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Customer Portfolio Essay

3226 words - 13 pages

Table of Contents

I. Introduction 2

II. Customer portfolio concept 3

2.1 Concept of customer portfolio and its application in company 3

2.1.1 Customer Lifetime Value (CLV) 3

2.1.2 Market segmentation 4

2.1.3 Sales forecasting methods 5

2.1.4 Activity based costing 6

2.2 Customer portfolio application of “CDNow” 6

2.3. Concept application for e-tailer companies 8

III. Conclusion 10

References 11


In business, customers are always considered as the basis of a company’s profitability (Gupta et al., 2004; Hogan et al., 2002; ...view middle of the document...

com which uses customer relationship management and building an electronic communication channel for customers. An optimal configuration of customer portfolio as well as possible management actions are determined to present in this study. It willfocus deeply on two customer segments which including relationship and transaction – oriented customers. The Portfolio Selection Theory of Markowitz (1959) is applied to define its concept as well as optimal customer mix from value – oriented perspective.

Customer portfolio concept

2.1 Concept of customer portfolio and its application in company

A successful business knows to use customer relationship management effectively because its’ basic condition is the ability to estimate customers’ value for enabling an objective evaluation of investment alternatives. It is generally very important for business to customer companies whose customers are asset. A customer portfolio is the collection of mutually exclusive customer groups that comprise a business’s entire customer base. The main aims of customer portfolio management is to optimise business performance which detaily in sales growth, enhanced customer profitability acrossing the entire customer base. It is offered differentiated value propositions to different segments of customers.The basic disciplines for customer portfolio management are named as market segmentation, sales forecasting, activity – based costing, customer life – time value estimation or data – mining.

2.1.1 Customer Lifetime Value (CLV)

In these above disciplines, the compatible and frequently used valuation concept of shareholder is customer lifetime value (Bell et al., 2002; Gupta and Zeithaml, 2006; Kumar et al, 2006). The calculation of customer life-time value is measured by the sum of expected cash flows based on potential future transactions. Individual customers are often concentrated to assess in traditional customer valuation concepts. However, customer lifetime value characteristics with assumed certain predicted cash flows seem unrealistic and unsuitable (Kumar et al., 2004). Hence, there is a risk contribution of each customer is taken into account in a customer portfolio valuation to whole customer portfolio.

In order to simplifying and predicting customer behavior well and strategic target group considerations, grouped different segments for customers are addressed by specific marketing campaigns. They could be grouped by similar buying behavior (Wedel and Kamakura, 2000). The conceptual portfolio models have proposed by segmentation which is visualized on two dimensions: competitiveness in the market (an internal factor) and customer attractiveness (an external factor). Additional, Larreche & Srinivasan (1981) also focused portfolio model on profit maximization or Customer Lifetime Value (Lemon et al., 2001). The calculation of Customer Lifetime Value is assessed through retention and...

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