Customer Centric Profit Optimization
By Steven Pinchuk Lead Customer Intelligence & Revenue Management, IBM | September 09, 2012
This is an Introduction to a New Approach
This paper is not about a new method to optimize profits using an approach that is already being used. This paper is about a totally new approach to optimizing profits, called Customer Centric Profit Optimization (CCPO), which also uses some new methods. CCPO is accomplished by continually optimizing and nurturing the lifetime values of each individual customer using a new approach. This new approach requires assuring that ALL interactions with each customer are coordinated based on an analytically derived and continually updated new type of lifetime profile of that customer.
The lifetime customer profile is created in a new department, and that department uses it across the whole organization to assure that all actions/interactions are coordinated to optimize that customer's strategic lifetime value and turn their loyalty into affinity. Today these disciplines in a company generally act as silos, target tactical rather than strategic gains and there is no one lifetime customer profile that is used by all departments to assure perfect coordination.
There are many steps in CCPO and organizations can implement some or all of them depending on their customers and their markets. CCPO must be tailored to fit each application. The implementation of CCPO should be done in phases so each step generates enough profits to pay for their costs, and so each step is stabilized before another layer is added on top. There are many layers in the total process and they should not all be implemented at once. This paper will build the layers in this concept gradually so they can be understood and absorbed both individually and as an integrated operational system. Some concepts will be described several times, each time adding a new layer to the understanding and needed functional requirements.
The optimal way to accomplish CCPO is by predicting and analyzing each customer's behavior, predicting their future behavior across their lifetime (lifecylces) as your customer and nurturing their loyalty along this journey with the goal of turning their loyalty into affinity. Accomplishing this requires laser targeted customer centric one to one interactions with each customer based on their strategic lifetime value and not just their tactical value.
Predicting these lifecylces, or individual customer lifetime behavior patterns, can use a new patent pending analytical predictive model of each customer's lifetime value and behavior. Lifecycles are not one dimensional. They individually follow all the actions/interactions with each customer and then aggregate them for each point in time. More detail can be found in section V on this new methodology. Other methods of calculating these lifecycles can probably also be used - this paper is not about selling a patent pending idea. However, today we calculate lifetime value by looking at past interactions and extrapolating that forward for an expected period of time - that is NOT a lifecycle.