Real Life Relation Essay
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Module 3, Assignment 2: Chapter 5 Reflection
Chapter Overview: "Differentiating Customers: Some Customers Are Worth More than Others"
Chapter five covered the topic of customer valuation. While every customer should be treated equally, different customers have different values to the organization and its stakeholders. For example, the Pareto principle states that 20% of an organization's customers comprise 80% of the organization's revenue. Customers can be segmented according to their actual value to the company, as well as their potential value. For instance, most-valuable customers (MVCs) are the customers who provide the bulk of an organization' margin. Typically, these customers are the most loyal, and their trajectory is expected to stay the same over time, granted that no significant changes should occur. Most growable customers (MGCs) are customers with the most unrealized potential for growth, in terms of additional business revenue -- given that the relationship between the organization and the customer changes. Such customers have an enormous potential for cross-selling, as well as retention. Most customers, however, are known as low-maintenance customers who have low, individual value to the organization. Customers who pose greater costs than revenues to the organization are called BZs, or below zeroes. Regardless of the strategy an organization utilizes with these customers, they will always cost more than they actually contribute. Thus, each customer, based on mostly proxy variables and judgment, has a different value to the organization, as well as a different trajectory.
The Pareto Principle interests me immensely. Unlike the bell curve which I am familiar with, the graph that represents the 80/20 Pareto principle's distribution continues indefinitely in the same manner. I had never considered that such a small amount of customers (20%) could account for such a large part of an organization's overall success. A special type of power-law distribution, mathematicians and statisticians can calculate infinitesimal amounts of customers, and their relative contributions to the organization.
Closely related to the Pareto Principle is value skew, which represents how much value is contributed by a customer to an organization. For example, a steep value skew means that the distribution of customer value is highly-concentrated within a very small part of the customer base. This mathematical part of customer relations is interesting because of its ability to predict the future of a customer's value to an organization -- although much of the time actual value does not conform exactly to such mathematical models.
As I do not yet have much experience in the world of customer relations, I have few experiences to draw upon. However, as a cable and internet customer, I took advantage of the refer-a-friend plan, which helped lower my monthly bill significantly. I found this to be a great way for this organization to widen the scope of its business, and attract new customers. In addition, the plan helped keep me aboard as a customer, which, to the company, was a type of customer retention. After reading this chapter, it has occurred to me, that in several instances, I have been considered part of the most growable customer (MGC) segment. For example, after subscribing to many businesses that offer services, I typically receive a number of on-line offers, mail-in rebates, telephone solicitations, as well as other efforts on the part of a company to grow their business. Generally, after I have been a customer for some time, these offers fade, as the company probably considers me to be part of a different customer segment, such as an MVC.
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