Differentiating Customers: Some Customers Are Worth More than Others
The result of long-term relationships is better and better quality, and lower and lower costs.
—W. Edwards Deming
All value created by a business comes from customers. Without a customer or client, at some level, no business can create any shareholder value at all, and this simple fact is inherent in the very nature of a business. By definition, a business exists to create and serve customers and, in so doing, to generate economic value for its stakeholders. But some customers will create more value for a business than others will, and understanding the differences among customers, in terms of the value they each will or could create, is critical to managing individual customer relationships. In this chapter, we explore the most fundamental ideas about the value that customers represent for an enterprise, including both a customer’s “actual” value and “potential” value. We show how a firm can use insights about customer value to better allocate resources and prioritize sales, marketing, and service efforts. We consider whether and under what conditions a firm should consider “firing” very low-value or even negative-value customers.
Identifying each customer individually and linking the information about that customer to various business functions prepares the customer-strategy enterprise to engage each customer in a mutual collaboration that will grow stronger over time. The first step is to identify ...