Tuesday, February 07, 2006

The asset "Customer"

Companies ask themselves quite often how they could categories and measure their customer assets, meaning what kind of value do they really have with their existing customer base. 500,000 customers do not equal 500,000 customers; their value can be significantly different. Let me suggest three categories that will help measuring this asset.

Traditionally most companies only cared about the likely guaranteed revenue that the existing customer base will provide, either through long-term contracts, subscription deals. Let’s call this category “Secured Revenue”.

The other relevant asset category is “Customer Engagement”. The first measure in this category that got a lot of attention over the last 20 years is Customer Satisfaction. Companies deployed a lot of methodologies to measure the right level of Customer Satisfaction and installed early warning systems if something changed. Another measure in this category, which became more popular the last 10 years, is expected “Renewal or Repeat Rate”. This is measured by either asking directly a panel of customers or analytically predicted by looking at historical data points. It describes of how likely is a customer of repeating the past purchase. The third measure here is “Customer Referral”, meaning how likely is an existing customer to recommend the product and services of a firm. This “Net-Promotor” Concept became very popular over the last 2 to 3 years, promoted heavily by Service Providers like Satmetrics and firms like Intuit.

I predict that we will see a new emerging category, called “Willingness to Co-Create”. What does this mean? Willingness to Co-Create describes a customer’s desire, interest, affinity to invest time, emotional and intellectual energy, and potentially even money to influence a company’s product or service to create a better product for himself and potentially others. The most common forms of performing “Co-Creation” are

  • Old fashioned Customer Feedbacks (think product ideas and other suggestions not complaints)
  • Personalization (think personalized Nike shoes, think individually crafted text on “My M&Ms”)
  • Value-Adding (think local Real Estate listings on top of Google Earth, think LA Times Editorial blogging idea, think Lego's latest product development strategy)

Most companies still struggle to increase its asset value “Customer” in the first two categories “Secured Revenue” and “Customer Engagement”. Innovative firms understand that they need to understand and master the 3rd category “Co-Creation”. The more you are able to involve your customer base in this process, the more you are able to transform Customer Centricity in a loyal fan base of customers, into real evangelists of your brand.


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