Managing Customers for Profit: Strategies to Increase Profits and Build Loyalty »

V. Kumar was recently honored as one of the world’s top five-ranked marketing scholars. He has taught and consulted for many Global Fortune 500 firms and universities, and has published award-winning articles in many scholarly journals and business publications, including the Harvard Business Review and the Journal of Marketing. Kumar has co-authored textbooks on marketing research, including his recent Customer Relationship Management: A Databased Approach. His current research focuses on brand management, word-of-mouth marketing, international diffusion models, and customer relationship management.

“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 raises all the key questions in managing customers, provides the analytical tools for optimization, and 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

“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

“Executives are too often guided by backward-looking, short-term metrics. This book shows how a focus on Customer Lifetime Value (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

This book shows you how.

Leading marketing expert V. Kumar shows how to use Customer Lifetime Value (CLV) to target customers with higher profit potential…manage and reward existing customers based on their profitability…and invest in high-profit customers to prevent attrition and ensure future profitability. Kumar introduces customer-centric approaches to allocating marketing resources for maximum effectiveness…pitching the right products to the right customers at the right time…determining when a customer is likely to leave, and whether to intervene…managing multichannel shopping… even calculating a customer’s referral value.

Drawing on his extensive experience consulting with world-class marketing organizations, Kumar illuminates the challenges of transitioning from a product-centric to a customer-centric approach and presents proven solutions. Simply put, this book’s techniques offer marketing executives a complete framework for linking their investments to business value—and maximizing the lifetime value of every single customer.

Foreword xiii

Preface xv

Acknowledgments xviii

About the Author xix

Chapter 1: Introduction 1

Chapter 2: Maximizing Profitability 11

Chapter 3: Customer Selection Metrics 29

Chapter 4: Managing Customer Profitability 59

Chapter 5: Maximizing Customer Profitability 75

Chapter 6: Managing Loyalty and Profitability Simultaneously 93

Chapter 7: Optimal Allocation of Resources across Marketing and Communication Strategies 113

Chapter 8: Pitching the Right Product to the Right Customer at the Right Time 127

Chapter 9: Preventing Attrition of Customers 143

Chapter 10: Managing Multichannel Shoppers 163

Chapter 11: Linking Investments in Branding to Customer Profitability 187

Chapter 12: Acquiring Profitable Customers 205

Chapter 13: Managing Customer Referral Behavior 223

Chapter 14: Organizational and Implementation Challenges 249

Chapter 15: The Future of Customer Management 267

Index 283

Foreword     xiii
Preface     xv
Acknowledgments     xviii
About the Author     xix
Introduction     1
Customer Lifetime Value     4
Aligning Customer Management Strategies with the CLV Metric     8
Endnotes     10
Maximizing Profitability     11
Loyalty Programs     12
How Do Loyal Customers Really Perform?     16
Are Loyal Customers Profitable?     17
Debunking the Myths     22
Where Do Firms Go Wrong?     23
The Problem with Measuring Loyalty     24
When to Stop Investing in a Customer     25
Conclusion     26
Endnotes     27
Customer Selection Metrics     29
Traditional Metrics     30
The Need for a Forward-Looking Metric     35
Introducing Customer Lifetime Value (CLV)     37
Advanced Model for Measuring CLV     49
Conclusion     56
Endnotes     56
Managing Customer Profitability     59
Typical CLV Drivers     60
A Specific B2B Case Study     61
A B2C Case Study in the Retailing Industry     66
Conclusion     73
Endnotes     73
Maximizing Customer Profitability     75
The Wheel of Fortune     75
Customer Selection     78
Managing Loyalty and Profitability Simultaneously     79
Optimal Allocation of Resources     80
Pitching the Right Product to the Right Customer at the Right Time     81
Preventing Customer Attrition     83
Managing Multichannel Shoppers     84
Linking Investments in Branding to Customer Profitability     85
Acquiring Profitable Customers     85
Viral Marketing Strategies     86
Implementation/Interaction Orientation     87
The Future of Customer Management     88
The Power of CLV and the Wheel of Fortune     89
Conclusion     90
Endnotes     90
Managing Loyalty and Profitability Simultaneously     93
Behavioral and Attitudinal Loyalty     93
Customer Segmentation     95
A Framework for Building and Sustaining Loyalty     99
Cultivating Attitudinal Loyalty     102
Linking Loyalty to Profitability     103
Operationalizing the Framework     103
Evolution of Loyalty Programs      107
Conclusion     110
Endnotes     110
Optimal Allocation of Resources across Marketing and Communication Strategies     113
Communication Channels     115
Type and Frequency of Communication     116
Resource-Allocation Strategy and CLV Maximization     119
Optimal Resource Allocation: A Case Study     122
Conclusion     124
Endnotes     125
Pitching the Right Product to the Right Customer at the Right Time     127
What Companies Have Been Doing     128
The Question of "What Next?"     129
An Integrated Approach to Predicting Customer Behavior     132
Increasing the Cross-Sell Ratio: Path to Profitability     138
Conclusion     142
Endnotes     142
Preventing Attrition of Customers     143
Impact of Attrition     145
Case Study: Telecommunication Industry     146
Preventing Attrition     147
Conclusion     161
Endnotes     162
Managing Multichannel Shoppers     163
Search First, Then Purchase     164
Who Are Multichannel Shoppers?     166
Are Multichannel Shoppers More Profitable?     173
Determining the Next Channel a Customer Adopts     174
Are Multichannel Customers More Profitable?     182
Does Order of Channel Adoption Matter?     183
Managing Multichannel Resources     184
Conclusion     184
Endnotes     185
Linking Investments in Branding to Customer Profitability     187
Aggregate versus Individual Brand Value     190
Framework for Linking Brand Value to CLV     190
How to Link the IBV to CLV     197
Conclusion     204
Endnotes     204
Acquiring Profitable Customers     205
Pitfalls to Balancing Acquisition and Retention     207
Solution to Balancing Acquisition and Retention: ARPRO     212
The Profit-Maximizing ARPRO Strategy     217
Which Is More Critical: Acquisition or Retention Spending?     218
Maximum Profits, Acquisition Likelihood, and Relationship Duration     219
Conclusion     220
Endnotes     220
Managing Customer Referral Behavior     223
Customer Referral Value (CRV)     225
Calculating CRV: A Typical Customer     230
Are CLV and CRV Related?      233
Typical Marketplace Phenomenon     235
Managerial Implications     245
Conclusion     248
Endnotes     248
Organizational and Implementation Challenges     249
Organizational Issues     251
Implementation Challenges     259
Conclusion     265
Endnotes     266
The Future of Customer Management     267
Customer Groups     270
Marketing Strategies     271
Aligning Marketing Strategies to Customer Groups     272
Conclusion     280
Endnotes     280
Index     283