Customer Value Report

8/8/2019 Customer Value Report

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Corporate value creation:Customer value 2008 report

an SAP company


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ContentsForeword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .02

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1. Why customer value is important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Key aspects of customer value and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.1 Customer value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.2 The customer value management cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.3 Customer protability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.4 Customer value and customer-centric information systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.5 Customer value and strategic management accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3. The research methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.1 Research method and eldwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.2 The questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.3 The sample and response rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4. The ndings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.1 Demographics of the respondents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134.2 Customer value (CV) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.2.1 The main CV measure used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154.2.2 CV measures in use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164.2.3 Attitudes to CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174.2.4 Management accounting tools to improve CV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.3 Customer Relationship Management (CRM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194.3.1 Investment in CRM tools and expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194.3.2 Emphasis of the CRM programme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.4 Customer Protability (CP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.4.1 Individual customer level CP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234.4.2 Tracking changes in behaviour and CP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254.4.3 CP and satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

4.5 CRM and the nance function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.5.1 Customer satisfaction and the nance function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264.5.2 Customer protability and the nance function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274.5.3 The nance function and customer purchasing decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

5. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

7. The future of customer value analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

8. References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

9. About CIMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Corporate value creation: Customer value 2008 report |1


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ForewordIf organisations are going to maximisestakeholder wealth then they mustfully appreciate and understandthe importance of maximisationof customer value and customersatisfaction, customer protabilityanalysis and customer life cycleanalysis; in the successful management

of their customer base.These techniques require organisations to adoptstrategic management accounting principles andpractices, incorporating activity based management,activity based costing, life cycle analysis andscorecards (as a minimum); to provide the enhancedmetrics to inform the strategic thinking and decisiontaking in todays modern organisation.

In the face of global hypercompetition, it is the

accountants duty to ensure that the customer valuerelationship, customer empowerment and corporatevalue are fully managed and add optimum value tothe wealth of the organisation.

The accounting guidelines entitled CustomerProtability Analysis (Epstein, 2000)and Managing Customer Value (Epstein andYuthas, 2006) provide guidance on how to developstrategies that are customer focused, and aim toimprove individual customer acquisition, protability,retention and lifetime value. The 2006 guideline evenoffers a customer protability management cycleas a cyclical framework to help managers identifycustomer value opportunities and to sustain thehighest levels of potential customer protability.

Increasingly, companies are focusing on therelationships between employee satisfaction,customer satisfaction, and corporate protability.They are focusing on the drivers of corporateprotability...(Epstein, 2000 p. 3)

Customer protability is a complex notion but once

understood drives maximisation of corporate value.Customer protability is what remains when allcustomer related costs are deducted from customerrevenue (Murphy et al, 2006).

Customer revenue includes all the revenue streamsfrom the customer over the lifecycle of theirrelationship with the supplier rm. These include: the sales made over the life cycle the referrals gained through the customer the ongoing transparently managed relationship

between the customer and supplier to maximiseprot

the ability to leverage the customer, portfolio ofsales and development of products in line withcustomer desires.

2 | Corporate value creation: Customer value 2008 report

Sponsored by: Business Objects an SAP companyAuthor: Eileen Roddy, CIMA Centre of Excellence, Enquiries to: [email protected]

The research was conducted by The Customer and Market Insight Team at CIMA who abide by the Market

Research Society Code of Conduct and Guidelines


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Customer satisfaction and protability require a nebalance between satisfying the customer in the longerterm, evolving the relationship and not incurringthe additional costs of overprovision with regard tocustomer satisfaction.

The key is to achieve customer satisfaction forthe most protable customers. A comprehensiveknowledge of customer protability results incustomers being re-categorised as worthwhile, worthdeveloping or worth giving over to our competitors.

This idea of keeping the really protable customerswas supported by the work of Selden and Colvin(2003) who introduced the notion of angel anddemon customers.

Customer related costs fall into the followingcategories:

costs of goods/services costs to sell e.g. promotions, advertising etc. costs to serve e.g. order processing, shipping etc. relationship costs e.g. account management

expenses business sustaining costs e.g. R and D, senior

management costs etc.

All of these costs must be accumulated per eachindividual customer and enable the issue of realprotability to be addressed. The use of activity

based management techniques and the principlesthat are incorporated within Activity-Based Costing(ABC) combined with integrated cost and revenueinformation systems, provide a comprehensive sourceof information in customer protability estimation.Cost and revenue drivers can thereby be managedaccordingly.

Well documented case studies, incorporating globalplayers like Federal Express, Wal-Mart, the Royal Bankof Canada, Standard Life Assurance and MGM MirageResorts (Epstein, 2000; Epstein and Yuthas, 2006),suggest that for many rms the vast majority of theirprots come from 20% of their customers (the 80:20Pareto Rule or Principle), and that unless customersare individually assessed then this awareness ofprotability is obscured. The whale curve seen later inthe report depicts this phenomenum in diagram form.

The nancial function and management accountantsin particular, have a major role in providing thehighly accurate cost and revenue metrics to enablea comprehensive measurement of each customersprotability. Only then can rms strategicallyunderstand, manage and maximise levels of customerprotability. As a result of rising to this challenge,stakeholder value can be optimised and corporate

growth achieved. This follows the sound advice ofMichael Porter (1996):

A company can outperform rivals only if it canestablish a difference that it can preserve. Itmust deliver greater value to customers or createcomparable value at a lower cost, or do both.

The following CIMA survey suggest that managementaccountants in the main appreciate that a primaryelement of their role is involved with understanding

customer satisfaction, whilst also being aware that fargreater efforts can still be made in rening their graspof the relationships that exist between customervalue, satisfaction and protability in the creation ofcorporate value. Only then can a customer centricfocus be achieved.



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Executive summaryAnalysis and the management of customervalue, satisfaction and protability, arecomplex and sustainable strategic advantagesavailable to rms operating in hypercompetitiveenvironments. This report in acknowledgingthe importance of customer value looks at thefollowing key issues for CIMA members andnance professionals in general, wishing to

enhance customer, stakeholder and corporatevalue creation.

It considers the following aspects of customer value: customer satisfaction and customer value customer value management customer protability customer value and customer-centric information

systems customer value and strategic management

accounting.

The survey incorporated a sample of 25% of theglobal CIMA 70,000 strong membership, weightedaccording to country, and attracted a response rateof 5.75% (representing 1.4% of all CIMA members).The respondents were classied according to industrysector, job title, country and company size.

The main measures used appear to cluster accordingto three broad categories: nancial measures marketing measures operational or service measures.

The survey research reected a number of areaswhere agreement was widely shared andunanimous; it also identied areas where agreementlevels were much more varied and where elementsof best practice, though identied in part within thesample, could be substantially improved.

The areas showing near unanimous agreement wereas follows: 97% of respondents believed that the nance

department had some contribution to customersatisfaction

95% of respondents agreed that there was a needto understand customer satisfaction and improvecustomer loyalty in the long-term

94% believed that the effectiveness of the nancialfunction contributed to customer protability

over 70% agreed that data warehouses andcustomer segmentation were the most popularCustomer Relationship Management tools investedin by companies

a large proportion also agreed that corporatereputation and the customers view of anorganisation were important elements in creatingcustomer satisfaction.



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However the areas where less agreement oracknowledgement of shared practice was identiedare as follows: customer lifecycle analysis was less prevalent in

use than might be anticipated (only 22% usage bycompanies was recorded)

the proportion of companies where wallet sharemetrics were used was recorded for only 14% ofthe respondents

activity based costing measures were onlyacknowledged by 24% of the sample as a tool tounderstand the value of their customers.

CRM tools had only improved the rms knowledgeregarding cost of sales for 42% of the respondents

54% on average could access customer protabilityat the individual customer level

59% believed that they could attach or allocate allcosts to their customers, but not necessarily at theindividual customer level.

The levels of robustness in setting metrics, costingtechniques, integrated systems and ability to be agileand responsive with regard to customers needs, alsovaried widely and was country specic. This posesa substantial challenge for nance professionalsglobally.

Considerable evidence suggests that mostorganisations only have a partial understandingof what makes a customer protable but that

once known, companies could inuence customerbehaviour to improve their levels of protability.

This survey substantially supports a growing globalacceptance amongst professionals, and particularlyaccountants, that marketing, systems and accounting(as all other functional dimensions of the rm) needto be managed in a holistic and interrelated manner,to maximise sales returns and actual prots in thelonger term.

By adopting ABC principles and systems that allowABC to be extended to the full and complex costingof individual customers and segments, a customercentric strategic advantage can be gained andsustained.

High levels of customer satisfaction and relatedprotability (over the life time of the relationship),once accurately measured and incorporated intodecision making, provide additional and importantstrategic gains in the quest for sustainablecompetitive advantage.

However it must be noted that customer protabilityis only one measure that is critical to organisationalsuccess. It should be recognised that it should not beovercooked as other customer metrics are important.It should also be appreciated that not all customerscan be protable today but may provide learning

opportunities, be strategically important or maybecome tomorrows cash cows.

Customer protability measurement informs manyimportant business decisions and is becoming amust-have inside many organisations. It offers aninteresting opportunity for management accountantsto add considerable value and work alongside theircolleagues in marketing, sales and strategy

Accountants, strategic management accounting

methods and techniques and comprehensiveuser-friendly integrated systems, therefore have acombined role in Customer Value Management andCorporate Value Creation.

More research and practice is needed in developinga new customer-centric relationship paradigm andin the development of the strategic cost accountingsystems to support this concept.



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1 Why customer value is important?

Customer value (CV) is created by the interplay ofcustomer satisfaction and customer relationshipmanagement, it is the net worth to customers frombuying and using a sellers product or service or mix ofthese two benets.

To maximise long-term economic returns to thecompany, customer value creation must be managedso as to move in the same direction as customerprotability. Essentially, this requires information onwhich of our customers are most protable to us, howwe satisfy their needs, how we acquire and retainour protable customers and how we convert lessprotable customers or cease trading with them.

Finally, how we determine and split our marketing

and advertising and related costs, that is, our totalspend, in supporting this complex agenda. Ramaniand Kumar (2008) have called this complex behaviourInteraction Orientation, a source of strategiccompetitive advantage; it relies upon the companysability to effectively combine individually basedcustomer-oriented analysis, positive and speedyresponses to each customers needs, long-termcustomer value management and customerempowerment.

Who will benet from managing customer value?In essence, all the stakeholder groups that have aprimary interest in optimising the medium and longerterm returns to the company. This includes, internally,the board members, the marketers, customerrelationship managers, planners, IT systems managersand providers, the nance managers; and externally, itincludes the shareholders and wider community.

The next section will look at the notion of customervalue, its management, customer-centric systems(including accounting information systems) and thefuture of customer value analysis. The notion of acustomer-focused organisation will be consideredaccording to new contemporary notions of customerdriven metrics and activity driven information, nowavailable.

These ideas are essential for a strategic appreciationand understanding of customers and prot, andunderpin this Customer Value 2008 Research Report,commissioned by CIMA and supported by BusinessObjects (part of the SAP AG).


Customer satisfaction is the outcome felt bybuyers who have experienced a companysperformance that fullled expectation ... and (are)delighted when their expectations are exceeded.Satised customers remain loyal longer, buy more,are less price sensitive, and talk favourably aboutthe company.(Kotler, Marketing Management, 1994 p59).


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2 Key aspects of Customer Valueand management


2.1 Customer Value (CV)A recently published management accountingguideline Managing Customer Value (2007) seesCustomer Value as the foundation of customerprotability and claries our understanding byoffering the reader a dual concept of customer value:

the value the company provides to the customer,through its product and service offerings, brands andrelationships ... and the value the customer providesto the company, in the form of prot streams,intellectual capital, and other customer assets(Epstein and Yuthas, 2007).

They continue to promote the notion of a CustomerValue Management Cycle (CVMC), which providesan integrated approach to effectively optimising themanagement of this cycle (see next section).

This dual notion of customer value is a dynamicconcept and evolves over time. It can be a sourceof sustainable strategic advantage, if understoodin the context of the customers extended valuechain and its relationship with the seller, and reectsthe combined work of Saeed et al, (2005) anddevelopments in Porters inaugural work (1985). It iscurrently researched widely, and incorporated intomany research agendas (see the continuing work ofINSEAD and Manchester Business School).

This dynamic relationship can be supported andrened by the use of high quality technology(Parasuraman & Grewal, 2000), the most appropriatecustomer-oriented information and robust metrics(including high quality accounting information). Thisoffers empowerment facilities for our long-term andpotentially lucrative customers, which becomes asource of the organisations sustainable competitiveadvantage.

Successful organisations aim to maximise customervalue for the receiving company and also maximiseprotability for the seller, over the total customerlife-cycle period.


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Stages

Stage I

Stage II

Stage III

Stage IV

Stage V

Activity

Manage customer segmentation

Measure customer margin

Measure customer lifetime value

Measure customer impact

Measure customer protability

Content of activity

Starting with traditional segmentation and moving to buyerbehavioural segmentation

Incorporating more complex costing mechanisms intomargin calculations, like ABC which incorporates all activitiesand non product related overheads into calculations

Calculate the lifetime value of the customers protabilityusing future estimates and discounting techniques*

This should incorporate behaviours over and abovepurchasing behaviour, including referrals, informationtowards product enhancement etc.

Using complex customer segmentation, the rm can plan forfuture management and customer protability maximisation(incorporating only value-adding activities into futureofferings)

* Simple calculation of lifetime value of customer is as follows, and the prot estimated per period are soadjusted, to reect these constituents:[CLV = (Prot t1 x Retention Rate t1 x Discount Factor t1) + ... + (Prot tn x Retention Rate tn x Discount Factor tn)].

The recently published management accountingguideline Managing Customer Value (2007) offers amodel to help management accountants, and otherinterested professionals, understand and manage theelements of the CVMC.

2 Key aspects of customer value and management

2.2 The Customer Value Management Cycle (CVMC)The table below adapted from the CVMC model,incorporates ve stages in a continuous cycle, orderedas follows, which combined and managed effectivelycan maximise customer value and rms protability:

Figure 1 Elements in the CVCMC Model

The above calculation should attempt to reect salesand services, cross and up-selling opportunities,retention and referrals and development wherepossible. Hence in reality it requires a comprehensive,integrated system, that can easily provide all therequired data and calculate the necessary metrics foranalysis.

Inevitably, the results are as good as the predictionsand metrics utilised.


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Customer protability is a complex notion but onceunderstood drives maximisation of corporate value.Customer protability is what remains when allenhanced customer related costs are deducted froman enhanced notion of customer revenue (Murphy etal,2006).

Customer protability can be depicteddiagrammatically using the well-known Whale Curve(Epstein, 2000), which plots customers, ranging frommost to least protable; they seem to reect the80:20 Pareto rule, where 20% of the customers offer80% of the prots. A copy of the curve is depictedbelow (adapted from Murphy et al, 2006).

2.3 Customer protabilityKaplan and Anderson (2004) provide somesuggestions as to why customers may be more or lessprotable, these include items like order frequencyand quantities, levels of customisation, changingspecications, sales force behaviour, acquisition andretention costs, stock-holding requirements, deliveryissues etc. Having a closer communication link andinformed relationship with clients can reduce wasteand improve protability, particularly when developedin line with modern strategically driven costing andpricing systems.

C u m u

l a t i v e p r o

t

Figure 2 The Whale Curve

0 21 41 61 81 101 121Customer protability (ranked from most to least)


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2 Key aspects of customer value and management

Firms also have to be aware of their own conceptualunderstanding of customer protability, andEpstein and Yuthas (2007) suggest incorporatingthe following strategic considerations in thedetermination of a clear protability lens: robust prot margins e.g. strategic costing (ABC

etc.) customer lifetime value (through acquisition to exit

stages) customer impact (actions like referrals, participation

and innovation in product development).

Viewing the customer as an investment is vitalhere, and the notion of customer equity wherebycustomers are seen as an additional valuable asset tothe rm, is supported by many enlightened marketers.


2.4 Customer Value and customer-centricinformation systemsThe ability of leading rms to leveragee-competencies is essential. Firms must be able tocompare themselves, reduce complexity, informdecisions, switch costs, customise products efcientlyand appear agile in the market place. This ability is astrategic necessity for successful customer-centredorganisations and a key to optimisation in B2B andB2C relationships.

The organisations website and related portalsbecome the key buyer/seller interface and can becombined using integrated systems, to extendand leverage higher than average returns, throughcomplex cross-corporate-divisional- multifunctional-multidisciplinary value chains.

These systems must have the strategic capability tosupport customer value and sophisticated protabilitymetrics, and become part of the forecastingprocesses.

CRM tools to support these activities and specied inthe research study (as a minimum) include: CRM tools for call centre customer contact

management CRM tools for managing face to face customer

contact customer segmentation tools a data warehouse.

This survey asked respondents to consider the valueof the above tools and their returns on investment,combined with investment returns on strategicmanagement accounting tools which are consideredin the next section.


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2.5 Customer value and strategicmanagement accountingThe importance of incorporating strategicmanagement accounting practices and activity basedmanagement into CVM is well documented. Thisallows the introduction of more CRM tools to supportreal long-term prot generation and increase therms economic value.

Ideally, these tools should incorporate activity basedcosting principles and include all costs into theproduct/service offering and thereby provide accurateand timely margins for decision making. Despite bothABC and CVM using cost driver principles, the breadthof costs included for CVM is greater, and concentrateson the customer as the unit rather than the productor service (as per ABC). Therefore the ABC principlesare incorporated into CVM but the cost and revenuecalculations and metrics have a different focus thisfocus is upon the customer lifecycle value. Only thencan a customer-centric focus be achieved.

These determinants combined within the total costcalculation should incorporate acquisition, recurringtotal costs and revenues, up-selling and cross selling,credits and returns, promotions of all types, customermigration, bad debt and removal costs. How thebalance of these costs are accumulated regardingacquisition, retention and exit costs, are indisputablycomplex and difcult to determine.


CRM accounting tools included as a minimum in thissurvey include: customer protability analysis e.g. life cycle prot

calculations, wallet share analysis (the share of thetotal customer spend on a product/service/portfolioheld by the seller)

customer lifecycle metrics and analysis e.g.appropriate discount factors, referral and loyaltymeasures

customer segmental reporting and analysis e.g.social-economic classication

ABC principles extended to costing the individualprot created by each customer.

Having illustrated the complex nature of CV andCVM, the next two sections will consider themethodology and concentrate upon the ndings fromthe research.

Key conclusions, future recommendations andlimitations to the research, will then be summarised.

Finally, the future direction of customer value analysisand research in this area will be considered.


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3 The research methodology

3.1 Research method and eldworkThe research was undertaken in a single timeframe, but has the potential to become an annuallongitudinal study. It focused entirely on the totalpopulation of CIMA members globally, from which alarge sample was selected, weighted according to themembers global locations. The total population wascirca 70,000 members.

The eldwork was conducted between October andNovember 2007. This was primarily a quantitativeonline study.

The CIMA Centre of Excellence commissioned thisresearch in order to ascertain the prevalence ofcustomer protability measurement and the role ofnance in reporting upon it. The study was supportedby Business Objects.


3.2 The questionnaireThe quantitatively-based questionnaire was usedprimarily to gather data with regards to CV, CVM andprotability. It incorporated 20 questions relevantto this issue, ve questions were concerning thedemographics of the respondents, 15 were withregard to their involvement in customer valuecreation. The majority of the questions posed, wereclosed questions, although some questions did allowfor open responses.

3.3 The sample and response ratesThe target sample comprised of 17,503 CIMAmembers globally, equating to 25% of the totalpopulation of CIMA members. The number ofrespondents totalled 1,006 people, equating to anoverall sample based response rate of around 5.75%;this in turn represents 1.4% of all CIMA members.

Note: the charts may not add up to 100% due todata roundings during analysis


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Responseby origin %

Response by numberof employees %

Country

Australia

Canada

France

Hong Kong

IrelandMalaysia

Netherlands

New Zealand

South Africa

Sri Lanka

United Kingdom

USAOther

No of Employees Worldwide

1-100

101-500

501-2500

2501-10000

10000+Not stated/dont know

Figure 3 Demographics of the respondents (1)

4 The ndings

4.1 Demographics of the respondents


By far the largest response was from the UK (41%)where 50,000 CIMA members reside, followed byIreland (17%), Malaysia (7%) and then 6% from eachof the following, Australia, South Africa and Sri Lanka.

At least 23 % worked in organisations > 10,000people.


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4 The ndings


Responseby industry %

Response by job title %

Figure 4 Demographics of the respondents (2)

Industry sector

Manufacturing

Financial services

Engineering et al

Retail, trade and distrbution

Public sector services

Private practice/consultancyIT and telecommunications

Education/training

Non-nancial services

Other/uncertain

Job title

CEO/MD

Financial director

Management accountant

Finance/Business analyst

Financial Controller

PartnerAccountant

Other

The largest proportion of respondents worked inmanufacturing (20%), followed by nancial services(14%), then engineering, construction, extractive,utilities and transport sectors (12%) and then retail,trade and distribution (11%).

In terms of their job function and title, 22% wereCEOs or nancial directors, of the remainder 35%were unclassied, leaving 43% classied as illustratedin the chart above.

Finally, in the total number of responses a substantive85% were in full-time employment, with another9% being self-employed, 4% being in part-timeemployment and 2% categorised as other.


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4 The ndings


4.2.2 CV measures in useThe respondents were asked to identify if theycurrently used or expected to use, any of thefollowing measures of customer value: customer market category/social-economic

classication accumulated total value of the customer

relationship customer costs based on activity based costing

measures expected life-time value of the customer

relationship wallet share estimates/customer potential

measures.

It is evident that all methods were identied as in use,but the three most popular were customer marketcategory/social-economic classication (32%),followed by accumulated total value of the customerrelationship (28%) and customer costs came third based on activity based costing measures (24%);this third ABC related choice, was also expected tobe adopted by a further 13% of respondents within atwelve month period (totalling 37% of respondents).

However for each of the ve options 19-27% felt no

need to adopt any of these methods in the future,which may cast a question mark over their ability torecognise valuable customers. Wallet share overallappears to be the least popular measure (20% in useor to adopt soon), whilst expected life time valuefaired slightly better (31% over these two categories)

35%

30%

25%

20%

15%

10%

5%

0%

323232323232

555555

1920

23

28

2324

18

10

2223

1921

22

13

19

24

27

9

6

14

29

25 26

Customer marketcategory/social economic

classication

Accumulated totalvalue of the customer

relationship

Customer costs basedon activity based costing

measures

Expected life-timevalue of the customer

relationship

Wallet share estimates/customer potential

measures

Figure 7 Customer value measures in use

Currently in useExpected to use within 12 months

No plans to use in future

Not sureNot applicable


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4.2.3 Attitudes to CVRespondents were asked if they agreed or disagreedwith the following statements, plotted on a 7 pointLikert scale: to improving long-term protability it is important

to understand the customer a better understanding of customer protability

would improve overall performance

it is possible to manage customer behaviour toimprove protability while retaining customerloyalty

success is too often measured by the number ofsales achieved, not the long-term protability ofthe relationship with the customer

most rms have only a partial understanding ofwhat makes a customer protable.

To improving long-term protability it isimportant to understand the customer

A better understanding of customerprotability would improve overall

performance

It is possible to manage customerbehaviour to improve protability while

retaining customer loyalty

Success is too often measured by thenumber of sales achieved, not the

long-term protability of the relationshipwith the customer

Most rms have only a partialunderstanding of what makes a customer

protable

57

140

20

21

14

38

50

58

56

61

14

12

6

5 3

3

3

23

3

8

11

2

2

32

4.55

4.34

4.00

3.86

3.84

Meanscores

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strongly agree Agree Neither agree or disagree

Disagree Disagree strongly Dont know Not applicable

1

1

Figure 9 Attitudes to customer value

The responses indicated that nearly all (95%) agreethat to improve long-term protability it is importantto understand the customer and a further nine outof ten believe a better understanding of customerprotability would improve overall performance.78%believed that customers could be managed to improveprotability; also that success was too often measuredby sales alonehowever, 75% of the responsesindicated as to only having a partial understanding

with regard to their customer protability.


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4 The ndings


4.2.4 Management accounting tools to improve CVThe respondents were then asked which of thefollowing management accounting tools were used toimprove Customer Value. customer protability analysis customer segmentation reporting & analysis customer life cycle other (please specify).

The responses identied customer protabilityanalysis and customer segmentation reporting andanalysis as the most popular management accountingtools used to improve customer value, both featuredas currently in use and scored 49% (a further 12%were aiming to introduce the former and a further10% the latter, over the next twelve months).

It needs to be noted that customer lifecycleprotability measures were the least popular toolreported upon here; this is surprising due to the

growing levels of importance attached to them, bypractitioners and academics alike.

80%

70%

60%

50%

40%

30%

20%

10%

0%

49

12 13

7

19

49

7

22

18

10

15

28

15

25

710

73

109

1

Customer protabilityanalysis

Customer segmentationreporting and analysis

Customer life cycle Other

Figure 10 Customer protability analysis

Base: All respondents (993)

Currently in useExpected to use within 12 monthsNo plans to use in future

Not sureNot applicable


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4.3.1 Investment in CRM tools and expectationsThe respondents were asked whether they haveinvested in any of the CRM tools as specied andwhen this occurred, and secondly, whether theirexpected returns on the investment had been met.

The tools in question were as follows: a data warehouse CRM tools for managing face to face customer

contact customer segmentation tools CRM tools for call centre customer contact

management other CRM tools.

The responses indicated that in the last ten years adata warehouse was the rst choice (38%), followedfairly evenly by CRM tools for managing face to facecustomer contact (32%), customer segmentationtools (30%) and CRM tools for call centre customercontact management (29%). However, around half ofthe respondents in all the categories had no plans toinvest in the future, and only a small proportion (ofaround 10%) in all categories were aiming for futureanticipated investments (as seen in the chart below).

4.3 Customer Relationship Management (CRM)

Figure 11 CRM tools in use

80%

70%

60%

50%

40%

30%

20%

10%

0%

38

4

48

10

57

7

32

3 4

59

7

30

7

61

2

29

10

77

1

11

A data warehouse CRM tools for managingface to face customer

contact

Customer segmentationtools

CRM tools for callcentre customer contact

management

Other CRM tools

Yes, within the last 10 yearsYes, longer than 10 years ago

NoNo, but plan to invest in the future



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4 The ndings


When asked about their investments anticipatedreturns, the following results were reported:

Figure 12 CRM tools and expectations

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

9

16

64

11

1

10

18

64

7

1

12

18

65

5

21

18

54

6

1

10

22

61

6

1

A data warehouse

(415)

Customersegmentation tools

(337)

CRM toolsfor call centre

customer contactmanagement

(350)

Other CRM tools

(310)

CRM tools formanaging face

to face customercontact

(115)

Base: All who invested in CRM tools

Mean scores 2.93 2.85 2.85 2.82 2.80

Met objectivesExceeded objectives

Not applicableFailedFell short of objectives

Fortunately, in each investment category, the largemajority had all met and exceeded expectationsby between 54-64 % (met expectation category)and 5-11% (exceeded expectation category) forall investments; showing total satisfaction for atleast meeting objectives of between 60-75% of therespondents.

The highest ranking item in both categories, formeeting and exceeding expectation, was investmentin the data warehouse (75%).


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4 The ndings


Then the respondents were asked if the CRM toolsthey had purchased improved their informationabout the following elements of customer valuemanagement: the products that customers have purchased cross sale opportunities for your organisation the cost of sale the opportunities to change and inuence

customers purchasing behaviours.

Here the maximum benets registered concernedthe provision of information surrounding customerproduct choices (64%), the least benet was recordedwith regard to the opportunities to change andinuence customers purchasing behaviours (38%).

These tools provided no better information withregard to the cost of sale of the products and servicessupplied according to 33% of the sample. This bringsinto question the reliability of many of the customermetrics used, as they were only felt to have improvedinformation about cost of sales for 42% of therespondents.

Figure 14 CRM tools and customer value management

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

16

8

12

64

18

13

25

44

15

11

33

42

15

17

29

38

The products thatcustomers have

purchased

Cross sale opportunitiesfor your organisation

The cost of sale The opportunities tochange and inuencecustomers purchasing

behaviours

Base: All who invested in CRM tools (591)NoYes

Not applicableDont know


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4.4 Customer Protability (CP)

4.4.1 Individual customer level CPThe survey queried whether the respondents knewthe protability at an individual customer level.

In the total sample 54% of respondents answered yes,which is only just over half of all those surveyed; thissuggests that considerable improvements are requiredwith regard to differentiating customers according totheir individual protability.

Sri Lanka (60%), USA/Canada (59%) and Malaysia(58%) scored highest, and the lowest scores wereindicated by Ireland and Australia/New Zealand (49%each) in this area. The UK came in below the globalaverage with 51%.

The question was then asked, with a specic focuson whether this protability per individual customerincorporated all costs that are associated withserving the customer.

Figure 15 Customer protability at an individual customer level

Total

Sri Lanka

USA/Canada

Malaysia

South Africa

Rest of Europe

UK

Ireland

Australia/New Zealand

0 10 20 30 40 50 60 70 80 90 100

Yes No

54 46

60 40

59 41

58 42

55 45

55 45

51 49

49 51

49 51

Base: All who invested in CRM tools (591)


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4 The ndings


As the chart above indicates the total sampleresponses were 59%. Here again Malaysia (78%) andSri Lanka (68%) scored highly, the lowest score of43% was given by rest of Europe and the UK came in just below the total average.

Taking the two questions together it appears thatsome systems include all costs of serving whilstothers do not provide the facility. Also only somesystems break these down to the individual customerlevel, to give an example Ireland scores 60% onincluding all costs to the customer, but only 49% atthe individual customer level.

Here again there appears considerable room forimprovement with regard to understanding accurateand robust margins and prots, at the individualcustomer level.

Figure 16 Customer protability and total cost

Total

Malaysia

Sri Lanka

Ireland

UK

South Africa


USA/Canada

Rest of Europe

0 10 20 30 40 50 60 70 80 90 100

Yes No

59 41

78 22

68 32

60 40

58 42

58 42

58 42

51 49

43 57

Base: All who know protability at an individual customer level (533)


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4.4.2 Tracking changes in behaviour and CPThe next question concerned whether theirorganisation could track changes in customerbehaviour and its impact on prot. The resultsindicated that 46% overall could track changes, restof Europe scored most highly at 50% and Irelandreported back the lowest score at 42%.

The results indicate that 43% could not estimatethe proportion of prot linked directly to customersatisfaction, however 23% suggested that therewas a link to 40% and over with regard to protproportions.

This again gives substantial leverage for improvingorganisational knowledge of how satisfaction andprotability may be interrelated.

Total

Rest of Europe


USA/Canada

Sri Lanka

Malaysia

UK

South Africa

Ireland

0 10 20 30 40 50 60 70 80 90 100

Yes No

46 54

50 50

49 51

49 51

48 52

48 52

45 55

43 57

42 58


Figure 17 Tracking changes in customer behaviour

4.4.3 CP and satisfactionThe survey then attempted to investigate theproportion of prot that respondents believed hada direct link with customer satisfaction. This askedthe respondents to estimate the percentage of protdriven by satisfaction levels experienced.

These results suggest there is a substantial scope fororganisations in terms of improving their trackingsystems with regard to customers changes ofbehaviour and its impact on prot.


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4 The ndings


Figure 18 Protability and customer satisfaction

Less than 10% prot

10%


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Total

Sri Lanka

USA/Canada

South Africa

Ireland

UK


Malaysia

Rest of Europe

0 10 20 30 40 50 60 70 80 90 100

51 6

69 3

63 3

61 4

48 4

51 7

42 7

35 7

53 5


Figure 20 Customer protabilty and the nance function

4.44

3

1

1

43

27

34

36

49

41

52

58

40

4.66

4.60

4.57

4.44

4.42

4.35

4.28

4.00

Strongly agree Agree Neither agree nor disagreeDisagree Disagree strongly

The responses indicate that it was viewed as vitalby 25% and vital and important by 68% of the total illustrating the perceived importance of nance inthe delivery of customer satisfaction.

The highest score in the vital category was given as45% for South Africa and the combined vital andimportant was 86% by Sri Lanka. The lowest scorefor vital here was given by Australia and New Zealand(20%) and the lowest combined vital and importantwas that of the UK at 64%.

4.5.2 Customer protability and the nancefunctionTo further review the role of nance with regard tocustomers satisfaction, behaviour and protability,

the survey questioned respondents on the linkbetween the effectiveness of the nance functionand its impact on the protability of the wholeorganisation.

The results illustrate a clear shared opinion in thisarea, in total 51% strongly agreed and 43% agreed(totalling a substantial 94%) of all respondents.Sri Lanka had the highest score for the strongermeasure (69%) and Sri Lanka and USA/Canada sharedan equally high score for the combined measure

of agreement (97%). This shows the clear andsubstantive responsibility that accountants appearto share, in delivering an effective nance functionas an important part in the creation of companyprotability.


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4 The ndings


4.5.3 The nance function and customerpurchasing decisionsFinally, the respondents were asked how importantthe nance function was seen to be in terms of itinuencing customer purchasing decisions. A range ofoptions were available for selection and are tabulatedbelow. reputation view of organisation retention of customers/repeat business recommendation of organisation/product/service

to others other (please specify).

The reputational aspect of the decision inuencingprocess to buy, scored most highly with 44% ofthe votes, the lowest score for very important was29% for recommendation of organisation/product/service to others. The greater majority of responsesin all categories (73 86%) felt that there was aninuencing potential associated with the nancefunction in their organisation (excluding other).

Achieving the highest mean scores reputation (2.41)and view of organisation (2.38) appeared to be most

important

A summary of each section will now be presented.

Figure 21 The nance function and its inuence on the customer

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

10

7

39

44

8

7

44

42

12

13

42

33

11

16

44

29

73

6

15

6

Reputation View oforganisation

Retention ofcustomers/repeat

business

Recommendationof organisation/

product/service toothers

Other


Mean scores 2.41 2.38 2.23 2.15 2.00

Not at all importantVery important

Not relevantSlightly important


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5 Summary

Customer Value when asked for the main measures of customer

value the following areas were selected: new and continuing business (29%) measures of service/operational quality (17%) ad hoc customer feedback (14%)

once prompted customer market/social economicclassication (32%) appeared to be the mostpopular measure of customer value followedby accumulated total value of the customerrelationship (28%)

95% agreed that to improve long-term protabilityis important to understand the customer whilsta further 90% believed a better understanding ofthe customer protability would improve overallperformance

49% noted that the customer protability analysisand customer segmentation reporting & analysiswere currently in use

over a quarter (28%) have no plans to use customerlife cycle in the future.

Customer Relationship Management A data warehouse was the most likely CRM toolthat companies had invested in during the last 10

years followed by CRM tools for managing face toface customers.

Data warehouse objectives were most likely tobe met or exceeded (75%) followed by customersegmentation tools (71%).

About the right emphasis was placed on customerservice to improve customer retention (59%followed by managing product protability bycustomer/customer segment (51%), cross selling toimprove customer protability (45%) and managingcustomer behaviour to improve protability (44%).

Nearly two-thirds (64%) stated that CRM tools givebetter information on the products that customershave purchased followed by cross sale opportunitiesfor your organisation (44%).

Customer protability 54% know protability at individual customer level

and of these 59% stated that it takes into accountall the cost associated with the customer.

54% were unable to track how changes in customerbehaviour impact on their protability.

The largest (43%) portion could not estimate whatpercentage of prot was a direct consequence ofcustomer satisfaction.

CRM and the nance function 97% of respondents believed that the nance

function had some contribution to customersatisfaction.

Effectiveness of the nance function has acontribution to make towards delivering customerprotability (94% agreement indicated).

Achieving the highest mean scores reputation(2.41) and view of organisation (2.38) appeared tobe most important.


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6 Conclusion

Interpretations of exactly what is meant by the termcustomer value, protability and satisfaction will varyby industry, sector, country, organisation size, and inthis survey.

The main measures used appear to cluster accordingto three broad categories: nancial measures marketing measures operational or Service measures.

The levels of robustness in setting metrics, costingtechniques, integrated systems and ability to be agileand responsive with regard to customers needs, alsovaried widely and between countries.

Despite these issues, all of the measures posedwere seen as important, and able to improve bothannual nancial performance and increase long-termeconomic returns.

Considerable evidence suggests that mostorganisations only have a partial understanding ofwhat makes a customer protable but that oncethis information was known, rms could inuencecustomer behaviour to improve their levels ofprotability.

There does appear to be a substantial CVM benet forrms who have ABC and activity based managementinitiatives in place. The majority of respondents feltthat the nance function and its part in the widerintegrated communication system was important

here.

This survey substantially supports a growingacceptance amongst professionals globally thatmarketing, systems and accounting (as all otherfunctional dimensions of the rm) need to bemanaged in a holistic and interrelated manner, tomaximise sales returns and actual prots in the longerterm.

High levels of customer satisfaction and relatedprotability (over the life time of the relationship)once accurately measured and incorporated intodecision making, provide additional and importantstrategic gains in the quest for sustainablecompetitive advantage.

However it must be noted that customer protabilityis only one measure that is critical to organisationalsuccess. It should be recognised that it should notbe overcooked as other customer metrics areimportant. It should also be appreciated that not allcustomers can be protable today and some providelearning opportunities, whilst others are strategicallyimportant or may be unprotable today but aretomorrows cash cows.

Customer protability measurement informs manyimportant business decisions and is becoming amust-have inside many organisations. It offers aninteresting opportunity for management accountantsto add considerable value and work alongside theircolleagues in marketing, sales and strategy for valuecreation.


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7 The future of customer value analysis

This survey concludes by considering whether CVanalysis, CRM and associated tools, actually enabledrms to understand and positively inuence customerbehavioural patterns, and focus them towardsmaximising returns on customers over time.

It has considered the respondents ability to track,monitor and understand CV trends over time and tomake decisions focused upon maximising customersatisfaction creation, whilst optimising their owneconomic value added.

It supports the ideas of enhancing the customer seller supply and communication chains at every level,and the notion of empowering and incorporating thecustomer into the extended CVMC.

For these reason alone, more research is neededin developing a new customer-centric relationshipparadigm and in development of the strategic costaccounting systems to support this concept.

Webcast:Value Creation: Customer Value 2008Visit the CIMA website to register and view a webcastdiscussing the main ndings, trends and some of theimplications of this survey research programme.www.cimaglobal.com


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9 About CIMA

CIMA, the Chartered Institute of ManagementAccountants, is the only international accountancybody with a sole focus on business. It is aworld leading professional institute that offersan internationally recognised qualication inmanagement accountancy, focusing on accountingin business, in both the private and public sectors.It is the voice of 164,000 students and members in161 countries, CIMA is committed to upholding thehighest ethical and professional standards of membersand students.

Customer Value Report

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