Tuesday, 9 September 2008

Client value management, customer value management and what is value?

I have been researching the concept of client value management (also known as customer value management). The idea has been around for a while, and is mentioned by lots of people as an evolution of CRM (customer relationship management). A number of marketing experts and consultancies discuss it as a business process but surprisingly it does not seem to be an established software category and few of the approaches have been implemented in software.

Everyone has their own version of what CVM means. Some of the main distinct approaches are:
  • maximising the value of a client over the lifetime of your relationship with them (this report by BusinessObjects, and some research it cites from Bain and Company). This is approached by analysing value during acquisition, relationship management and retention.
  • understanding customer value added and targeting your marketing and customer service improvements to where they achieve maximum benefit (a consultancy called CVM from New Zealand)
  • finding out what your customers are looking for in dealing with vendors (what they value) and how well you're meeting those needs (according to CVM Inc and Ray Kordupleski - who has some interesting graphical tools on that website and has written a book about CVM)
  • building a business which delivers what the customer wants (from a report by The Networking Firm)
  • analysing your value proposition and market positioning relative to your competitors. This book from the American Productivity and Quality Center outlines an approach to achieving that.
  • An approach which seems to be purely focused on accounts receivable and cash collection
Apart from these, you can find a number of other people and companies with their own spin on some of these ideas. These include Accenture which is partnering with BusinessObjects (though their definition is "developing business and operational processes that maximize the value that customers receive" - not really compatible with BusinessObjects' version), Capgemini, Diamond Cluster which has published a few articles on the subject, EuroPraxis which has an approach called ACM linked to the idea of customer attention, Customer Value Inc which works on value-based pricing, Unity Solutions (Richard Neale) who focus on customer profitability and Teleperformance which uses "the CVM economic model developed in collaboration with Professor Robert Blattberg".

Well, that sounded intriguing so I went to look further. Along the way I found another professor, Nirmalya Kumar of London Business School, who has been interviewed on the subject and written a book, Value Merchants. Which turns out to be coauthored by James Anderson, a colleague of Blattberg's at the Kellogg School of Management. Next, a research project at the University of Southampton which investigates customer value using data from a large insurance company and is carried out by Dr L Thomas and Dr S Thomas, neither of whom unfortunately seems to be the same person as Jacquelyn S. Thomas, who has coauthored a different book with Blattberg. Either way, it seems like this guy is getting around a bit.

Searching again for his name, I found this very useful paper by Adrian Payne and Sue Holt which cites him. From 1999, but still relevant. Its introduction summarises nicely the dilemma I'm having in examining all the sources mentioned above.

The main distinction between the different approaches is the definition of value. That's quite well illustrated by this report, by a consultancy called Deep Insight. It starts out saying 'value is in the eyes of the customer'; moves onto 'lifetime value of the customer' which is the total financial return on that customer from the supplier's point of view; and then segues into the value of the customer relationship from the employee's viewpoint. It's an interesting report but hard to keep track of what the meaning of 'value' is.

Blattberg seems to be firmly on one side of this debate: value is what the customer is worth to the organisation. His customer equity concept is a way to model and measure this, and the relevant parts of his work are about maximising this value and investing in the customers with the highest equity.

OK, but I say the customer's value to the firm will be served best by increasing the firm's value to the customer. To achieve this you need to understand what the firm's value to the customer is. Here's my proposal.

  1. Understand what the client values in general, in their life. What are the basic psychological and physical needs that they have? Typically there are two soft needs (avoiding pain and stress, maximising pleasure and success) and two material needs (money and time). These are value factors.
  2. Work out (or ask) how the client achieves those needs. They are influenced in such a complex and detailed manner by decisions in life, that it is impossible for anyone to genuinely make all their day-to-day decisions in terms of those four basic factors. Therefore, people choose proxies or value objects. These are the things that people pursue in life because, subconsciously, they know that they will satisfy the four basic factors. They could be anything from nice food, to high status in their community, to winning new clients, to saving tax.
  3. Work out how your services can generate these value objects. If you're an accountant, your service of setting up a pension is valued because it helps your customer save tax. If you're an advertising agency, your service of designing a TV ad is valued because it helps your customer win more clients.
  4. Offer and promote the services which generate the highest underlying value - the greatest amount of the four value factors - for your clients. These will be the most profitable services for you to offer and will make your clients happiest.

1 comment:

Paul, Your Profit Coach said...

There are many different varieties of the concept all wrapped up in a general theme of trying to see what the customer is getting from the transaction or relationship.

I've looked at this in some detail a few years ago although I'm not up to date with recent publications.

I trace the origins back to Bradley Gale and Hannan & Karp back in the early 1990s although Bradley Gale with his PIMS background stressed the attribute based CV while Hannan & Karp looked at the financial customer value.

More recently I thought that Robert Woodruff wrote a great academic paper on Customer Value as a the next source of competitive advantage which I find myself going back to with the different levels of value.

I also enjoyed reading Michael Lanning's Delivering Profitable Value book and must re-read it.

I used to watch David Swaddling of Insight MAS very closely but they seem to have disappeared.