Managing Customer Value

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At a minimum, there are two aspects to managing customer value: revenue and cost to serve. Increase revenue and decrease cost to serve seems to be about all most folks know, and because costs are easier to manage, those get cut first.

Take Harrah’s, one of CRM’s favorite sons. Recently, the company slashed its CRM initiative budget by about 90 percent, probably in response to serious declines in estimates for overall financial performance. And that’s the trouble — if we’re going to manage customer value for a customer’s lifetime, CRM investments can’t be entirely driven by quarterly earnings.

You can cut the cost to serve, which includes those costs associated with building the relationship and increasing spending, and have a momentary positive uptick, but the decline afterward is likely to be more severe. Too many executives think CRM should reduce cost to serve, and when it doesn’t, they cut it. But managing customer value has that top-line responsibility too.

Return on investment means there has to be investment — it isn’t called “return on air” or “return on nothing.”

Return is important in determining customer value. We talk about customer lifetime value (CLV) as if we can figure it out simply by adding up all the expected future transactions with any individual customer and discounting back to today’s dollars.

If we want to actively manage customer value, though, we need to focus on the customer’s total value. Total value reflects the entire budget in our category of spending. To determine what that is, marketing research has to be completed. We also need to understand all of the customer’s budgets.

For example, Coca-Cola measures its customers’ wallet as the percentage of daily liquid required to thrive. Share of that “wallet” is then determined by estimating the number of ounces consumed.

The San Antonio Spurs considered its fans’ “wallets” in several ways after they attended a BPT Partners’ CRM at the Speed of Light seminar. The actual dollars spent on entertainment represent one wallet, as do the dollars spent on sports-related clothing. The Spurs have to measure several wallets.

They also consider time allocation and value for the time allocated for a game. They recognize fans have limited time for entertainment and make choices about allocating that time based on their own value equation. An important goal for the Spurs is ensuring the time fans spend with the Spurs provides the return those fans seek.

Of course, it helps when your team wins the league championship. But the Spurs also own the San Antonio Rampage (hockey) and the San Antonio Silver Stars (WNBA), two potentially tough sales in the macho desert of Texas.

It would be great to tell you that the Spurs organization has CRM completely figured out and it cross-sells across the three teams with ease, but it hasn’t been that easy.

The one consistent aspect, though, is that this organization has a set of values based on five principles, which are taught to and expected of everyone in the organization, from the ushers to the players.

Remember Dennis Rodman? He didn’t fit the values, so he was gone. Players who skip fan appearances? Their teammates get on them when they fail to live up to the values.

That’s indicative of why ESPN has twice named the Spurs the top sports franchise since it started the award in 2003. That’s not an honor solely based on winning and losing or on financial performance. Rather, it is a measure of respect based on other professionals in the sports business, as well as recognition of how the organization’s values define its relationship with all it touches.

The work’s not done — in San Antonio, 65 percent of the population say they are avid Spurs fans but don’t come to games. How do you monetize that kind of loyalty? Obviously, there are other ways to show your appreciation of the Spurs in addition to attending games, such as buying clothing, visiting the Web site and clicking on cross-promotion ads, etc.

That’s the beauty of CRM. It isn’t about managing customer value for a quarter or for a season.

Dr. Jeff Tanner is a founding partner of BPT Partners, a CRM authority that provides education, consulting and research. He is also associate dean of Baylor University’s Hankamer School of Business, where he teaches CRM. He can be reached at editor (at) certmag (dot) com.

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