Value Exchange

Definition: it is the relationship between the financial investment that a firm makes in its customers and the return that the customers generate by their response to what the organisation offers

It involves more than increasing productivity, creating product differentiation and achieving higher quality performance. Furthermore, organisations involved in value exchange do not focus on past performance, competitors' performance, market share, quality indices and customer satisfaction.

The important consideration is convenience to the customer, rather than convenience to you and your organisation

Organisations involved in value exchange

- define the target-based customer

i) which customers are the most profitable? ie spend more money, pay their bills on time, require less service, and are more stable, etc.;

ii) which customers place greater value on what the organisation offers? ie your services and/ or products are the best fit;

iii) which customers are worth more to you than to your competitors?

- quantify the current and full potential value of these relationships; with staff committed to closing the gap between the current level and full potential.

(NB: this means not treating all customers equally but focusing on the customers who are most important to you)

Some useful questions :

- What percentage of your target customers do you currently have? How many could you have?

- How do your customers currently behave? What if they exhibited the ideal behaviour profile, ie deal with you exclusively?

- How long, on average, do customers remain with your organisation? What if they remained customers for life?

Suggested ways to grade your customers, ie. As, Bs, and Cs :

- "As" are 100% loyal, ie apostles

- "Bs" are around 50% shoppers

- "Cs" are potential clients

- "D" will not buy from you

The aim is to

- make "As" more loyal, ie a customer for life

- convert more "Bs" into "As" (10%)

- convert more "Cs" into "Bs" (10%), etc

One organisation found that by expanding the customer base in "As" by 2%, it increased profit by 45%. Furthermore, by reducing customer defections by 5% and increasing products sold by 2% per customer, gross profit increased by 300%.

Some concerns about being reliant on one customer and/or industry, ie be careful if more than

- 25% of your income or profit comes from one customer

- 60% of your income or profit comes from one industry

In either of these cases, if the customer and/or industry does not require your services and/or products, it will leave a "large hole" in your income

Remember: Customers are your most important asset. Therefore, focus more on "share of customers' wallets" and less on market share.


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