Customer Equity

Customers produce a stream of revenues – either short-term or enduring or flat or growing with time. There is a real economic cost associated with these cash flows: the cost of acquiring, retaining and developing (ARD) customers and their revenue streams. The difference between revenues and cost of ARD
is the customer equity.

Customer equity is the basis of shareholder value. When a customer defects, the stream of cash and the resulting equity is lost to the firm. Because the cost of ARD is the same for all the customers, it is better for customers to be very clear about the customers they want to target and acquire.

– Developing an economically sound plan for moving modestly profitable customers to customers in the high-profit zone. Here is where the customer knowledge pays off. Once you understand what customers want and are willing to pay for, you can create and offer those products/services by redesigning. Also, find less costly ways of serving these customers.

– Develop plans to retain customers in the high proft sectors and developing their economic value system further.

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