Required Reading: Peppers and Rogers Focus on Customer Value
Recognized for the past decade as experts on customer-based business strategy and founding partners of the Peppers and Rogers Group, Don Peppers and Martha Rogers, Ph.D., have continued to set standards in CRM. The two have coauthored six best-selling books on customer strategy, building customer value, and related subjects. In their latest endeavor, Return On Customer
, the pair shows readers how excessive focus on the short term has led not only to rash business scandals, but also a culture of bad management and poor corporate-customer relations. CRM's Colin Beasty spoke with Peppers and Rogers about their new book, and about how maximizing the value of the customer base means maximizing the value of the enterprise.
CRM magazine: In the book you say one of the most difficult questions a CEO can answer is "How do you invest in long-term value when there is such a strong need for immediate results?" What do you mean by that?
The reason companies are focused exclusively on the short term is because there is no currently accepted valued measurement of long-term creation of value, other than perhaps discounted cash-flow analysis. I think one of our goals with this book is to correct a pandemic of bad management out there that is short-term orientated. Everybody agrees that customers create the only value for any operating company. They also agree that customers have lifetime value as well, but they don't connect the dots to see those customer lifetime values go up and down; in addition to the profit a customer throws off with his current purchases, his intention to buy in the future will also go up and down. When you create value by increasing the customer's likelihood to buy from you, that's creating value today.
CRM magazine: Could you explain return on customer (ROC)?
ROC is very simple. If I had some stocks and bonds, I would measure my ROI by adding the current income I got from those stocks and bonds--the dividends and interest--and then calculate the degree that those stocks had gone up or down in value. I'd add that change of value into the current income and divide by the beginning value of the stocks, and that's my ROI. ROC is a direct analogy. I calculate the profit I'm making on a customer in the current financial period (that's the same as current income), and then add into that any change in the value of the customer during that period, and I divide by the value in the beginning of the period.
CRM magazine: What will readers find most interesting about your book?
I think there are two things. One is, everyone needs a way out of that short-term/long-term dilemma. This book really is a good thing for managers who know they're going to strip out the value of their customer base, but are powerless because they're being evaluated and rewarded on only the short term. If they had the opportunity to do well in both the short and long term, they would jump at it. Second, to make more money and build true customer value in a company, you need to look after the interest of the customer, and you don't have to do that at the exclusion of the business' best interest. You do that in such a way so that it is clear to the customer that you want a long-term relationship and you're not just thinking transactional. If you're looking out for the customer's best interest, he or she can trust you. Finally, you can make money being a good guy if you're building the trust of customers and therefore building the value of customers.
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