Idea in Brief
The Problem
Leaders recognize that they should manage their businesses to maximize the value of the customer base. But too often, earnings pressure results in cost-cutting measures that hurt customers.
The Approach
Smart companies use new models, technologies, and marketing metrics to increase the number of profitable customers, boost retention, and maximize purchases.
A New Standard
Given the importance of customer value, leaders should track it as rigorously as they track other key assets. And they must report on it in formats that allow investors to make informed judgements.
The true purpose of a business, Peter Drucker said, is to create and keep customers. Most managers understand this, but few behave as if they do. Under relentless earnings pressure, they often feel cornered, obliged to produce quick profits by compromising product quality, trimming services, imposing onerous fees, and otherwise shortchanging their customers. This short-termism erodes loyalty, reducing the value customers create for the firm.
