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The Customer Pyramid:

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Richard Yang

on 2 April 2014

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Transcript of The Customer Pyramid:

The Customer Pyramid:
Creating and Serving Profitable Customers

The importance of profitability
- Goal of the company - maximize wealth of shareholders


- High Growth is ephemeral, High ROIC is lasting

Presented by : Luis Diogo, Nicole Perry, Annalena Pohl, Zichao Yang
Segmentation as profitability enhancer
Gold
Understand the customer’s individual needs
utilize their resource to maximize their customers’ satisfaction
Become a full-service provider
Provide outsourcing
Increase brand impact by line extensions
Create Structural bonds
CUT OFF LEAD
Very difficult to move most lead customer from the low tier to a higher tier
Increase prices
Reduce cost
Iron Gold
Find the key drivers of the relationships across the customers in the tires in general
Reduce the customer’s nonmonetary costs
Add meaningful brand names
Become a customer expert through technology
Become a customer expert by leveraging intermediaries
Create strong service recovery programs
Platinum
Offer Service guarantees
Question
Traditional Segmentation
Demographics (age, gender, income)
Psychographics (lifestyle, values, self-image)

Extension of Traditional Segmentation
“profitability tiers” for current and future profitability of customers
includes costs and revenues for customers (“financial worth to companies”)
The Customer Pyramid
Conditions:
vast amount of data in order to calculate the financial worth
Ability to associate data with individual customers and tiers

The Customer Pyramid Tiers
Benefits of the Customer Pyramid
Limited service resources can used more efficiently
Services can be customized and priced differently for each tier, resulting in a higher satisfaction
Different customer values can bet met (monetary and non-monetary)
The marketing mix can be adapted to get a higher outcome

Rediscovering Market Segmentation
“The most common error marketers commit is applying segmentations designed to shed light on one kind of issue to some other purpose for which they were not designed.” – Yankelovich & Meer

Problem: limited in predicting the profitability of customer segments

Extensions to the Customer Pyramid
Segments must:
reflect the company´s strategy
make sense to top executives
be dynamic to be adapted to changing conditions

Uncovering Customer Profitability Segments
importance of recognizing patterns of buying behavior over time
another approach to „uncover“ patterns of profitability

Profitability Characteristics
Six Customer Segments
The Customer Pyramid and other Profitability Segmentations

How to upgrade customers between segments?
customers that differ in profitability get the same levels of service

• Real World Importance and Usage
o Supercharge Revenue

o Improve Profitability

o Increase Customer Lifetime Value (CLV)

o Successful Implementation=Financial Gain

• Automotive Industry Example
o Platinum Customers=6,554 Customers

o Gold Customers=2,609 Customers

o Iron Customers= 2,720 Customers

o Lead Customers= 19,549 Customers

Cont.
o Iron spend $357 more in yearly revenue than Lead

o 20% upgrade of Lead→Iron= about $700,000 additional revenue

o Platinum spend $2,093 more in yearly revenue

o 10% upgrade of Gold→Platinum= $550,000 additional revenue

• Customer Segmentation Successfully Implemented
o Airline Industry
• Ex. Delta’s Gold Medallion Members

o Financial Services Industry
• American Express Black Card

o Hospitality Industry
• Hilton Honors, Marriott Rewards, etc.

• Conclusions
o Customer segmentation requires time for research and implementation

o Capital expenditures also incurred in development

o Increase revenue and satisfaction of customers

o Marketing efforts more targeted

o Benefits of segmentation outweigh costs


Service Quality and Profitability
Service Improvement
Customer Satisfaction
Behavioral Intentions
Behavioral Impact
Profitability
- Each customer provides a different profitability

- Optimize cost allocation

Possible arguments against customer segmentation​
- Quality standards

- Social Equality
Thanks

Mark, T., Niraj, R., & Dawar, N. (2012). Uncovering Customer Profitability Segments for Business Customers. Journal of Business-to-Business Marketing, 19, 1-32.

Yankelovich, D., & Meer, D. (2006). Rediscovering Market Segmentation. Harvard
Business Review, 1-11.

Zeithaml, V. A., Rust, T. T., & Lemon, K. N. (2001). The Customer Pyramid: Creating and Serving Profitable Customers. California Management Review, VOL 43, NO. 4, 118-142.

Sources
Customer Distribution
purchase amount
number of purchases
cross buy
number of returns
inter-purchase time
length of relationship
Full transcript