Customer Value Management (CVM)

Jayadev Palai R&D (Product & Business Development) Executive, R&D Centre-Usha Martin Ltd. Ranchi India, 24th March 2017

“Customer value management (CVM), which we define as the optimization of value & stabilization of relationship of company’s customer base”

A key development in marketing and management practice in the last decade has been the growth of customer value management (CVM). Many firms have invested in large customer databases to understand, monitor, and influence customer behavior. For an organization CVM is a measure of customers’ view of the perceived value for money delivered relative to that of their competitors’ customers. It is sometimes known as a Customer Value Added (CVA) approach for sustaining with existing customers & developing new customers.

Market Image:

• In this global market scenario, customers are more knowledgeable about various products and services they are being marketed to. The remote is now unmistakably in the hand of customers.
• Traditional methods of marketing simply don’t work in this global competitive market. Marketer should actively seek, invest and master newer methods and tools that go beyond making their brands which will focus on better consumer understanding, precise targeting, customized offering and above all that which engage and let them have a two-way conversation with their customers.
• For the progressive marketing with vast varieties in product portfolio, the real challenge starts from customer base management to new customer development with continuous increments in value proportion.

Advantages of Customer Value Management (CVM):

• One critical aspect of CVM is customer value, the economic value of the customer relationship to the firm. CVM focuses on the analysis of individual data on prospects and customers. The resulting information is used to acquire and retain customers and to drive customer behavior with marketing strategies such that the value of all current and future customers is optimized.
• CVM enriches this framework by focusing on the analysis of customer data and on explicitly seeking data-driven ways to enhance customer value.
• CVM is a powerful business tool as it links customers to KPIs by directly measuring the drivers of purchasing behavior and the impact these have upon delivering KPIs such as market share, profit and loss, recommendation, share of wallet, ROI etc.
• CVM can be the key for business development, easy for new product introduction to market, research in marketing modelling, marketing strategy, relationship marketing, customer database management, and sales management.
• CVM brings accountability to marketing programs & helps to map marketing goals to business goals.

"If you’re competitor focused, you have to wait until there is a competitor doing something. Being customer focused allows you to be more pioneering." ~ Jeff Bezos

How is CVM measured and calculated?

The perception of a product or service’s value in the market place can be measured through surveys by asking customers a series of predefined questions. These questions are also asked of the competitors’ customers to establish the equivalent value for competitors’ offers.

A simple calculation gives a ratio score based around a parity score of 1 when comparing business with the competition.

The higher the score above 1 the greater the relative competitive advantage for that company, and as the score falls below 1 the greater the level of competitive weakness.

Changes in Customer Value Management (CVM) scores:

The length of time at a particular score, and the direction and rate of change in CVM are also factors that should be considered when linking customers to KPIs. There is a time-lag, unique to each market place, between a change in the CVM score and a corresponding shift in KPIs.

Market changes and the value of a company’s offer relative to its competitors will be reflected in a change in the CVM score. A shift in a CVM score can therefore provide a good prediction of an impending change in a company’s fortunes.

Drivers of a change in the CVM score:

To drive change, a business must manage the elements which drive the market place’s perception of value, namely quality received for price paid. Value can be improved by increasing relative perceived quality, reducing relative perceived price, or using combinations of both.

The relative weight of each of these drivers can be derived through statistical modelling thereby ensuring companies not only focus on relatively poor performance areas but also those with the biggest impact for the customer. In the example above the attributes are also color coded to show the relative competitive performance, with the percentages detailing the impact these attributes have on the aspect above, e.g. knowledgeable staff represents 60% of overall knowledge.

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down simply by spending his money somewhere else.”?~?Sam Walton

In order to manage the elements that drive value, a company needs to establish their customers’ perception of their performance and also the perceived performance of their competition. As well as structured data collection such as surveys additional data is often collected in businesses that will support root cause analysis.

This paper prepared during business analysis & development strategy study and some part of this referred from Wikipedia, Customer champions.