Actively Manage your Customer Portfolio for Maximum Value

Key Insight

Many companies have embraced the importance of creating closer, more valuable relationships with customers. But most do little to actively manage their portfolios of weaker and stronger relationships, other than keeping them diversified. In so doing they are missing significant opportunities and new digital analytics enable this to happen.

Key Takeaways

Setting Goals regarding how customers are acquired, retained and developed can provide long-term value and requires a clear understanding of customer needs, profitability and economies of scale as they emerge over time To inform and act upon this understanding companies need an integrated approach to customer portfolio management and customer portfolio value.

Most companies lack a basis for developing this understanding. Business leaders seeking to optimally manage the ecosystem of customer relationships face a complex problem — and for most, de facto practices are more likely to focus myopically on either current sales or their most valuable customers. However, what is really required is to integrate multiple dimensions (not just scale, but also variances in customers’ needs, wants and profitability) and tactics (relationship conversion, leverage, and defence) across the whole customer portfolio.

It helps to map customers on the following framework:

Any strategic framework should enable executives to answer the following key questions as they seek to grow and optimise their company’s customer portfolio:

• How central is developing customer relationship strength to our strategy and competitive advantage? More specifically, when and how much should we invest in converting weaker relationships to stronger relationships?
• How do we leverage these investments once relationships are created?
• How do we protect the relationships we have created to minimise customer churn?

Moreover, companies must understand how the drivers of satisfaction and their relative impacts vary not only by relationship segment (friends versus partners, for instance) but also by sub-segments within a given type of relationship (e.g. in the hotel sector between business traveler partners versus vacation partners). An impact-performance analysis by relationship segments will reveal the following:

• Competitive advantages or capabilities that must be continuously maintained and improved to retain and convert relationships (high-impact, high-performance qualities).
• Competitive vulnerabilities that require immediate attention to avoid defections (high-impact, low-performance qualities).
• Product and service qualities to be maintained and/or investments to be reduced to lower costs (low-impact, high-performance qualities).
• Product and service qualities that can be ignored or eliminated (low-impact, low-performance qualities).

In the end, customer portfolio management boils down to investing in building relationships with current and future customers. Setting specific goals regarding relationship conversion, leverage, and defence is a natural place to start, but it requires a clear understanding of the customer needs as they emerge over time and of economies of scale. The greater the quality, character and synergy within relationships, the greater the long-term value. The greater the economies of scale, the more important it is to include weaker relationships in a portfolio to both lower costs and provide a basis for future loyal customers.

Companies need data and digital analytics to inform and act upon this understanding. They need:

• Customer information systems capable of revealing the impact and performance of a brand’s qualities, value and costs to guide relationship conversion, leverage, and defence.
• Organisation-wide alignment around the basic principle of customer portfolio management to ensure that production, marketing, and sales strategies are viewed as an integrated investment in relationships across an entire portfolio of current and future customers.

'Making Love not War' requires Customer Portfolio Management and an integrated approach that balances competing priorities, most importantly the future revenues from investments in closer customer relationships versus the economies of scale from current sales. Such an approach requires a careful consideration of market conditions and company resources. Practising this approach will pay off now and in the future.