Customer Asset Management (CAM) is currently raising serious attention amongst leading experts around the globe. In fact, it could well be described as the next business imperative. Leveraging intangible assets and managing businesses as portfolios of customers will be one of the most essential capabilities companies strive to master in the near future.
The central notion of CAM is that the future of any company (both in terms of its future market value and possibilities to create a sustainable position in the market) is defined by the quality of its customer base. Viewing customers as assets means that companies have to select customers that maximise the return and balance the risks involved. Furthermore, it means that investments have to be made in order to secure the tenure of the asset. Both of these essential ingredients of Customer Asset Management will require new tools for top management – tools used to measure the value of, and allocate resources between customers.
There is a growing notion among experts that in the near future, boards of directors will begin demanding customer profitability data from companies and that correspondingly, investors will demand that companies report the quality of their customer base as a part of their financial reporting.
In order to incorporate CAM, a company must first establish a fact-based description of its customer assets. The fact that doing business with the wrong customers can significantly decrease a company’s profits and shareholder value is presently raising the concerns of many CEO’s. It is becoming increasingly evident that the ability to determine which customers truly are profitable (and valuable) is a must in order to allocate resources correctly. With measurable data about factual profitability a CEO can make sound decisions on which customer portfolios need to be invested in and why.
The second step the company should take is to develop clear-cut selection criteria for its customer portfolios. The final “acid-test”, as to whether a company has a strategy, lies in its ability to say no to customers, i.e. its ability to select the customers that define the company’s future success. It is crucial to fully recognise the significance of investing in customer with a future instead of investing in customers that in the past have been important for the company.
Finally, it is imperative that the company then takes actions to increase the value of its customer portfolios. This requires the ability to identify strategic initiatives that strive to increase the revenue by redefining the company’s earnings logic, decrease cost to serve by systematising relationship processes, decrease the risk associated with a portfolio by building bonds to customers, and creating business models that minimise the capital tied up in customer relationships.
Customer Asset Management is not so much a new business philosophy as the logical next step of development. It has evolved from its predecessors, Service Management and Customer Relationship Management, which were both leading development philosophies of their times.
In the 1980’s Service Management was central to many development initiatives. Producing added value, taking care of the customers and enhancing customer satisfaction formed the core of the development work. The general focus at the time was on frontline employees and customer encounters.
The 1990’s emerged with CRM gradually gaining stronger support. CRM readily evolved into huge proportions as the idea’s profitability, when implemented correctly, proved itself time and again. Central themes of development included cross-selling and up-selling, customer retention and profitability.
Now, the third phase of this ongoing development process has commenced with Customer Asset Management emerging into the attention of the business community. CAM shows great promise in giving forerunner companies the competitive edge they are in dire need of finding. It fosters companies in conducting value innovation and defining the new earnings logic. It provides top management with a language to discuss customer relationships from a truly business oriented perspective and produces tools that prompt understanding about which customers to invest in. In short, CAM produces stepping-stones to sustainable business success.
One of the guiding principles of CAM is that in the future, enterprises will not be managed as a collection of products and services, or as a group of territories, but as portfolios of customers. This means that incorporating CAM requires the re-defining of many functional roles throughout the corporation.
First of all, the company’s Strategic Management should take responsibility of defining the purpose, role and position that the company wishes to take in its value network. It should also select the customer portfolios, manage the cross-functional alignment of roles and responsibilities and take care of customer asset driven planning and metrics.
Offering Development should focus on building cross-functional and multi-channel business concepts in order to deliver competitive advantage as well as defining the earnings logic of the company.
Marketing Management should see to the company’s segmentation and customer selection, customer base risk and quality management and focused lead-generation in selected portfolios. Finally, Sales Management should be given the responsibility of securing cash flows in focal portfolios.
A. Establish fact-based description of customer assets
B. Create customer selection criteria in order to group customers in portfolios
C. Increase value of relationships:
1. Increase revenue by redefining the company’s earnings logic, grow customer base and cultivate existing relationships.
2. Decrease cost to serve by systematising relationship processes and channel integration.
3. Decrease the risk associated with a portfolio by building bonds to customers and anticipating conversion risks.
4. Create business models that minimize the capital tied up in customers relationships.