Table Of ContentPraise for Managing Customers for Profit
“Dr.V.Kumar is one ofthe world’s leading experts in customer relationship
management (CRM).In this book,he offers practical guidance to managers
on how to implement CRM strategies in their own firms.It is a must have
book for anyone interested in developing profitable and stronger relation-
ships with their customers.”
—Russ Winer,Executive Director Marketing Science Institute and
William Joyce Professor ofMarketing Stern School ofBusiness,
New York University
“Not only have I had the opportunity to participate in one of Dr.Kumar’s
presentations on Managing Customers for Profit, but we also followed
through with him in bringing the know-how to our company.We defi-
nitely see tremendous value in his concepts and strategies described in this
book as evidenced by successes seen in other companies.Currently,we are
implementing the framework prescribed in his book in India.”
—Maninder Singh Juneja,Senior General Manager,Head–Retail Channel
Liabilities Group,ICICI Bank Limited,India
“This book is the antidote that marketers have needed to satisfy the press-
ing demand for accountability.The concepts and metrics are grounded in
the realities of customer behavior,while speaking the language of senior
management.”
—George S.Day,Geoffrey T.Boisi Professor;Professor ofMarketing,Co-
Director,Mack Center for Technological Innovation,Director,Emerging
Technologies Management Research Program
“Marketing leaders face many pressing challenges and opportunities in a
rapidly changing global business environment and,as a result,are always on
the lookout for fresh insight,new learning,and real-world experiences that
they can leverage.Dr.Kumar’s new book is a must readfor marketing man-
agers in B2C- as well as B2B-focused businesses who are looking for a
strategic approach to maximizing customer profitability. Kumar’s book
provides a different and proven model.Marketers should have to read it.”
—Dennis Dunlap,CEO,American Marketing Association
“Customer management has become a key business function as organiza-
tions seek to complement an understanding of what they do with their
brands with a deep knowledge ofthose they serve:customers.Dr.Kumar’s
book is an essential resource for those who wish to optimize their cus-
tomer investments. Strategically, it ties customer-facing activities to the
firm’s objectives.Operationally,it has an insightful analysis ofthe activities
that will lead to the achievement of those objectives. And in terms of
accountability,it has the marketing metrics to calibrate success in execu-
tion, including diagnostic information for learning organizations. Dr.
Kumar’s pre-eminent academic credentials combined with his extensive
industry practice are married to make this book ofimmense value to both
academics and practitioners.”
—John Roberts,Scientia Professor,Faculty ofBusiness,University ofNew
South Wales,Sydney,Australia and Professor ofMarketing,London
Business School
“Firms that view their customer base as a portfolio and manage that port-
folio most effectively will continue to outperform those that do not…
In this important and comprehensive look at how to manage customers
for profit,V. Kumar lays out the issues, dispels the myths, and provides
templates for success.I recommend you read this book before your com-
petitors beat you to it.”
—Gary L.Lilien,Distinguished Research Professor ofManagement Science
and Co-founder and Research Director,Institute for the Study of
Business Markets (ISBM),Penn State
“One ofthe best books in marketing that analyzes and demonstrates how to
simultaneouslymanage both customer loyalty and company profitability by
targeting and reallocating the four Ps ofMarketing.”
—Jagdish N.Sheth,Charles H.Kellstadt Professor ofMarketing,Goizueta
Business School,Emory University
“Today’s hyper-competitive financial services marketplace makes it more
important than ever to manage our business to maximize the lifetime value
ofour customer relationships.V.Kumar has been a leading practitioner as
well as a pioneer in extending the state ofthe art in this area.Now with the
publication ofthis book,he has put together a compelling overview ofthe
fundamental theory and key tools required to optimally manage customer
relationships.”
—Jim Pedrick,Senior Vice President ofStrategic Marketing,ING
Financial Services
M A N A G I N G
C U S T O M E R S
F O R P R O F I T
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M A N A G I N G
C U S T O M E R S
F O R P R O F I T
STRATEGIES TO INCREASE PROFITS
AND BUILD LOYALTY
V. Kumar
© 2008 by Pearson Education,Inc.
Vice President,Publisher
Publishing as Wharton School Publishing Tim Moore
Upper Saddle River,New Jersey 07458
Associate Publisher and
Director ofMarketing
Wharton School Publishing offers excellent discounts on
Amy Neidlinger
this book when ordered in quantity for bulk purchases or
Wharton Editor
special sales.For more information,please contact U.S.
Yoram (Jerry) Wind
Corporate and Government Sales,1-800-382-3419,
Acquisitions Editor
[email protected] sales outside the
Martha Cooley
U.S.,please contact International Sales at international@
Editorial Assistant
pearsoned.com.
Pamela Boland
Company and product names mentioned herein are the Development Editor
trademarks or registered trademarks oftheir respective Russ Hall
owners. Digital Marketing
Manager
All rights reserved.No part ofthis book may be reproduced, Julie Phifer
in any form or by any means,without permission in writing Marketing Coordinator
from the publisher. Megan Colvin
Cover Designer
Printed in the United States ofAmerica
Chuti Prasertsith
First Printing:January 2008 Managing Editor
Gina Kanouse
ISBN-10:0-13-235221-4
Project Editor
ISBN-13:978-013-235221-5 Jovana San Nicolas-
Shirley
Pearson Education LTD.
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Fast Pages
Manufacturing Buyer
Library ofCongress Cataloging-in-Publication Data Dan Uhrig
Kumar,V.
Managing customers for profit :strategies to increase profits and build loyalty / V.Kumar.
— 1st ed.
p.cm.
ISBN-10:0-13-235221-4 (hbk.:alk.paper)
ISBN-13:978-0-13-235221-5 (hbk.:alk.paper) 1. Customer relations—Management.2.
Profit. I.Title.
HF5415.5.K863 2008
658.8’12—dc22
2007027915
Dedicated,with love,to Anita & Rohan,and Prita.
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CONTENTS
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xv
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xviii
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xix
Chapter 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Customer Lifetime Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Aligning Customer Management Strategies with
the CLV Metric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Chapter 2 Maximizing Profitability . . . . . . . . . . . . . . . . . . . . . . . .11
Loyalty Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
How Do Loyal Customers Really Perform? . . . . . . . . . . . . . . . . . .16
Are Loyal Customers Profitable? . . . . . . . . . . . . . . . . . . . . . . . . . .17
Debunking the Myths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Where Do Firms Go Wrong? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
The Problem with Measuring Loyalty . . . . . . . . . . . . . . . . . . . . . .24
When to Stop Investing in a Customer . . . . . . . . . . . . . . . . . . . . .25
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Chapter 3 Customer Selection Metrics . . . . . . . . . . . . . . . . . . . . . . . .29
Traditional Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
The Need for a Forward-Looking Metric . . . . . . . . . . . . . . . . . . .35
Introducing Customer Lifetime Value (CLV) . . . . . . . . . . . . . . . . .37
Advanced Model for Measuring CLV . . . . . . . . . . . . . . . . . . . . . . .49
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Chapter 4 Managing Customer Profitability . . . . . . . . . . . . . . . . . .59
Typical CLV Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
A Specific B2B Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
A B2C Case Study in the Retailing Industry . . . . . . . . . . . . . . . . .66
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
