Tapping customer value

Companies can maximise returns by improving customer value management, according to Oliver Wyman.
Tapping customer value
By Oliver Wyman
Mon 10 Mar 2008 04:00 AM

Companies can maximise returns by improving customer value management, according to Oliver Wyman.

With the telecommunications industry in the MENA region growing at a breakneck pace, companies are usually focused intently on growing their revenue streams.

But in the light of recent research from consulting firm Oliver Wyman, companies might improve their performance by paying attention to developing customer relationships.

The telecom sector is well suited to customer value management (CVM) - a set of tools that allows companies to evaluate and develop the potential value of their customer base - because they have access to strong historical data about their customers, according to Rogerio Dienes, a principal at Oliver Wyman.

"This type of industry, as opposed to food and drink, you have a stronger relationship with your customer. You have a monthly relationship by the way they subscribe," he says.

These companies tend to have more information to act on, and by acting on this information, they can reinforce and improve customer relationships.

"Just sending them [your customers] a bill each month is a very poor relationship, so you have to expand the relationship you naturally have to include loyalty, satisfaction and stimulation as well," he adds.

"As markets mature and competition increases, companies are always searching for ways to grow and expand market share," says Dienes.

"Other than looking externally to attract new customers, companies are also focusing on retaining current ones to further recognize their value, develop profitable relationships, and deliver better service."

"The good thing about CVM is that you really isolate the target customers and you flag them up to check," Dienes says.

He adds that while CVM allows companies to isolate and measure key parts of their operations, which they can then seek to improve.

And the results of implementing CVM can be significant. When implemented at one company, CVM increased earnings by 25% and reduce churn by 10%, generating more than US$90 million a year, according to Dienes.

CVM is usually implemented using various value-based initiatives including up selling, cross selling, marketing campaigns, customer retention techniques, and value-based loyalty programs.

"It encompasses customer identification, contact management, campaign management, advanced data modelling and customer scoring," Dienes says.

"The most important component is a fully automated database management mechanism that displays all a customer's information and expected purchasing trends and expectations."

To deploy a complete CVM system, Oliver Wyman recommends a three-tiered approach.

The first step involves analytical marketing to assess and prepare the data environment. This involves an examination of the data the company already has and reorganising it to make it easily accessible for evaluation.

The potential future value of each customer is then valued as part of a process called value based segmentation, or VBS.

Following this, a company would devise initiatives that leverage the micro-segmentation of the customer base ensuring coordination with customer care departments.

Ahead of launching a CVM strategy, a company would test its initiatives using a pilot program. Implementing a comprehensive CVM program can take between five to eighteen months.

What is CVM?CVM is a business philosophy that aims to expand a company's business towards value management as opposed to volume. CVM uses advanced analytical techniques, including value and micro segmentation in order to act upon a customer's main value drivers.

The strategy is typically adopted by companies willing to expand their business from acquisition and new product launches towards extracting additional value from current subscribers using existing products.

Mostly used by subscription based companies which transact regularly with a customer database, CVM can generate much higher financial impact and results with substantially less implementation complexity when compared to the launch of sophisticated new products that might require large capital investments, challenging implementation, and huge commercial efforts.

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