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What are your customers really worth?

Customer-centric technology won't help unless you gain more insight into which customers are most valuable, according to Peppers & Rogers.

Slowly but surely, the buzzwords of the integrated enterprise are becoming business vernacular: Value network, collaboration, enterprise-wide customer centricity, ecosystems, SCM-CRM integration and so on. What's more, companies are investing in initiatives that revolve around these buzzwords, and few forces in business do a better job turning hype into reality than money.

A new Yankee Group report says spending on supply-chain integration solutions to improve customer interaction and reduce inventory costs" will rise 12% in 2003. Much of the investment is driven by giants such as Intel and Wal-Mart, which are able to mandate the technology of inter-company interaction, says Jon Derome, Yankee Group business applications and commerce program manager. But, he adds, "Improving customer service and streamlining supply flow are even more powerful investment drivers."

Customer relationship management is also growing despite recent upheavals in the enterprise application market, namely from PeopleSoft and Oracle. A recent survey by Meta Group finds that 75% of respondents plan to spend about the same amount or more on CRM than they did in the previous 12 months. Add to these the investment flowing into business process fusion, enterprise application management and other technologies, and the momentum toward the integrated customer-focused enterprise rises higher.

Running the gap analysis

With all of the investment dollars, strategic planning and vendor consolidation aimed at offering end-to-end functionality, it appears the integrated (agile, adaptive, seamless, pick your adjective) enterprise is a foregone conclusion. But one key obstacle remains: A clear understanding of the worth of individual customers to the firm. If a goal of the integrated enterprise is to increase profitability by conducting the right transactions at the right time with the right customers, a richer understanding of customer value and needs must take place.

Think about it. How can you more intelligently allocate resources if you don't know which customers are most valuable, which offer the highest growth potential and which are unprofitable? How can you raise the accuracy of forecasting and demand planning if you don't know the changing value and needs of your customers over time? Regardless of technological innovation, without insight into which customers are most valuable to your firm, you might find yourself adapting your way to un-profitability.

Vendors have an answer to this dilemma: Profitable to Promise (PTP). PTP tries to answer the question, "Should we make the extra effort based on the value of this customer to our firm?" But how to bake that in to the back-end processes like demand management, inventory control and order management remains fuzzy. From a vendor perspective, assessing customer value revolves around the trustworthiness of the customer -- relying on a sales agent's judgment of the relationship or running a credit check prior to placing the order. This level of insight, however, isn't enough for the integrated enterprise to take real shape.

Bridging the divide

Though talked about, the most telling measurements of assessing a customer's worth, such as potential value, tend to sit on the sidelines. Potential value measures unrealized opportunity. How much of a customer's business goes to competitors? How much more of his business can be captured if treatment is modified? These are the types of customer insights needed to take supply and demand chain integration to the next level.

The white-hot field of analytics is focused on answering questions like these. And not surprisingly, there is growing investment here. AMR Research estimates that investments in analytical applications will grow to nearly $4.4 billion in 2005. The good news: Companies have recognized the missing link and they're getting serious about leveraging the immense value of their customer bases. But will the investment dollars pay off this time? Turning the integrated enterprise from buzz to business reality might just depend on it.


To read more articles like this one, visit Peppers and Rogers Group's Web site at www.1to1.com.

All materials copyright 2003 Peppers and Rogers Group - 1:1 Marketing.

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