At Hansa Cequity, we believe successful enterprises of tomorrow will be the ones who can organize and leverage customer information at speed , to optimize their marketing performance, increase accountability, improve profit and deliver growth. Hansa Cequity insights will bring to you trends and insights in this area and it's our way of sharing best practices so as to help you accelerate this culture and thinking in your organization. We call this kind of an approach Analytical Marketing and we will constantly bring in "best practices" for improving your capabilities in Analytical Marketing.

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Fire your customers!

  
  
  

It is interesting to see the Mobile phone services in India beginning their journey to increase profit per customer! During the last two years, profits and revenues of Indian telecom companies have suffered from a bruising price war that has cut call tariffs to less than one US cent a minute.

But looking at profits per customer does not come easily to most companies. Banks have done it well & so have some casino companies-Royal Bank of Canada & Harrah’s Casino come to mind here!

Also the solution does not lie in “firing some of your customers”. Here is a lovely comment from the Vice Chairman, Royal Bank of Canada:

“There is no such thing as an unprofitable customer. If we can’t make money on the client, then it’s not the client’s fault – we have to change something in the way we operate. We can either charge the customer more, because we have not got the price right or we need to take our costs down or we need to stop selling the product to them and find something more suitable to their need. We try to match up the package to the client so that they are only paying for what they need” Jim Rager, Vice Chairman ,RBC Financial Group

I have seen a Bank in India, practice this strategy very effectively. Here are some observations:

  1. Start with a simple model of customer profitability or Customer value segmentation. Have different segments of customers; band them from least profitable to most profitable. Analytics can help here but try to keep measurement principles simple.
  2. Keep the measurement consistent –it need not be the most advanced analytic technique but important to hold it consistently over a 3 year period at least!
  3. Ensure you link management action to it. Look at why a customer is in the low profitability segment-if it is a bank, ask if the customer is doing too many cash transactions or has not been sold another product. This analysis can lead to clear management action.
  4. Review customer profitability metrics aggressively. Wouldn’t it be nice if you had a customer level P&L, too much to ask for? 

Comments

Ajay, 
 
 
 
I could not agree more with you. Unprofitable customers can be "lifted" to be less unprofitable at a lower effort than lifting a very profitable to be even higher. It is like a sedond derivative in calculus ... the ROI on the marketing / sales actions. 
 
 
 
Regarding applying analytics to customer profitability analysis after their profit levels have been calculated, watch for the emerging technique of recursive partitioning with decision trees. It identifies which 1st, 2nd, etc. factor explains what differentiates highest from lowest customers. That is beyond the "what?" it answers "so what and what next?" My employer offers this solution. 
 
 
 
Gary 
 
 
 
Gary Cokins, SAS
Posted @ Saturday, September 17, 2011 10:42 AM by Gary Cokins
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