Customer Relationship value

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Guiding Star of Customer Relationships Customer Relationship Strategies

M Ma ode rk rn et in g

From

WIN- LOSE

Product: Services & Goods

to

WIN – WIN &

WIN-WIN-WIN

Strength of Customer Relationships Dialogue with Customers Copyright© PHMC GPE LLC 2001-2009 sqq All rights reserved

Value of Customer Relationships

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Customer Profitability

There There are are usually usually big big differences differences in in profitability profitability between between customers: customers: itit is is not not unusual unusual that that over over 30% 30% of of customers customers are are unprofitable. unprofitable.

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PHMC GPE GPE LLC LLC PHMC

Customer Profitability

Customers Customers are are usually usually not not unprofitable, unprofitable, because because they they are are inferior inferior or or difficult, difficult, but but because because of of the the fact fact that that aa company's company's customer customer strategies strategies enable enable unprofitable unprofitable operations. operations.

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Accumulation of Customer Profitability

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180 160 140 120

Cumulative share 100 of the total 80 customer base profit 60 40 20

20

40

60

80

Cumulative share of the customer base (customers in order by profitability)

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100

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From Product Profitability to Customer Profitability • Customers can be unprofitable even if they buy profitable products – product profitability does not guarantee company profitability • Big customers can be considerably unprofitable – they get the biggest discounts Copyright© PHMC GPE LLC 2001-2009 sqq All rights reserved

PHMC GPE GPE LLC LLC PHMC

Questions Concerning Pricing • What is the price carrier that is in use?

– how to divide the activities

• Price compared to competitors • Pricing principles – value for the customer

• Price discrimination • Price bundling vs. separate prices

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Pricing PHMC GPE GPE LLC LLC PHMC

open book

ed s a b er

om t s Cu

bulk

ct u od r P

customized

ed s ba

closed book

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PHMC GPE GPE LLC LLC PHMC

The principles of pricing Customer Relationship

Bonus Competence and customer based pricing

Transaction

Product based pricing

Product

Competence

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PHMC GPE GPE LLC LLC PHMC

Case: Taco Bell

Our Our goal goal is is to to achieve achieve as as big big share share of of stomach stomach [of [of aa customer] customer] as as possible possible

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PHMC GPE GPE LLC LLC PHMC

Share of the Customer’s Business

A Company

Share of the customer business

B Total volume of the customer in this business

Base of current profitability Potential of business operations at own line of business Total potential of business operations

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C Total cash -flow of the customer

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Case: ICL Data When When itit comes comes to to big big customers, customers, which which is is better better -- to to achieve achieve as as big big share share of of the the customer customer business business or or to to sell sell as as much much computers computers as as possible? possible?

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Analyzing functional costs PHMC GPE GPE LLC LLC PHMC

Expensive to produce

Company invests

Customer invests

Cheap to produce CopyrightŠ PHMC GPE LLC 2001-2009 sqq All rights reserved

The Profit & Loss Account of the Customer Relationship

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Customer relationship income ./. Product costs:

Direct costs Costs of product related activities

Profit margin of the product ./. Customer Relationship costs:

The costs of customer related activities Discounts, interest on sales receivable

Profit margin of the customer ./. Company costs:

Company level activities

Customer Relationship Result - profit

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Dimensions of CR development

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Customer Relationship profit

Customer based pricing Customer Share Cu The sto str me uct r R u re ela of tio ns hip

e Th

r e m to s Cu f ho t ng e r st

hip s ion t la e R

The duration of CR

CR -costs CopyrightŠ PHMC GPE LLC 2001-2009 sqq All rights reserved

customer relationship = CR

Customer profitability

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The share of the customer business

The length & profitability of Customer Relationship

The strength of Customer Relationship

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