Published Books
Managing Customers for Profit
V. Kumar
Published: January 2008
Published: January 2008
This book explains the use of Customer Lifetime Value (CLV) to target customers with higher profit potential, manage and reward existing customers based on their profitability, and invest in high-profit customers to prevent attrition and ensure future profitability.
Additional Recommended Books
About Dr. V Kumar
Dr. V Kumar, or VK as he is more popularly known in the academic and professional circles, is the Richard and Susan Lenny Distinguished Chair Professor in Marketing, the Executive Director of the Center for Excellence in Brand and Customer Management...Table of Contents
- Chapter1: Introduction
- Chapter2: Maximizing Profitability
- Chapter3: Customer Selection Matrix
- Chapter4: Managing Customer Profitability
- Chapter5: Maximizing Customer Profitability
- Chapter6: Managing Loyalty and Profitability Simultaneously
- Chapter7: Optimal Allocation of Resources across Marketing and Communication Strategies
- Chapter8: Pitching the Right Product, to the Right Customer, at the Right Timegies
- Chapter9: Preventing Attrition of Customers
- Chapter10: Managing Multichannel Shoppers
- Chapter11: Linking Investments in Branding to Customer Profitability
- Chapter12: Acquiring Profitable Customers
- Chapter13: Managing Customer Referral Behaviour
- Chapter14: Organizational and Implementation Changes
- Chapter15: The Future of Customer Management
Data Sets
CLV Dataset
The data set contains the purchase history of 100 customers for certain hardware, software, and services products during the period 2001 - 2004. The data is organized in such a way that the date of purchase, product purchased, product category, and purchase amounts are given for each customer for each purchase occasion. For instance, customer 1 purchased Desktop PC (hardware category) for $500 during February 2001 (indicated by Feb-01). In addition to the transaction history, the data set also includes information such as number and type of marketing touches, and the contribution margin for each product. This dataset is given in the excel file "CLV_data.xls".
Projection of Contribution Margin
In order to project contribution margin in a given year, we need to build the model for contribution margin. This is done by doing a linear regression with 'Contribution margin in 2004' as dependent variable and variables like 'tenure till December 2003', 'average contribution margin per year for the period 2001-2003', and 'the average purchase frequency'. This model using the available data showed the following relationship as significant.
PredCM2004 = -17 + 0.76 * AvgCM2003 + 4*Tenure0103 + 23*Avg_Purchase_Freq, where
PredCM2004 = Predicted Contribution Margin in 2004
AvgCM0103 = Average CM (per year) for 2001-2003
Tenure0103 = Tenure till December 2003.
Applying this model, the predicted contribution margin in 2005, 2006, and 2007 can be computed. The values of predicted contribution margins are obtained by simply entering the values for Average CM and Tenure for appropriate time periods in the worksheet "Enter values" in the excel file named "CLV_Cal.xls".
CLV Calculator
The CLV calculator calculates the lifetime value of a customer . You have 2 options to use the CLV Calculator
- Try it online here.
- Download using the Instructions to download and load the CLV Calculator
CRM Applications
Do you know how CRM is applied in industry? The links shown below are practical examples of how CRM is being applied across different industries. Please click on the links below for specific examples within that industry
About the Author
Dr V. Kumar (VK) is the Richard and Susan Lenny Distinguished Chair Professor of Marketing, and Executive Director, Center for Excellence in Brand and Customer Management, Robinson College of Business, Georgia State University. He was recently ranked amongst the top 5 marketing scholars worldwide based on his research productivity.
Dr. Kumar has been recognized with many teaching and research excellence awards and has published numerous articles in premier journals of marketing such as the Harvard Business Review, Journal of Marketing, Journal of Marketing Research, Marketing Science, and Operations Research. He has won several awards for his research publications in scholarly journals including the Donald R. Lehmann Award twice for the best paper published in the Journal of Marketing/Journal of Marketing Research in a 2-year period and the MSI/Paul H Root Award twice for the Journal of Marketing article contributing to the best practice of marketing.He has co-authored over 100 articles, book chapters and books (titled Managing Customers for Profit, Marketing Research, International Marketing Research, Essentials of Marketing Research, and Customer Relationship Management: A Databased Approach).
Dr. Kumar is currently on the editorial review board of several scholarly journals and has lectured on marketing-related topics in various universities and organizations in America, Europe, Australia and Asia. His current research focuses on retailing, international diffusion models, customer relationship management, customer lifetime value analysis, sales and market share forecasting, international marketing research and strategy, marketing resource allocation, sales promotion and interaction orientation.
Dr. Kumar is also a consultant to many Fortune 500 firms where he has helped large corporations design suitable marketing strategies to identify the most profitable customers. His work with IBM and P&G has been recognized by INFORMS as award winning entries in the 2006 and 2007 Practice Prize Competition, respectively. Recently, Dr Kumar was conferred with two Lifetime Awards from the American Marketing Association Special Interest Groups for his contributions to the field of Marketing Strategy, and Interorganizational Marketing. Dr Kumar received his Ph.D. from the University of Texas at Austin.
Foreward
Whilst corporations continue to strive to improve customer loyalty and customer profitability, the conventional customer profitability model offers a great opportunity for enhancement. Based on my experience over the last two decades, across three different industries, quite often, the link between customer satisfaction, customer loyalty and customer profitability is tenuous. Secondly, since customer satisfaction and loyalty are measured across the customer base, corrective actions are designed uniformly for all customers. However, neither the customers nor the customer behavior is uniform!
With organizational resources being scarce and improvement of marketing ROI being a key challenge for business managers, it is imperative to have a fresh perspective to customer relationship management (CRM) with customer profitability as its focus and the notion that different customers should be managed and satisfied differently. This profit-based strategy draws upon robust CRM research that lays emphasis on future customer value. The future value of customer profitability can be measured through customer life-time value (CLV) metric. Dr. Kumar has developed innovative quantitative approaches to calculate CLV, which can be leveraged for CRM decisions relating to customer acquisition, retention and attrition.
CLV is a powerful tool that could potentially be the source of competitive advantage for organizations and provide the armory to win in the market-place. This book is recommended for business managers, interested in nurturing long-lasting relationships with customers to drive profitable growth.
Sangeeta Pendurkar
Chief Marketing Officer, HSBC Bank Middle East Limited
Modeling Details
