Today’s competitive business environment means consumers and businesses have seemingly endless choices and products are commoditized quickly. Despite these challenges businesses must still strive to deliver growth in revenues and profitability.
Unfortunately businesses that are struggling to improve profitability are often guided to focus on the “profitable customers” or “high value customers”. This is often grounded in a misguided view that it is impossible satisfy all of your customers so you should just try to satisfy the high value ones. This approach is termed Customer Value Management (CVM) and although it seems logical it has some very severe side effects for the business.
The main problem with CVM is the message it sends out to employees and the effect on corporate culture of saying that, “we are not going to give everyone a great experience only customers that are high value”. This gives everyone in the business a message from the top that great customer experience is optional depending on the customer value to the business. Once this message is in the psyche of a business it is very difficult to remove and it will impact all your customers over time.
Customer value management is not necessarily a bad concept in theory but it is very difficult to operationalize without impacting a company's brand perception. Focusing on servicing and retaining the “right” customers may help short-term profitability, but is unlikely to deliver sustainable growth, since resources are directed at servicing a narrow sub-set of potential business rather than building a large number of satisfied customers and customer advocates.
Customer value management also makes it too easy to justify poor customer service by writing off the “wrong” customer segment. Finally, by effectively ignoring a proportion of your customers, you will successfully motivate many of them to churn away from your company. Worse, if you give customers a bad experience, they tend to tell other people about it.
Today more than ever before customers love to share their experiences. We all know how easy it is to rant or rave on twitter, facebook, myspace, etc.. The challenge here is that when customers talk they don’t care about their own "customer value", they don’t know which segment they fit into, they just talk. And it is likely that your most valuable customers will be reading about your brand from the least valuable ones. This is not a good situation.
So I think companies need to take a long hard look at how, where and why they use Customer Value Management strategies. These strategies coupled with information in poorly executed CRM systems are probably doing more long term harm than good, both to the brand and the growth potential of the business.
In the age of social media that we live in companies need to focus on customer experiences not customer value. Investing in delivering good, consistent experiences across the customer life-cycle will deliver far more value to your shareholders and be more sustainable than focusing on only serving high value customers well. Unfortunately delivering a customer experience focused strategy is much harder than a customer value strategy and perhaps that’s why companies have taken the CVM path in the past. The good news is that customers are not going to stand for that approach in the future because now they have a voice and it is getting louder!