The current economic situation has forced many organizations to seek more insight on risk management issues. It's also compelling them to implement early warning mechanisms that will help them to prepare for unpredictable circumstances. As companies work to pinpoint specific areas of opportunity and risk, customer value chains are a vital component for their customer insight arsenal. Whereas once customers were considered largely intangible assets, customer-related behaviors can now be mapped to show their impact on a company's balance sheet.
Customer retention and churn activities, related with the core intangible asset -- the customer -- can be correlated to profitability, company turnover, and the overall balance sheet. This insight could be even more valuable if it is segmented by key accounts or specific customer groups.
An enterprise needs to understand a customer's holistic relationship with that organization and integrate its customer data to get a true understanding of his overall value to the company. "Financial supply (value) chain management" is a process that most businesses, especially financial institutions and telecom companies, can use to shift to this new level of customer management understanding.
Figure 1.Holistic Customer Financial Supply (Value) Chain Management Approach
How do you define value chains in customer management?
Value chains can be identifed within a company by starting from key accounts or niche segments, which made up mostly of corporate customers.
A corporate customer has a complex relationship with different parties in its financial supply (value) chain that creates a total network value for a company. In a bank, for instance, one corporate client's network may consist of suppliers, distributors, retail customers, employees, shareholders, government, etc.
Figure 2. Corporate Customer Value Chain Map
Each one of these customer groups in the financial supply (value) chain may be managed by a different segment manager or product groups, within the bank, as shown in Figure 1. Traditionally a bank would consider a big retailer as one corporate customer, its employees as different retail banking customers, and its suppliers as seperate SME segments. We think the bank should try to manage the whole value chain as one.
Banks should look holistically at their corporate value chain customers to evaluate their potentail risk and profitability by connecting the dots and accounting for each and every interaction that the corporate client has with the bank, either directly or indirectly. This will reveal the underlying value of corporate customers to the bank by taking each financial relationship into account.
Calculating the total value hidden in the entire client network will enable banks to see and manage the true relationships. They will be able to understand the big picture and real value of corporate customers. Understanding the entire customer value chain will also help banks shift from product pricing to relationship pricing.
Figure 3 . Identification Points of Bank Value Chains
This new approach of value chain management could be adopted to different financial institutions as well. This approach, labeled "financial supply chain management" is similar to managing trade finance activities. The overall financial impacts are calculated, but takes the idea a step further to add risk management and corporate client churn modeling.
In the telco sector, if a corporate customer decides to leave, it's not just the one client that churns. There may be other departments within the company that switch too, along with partners, suppliers, and distributors that use the same communication platform. When a corporate client leaves for a competitor, it affects not only that particular client, but also all the staff, suppliers, and distributors that use the same operator. This means the revenue generated by this value chain will also migrate to the competitor. Besides, corporate customers are looking to optimized their costs. Wherever a company finds a way to minimize calling costs, they will switch to as soon as possible. They are looking to aggregate those value chains and relationships to get better prices and negotiation platforms.
How does a company see into the entire financial supply (value) chain?
To get a holistic picture of corporate customers, companies must connect the transaction links among different client segments, with both individual customers and corporate clients. The idea is not new. Social networks like Facebook or LinkedIn work on the same principle of connecting friends and colleagues in one network. Within a customer value chain, however, it gets more complicated. It begins with a customer data strategy designed to reach across silos and create a holistic customer view. It also includes segmentation models, churn analytics, customer lifetime value metrics, and other tools that help to integrate and reveal holistic customer insight across departments.
In business, no matter what the economic situation, the only constant is the customer. And as companies shift to demand-driven enterprises, understanding the holistic customer value chain only becomes more important.
New business rules are being written. Traditional approaches to customers and marketing will not solve the problems companies face today. Forward-thinking companies are changing their approach to customers with a "Marketing 2.0" strategy, thinking differently about their relationships with customers.
About Cuneyt Dirican, Ph.D:
Cuneyt has 13 years experience working in the banking sector, including branches, central operation, marketing, product & channel management, corporate banking, cash management, and transaction banking.
He graduated French College Saint Joseph in Istanbul. He earned his BA degree at the Marmara University in International Marketing and Business Administration section in Istanbul. He later earned his master and Ph.D. degree at the same university in Banking & Insurance and Social Sciences Institutes in 2000 and 2005.
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