. We further show that, in competitive settings, traditional customer lifetime value metrics may lead to poor retention decisions because they do not account for the competitive externality that actions towards some customers impose on the cash flows from other customers. Our results suggest that firms may need to evolve from a segmentation mindset, which views each customer in isolation, to a customer portfolio mindset, which recognizes that the value of different customers is interlinked.

Encyclopedia of Business Analytics and Optimization

2014-02-28 Business & Economics
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Release : 2014-02-28
Genre : Business & Economics
Kind : eBook
Book Rating : 039/5 ( reviews)

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Book Synopsis Encyclopedia of Business Analytics and Optimization by : Wang, John

Download or read book Encyclopedia of Business Analytics and Optimization written by Wang, John. This book was released on 2014-02-28. Available in PDF, EPUB and Kindle. Book excerpt: As the age of Big Data emerges, it becomes necessary to take the five dimensions of Big Data- volume, variety, velocity, volatility, and veracity- and focus these dimensions towards one critical emphasis - value. The Encyclopedia of Business Analytics and Optimization confronts the challenges of information retrieval in the age of Big Data by exploring recent advances in the areas of knowledge management, data visualization, interdisciplinary communication, and others. Through its critical approach and practical application, this book will be a must-have reference for any professional, leader, analyst, or manager interested in making the most of the knowledge resources at their disposal.

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