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In Business every customer is important but we also have a system to segegrate customers into groups with value based on sales or relationship with customers some customers gives more volumes and some will be giving continous business from many years.
Yes I believe Biggest customers who brings more revenue to table is high value customer and should be treated with care to keep relationship going as everyone knows how much efforts goes in to get a customer and to retain it for continous business.
Dear Amer : here is my compilation ( not my original work please bear with me!) of possible answers but i sincerely understand that there a lot more to this that is beyond the present scope and time constraints.
Customers Value and Customer Lifetime Valve are important factors that need to be thoroughly understood if one wishes to retain them as loyal customers and to realize ensuing custom from them and the consequent profits which is a key ingredient for survival. To be able to determine what is the unique value proposition that you are offering to the customer you must know customer value, to retain his custom.
When faced with their next purchase decision, whose product or service is a customer most likely to buy? Will it be yours or will it be that of a key competitor?
This is the most important question most business managers will have to answer. Most of the time, customers will make that decision based on the benefits that are most valuable to them, and the price they must pay to receive those benefits. In other words, most purchase decisions are based upon perceived value – the trade-off between the quality of the most desirable benefits and the price paid for those benefits. Managing your organization’s unique value proposition effectively is the most critical responsibility of any senior business manager.
The first step is to define your value proposition based on what drives your customer’s perceptions of value. Different models are available as shown below
If you are going to effectively manage this value equation, you must first know how your targeted customers define value. What are those quality drivers? Which ones are most important? How do those customers view the trade-off between Quality and Price? Is one more important than the other? What role does your corporate or brand Image play in this equation? For answers to these questions, you need a Customer Value Model.
Then, you need to know how those targeted customers perceive the value you provide relative to the value they could get somewhere else – Your Company’s Unique Value Proposition. Value does not exist in a vacuum. It is not an “absolute” thing. Customer perceptions of value are comparative assessments – value compared to what? For answers to this question, you need a Competitive Value Matrix.
The only reason to proactively manage your value proposition is to generate profitable increases in market share. Increasing market share involves getting new customers while simultaneously keeping the most profitable customers you already have. How loyal is your current customer base? How profitable are your most loyal customers? Answers to these questions come from the Customer Loyalty Matrix.
Finally, in order to effectively acquire customers from your competitors, you need to know what the vulnerabilities of those competitors are.
Managing customer value requires measuring to understand how customers view your current competitive value proposition. Every organization has a competitive value proposition, whether it’s the one you intend to provide or not.
Until one poses the question “are your best customers in terms of revenue also the most profitable?” The most probable answer is “we think so”. Very seldom that answer can be supported by facts, because there is simply no information registered on individual customer costs. In other words ‘customer profitability’ as a metric cannot be used. It is a staggering observation, because the company’s profit is the sum of the individual profits and losses of individual customers. As long as the company’s bottom-line is positive nobody seems to care. The loss-making customers are compensated by the profitable customers.
We often tend to forget that there is also another, darker side of customers - or, as we say, liabilities. We often seem to forget that customers do not only incur costs, but there are financial risks involved in doing business as well. In the worst case, customers may be a source of future losses. For example:
· Customers who pay late or do not pay at all.
· Customers that cost a lot of time, effort and resources to maintain, which may go at the expense of profitability and/or other - more productive - customers.
· Customers who talk about your products or services in a bad way (negative referral).
In other words, customers are both a source of revenue as well as a source of costs and a source of risk.
The key is to bring commercial and financial people together. Commercial people tend to look one-sided at the bright side of customers, as a source of revenue. Financial people on the other hand tend to look at the dark side of customers, as a source of costs and risks. Only by merging these perspectives a solid measure of customer profitability will be possible. A close cooperation between commercial departments and finance is not common practice, but a necessary mental and cultural change to be brought about
Customer profitability as key metric
One should not underestimate the effects of using customer profitability as key metric. Think, for instance, of the personal sales practice in B2B environments. A more integral view on a customer relationship is implied. Just bringing in a revenue contract would no longer be the basis for bonuses, but projected profitability of a customer. It will imply a radical change in sales practices. The same is true for marketing. No longer will marketing be rewarded for bringing in new customers that were attracted by promotional campaigns. A type of customers that leave as soon a better deal comes along, and in the meanwhile no real money is made on them.
All in all, the implication is that more focus need to be given the total quality a company delivers to their customers, since that will be a more binding factor than e.g. price discounts. In the end using customer profitability as a key metric will result in doing more productive business, leading to happier customers, happier employees and happier shareholders.
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Are Big customers high value customers?
In most businesses, some customers are worth more than others. So understanding customer value and customer lifetime value tells you a great deal about your business. A good starting point – but the real opportunity comes from understanding differences in value. Some customers spend more, and stay longer. Your high value customers contribute much more to your business performance than the average customer. Low value customers might actually be losing you money.
Everyone is familiar with Pareto’s Law, otherwise known as the80/20 rule. This distribution appears throughout nature and is especially apparent when looking at sales distributions among populations. What is critical is finding out why those20% chose to spend with you and the other80% did not.
Your lower-value customers will come into play as you look at your competitors, which is the second area to examine. Study how your customers rate your competitors on the same attributes and what their preferences are. It’s very likely that your low-value customers are high-value customers somewhere else. These customers have chosen your competitors for a reason
Value of Customer = Customer Revenue Stream - Customer Cost Stream.
In the world of sales, 'Customer Value' is a much used phrase — and rightly so, because customers buy what they perceive as being of value to them. If they have a choice, they'll take the most valuable. This can be beyond a straightforward return on investment, as 'Customer Value' can capture intangible positives too — an improvement in staff morale for example. We will often be in competition with other suppliers and will need to create a greater perception of 'Customer Value' than our competitors. The question is how do we...
...do that effectively?
All customers are valuable. Quantum of attention and time will vary depending upon the business value. An individual with his/her past experience in single retail transaction and services received may influence a high value/ voluminious business transaction being a decision maker empowered with money and authority.
