Saturday, April 17, 2010

More About Customers as Assets

One of the goals of The Customer Institute is to publish a book which describes customers as assets and how to manage those assets. When customers are viewed as assets they take on a different perspective. For example Apple computer has taken the position that customers are assets and have developed them to the point where they can introduce a new product, such as the iPad and almost guarantee huge sales. Ben Fowler wrote an interesting piece dated April 6, 2010 in his blog (voiceofcustomerguru). Customers of Apple respond to Apple product announcements with little hesitation because they believe that Apple products deliver high quality.

Compare Apple to US automobile manufacturers during the 60s and 70s. They built cars with great styling and innovation but the product quality was inferior to those being sold by the Japanese whose products had less style and innovations but superior quality. The US automakers damaged their customer asset to the point that even today when their product quality is equal to the Japanese, they must offer incentives and lower prices to get sales.

The US economy has changed in the last 50 years. Whereas 50 years ago the size of manufacturing was twice the size of consumer service. Today the ratio is the same but with consumer service twice the size of manufacturing. Consumer service requires a different accounting system than the one used for manufacturing. When cars are sold there is an immediate transfer of asset from the car manufacturer to the new owner. The asset transfer is complete.

When we are dealing with the customer asset, we need to look at the value of that asset over time rather than in a single time period. There are have a number of books and articles written about measuring the value of a customer. One book that has been around for a while is "Managing Customer Value: Creating Quality and Service That Customers Can See" by Bradley Gale. The typical calculation of long-term customer value is based on the average life of a typical customer. If the customer life is three years, the value is based on three years. However, many of the books and articles written about calculating the value of a customer have not dealt with the value as an asset and its implications when looked at from an accounting perspective.

Note the following example and some of the accounting discussion is being done without the oversight of an accountant and must be viewed with some scepticism.

There is an excellent example of this weakness of viewing the customer asset in a book by C. Fornell titled "The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference." The example the author uses examines the case where it costs $1000 to acquire a customer. If the customer lifetime is 3 years, the net income for those 3 years is -$100. If the company has acquired 1000 new customers for the year, the cost of acquisition is $1,000,000 and the net income from those new customers is $300,000. However, that is not the way the accounting system would report the performance of the company. The accounting system would show a loss of $700 for each customer acquired for the first year or a total loss of $700,000 for the 1000 new customers. The second year an additional 1000 new customers are acquired for another $1,000,000. This year the total sales is $600,000 so that the total loss for the year is only $400,000. When you include the third year the lost is $100,000 for each and every year thereafter as long as the average customer lifetime is 3 years.

The customer asset must be viewed in the light of the value to acquire it and the revenue expected from each customer. One of the keys to building the customer asset is consistent performance and value similar to Apple. Toyota has just dramatically reduced it customer asset by mismanaging its communications with its customers.

The bottom line is that customer retention is a key to success in the consumer service marketplace and the foundation for building the customer asset. Companies need to know the length of the average customer lifetime before they start a campaign to acquire new customers. What is usually missing in many companies is the cost to acquire a customer and the average customer lifetime. We have been taking the wrong measurements.

This analysis does not examine the process of building the customer asset. We will have to investigate further to understand how Apple has achieved so much asset value from its customers.

32 comments:

Anonymous said...

That is very true. The effects of Customer Retention
often get over looked by most businesses. Cultivating your satisfied customers is the key to lowering the initial cost of a customer.

No money for advertising? Try doing follow up calls, or contacting your past customers. Simply thank them for doing business with you. A simple thank you goes a long way.

rtfgvb758 said...

IS VERY GOOD..............................

Anonymous said...

I'd like to find out more? I'd like to find out some additional information.
Feel free to visit my weblog ... pay day loans

Anonymous said...

Pretty section of content. I just stumbled upon your site and in accession capital to assert that I acquire in fact enjoyed account your blog posts.
Anyway I will be subscribing to your feeds and even I achievement you
access consistently quickly.

my web site Payday Loans

Anonymous said...

Great info. Lucky me I came across your website by accident (stumbleupon).
I have bookmarked it for later!

My webpage - Clinique Deodorant Sticks

Anonymous said...

It's going to be ending of mine day, except before end I am reading this great paragraph to improve my experience.

my web site ... Bar Stools

Anonymous said...

There is definately a lot to find out about this issue.
I really like all of the points you made.

Here is my webpage :: Payday Loan

Anonymous said...

Hey there! Someone in my Myspace group shared this site with us so I came to check it out.
I'm definitely enjoying the information. I'm book-marking
and will be tweeting this to my followers! Wonderful
blog and brilliant design.

Also visit my web site :: Old Spice Deodorant Stick

Anonymous said...

Hi there, just wanted to tell you, I liked this blog post.
It was practical. Keep on posting!

My blog post; Black Bar Stools

Anonymous said...

This excellent website certainly has all of the information and facts I needed concerning this subject and didn't know who to ask.

my web page ... Green Bar Stool

Anonymous said...

If some one wishes expert view regarding running a blog after that i recommend him/her to pay a quick visit this website, Keep up the nice
job.

Feel free to surf to my homepage; Payday Loans

Anonymous said...

What's up, I would like to subscribe for this blog to obtain most recent updates, thus where can i do it please help.

Feel free to visit my homepage; Red Bar Stool

Anonymous said...

What's up to all, because I am actually eager of reading this website's post to be updated daily.
It consists of nice information.

Feel free to surf to my web page :: Black Bar Stools

Anonymous said...

Amazing! Its genuinely remarkable piece of writing, I
have got much clear idea on the topic of from this article.



Also visit my webpage ... Payday Loans

Anonymous said...

It's going to be finish of mine day, but before end I am reading this impressive post to improve my experience.

my website: Burberrys Deodorants

Anonymous said...

It's difficult to find well-informed people about this subject, but you sound like you know what you're talking about!
Thanks

My web blog ... Payday Loans

Anonymous said...

Heya i'm for the first time here. I found this board and I find It truly useful & it helped me out a lot. I hope to give something back and help others like you helped me.

my web page; Walnut Bar Stool

Anonymous said...

You're so awesome! I do not believe I've truly read anything like that before.
So good to discover somebody with a few genuine thoughts on this topic.
Really.. thank you for starting this up. This website
is one thing that's needed on the web, someone with some originality!

Here is my site Payday Loans

Anonymous said...

I am sure this paragraph has touched all the internet users, its really really good piece
of writing on building up new blog.

my page Black Bar Stool

Anonymous said...

Its not my first time to visit this web page, i am browsing this website dailly and get good data from here every day.


Review my web-site :: Payday Loans

Anonymous said...

Hi! This is my 1st comment here so I just wanted to
give a quick shout out and tell you I genuinely enjoy reading through your
articles. Can you suggest any other blogs/websites/forums that
cover the same subjects? Thanks!

Look into my web page Pay Day Loans

Anonymous said...

Thank you for the auspicious writeup. It actually used to be a amusement account it.
Look complicated to more added agreeable from you! However, how could we keep in touch?


Feel free to visit my web page; Hermes Deodorant Stick

Anonymous said...

What's up to all, for the reason that I am truly eager of reading this weblog's post to be updated daily.
It consists of pleasant stuff.

Visit my blog - Wooden Bar Stool

Anonymous said...

Hi there to all, it's really a pleasant for me to pay a quick visit this site, it consists of priceless Information.

my homepage; Paris Hilton Deodorant Sticks

Anonymous said...

Ahaa, its pleasant discussion about this piece of writing at this place at this
webpage, I have read all that, so at this time me also commenting here.



my web-site - Red Bar Stool

Anonymous said...

Your style is very unique in comparison to other folks I have read stuff from.
Thank you for posting when you've got the opportunity, Guess I'll just bookmark this page.


Here is my web page ... Bar Stools UK

Anonymous said...

What's up, I read your blogs like every week. Your story-telling style is awesome, keep it up!

Also visit my webpage; Acqua Di Parma Deodorant Stick

Anonymous said...

I love it when people come together and share views.
Great website, continue the good work!

Here is my web-site; Versace Deodorants

Anonymous said...

Heya i'm for the first time here. I found this board and I to find It truly helpful & it helped me out much. I hope to provide something again and aid others such as you helped me.

Here is my homepage Wooden Bar Stool

Anonymous said...

Thanks for another great article. Where else could anyone get that type
of information in such a perfect means of writing?
I've a presentation next week, and I am on the search for such info.

Feel free to surf to my web page - Black Bar Stool

Anonymous said...

I am not sure where you are getting your info, but good topic.
I must spend a while finding out more or understanding
more. Thanks for wonderful info I was in search of this information for
my mission.

my page; Orange Bar Stools

Anonymous said...

I love it when folks get together and share thoughts.
Great site, stick with it!

My page: Carolina Herrera Deodorant Sticks

 

web visitor stats
OptiPlex 755 Desktops