Business Analytics for Sales and Marketing Managers: How to Compete in the Information Age

CUSTOMER VALUE ESTIMATION FOR NEGOTIATIONS

There are many reasons why customers who look the same are not worth the same amount. This difference in value usually comes down to the way you negotiate contracts or give offers to your customers and the way customers behave.

There are good reasons why rebates should be given during contract negotiations. These reasons could be based on historical delivery errors from your company, competitive pressure, or expected future behavior of the customer. Over time, however, it is hoped that your company will have fewer delivery errors, the competitive price pressure will diminish, and perhaps the behavior promised by your customer is not realized. For these reasons, there are many good grounds for renegotiating given prices.

The value of customers is also a result of how they behave. Perhaps they fax in all their orders instead of using your web order system, which makes them more costly to service. Perhaps they book a lot of slots on your ships and often do not show up with their containers, taking the space from other potential customers. Perhaps they do not want to use direct debit or prepayment, which rolls some financial risk over on your side. Perhaps they call in rather than just following the manual when in doubt. All these behaviors add to your costs. If you do not incentivize customers to change their costly behaviors, they will continue to drive up your costs.

This is what customer value estimation for negotiation is about. It enables ...